A couple of years ago I wrote an article for InvestorPlace that pitted Tesla Motors Inc (NASDAQ:TSLA) against Apple Inc. (NASDAQ:AAPL) in the ultimate battle of tech darlings. Tesla stock or Apple stock? Which stock should investors entrust their hard-earned money to?
Not an easy decision, then or now.
In hindsight, the quick answer to that question is Apple, whose stock has appreciated 16.3% over the past 26 months compared to a 32.8% decline in the TSLA stock price. It’s ironic, though, given that Tesla’s recent quarters have seen some of its best financial numbers in the company’s history, while Apple is mired in sales declines.
Why is Tesla stock reversing its field? Why is the world round? There are so many reasons it has gone into a funk the closer it has gotten to actual profitability.
A Few Reasons for Caution
Still, InvestorPlace feature writer James Brumley recently provided several reasons why it makes sense to wait and see what happens with Tesla before investors pile on the next leg up to financial immortality.
Specifically, Brumley mentioned three things to consider before buying TSLA stock:
- Has Elon Musk bitten off more than Tesla can chew with its SolarCity Corp (NASDAQ:SCTY) acquisition? Does it really need this distraction as pushes toward profitability? TSLA’s downward trend says investors think not.
- Can Tesla get the cost of producing a vehicle in the vicinity of its gas-powered peers? Industry experts say it costs Tesla $81,000 to produce a single vehicle. Hedge fund manager Mark Spiegel reckons with economies of scale and the use of steel instead of aluminum, Tesla could drop that number to $48,000, 27% higher than the suggested price of its new, supposedly affordable Model 3.
- Competitors like General Motors Company (NYSE:GM) are purposely ramping up their electric car production so they can offset the great fuel consumption of the Chevy Bolt and Volt against their bigger SUV gas guzzlers.
If the market for electric vehicles expands beyond the 2% to 3% of total vehicles produced every year, the consensus is that Tesla won’t be able to keep up.
Look, I’m a fan of Elon Musk. It’s not Donald Trump who will make America great. It’s brilliantly passionate people like the Tesla CEO who will — hands down.
“In keeping with a fast-growing technology company, all free cash flow is plowed back into R&D to drive down the costs and bring the following products to market as fast as possible,” Elon Musk wrote in 2006. “When someone buys the Tesla Roadster sports car, they are actually helping pay for the development of the low-cost family car.”
That said, Tesla is probably not the best stock to have in your 401k or IRA — if you’re retiring anytime soon.