Tesla (NASDAQ: TSLA) shares are on an incredible run. In the last month, prices are up 55%. And the company made the biggest two-week jump in market cap in US market history, zooming past the $1trn mark.
So what is the driving factor behind the 188% growth in the last 12 months? And is it worth making an investment today or have I missed the bus?
Reasons for the surge
The news of a potential deal with US-based car rental firm Hertz was the first big driver behind the Tesla share boom. This is despite Elon Musk’s reiteration on Twitter that no deal had yet been signed.
It is not news that many investors world hang on Musk’s every tweet, including me. Just a whisper of his crypto interests, opinions, and potential trade deals can cause huge movements in the market. But I think this 100,000 car deal, valued by analysts at around $4bn, is likely to materialise. Since the tweet, Hertz has clarified that production and delivery was already underway. And this mainstream adoption points to the potential of the electronic vehicle (EV) space.
However, after Musk’s tweet, Tesla shares dropped 4% to $1,170 per share on 2 November. But shares rallied quickly yesterday and are currently trading at $1,213.
Although it is very tough to predict, I think Tesla has an immense decade of innovation and performance to look forward to. The company is growing at a faster rate than any other US car manufacturer, both in terms of orders and revenue. But can it sustain this growth? That is the trillion-dollar question right now.
Should I buy Tesla shares now?
I am still concerned about Tesla’s production capabilities, despite the company doubling its output to 1m cars this year. I think automobile giants like Ford and Toyota can convince a large chunk of the global market to choose for their own EV options. Also, Musk has been vocal about struggles in Tesla’s supply chain from raw material needs to upscale current factories to fit the demand.
I think Tesla will have to diversify in the future. Large Asian markets are off-radar for the company right now. The 285,000 cars sold in China had to be recalled for a safety fix – not a great first impression. And the difficulties with import laws makes it a tough sell. I expect the road to global expansion to be fraught with potholes. And I think giants in the sector may be better able to capitalise, even if their offerings are not as exciting.
It should also be noted that Tesla shares are currently trading at a forward price-to-earnings (P/E) ratio of 340 times. This massive overvaluation is because of the company’s incredible future outlook but is it worth my risk? No, not at the moment.
I think Tesla is the most exciting market story of the past decade and I will be glued to every movement the company makes. But, I expect a correction in the short term, and several high-profile Tesla shareholders are already cashing in. If its shares were to dip below the $1,000 mark, I might consider an investment just to be a part of the amazing innovation at offer.
Suraj Radhakrishnan has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
This post was originally published on Motley Fool
