2 Contrasting Tesla Stock Calls Every Investor Should Consider
A few economic events and factors have caused at least a bit of uncertainty among some everyday investors when it comes to Tesla stock. As noted by MoneyWeek, Tesla has had some issues with its core car-making business, seeing a delivery slump and losing its title as the world’s largest electric car supplier.
In addition, the Motley Fool reported on potential issues with Tesla struggling to mount a significant stock rally, despite excitement about some of its new product platforms.
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Read on for what money experts told MoneyLion about Tesla stock and what it could do to your portfolio.
The Debate Over Tesla’s Business Specialty
“The great debate among investors and analysts is if Tesla should be valued as an automobile company or a tech company,” according to Robert Johnson, PhD, a professor at the Heider College of Business at Creighton University.
Johnson said that while the answer likely falls somewhere in between, fundamentally, Tesla is an automobile manufacturer and appears to be wildly overvalued.
Why Some Experts Are Negative on Tesla Stock
“There are an awful lot of red flags, starting with the still atmospheric valuation of the company,” Johnson said. “The bull case for Tesla is predicated on a narrative of Elon Musk being a genius and electric vehicles being the future of transportation. The bottom line is that many investors are swayed by stories and ignore fundamentals.”
Further, Johnson added that any investment in Tesla at the current valuations is purely speculative.
“The company's fundamentals simply don't justify the atmospheric valuation of the stock,” he said. “The future of electric cars is the biggest issue going forward with auto stocks.”
In the bigger picture for investors, Johnson said the lesson is that in areas of significant transformation, one not only has to identify the technology that is going to prove to be enduring, but one also has to identify the firms that will be the ultimate winners and losers.
“The second half of that equation has proven to be particularly illusive,” he added. “Many investors are currently betting that Tesla will be the big winner in the electric car sweepstakes. In fact, Tesla is really sucking all of the air out of the automobile industry from an investor’s standpoint.”
Johnson concluded that given all of the attendant problems with Tesla management, its huge debt load and atmospheric valuation, he believes a much more prudent investment is GM or Ford rather than Tesla.
“Investors committing funds to Ford and GM have a much higher margin of safety than those in Tesla,” he said. “They also have solid corporate governance and management teams in place, unlike Tesla. We have all seen some of the emotionally unintelligent decisions that Mr. Musk has made in the past.”
Why Some Experts Are Positive on Tesla Stock
Melanie Musson, a finance expert with Quote.com, noted that politics has entered the Tesla stock market, thanks in large part to Musk. Still, she said when you take the politics out of the equation, Tesla has tremendous potential to grow.
“I think Tesla stock is a good bet,” she said. “I think they’re going to lead the way in the electric vehicle, charging, solar panel and natural power industry.”
The Bottom Line
So, what should you consider when looking at Tesla stock for your portfolio?
“In a situation where the stock is one that splits the experts, this is an indication to remind oneself of position sizing and not an indicator to take a stance,” said Cody Schuiteboer, president and CEO of Best Interest Financial. “True professional disagreement is indicative of an unknown outcome, and unknown outcomes must always be sized small relative to your entire financial portfolio. This is the common error that I notice in people. Ask yourself how a negative outcome will affect your strategy.”
According to Andrew Lokenauth, founder of the blog Fluent in Finance, “If you own Tesla, size the position like a venture bet, not a blue-chip holding, because this stock can swing 20% or 30% on one earnings call or a delayed Robotaxi launch. I hate when people dump their whole 401(k) into one story stock, and Tesla's exhibit A for why that's reckless.”
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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