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.
Tesla Stock Definitely Isn’t a Retirement Pick Now
Here’s what I said in 2014:
“I’d suggest you buy an ETF that holds Apple and/or Tesla stock if you’re 10 years or less from retirement. If you’re between 10 and 20 years to retirement, I’d go with AAPL stock. And if you’re 20 or more away from hanging them up, I’d go with Tesla stock.”
Nothing’s changed in my opinion.
Assuming an average retirement age of 65, I’m comfortable recommending that investors 45 or younger seriously consider TSLA stock for their retirement accounts. Of course, many 401k plans — which most people have — either don’t allow individual stocks or make it cost prohibitive.
If you have a 401k, where it makes sense, buy Tesla, and if it continues to go lower, you’ve got loads of time for it to recover. And if you can’t put it in your 401k, consider putting it into an IRA instead.
There’s only one caveat.
Make sure TSLA stock represents no more than 5% of the overall market value of your plan, regardless of the type. Besides, your equity funds or ETFs held in the plan will likely own TSLA stock as well, so there’s no need to overdo it.
Is there risk investing in Tesla stock?
Absolutely, there is. But if you diversify appropriately, in 20 years, it won’t matter if Tesla ultimately goes broke.
I say put TSLA in your retirement accounts, but only if you’re prepared to wait.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.