- Tesla (TSLA) is spearheading the EV revolution, but competition is intensifying
- Stock price experienced a huge boom and bust over 2020/22
- Fundamentals slowly catching up with Tesla’s share prices
Tesla’s (TSLA:US) share price, their cars, the company and their founder are one of the most discussed listed companies in the World. Led by the billionaire Elon Musk, the Texas-based electric vehicle maker is revolutionising the global car market by spearheading the migration into electric-based automobiles.
Is Tesla (NASDAQ:TSLA) a good investment in the long term?
Once in a while, a new company will change and alter an industry. In the seventies, it was Walmart (WMT) in the retail sector. In the eighties, Microsoft (MSFT) led and transformed the PC industry. The last decade saw Tesla playing this pioneering role in the automobile industry. It was the first company to popularise the electric vehicle market.
In the process, the EV auto company has made long-term shareholders of Tesla very rich. A quick snapshot tells you how much wealth was created. In 2012, Tesla’s share price traded at about $1.8 per share post-split. And at its peak prices were more than $350. That’s about a 100-200x return over 10 years. Such returns are only found in other truly radical companies like Netflix (NFLX).
In other words, Tesla’s long-term investment has been terrific and very few stocks can boast of a long-term performance like that (GameStop perhaps?).
However, over-enthusiasm for a stock can cause prices to overshoot its potential and fundamentals. This is what happened Tesla over the past three years. The stock surged from $25 to over $400 in under 18 months (1200% return!). The next 12 months saw prices collapse 75% back to $100. At its peak, Tesla was undoubtedly too pricey and overvalued. Now, the answer is less clear.
So many are asking: is Tesla a good long-term buy at $150?
Technically the stock is currently on a strong counter-trend rebound. Prices found support at $100 and have gained nearly 60 percent.
The fact that Tesla’s latest results (released Jan 2023) indicates that it is on course to generate higher sales in 2023 rejuvenated investor sentiment towards the stock. 2 million cars will be sold this year, says CEO Elon Musk. And after a major price cut, he added that “we currently are seeing orders at almost twice the rate of production.”
However, Tesla shares are highly unpredictable. What seems like a good buy today may turn out to be an expensive investment.
Yes, Tesla is a leading EV producer that is on course to sell more EV cars than other auto manufacturers, and its share price is much cheaper now than before; equally compelling is the bearish narrative that its competitors are not standing still either. BYD, Kia, and Nissan are all selling EVs at an increasing rate as well. Plus, Tesla’s share price may regress once macro concerns return.
In summary, Tesla is a volatile stock. It is struggling to stabilise at a price level. Based on this behaviour I think it may struggle to hold onto its recent gains. As such, I would prefer to wait until the sentiment becomes very negative before buying (like November 2022) for the long term.
When it is low, is the answer. But based on Tesla’s long-term performance, there may be no right or wrong time to buy the stock. Let me tell you why.
Over the past decade, many die-hard Tesla fans bought the carmaker’s shares whenever they have the cash. And they held them through thick and thin over the years. Additionally, they threw the diversification advice out of the window by holding Tesla as the only stock in their portfolios.
This strategy paid off handsomely. The multi-year rise in Tesla share price has created many ‘Teslanaires‘ – investors who hold $1 million worth of Tesla stock.
In a volatile market like this, you can avoid timing the market by buying Tesla stock periodically. Some do it every quarter; some every half-year. Some buy whenever they have the means to do so. If you are really convinced that Tesla is still the ultimate corporate stock, long-term accumulation is the way.
In late 2020, after a 10-fold increase in share price since 2020, many veteran analysts called Tesla a ‘bubble’, most cogently by Rob Arnott of Research Affliates. Why? For two main reasons. At that time,
- Tesla’s gargantuan market capitalisation ($800 billion) is large relative to its underlying free cash flow, sales and profits. For example, Tesla’s free cash flow (slides) is much lower compared to Meta’s (formerly Facebook, slides), yet its market cap its twice as big.
- Tesla is valued at much higher financial ratios than other traditional car markers such as VW or Toyota. So how could Tesla sustained these elevated expectations over the years? Not unless its sale grow exponentially and become the dominating auto market.
That was then. Now, Tesla is valued at a lower level – $500 billion. Two, its sales and profits have increased further. The latest presentation slide reflects these trends.
At current prices, Tesla is no longer as overvalued as before.
Source: Tesla (Jan 2023)
The ebb and flow of the market sentiment impact Tesla’s share price greatly.
The Nasdaq Composite Index has corrected sharply in 2022 as economic uncertainty increases. Every FAANG stock are showing losses at the moment due to negative macro factors, some of which are high energy and borrowing costs. But investor sentiment has improved in recent weeks due to a change in:
- Monetary policy – whereby interest rate is expected to go up slower (not 75bps)
- Fading economic concerns – from the war in Ukraine
- A potential rebound in Asia – particularly China where Tesla has a big operation.
Hence the steep rebound in Tesla’s share prices.
Most analysts are reluctant to short a bull story like Tesla.
Even after a horrendous 2022, the majority of analysts are still rating Tesla as ‘Buy’ or ‘Outperform’. For example, according to Financial Times‘ analysts aggregation on Tesla (paywall), 25 analysts out of 42 are holding ‘Buy’ or ‘Outperform’ ratings on Tesla.
