There’s no denying that electric vehicle maker Tesla Inc (NASDAQ:TSLA, -1.97%) is an exciting investment. The company’s futuristic products, luxury cars and eccentric CEO make Tesla stock a popular choice among investors comfortable with a bit of risk. However, after a volatile 2018, some are wondering whether TSLA is a worthwhile investment.
On Wednesday, Tesla’s shares are declining amid reports its general counsel, Dane Butswinkas, is exiting the company after less than two months on the job. Further, CEO Elon Musk’s eccentric behavior is back under the microscope after tweeting, then revising, manufacturing numbers for the full year.
So, with all that in mind, should you buy Tesla stock? That depends on whether you believe in the company’s future predictions and more importantly, TSLA’s CEO Elon Musk. If you believe that electric cars are likely to catch on as quickly as Tesla believes they will, then it will almost certainly make you some money in the long-run.
However, there’s likely to be plenty of volatility ahead, so it might be worth keeping your position small to limit possible losses. Here’s a look at the arguments for and against Tesla stock:
Tesla Stock Pros: In a League of Its Own
Tesla is arguably the only automaker that has gone all-in on the electric vehicle trend … That could prove to be a huge payoff for investors as the cars gain momentum, and more and more people switch to electric vehicles.
The cost advantage that consumers see with electric cars versus their gasoline counterparts is significant and that gap is unlikely to close as time goes on.
TSLA is counting on electric vehicles to eventually outnumber gasoline-powered cars, and, if that prediction materializes, Elon Musk & Co. will be in an excellent position.
From Tesla’s Supercharger network to it’s three massive battery Gigafactories, buying Tesla stock is a pure play on the future of electric vehicles. Cathie Wood of ARK Invest, for instance, has a massive $4,000 price target on TSLA.
Tesla Stock Pros: Autonomous Driving
Not only is Telsa a bet on the electric vehicle trend, but TSLA shareholders also stand to cash in on the huge self-driving car trend as well.
Canaccord Genuity recently upgraded its outlook on Tesla stock, citing the firm’s autonomous driving software as a major reason for the optimism.
Most agree that autonomous driving is the next big revolutionary trend, and Canaccord Tenuity believes that TSLA’s software has, “an almost insurmountable lead” over its competitors.
Tesla Stock Pros: Demand Is Rising
One of the biggest reasons traders have been wary to invest in Tesla stock was the firm’s inability to turn a profit … however, the tide appears to be shifting.
The company, for example, was able to post respectable profits for two quarters in a row last year. Even more promising is the fact that the company is expecting to continue that trend in the year ahead.
Tesla’s management says it’s expecting to post profits in all but the first quarter of 2019.
Telsa Stock Cons: There’s Still Uncertainty
While there’s a lot to like about Tesla’s positioning for the future, TSLA also carries a great deal of risk.
For one, there’s some question as to how long Tesla will have to wait before the electric vehicle trend fully materializes. Many believe that TSLA has been optimistic in its predictions for the changeover from gasoline- to electric-powered vehicles, an error that could prove costly for Tesla stock holders.
Tesla and its Gigafactories are well positioned if electric vehicle adoption is rapid over the next few years. However, if it takes more time to catch on, the firm will struggle to recoup the costs for its massive factories in the years to come.
Tesla Stock Cons: Elon Musk Is a Wild Card
While Tesla CEO Elon Musk’s eccentric personality has been responsible for the company’s innovation, it’s also a major downfall for investors.
Musk’s behavior has been erratic at best, and his decision to buy Solar City is still under scrutiny. Some claim that Musk misrepresented the value of Solar City in order to convince shareholders to back the acquisition and that the deal was made largely to benefit himself and his family members, rather than the company itself.
Whether or not Musk purposefully misled investors, it’s clear now that the purchase was a poor decision and the suspicion surrounding the acquisition is enough to make investors wary of the billionaire.
Tesla Stock Cons: Too Far to Fall
Perhaps the biggest reason TSLA stock is a risky bet is the fact that the market has such high expectations for the company.
Tesla stock trades at 32.8 times its forecasted earnings — that’s significantly higher than any of its automotive peers and more than 50% higher than tech bigwig and autonomous driving competitor Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL).
Such a high valuation is fine as long as the company is able to live up to those expectations, but it’s important to note that with such lofty expectations comes volatility.
Any misstep, or perceived misstep, when it comes to growth or execution and the stock is likely to nosedive.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.