I’ve been relatively bearish on the ability of Tesla, Inc. (NASDAQ:TSLA) to provide investors with long term returns, given serious concerns with the car maker’s balance sheet and profitability prospectus in years to come. The valuation Tesla has received of late now amounts to more than GM and Ford combined, a staggering sum.
Tesla’s brand certainly has significant value, and despite holding a significant amount of debt relative to the company’s revenue, the car maker has been able to woo investors with talks of technology improvements amid shifts in the auto industry toward electric vehicles (EVs).
Tesla does seem to be on the right side of this macro shift in which cars consumers are looking to buy, and though the company’s most recent cybertruck release was met with mixed results, the number of orders received has propelled the company’s stock price higher, with many believing that demand for Tesla vehicles in new market segments could be enough to continue the company’s track record of growth.
Tesla can be viewed as a growth or "story" stock, something which I think could bode poorly for new investors jumping in at the company’s current share price.
In a recessionary environment, or one where credit remains constrained and/or consumers do not have the ability to pay a premium for a Tesla-type vehicle, current demand for Tesla automobiles may drop off too drastically, putting Tesla in a position where raising additional debt, issuing more shares, or both is likely to result in a share price decline. I remain on the sidelines with respect to Tesla.
Invest wisely, my friends.
