TSLA has more than doubled in 8 months





TSLA has had quite a run in the stock market in recent months. After an abysmal first quarter when the Silicon Valley company sold only 63,000 vehicles, Tesla's fundamentals seem to have turned a corner.





Tesla's stock troughed in late-May 2019 when it stood at around $180. Since then, the stock is up over a staggering 150%. Part of the rally has been supported by the massive short covering on the stock.

















Tesla sold 112,000 vehicles in Q4





The latest surge came after the company announced that it sold a robust 112,000 vehicles during the fourth quarter of 2019.





This represented a growth of 15.5% from the third quarter, and 23.5% year-over-year. The stock jumped 5% on the news.





This also meant that Tesla met its guidance for full-year 2019, during which it shipped 367,200 vehicles. This was a 49.9% increase from the cars sold in 2018.





In the first half of 2019, Tesla's stock plummeted as investors were disillusioned by the company's poor revenue growth coupled with widening losses.

















Tesla had a poor start to 2019, before recovering





However, Tesla posted a net income during the third quarter, and judging by the robust, all-time best sales in the fourth quarter, the company is likely to provide decent earnings in the fourth quarter as well.





As the second graph shows Tesla's revenue growth has been slowing down. This is due to a combination of slowing shipments and cheaper Model 3 sedans. The robust growth in Q4 was on the back of the strong Model 3 shipments.

















The third graph shows Tesla's earnings over the last few years. The electric carmaker's bottom-line has been mostly negative. However, the company returned to profitability in the third quarter as mentioned earlier.





Tesla's insane returns in the past few months would put-off value investors even more, given its very rich valuations.





Tesla's valuations seem very stretched





The company has not posted a single full-year of profitability yet. Tesla's stock is trading at 81x fiscal year 2020 earnings estimate and 39.1x 2021 earnings estimate.





In other words, the stock has already factored in strong growth in the coming years. Missing these lofty estimates could cause the stock to plunge again.





Wall Street expects Tesla to report strong, double-digit growth in its revenue over the next couple of years and to consistently report positive earnings in that time frame.





Electric vehicles could dominate car sales by 2040





The auto industry is a mature one. According to the estimates of the International Organization of Motor Vehicle Manufacturers , sales of passenger cars declined in 2018.





On the other hand, consumers are likely to continue to shift their preference to electric cars. According to this article by Forbes , which cited Bloomberg, electric vehicles could make up more than half the global passenger car sales in 20 years.





Tesla, being the leading electric vehicle manufacturer in the US, could gain heavily from that trend, having set the foundation.





Tesla is increasing its production hubs abroad. The company's first production hub outside the US is in China.





The first deliveries from the Shanghai factories began today, January 7, 2019. Meanwhile, its Gigafactory in Berlin will start producing Models Y and 3 in 2021.





As a result, Tesla's sales worldwide are likely to surge in the years to come. While the company would face new challenges and competitors over the years, it is likely to remain the leading electric vehicle company.





Should you invest in Tesla?





However, buying the stock at these levels is fraught with risk. The company is no doubt a disruptor in its field. However, it trades like a speculative stock.





One may invest in TSLA, but with these two caveats. One must invest in it with a long-term perspective, no lesser than 6 years. This is because the current stock price already reflects the expected growth of the next few years.





Secondly, in order to invest in this stock, one must have a high-risk appetite to stomach the high volatility in TSLA. One should only invest in this stock if these conditions are met.





In the short term, consumer confidence might get affected if the geopolitical situations, like US relations with Iran spiral out of control.





Lower consumer confidence could negative affect the consumer discretionary sector, which includes Tesla.