Tesla regularly receives recognition for high brand loyalty thanks to its cult-like customers. The company’s fanbase goes beyond the people who own its fleet of electric vehicles — there’s another group of devotees to Tesla’s stock and its high-profile CEO, Elon Musk.
Palo Alto, California-based Tesla launched its initial public offering (IPO) in 2010, when shares of the company began trading at $17. Since then, the stock’s price has only multiplied. In 2020, Tesla shares surpassed $2,200 and that August, the company announced its first-ever stock split (a 5-for-1 split), which brought the price down to about $400. But it took less than 6 months for the stock’s price to double once again.
Tesla’s stock can be a wild ride, so here’s how to evaluate if it deserves a spot in your portfolio.
Tesla stock (TSLA) fundamentals
To many consumers, Tesla Inc. is synonymous with electric cars and the broader clean energy movement. On Wall Street, Tesla’s stock is often among the most actively traded stocks, with millions of shares changing hands each day. The stock is listed on the Nasdaq stock exchange under the ticker: TSLA.
In December 2020, Tesla joined the S&P 500, debuting as the then-fifth largest member and largest ever entry for this key stock index. Tesla is also in the tech-heavy Nasdaq 100 index. The carmaker is classified in the consumer discretionary sector and grouped alongside other consumer-focused companies like restaurants or retailers.
To understand whether Tesla’s stock is a good investment, you’ll need to dive into the company’s financials. In its quarterly and annual earnings reports — which it shares on its website and files with the U.S. Securities and Exchange Commission (SEC) — you will find Tesla’s balance sheet, income statement, and details about various lines of business.
You’ll also want to research the stock itself. On financial websites, you can find Tesla’s historical performance and key metrics like its price-to-earnings ratio or earnings per share. Finally, you can read reports written by Wall Street analysts about the company, its valuation, competitors, the broader industry, and trends that might affect its stock price.
Tesla's latest financial results
Wall Street has lofty expectations for Tesla. In the third quarter Tesla earned even more than analysts predicted, but fell slightly short when it came to sales. For the quarter ended September 30, Tesla earned $1.6 billion, or $1.44 a share, a record for the company. Operating profits of $1.86 a share easily beat the average analyst forecast of $1.67. Revenue surged nearly 60% to $13.8 billion. But that was a hair below the $13.9 billion that Wall Street was looking for.
The company produced nearly 238,000 vehicles for the latest quarter, despite a computer chip shortage that has plagued many automakers. Sales were helped by increasing demand for Tesla cars in China, where Tesla now has its largest auto plant. Cutting costs also boosted earnings: Tesla’s operating margin jumped to a record 14.6% from 9.2%, a year ago, despite a shift in sales to less-expensive, lower-margin vehicles, the company said.
During the third quarter Tesla sold about $279 million worth of environmental credits to other automakers, a figure that was lower than in other recent quarters. While the credits are lucrative, some analysts have recently worried they comprise a too-large share of Tesla's profits, making the electric car business appear more lucrative than it would as a stand-alone business.
How Tesla stock fits into your portfolio
You may own Tesla stock without realizing it, particularly if your stock portfolio includes any index funds that track the S&P 500 or the Nasdaq 100. What’s more, Tesla stock is included in the holdings of more than 200 different exchange-traded funds (ETFs).
And in fact, investing in Tesla may be best accomplished by buying a mutual fund or ETF that invests in this stock. That way, you can benefit from Tesla’s gains (along with a broader swath of companies), ensure your portfolio is diversified (thanks to a mix of various stocks), and avoid risks associated with investing in individual stocks.
Investing in Tesla isn’t for the faint of heart; its stock is almost twice as volatile as the S&P 500, and buyers hoping for a repeat of Tesla’s past performance could be disappointed. As a more mature company, it may not experience the same gains ahead and the stock has endured some pretty significant bumps along the way. Double-digit declines aren’t exactly rare, and this stock has plummeted as much as 21% in a single day.
Finally, CEO Elon Musk has proven he’s capable of moving the stock’s price with a single tweet. In February, Musk said the company had invested $1.5 billion in cryptocurrency Bitcoin and might take the crypto as payment for vehicles, only to change his mind a few months later, citing the large energy use of Bitcoin mining operations.
How to buy Tesla in a brokerage account
There is no “right” amount of money to invest in the stock market. That said, you want to avoid a decision that proves to be “wrong” for your investment goals.
Buying Tesla is easy — you need only have an account set up with an online brokerage. The bigger obstacle may be its price, though some brokers offer fractional shares. Deciding if buying Tesla stock makes sense for you will likely depend on whether you already have a well-diversified portfolio, or if you’re just starting out with investing. Before you invest in the stock market, experts advise that you set aside at least three months worth of expenses in an emergency fund and pay down high interest debt (like credit cards).
If you are new to investing, start by buying index funds and building a diversified portfolio that includes stocks, bonds, mutual funds, ETFs, and alternative assets. Because individual stocks often are more volatile than the overall market, you should limit your exposure to any one stock.
Finally, remember that even the hottest stocks can go cold. Rather than focusing on finding the market’s winners, a proven strategy is to invest in the market itself — and ride out the ups and downs over a long period of time.