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Tesla has a strong claim to be the world’s most famous company, along with the likes of Apple, Amazon and Microsoft. But does that mean you should buy Tesla shares or not?
From its chief executive Elon Musk being one of the most high-profile and successful people in the world, to being involved in two cutting edge industries – electric vehicles and AI – there are strong reasons Tesla is front of mind for investors.
Shares in the company have been on a wild ride in recent years. A dramatic climb in value secured it a place in the so-called Magnificent Seven – Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta and Tesla – but there have been sharp falls in price as well.
This article covers:
- What does Tesla do?
- How have Tesla shares performed?
- What are the pros of investing in Tesla shares?
- What are the possible cons of investing in Tesla?
- How can I invest in Tesla?
Read more:The Magnificent Seven stocks: Still a great opportunity or overpriced and set to fall?
What does Tesla do?
Tesla is widely known as being at the forefront of electric car development and manufacture. Tesla vehicles have a noticeable presence in every large town and city across the UK and America with their distinctive appearance. Tesla electric cars are widely regarded as among the best available. New models are steadily being added, such as the recently released Cybertruck.
While the cars are the most visible impact the company has on the world there is a lot more to it. For a start, it is arguably the battery technology hidden away within the cars that is more important than the visible parts. The main difficulty in making electric vehicles viable for everyday use at an affordable price point is the battery technology.
More than car maker
Battery technology applications go well beyond powering cars. Storing energy to use later is a significant hurdle in moving away from fossil fuels. Tesla is making big strides in solar power capture and storage technology, putting it at the forefront of the transition to green energy.
The other underappreciated aspect of Tesla is that it is an artificial intelligence company at its core. Self-driving and other aspects of automation are embedded in its cars and it operates at the cutting edge of this technology.
Related to this, Tesla is developing a general-purpose humanoid robot called Optimus. It remains some way from being customer-ready, but it illustrates the lofty ambitions the firm has beyond cars and batteries.
Read more:Should you invest in European stocks?
Tesla shares hit a peak of $415 in November 2021 having been trading in the $20-$30 area as recently as January 2020.The company was one of the big beneficiaries of the market rally that took place during and immediately after the pandemic.
The shares underwent a protracted and steep slide back from this peak though, consistently falling during 2022 to a low of $106.
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Stock splits
These figures are adjusted for stock splits which occurred in August 2020 and August 2022. A stock split is exactly what it sounds like.
Each share in the company is split into a set number of new shares. The holders of the shares get the agreed number of new shares in exchange for each of the old, withdrawn shares they held at the time.
Stock splits are done to lower the price of the shares to make them more appealing to smaller investors. The value of the company stays the same as the split is simply divides the same capital into a larger number of smaller pieces.
Read more:What are ETFs and are they a good investment?
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A key aspect of Tesla’s appeal is that it offers investors the possibility of targeting two global mega-trends in one stock: the green energy transition and AI. There are trillions of dollars, pounds and other currencies that will flow into both these sectors over the coming years so tapping into them both at once is very appealing.
Price dip
The current pricing of Tesla shares in May 2024 arguably makes them attractive. They are trading in the region of $160, which is a huge discount on their $415 peak.
There are no guarantees the shares will exceed their previous high point, but a drop in price of this magnitude is something shrewd investors often look for when making a move.
Some experts consider the current price to undervalue the company. Analysts at investment research firm Morningstar see fair value for Tesla shares at $200, as of May 2024.
Innovation
Tesla has proven itself to be ahead of the rest of the car industry in the key fields of battery technology and AI powered automation.
The long-established automotive giants around the world were left behind during Tesla’s early years. While they have caught up significantly in terms of their electric vehicle development, rival car makers are yet to prove they can innovate at anything like the rate Tesla has.
A related long-term positive is the global energy transition expected to play out over coming decades. With much of the world committed to reducing carbon output and eventually reaching net zero, electric vehicles have a growing role.
Companies such as Tesla may benefit from a range of government incentives, subsidies and friendly regulation over the long term.
Historical share price performance
Recent history shows that when Tesla gets things right and delivers strong sales numbers under favourable market conditions, the shares can rocket. Many investors have made small or big fortunes through the car maker.
The rise through 2020 and 2021 was undoubtably helped by low interest rates and quantitative easing, as was the case with many stocks. Although the economic situation isvery different now, it does show what is possible under the right circ*mstances.
Read more:Bed and Isa: Keep more of your investment profits with this tax-saving tactic
What are the possible cons of investing in Tesla?
Volatility
For such a large company, Tesla’s shares have been very volatile. While positive trading updates have sent its shares up sharply on multiple occasions, any hint of underperformance typically gets punished with a big sell-off.
It is one of the most heavily scrutinised companies in the world and market reactions to the ebbs and flows in its sales numbers can be extreme. Of course this means large profits for investors that get their timing right, but it is a double edged sword as the drops in price can be even more sudden.
Key person risk
An investment in Tesla is undeniably also an investment in Elon Musk. Some see him being so crucial to the company’s success as a risk. There are of course many highly intelligent and talented people working at Tesla but none of them can influence its success, or share price, to the same degree.
Musk’s ability to combine the mind of a brilliant engineer with being an incredibly successful business mogul is irreplaceable.
Any suggestion of him heading for the exit would shake the company to its foundations. The good news for investors is that Musk has shown no signs of leaving or losing interest in steering the company.He is expected to have many more years at the wheel.
China
Another significant risk area is Tesla’s relationship with China. The health of this precarious relationship is very important to Tesla’s fortunes.
It is a huge market and the most important one outside the US.While Tesla has had a lot of success in China, the geopolitical situation is now precarious as tensions over Taiwan simmer. It is also the case that China has its own electric car makers that could be favoured by the regime.
Rising competition
Rising competition is a concern. Tesla ran away to a big lead in electric car technology, but the long-established car giants have been catching up fast.
All the major manufacturers now offer multiple electric models. In some parts of the world such as Europe, car makers will be restricted to electric models at some point in the coming years due to climate related legislation. The amount of competing models and companies will only increase from here.
Read more:What are dividends? Are yields the key to financial freedom?
How can I invest in Tesla?
Buying shares in US companies like Tesla is straightforward. All the bigger investment platforms and brokers offer major US company shares to British investors.
There are a couple of forms to fill in and declarations to make before you buy US shares. These can be completed online through your investment platform and only take a few minutes to complete. When they have been done once they are out of the way for any future purchase of US shares.
An alternative to simply buying Tesla shares directly is to buy a fund, investment trust or ETF that has a large holding in the company. The advantage of this is that you will also have exposure to a range of other companies so the investment performance will not depend entirely on Tesla.
The flip side of this is that it does not give you pure exposure to the company, so the investment could underperform Tesla shares if they do well.
Below are some companies which allow you to invest in Tesla:
| Platform | |
| eToro | Find out more |
| Fidelity | Find out more |
| Interactive Investor | Find out more |
| AJ Bell | Find out more |
Read more:Should you invest in Japanese stocks?
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