The median price target for Tesla is $190 – not far off its current share price. Therefore, many brokers are still expecting Tesla to reward shareholders over the medium term.
To buy shares in Tesla (NASDAQ:TSLA), you need a trading or share dealing account. Follow these three steps if you want to buy shares in Tesla from the UK:
- Decide if you want to buy Tesla shares in the short-term or invest in the long-term
- Compare share dealing and trading fees in our comparison tables
- Choose which broker is right for you and open an account
There is no doubt that Tesla has been one of the most important shares for enticing people to invest over the last decade. Not only does Tesla represent the potential future of the automotive industry, they are also one of the most followed, discussed, tweeted, bought and sold shares in the world. So, if you want to invest in Tesla shares, this guide will explain the different ways to do it, the costs involved and the potential risks and rewards.
There are three main different ways to buy Tesla shares if you are in the UK and each has different risks attached to them, these are:
- Buy Tesla shares outright
- Buy an ETF with Tesla shares in it
- Trading Tesla in the short term
Buying one NASDAQ:TSLA share costs $213.97. However, as well as the $213.97 cost of buying the shares you will also have to pay any relevant tax, commission when you buy and sell shares, custody fees for holding your shares on your account and foreign exchange fees for converting GBP into USD. You also have to consider the difference between the bid price (the price at which you sell shares) and the offer price (the price at which you buy shares). These fees vary depending on what sort of account you open, and with what broker. You can compare the different costs associated with the different types of trading and investing accounts in our comparison tables below.
This is the simplest way to buy Tesla shares. To buy Tesla shares you just need to open an account with a stock broker that offers international investing like Hargreaves Lansdown or Interactive Investor. Both are traditional stock brokers where you can buy shares, funds ETFs, manage your pension, save in ISA accounts and invest in Tesla shares for your long-term future. You can buy Tesla shares with them just as easily as if you were buying a share like Lloyds which is listed on the London Stock Exchange (TESLA are listed on the NASDAQ), although you do have to fill in a couple of extra forms online.
The advantage of using these traditional investment platforms is that both provide lots of analysis, data, are well established and have exceptional customer service. Plus, if you only ever want one investing account you can manage your entire portfolio in one place.
The disadvantage is that if you are a small investor they may be relatively expensive because they charge a commission per trade. They also do not offer fractional investing, so if you want to invest in Tesla you have to buy whole shares which are quite expensive compared to UK shares (for example Lloyds shares are about 45p). The current Tesla price is $741 (it moves around a lot), so to buy one share it will cost you £630 (at today’s GBPUSD exchange rate) plus commission. If you want to buy two shares it will cost you £1,260 and so on, so if you have only a small amount to invest, you may end up putting all your eggs in one basket, which is a terrible investment strategy. A much better way to manage your share portfolio is to diversify and buy smaller amounts of lots of stocks. Investment accounts like Interactive Brokers or eToro will let you invest an amount of money in a company, rather than buy a number of shares. So if only have $500, you can buy $100 worth of five companies to spread your risk.
If you want to buy shares in Tesla from the UK, you need an FCA-regulated stock broker that provides access to US stocks. You can use our comparison of UK-based share dealing platforms that offer access to international markets and see what they charge for buying and selling US stocks, plus what the foreign exchange conversion costs are for converting GBP into USD.
Another way to diversify your risk when buying Tesla shares is to buy an ETF with Tesla shares in it. An ETF is an Exchange Traded Fund traded on the stock exchange that you can buy like any other share, but it contains lots of shares instead of just one (The Consumer Discretionary Select Sector SPDR Fund for example contains Amazon, Tesla, McDonalds, Nike & Starbucks as some of their top ten holdings). These ETFs normal represent a sector or market, for example, electric cars, fintech companies, global growth opportunities or a specific index (a stock market like the NSADAQ)
Three ETFs that contain a large percentage (relative to their overall portfolio are:
| Ticker | ETF | % Tesla |
| XLY | Consumer Discretionary Select Sector SPDR Fund | 17.47% |
| VCR | Vanguard Consumer Discretionary ETF | 15.19% |
| FDIS | Fidelity MSCI Consumer Discretionary Index ETF | 13.07% |
You can buy ETFs through ETF platforms like Interactive Investor, Hargreaves Lansdown AJ Bell.
Trading Tesla derivatives
This option is only for those that know what they are doing and want to take higher risks. Because Tesla is one of the most bought and sold stocks there is a huge amount of short-term trading through derivatives like CFDs, spread betting and options. Avoid trading options if you are in the UK, as they are more of an American product, but CFDs and spread betting do offer some advantages (as well as more risk) over buying Tesla shares and ETFs.
With tesla derivatives you can make money if Telsa shares go down, which they often do following one of Elon Musks Tweets. You can do this by shorting Tesla stock (read our guide to shorting if you don’t know what that is).
Also, if you just want to speculate on the price in the short term it is often cheaper if you are trading small amounts than buy actual shares as the commission is built into the buy and sell price. With a spread betting broker like IG you can bet a certain amount percent Tesla moves in GBP rather than USD so you don’t have to worry about currency conversion costs. Or with a CFD broker through someone like City Index you can trade on leverage to increase your potential returns. This again is only for experienced traders as just as your profits can increase so can your losses.
You can use our table to compare the best brokers for trading Tesla shares. All brokers in this list are authorised and regulated by the FCA. CFDs & spread betting carry a high level of risk and losses can exceed your deposits.
