With autonomous driving, Tesla (TSLA -0.32%) is looking to disrupt the auto industry. Meanwhile, in financial services, cryptocurrencies are trying to challenge the entire existing global financial system. Investors have supported Tesla as well as leading cryptocurrencies, which all saw significant gains last year. But right now investors seem to be reevaluating the prospects as well as risks involved in these investments.
Tesla stock is nearly 30% off its all time high that it reached in January. Similarly, cryptocurrencies such as Bitcoin (BTC 3.53%), Ethereum (ETH 4.30%), and Dogecoin (DOGE 3.44%) are all more than 35% off their highs this year. Let's see whether Tesla stock or cryptocurrencies is the better bargain right now.
A top EV stock
With a price-to-sales ratio of 17, and a market capitalization that exceeds the combined market cap of competitors Toyota Motor, Volkswagen, Ford Motor, and General Motors, Tesla stock looks way overvalued even after its fall this year. But it doesn't look so if we consider two key factors. The first one is Tesla's growth rate. In the last five years, the company grew its sales at an average rate of more than 50%. Moreover, it expects to grow its deliveries at an average rate of more than 50% over a "multi-year" timeframe. That makes its price-to-sales ratio look much more reasonable.
The second and more important factor is Tesla's lead in the autonomous driving segment. On the latest quarterly call, Tesla CEO Elon Musk provided an update on the progress of the company's vision-based system for autonomous driving. The company's management believes that it no longer needs to rely on radar technology for full self-driving (FSD), and the company can achieve FSD solely through its vision-only system.
Musk also highlighted that Tesla has been collecting video data through its more than a million cars currently in use. This extensive data is used to constantly "train" the company's self-driving system. Musk believes that Tesla's vision-only system is far better than lidar or radar technologies that others are working on. Alphabet's (GOOG 1.10%) (GOOGL 1.19%) Waymo and Intel's (INTC 2.02%) Mobileye are among the companies researching lidar and radar technologies.
Notably, though Musk has long been particularly critical of lidar technology, reports of an agreement with Luminar Technologies apparently sent Tesla's stock soaring on Monday. A combination of two or more technologies may help achieve full autonomy faster, and investors probably liked Tesla's open approach to this end.
Are cryptocurrencies a good investment?
Compared to Tesla stock, cryptocurrencies look like a far riskier bet. With no way to figure out the true value of a cryptocurrency, it's difficult to say whether the recent fall has made them attractive enough to buy.
There are several unknowns when it comes to cryptocurrencies. How open will governments be to cryptocurrencies' growth? How can the transactions be taxed? How can it be ensured that cryptocurrencies are not used for illegal activities and money laundering? What are the potential environmental impacts of crypto mining? There are innumerable issues that must be addressed before hoping for a wider adoption of cryptocurrencies.
Apart from the above mentioned issues, there are unknowns such as how a particular cryptocurrency system will perform when the number of transactions and users increases manifold. Not many other cryptocurrencies, apart from Bitcoin, have already proven to be resilient once transactions increase. As a technology in its infancy, the system faces several potential unknown challenges.
And until cryptocurrencies become a widely acceptable mode of transactions, if at all, they are likely to remain volatile.
Tesla vs. cryptocurrencies
Notably, Tesla too faces risks. It is quite likely that some other tech company, such as Waymo or Mobileye, delivers autonomous driving before Tesla can. Indeed, these companies know more about AI (artificial intelligence) and machine learning than Tesla. Other leading automakers are also working on autonomous driving through subsidiaries including Cruise and Argo, and it's likely that one of them emerges as the winner in the race for commercializing full self-driving.
Still, all the work that Tesla has done so far, and continues to do, on FSD technology may mean that it can adopt and commercialize that technology, even if it isn't the first one to bring it to the market. Its brand value and cult-like following mean that fans will buy a Tesla car as long as it's equally good, if not better, than what other automakers are offering. The company has a proven track record of offering improved cars and technology, and I think it will continue to be committed to excellence.
In short, Tesla looks like a far better bargain today than cryptocurrencies.