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Tesla Stock: Sustainable Investment?

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In a land full of big trucks, it’s the electric vehicle or (EV) that’s beginning to take center stage. By now, you’ve likely heard of billionaire Elon Musk’s electric Tesla cars and probably seen them on the road with increasing frequency. That’s because EVs are the way of the future. As a result, Tesla stock currently hovers around $300 a share. As of this month it has overtaken Ford as America’s most valuable car company. Ford is trading closer to $10/share. What is it about Tesla stock that has investors so excited? Is this growth sustainable, and should you buy in sooner than later? Let’s take a look.

Tesla’s Auto Market Takeover

Tesla has gotten off to a strong start. This is in part because of how highly anticipated its EVs were in silicon valley and other more metropolitan places. They’re eco friendly and now have more charging stations than there are gas stations in cities like Manhattan. This is in part why Tesla is valued at about $49.5 billion, while Ford is $44.4 billion.

What does this mean? Well, it means that people still like the gasoline cars they’re used to. It also means that more and more people are comfortable with the idea of plugging in instead of fueling up. Though, as with many companies, there’s a catch to Tesla’s valuation.

The business is being treated as a tech company as opposed to a traditional automaker. This means that the $44 billion valuation likely wouldn’t be this high if Tesla were a normal car company- no matter how cool or trendy their offerings were. That’s to be expected of a product in a new market that’s produced en masse.

However, when it comes to investing, it’s an important aspect for investors to keep in mind.

Ford’s Road to Recovery

Can Ford ever regain significant ground from Tesla in a world that seems to be going electric? The answer is yes, but it’s up to the company to innovate and anticipate the trends. For example, people are clearly enthusiastic about potentially investing in Tesla stock. However, they still like their SUVs. Last month, General Motors, Nissan, and Volkswagen had an increase in sales thanks to demand for SUVs. However, Toyota, Ford, and Honda all had a decline in sales, according to Fox News. The catch: while Ford had a decline in in overall sales, there was a 10% uptick in F-150 sales, their basic truck offering.

So, with all of this in mind, when should you invest in which company? The key will be to see if Ford can capitalize on the demand for larger vehicles while marrying it with the growing enthusiasm for EVs. Keep an eye on the news to see if they announce any plans for large EVs like the F-150 they announced earlier this year. As a side note, Tesla offers a larger EV but not in a truck version. If this rollout is achieved, there’s no reason that Ford’s stock shouldn’t either spike or continue to rise gradually leading up to and following the launch.

Another area that Ford could really capitalize on with customers is delivering their product to market on time. Specifically this applies if they should they decide to create an electric or hybrid truck. This is an issue Tesla has run into in the past, creating concern among investors. Since Ford has promised their new F-150 EV in 2020, their ability to make good on this promise could help their value. However, 2020 is pretty far away in an industry that is moving fast.

It’s also worth considering that while Tesla is considered more valuable than Ford, the classic carmaker isn’t far behind. Ford may be far more affordable then Tesla stock. However, they need to give consumers a reason to think they’ll be worth more in the near future.

Landscape of Tesla Stock Investments

Currently, the world of investing in electric vehicles is like the wild west. As we previously saw, companies like Tesla have branded themselves as more of a tech scion than a traditional car company. More established brands like Ford don’t have that luxury, no matter how many EVs they produce in the future.

Keep in mind this whole conversation revolves around American carmakers bringing their electric car offerings to the table. It should be noted that Europe has already been switching over for the last several years. Fiat and BMW are among the most recognizable logos that you’ll see cruising the streets in the U.S. Thanks to this focus on making EVs mainstream instead of niche, companies are working to offer a wider — and more affordable — variety of EVs for their customers. For example, Tesla has dropped the prices on their Model S and SUV Model X by up to $5,000. Even still, their cheapest car costs $70,000 (not including any tax rebates that may be available). That’s not a price point most people can afford to pay, since the average cost of a car is around $33,000.

This means that if Tesla, or another manufacturer, can produce an affordable EV with the same style and miles availble on a charge that Tesla does, they could feasibly overtake Tesla as the most valuable carmaker. To further hit this idea home, consider this: in 2016, Ford’s net income was $4.6 billion while Tesla lost $773 million, according to The Hill. So, why is Tesla valued higher? It all comes down to how people see the company.

The Verdict

All investments carry a certain amount of risk with them. So when it comes to investing in either the more traditional automakers or going with a company like Tesla, what should you do? In general, you should consult with your financial planner to see what your risk tolerance is and how much you can afford to invest. After that, the choice is up to you to weigh your options. Keep an eye on what the companies are doing and how quickly they’re deliver on their promises to bring EVs to market. The key to remember is that EVs aren’t going anywhere, so if you’re banking on traditional fuel vehicles to make you a lot of money, you’re barking up the wrong tree.

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