Should You Invest in Tesla Right Now?

One of the most popular stocks right now isTesla. It's one of the most criticized. The bulls have been proven correct in their arguments against the company so far, and this investment option has seen strong arguments for and against the company. In the last three years, the stock price of the company has increased by 1,800% due to the rapid growth in production and the increasing optimism about the electric vehicle market.

A stock that was a buy yesterday doesn't mean it is a buy today. Should you invest in the company?

The image is from the same source.

Strong historical growth

Over the last few years, the manufacturing of EV's has vastly increased. The company delivered more than one million vehicles to customers in 2021, up from half a million in 2020. Revenue growth and operating leverage have been caused by delivery growth. In its first year of operation, the company generated $5.5 billion in net income and $5.8 billion in revenue. The profit margin should expand if the company can continue to gain operating scale with its EV manufacturing while managing supply chain costs.

The company is expected to continue its rapid growth. The average analyst estimate is $106 billion, which is double what it brought in last year. Between 60 million and 70 million cars are sold around the world each year, so there is plenty of room for growth if it can convince people to buy its cars over the competition.

Add-on products look shaky

One of the bull cases with the company is that it is more than just an EV manufacturer. It plans to label full self-driving and energy products with its software. These new business lines have not gone well so far in practice.

First, with energy,Tesla has struggled to generate positive gross margins. The energy storage and generation segment had a cost of revenue of $739 million in the fourth quarter. The segment had a negative gross profit in the last quarter. The segment is not growing fast. The segment had a top line of $752 million in the fourth quarter of 2020.

The underlying technology is the problem with FSD. As an add-on package, the company is selling it for as much as $12,000 upfront or as a monthly subscription. The software doesn't seem to work very well. There are hundreds of videos on the internet showing how self-driving software makes mistakes and people don't trust it. It's not a good sign that customers will purchase the upgrade. It looks worse when the competitor has a fully automated taxi service in San Francisco and Phoenix.

The company seems to have found its footing as a car manufacturer. If the company is going to fulfill its $1 trillion market cap, it will need to succeed in its energy endeavors. It looks like that is not happening so far.

Valuation has high embedded expectations

There is a market cap of over $1 trillion forTesla. The market cap is closer to $1.25 trillion if you add stock options and restricted stock units. It has a P/E ratio of approximately 227, compared to its trailing net income of $5.5 billion. The market's average is less than one-tenth of the P/E ofTesla.

If you buy a stock inTesla, you are buying a stock with the expectation that the company will make 10x its net income just for you to not lose money. It is highly likely that investors will lose money due to the valuation coming back down to the market average if the company only raises its profits by three or five times over the next decade.

So should you buy Tesla?

The stock could be a good buy if you are confident that the company can deliver more than 10 times its annual deliveries, and that it can figure out its energy and FSD businesses. That is a tall task and adds a lot of risk to an investment in the company. I think it's a good idea to put your money somewhere else and avoid the stock right now because there are so many other good stocks out there.

Suzanne Frey is a member of the board of directors. No one has a position in any of the stocks mentioned. The Motley Fool has shares in bothAlphabet andTesla. The company is recommended by The Motley Fool. There is a disclosure policy for The Motley Fool.