It wasn't so long ago that the number of EV-investment opportunities was limited to essentially Tesla (TSLA 7.67%) or nothing. If investors weren't willing to hitch a ride with Elon Musk, they were simply out of luck.
While the market has taken a sharp turn over the past year and the number of options has increased considerably thanks to a flurry of EV companies going public through mergers with SPACs, Tesla still remains at the forefront of investors' minds. And with President Biden recently targeting EVs representing 50% of new car sales by 2030, investors are especially interested.
Let's take a look at some important considerations that potential buyers of Tesla stock should be aware of, though, before they park it in their portfolios.
The waiting game
Since its unveiling nearly two years ago, the Cybertruck has sparked interest from both customers and investors. About a week after Tesla revealed the Cybertruck, reservations for it soared to about 200,000, and Tesla enthusiasts, through their fan website Teslarati, speculate reservations for the Cybertruck are now around 1.2 million.
Tesla lists the base model with single-motor rear-wheel drive at $39,900. The dual-motor all-wheel drive and tri-motor all-wheel drive models are priced at $49,900 and $69,900, respectively. Assuming that 1.2 million reservations is accurate and taking the conservative estimate that all reservations are for the least expensive model, Tesla is looking at about $48 billion in revenue. For some context, the company's 2020 revenue was $31.5 billion. Clearly, success with the Cybertruck figures prominently in Tesla's bull case scenario.
Originally, the company had estimated that production of the single-motor model would begin in late 2021. However, management is pumping the brakes on that belief. On Tesla's Q2 2021 conference call, Lars Moravy, vice president of vehicle engineering, reported that the company is "moving into the beta phases of Cybertruck [production] later this year," and on the Cybertruck reservation site, Tesla shows that production is slated for 2022.
While the speed bump regarding the Cybertruck's production shouldn't steer prospective investors away from picking up shares, it's important to recognize that delays allow for competitors, such as Ford with its all-electric F-150 and Rivian with its R1T, to have their feet on the gas.
It's not only the semiconductor shortage that can slow Tesla down
Like so many other businesses, Tesla is dealing with manufacturing challenges related to the global semiconductor shortage. In fact, Musk said on the company's second-quarter conference call that the scarcity in semiconductors has led Tesla to sacrifice production of its energy storage product, Powerwall, to accommodate vehicle production demands. But the semiconductor shortage isn't the only concern on Tesla's radar: The company's lithium supply may also be keeping execs up at night.
Tesla investors may be familiar with the fact that in September 2020, the company inked a deal with Australian mining company Piedmont Lithium (PLL 6.94%) on a five-year, fixed-price purchase agreement (with an additional five-year extension) for spodumene concentrate, a mineral that contains lithium. Piedmont initially estimated that deliveries to Tesla would commence between July 2022 and July 2023.
That doesn't seem so likely now.
Residents of North Carolina, the location of the spodumene deposit, have voiced opposition to the development of the company's project. Piedmont, consequently, has stated that it is indefinitely postponing spodumene deliveries to Tesla.
Does the price tag warrant a green flag or red flag?
When discussions around the water cooler turn to Tesla's stock, investors' opinions vary dramatically. In fact, I'd venture that Tesla's stock is one of the most hotly debated tickers. In the bulls' corner, for example, Piper Sandler has a $1,200 price target on the stock, while Citigroup, representing the bears, sees shares plummeting to $209.
Let's leave the price targets to Wall Street. After all, analysts often have much shorter investing time horizons than the longer ones that we favor. Instead, let's simply look at the stock's valuation. Over the past three years, Tesla's stock has skyrocketed more than 862%, but don't be fooled; it's valuation has lowered recently.
Currently, shares are valued at about 86.6 times operating cash flow. That may seem pricey, but consider the fact that the stock's five-year average cash flow multiple is 134.3. Granted, the stock still seems to trade at a steep multiple, but since it began generating positive cash flow, it has grown it at an impressive clip. With demand for its vehicles remaining strong, it's likely that the company's cash flow will continue to bound higher.
Unconvinced? Let's take a peek from a different perspective. Today, Tesla's stock is trading at over 147 times forward earnings. Exorbitant, you say? Think again. The stock frequently reflects investors' lofty growth expectations. Earlier this summer, on June 30 for example, the stock traded at 161 times forward earnings, while it had a forward P/E ratio of 370 on that day a year ago.
Investors should be charged up about Tesla's stock
Cybertruck delays. A semiconductor shortage. Lithium headaches. Tesla has a lot on its plate right now for sure, but the company has faced adversity before -- and triumphed. These challenges, though undesirable, are hardly anything that suggest that potential investors should look elsewhere. In fact, it's times like these, when things seem dour, that savvy, patient investors can pick up shares on the cheap.
Although EV traffic is building as competitors like Lucid Motors and Fisker prepare to ramp up production, the EV landscape definitely has room for more than one success story -- and Tesla will surely continue to be one of them.