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Tesla Stock: One of the Best EV Investments?

Global attention is consistently shifting towards renewable energy amidst climate change concerns. The EV market is poised to continue its ascent higher, accordingly.

Investors looking to take advantage of a rush toward increased demand for environment-friendly vehicles have looked to Tesla (TSLA).

Indeed, Tesla has been a pioneer in terms of the manufacturing and promotion of EVs. It is the largest manufacturer of electric cars in the United States. As per Wall Street analysts and investment bankers, Tesla remains an attractive growth stock.

Accordingly, investors looking for high returns have tried to buy Tesla on recent dips. (See TSLA stock charts on TipRanks)

However, like other high-flying EV stocks, Tesla’s valuation has been a concern for many investors. Let’s dive into whether Tesla has the potential to overcome these concerns moving forward. I’m neutral on the stock.

Catalysts on the horizon for Tesla stock

According to our own investor analysis here at TipRanks, more than 5% of all investor portfolios on this site include Tesla stock, in some shape or form. Perhaps this level of retail investor interest isn’t surprising. However, there are multiple reasons why investors remain highly bullish on Tesla’s future prospects.

For one, the EV sector has a bullish outlook from a regulatory standpoint. Domestically, the U.S. government has explicitly set its aim to provide a boost to the EV sector. Via President Joe Biden’s $1-trillion infrastructure bill, a significant chunk of money has been earmarked for the development of a more robust EV market. This is generally bullish for all EV stocks.

Additionally, requirements for auto makers to purchase EV credits could provide a continued boon for Tesla stock. A significant chunk of Tesla’s overall profitability is a result of selling its EV credits. A growing demand for these in the future should be very bullish for those who believe Tesla sales will continue to increase over time.

Finally, the aforementioned infrastructure bill calls for 500,000 EV charging stations to be installed in the U.S. in the coming years. This would take much of the burden off of companies like Tesla with regards to building out infrastructure. Additionally, this move may speed up consumer adoption of EVs. For sector-leading Tesla, there’s a lot to like with these catalysts.

Valuation Concerns Persist

One of the key concerns many investors have with respect to Tesla stock is the company’s valuation. This stance certainly makes sense, given Tesla’s forward price-sales multiple of 14.

Some analysts remain bullish on Tesla stock though, and there is a $1,200 price target out there for this EV maker. However, those living in the real world may note that Tesla’s valuation multiple in comparison to major auto manufacturers is completely detached from the reality of the auto manufacturing sector.

Yes, Tesla is attempting to make a name for itself as a technology company, rather than a car maker. However, competitors are catching up fast in terms of the innovation and quality of the technologies Tesla provides.

Wall Street’s Take

According to TipRanks’ analyst rating consensus, Tesla is a Hold. Out of 25 analyst recommendations, there are 12 Buys, seven Holds and six Sells.

The average TSLA price target is $697.90. The analyst price targets range from a low of $150, to a high of $1,200 per share. 

Bottom Line

The future of the EV market seems quite bright. The argument can certainly be made that Tesla is far ahead of the competition in terms of its manufacturing prowess and tech.

However, this is also a stock trading at a serious valuation multiple. Accordingly, any potential shock to the market could adversely impact investors moving forward.

Tesla is a stock that has become polarizing of late. There’s a lot to like, but a lot to be cautious about.

Disclosure: At the time of publication, Chris MacDonald did not have a position in any of the securities mentioned in this article

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