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Is Tesla (TSLA) stock a good buy?

Is Tesla (TSLA) stock a good buy?
Sean Tepper Sean Tepper
Stock reviews
December 14, 2022

➡️ This is a step-by-step stock review to determine if Tesla (TSLA) stock is a good buy. In this article, we’ll help you understand the company, where the company is going, the competition, and the leadership. This way you can make a more confident investment decision.

Tesla, Inc. is an American electric vehicle and clean energy company founded in 2003 and based in Austin, Texas.

Table of Contents

Step 1: Tykr Rating

➡️ Goal: When you look at a stock, the first step is to look at the financials. Fortunately, Tykr does this for us automatically. The higher the score, the stronger the financials and the safer the investment. The higher the MOS, the higher the potential returns you can make.

  • Summary: On Sale
  • Score: 94/100
  • MOS: 63%
  • Share Price: $180
  • Fair Value: $376

The Summary, Score, and MOS of this stock may have changed since the posting of this review. Please login to Tykr to see up-to-date information.

Step 2: Tesla Company History

➡️ Goal: It’s important to know the company’s history. This helps us understand the various revenue streams, if they acquired other companies, how they grew through difficult times, and how they separated themselves from the competition.

  • In 2003 Martin Eberhard and Marc Tarpenning originally founded Tesla and served as CEO and CFO. The company’s name is a tribute to inventor and electrical engineer, Nikola Tesla.
  • In 2004, Ian Wright joined as Tesla’s third employee and served in a product design/engineering role.
  • In 2004, J.B. Straubel joined Tesla as CTO.
  • In 2004, Tesla entered a Series A funding round. Wright pitched Tesla to Elon Musk who decided to invest $6.5M in Tesla, making him the largest shareholder in the company. By this time, Elon Musk built the majority of his wealth with PayPal. The quick backstory on PayPal goes as follows. 
    • In 1998, Max Levchin, Peter Thiel, and Luke Nosek originally founded Confinity, a digital wallet company. 
    • In 1999, Elon Musk founded X.com, an online banking company. 
    • In 2000, Confinity and X.com merged and maintained their original names. In that same year, Elon Musk became CEO but he didn’t stay CEO for long. The board of directors removed Elon from leadership due to compounding tech issues, lack of cohesiveness, and micromanaging and replaced him with Thiel. Thiel and his leadership team decided to rebrand the company as PayPal. 
    • In 2002, PayPal went public and later that year, was acquired by eBay for $1.3B. Musk, although he was not working in the company at this point, was still the largest shareholder of PayPal, owning 11.72%. This earned him a payout of $175.8M.
  • In 2004, after Musk invested in Tesla, he joined the board of directors as chairman and took an active role in the Roadster production design but was not running business operations. 
  • In 2004, Wright left the company to start Wrightspeed, an EV powertrain company.
  • In 2007, Musk had Eberhard removed from the company. The two were not seeing eye-to-eye on the direction of the company and Musk believed he no longer saw a role for Eberhard. Although Eberhard is no longer involved in business operations, he’s still a shareholder of Tesla as of 2022.
  • In 2008, Elon Musk became CEO of Tesla and Marc Tarpenning left the company to pursue other interests.
  • In 2009, Tesla began production of its first car, the Roadster.
  • In 2009, Tesla raised $187M. Musk invested another $70M of his own money. 
  • In 2009, Tesla delivered 147 cars.
  • In 2009, Tesla was approved to receive $465M in interest-bearing loans from the United States Department of Energy. The funding, part of an $8B Advanced Technology Vehicles Manufacturing Loan Program, supported the engineering and production of the Model S sedan.
  • In 2009, a lawsuit settlement agreed to by Eberhard and Tesla allowed all five guys, Eberhard, Tarpenning, Wright, Musk, and Straubel to call themselves co-founders.
  • In 2010, Tesla purchased a Toyota factory in Fremont, CA.
  • In 2010, Tesla went public at $17 per share, raising $226M.
  • In 2012, Tesla began production of the Model S sedan.
  • In 2012, Tesla ceased production of the Roadster to focus on the Model S luxury sedan. The Model S won several automotive awards in 2012 and 2013.
  • In 2013, Tesla was able to repay the $465M loan, with $12M in interest.
  • In 2014, Tesla announced the Tesla Autopilot, a driver-assistance system. All Tesla cars started shipping with sensors and software to support the feature.
  • In 2015, Tesla entered the energy storage market, unveiling the Tesla Powerwall (for homes) and the Tesla Powerpack (for businesses).
  • In 2015, Tesla began production of the Model X SUV.
  • In 2016, Tesla acquired SolarCity in an all-stock $2.6B.
  • In 2017, Tesla began production of the Model 3 sedan.
  • In 2017, Tesla Motors changed its name to Tesla, Inc. to better reflect the evolving business model and various divisions. 
  • In 2017, Tesla began its philanthropic efforts. They installed a solar plus storage system at a hospital in Puerto Rico, following the destruction of Hurricane Maria that year. In 2018, they donated $37.5M to Nevada school systems to place a higher emphasis on STEM (Science, Technology, Engineering, and Math).
  • In 2018, Musk considered taking Tesla private. The plan did not materialize and raised much controversy including a lawsuit from the SEC.
  • In 2019, J.B. Straubel left Tesla to pursue other interests. That same year he founded Redwood Materials, a lithium-ion battery, and e-waste recycling company.
  • In 2019, Tesla opened its first Gigafactory outside the US, in Shanghai, China.
  • In 2020, Tesla began production of the Model Y crossover.
  • In 2020, Tesla reached a market cap of $86B, breaking the record for the highest valuation of any American auto manufacturer.
  • In 2020, Tesla reported four profitable quarters for the first time, which qualified them to join the S&P 500. This event triggered both retail and institutional investors to buy large volumes of shares and the share price increased by 740% that year. The market cap also increased to $848B.
  • From 2015 to 2020, Tesla acquired companies including Riviera Tool, Grohmann Engineering, Perbix, Compass Automation, Hibar Systems, and German ATW Automation to increase Tesla’s operational efficiency.
  • In 2020, Tesla donated $723K to the Chinese Center for Disease Control and Prevention to fight Covid-19.
  • In 2020, Tesla built 500,000 cars and ended the year with $19B in cash, compared to $6.3B at the end of 2019.
  • In 2021, The Model 3 became the bestselling electric car worldwide, selling over 1 million units.
  • In 2021, Tesla revealed that it had invested $1.5B in Bitcoin in 2020 and that same year, they announced they would start accepting Bitcoin as a form of payment in the US, followed by other countries thereafter. At the time, Musk tweeted “Bitcoin paid to Tesla will remain Bitcoin and won’t be converted to a fiat currency.” That single Tweet caused retail investors to flood the market and buy Bitcoin which earned Tesla $101M. After 49 days, Tesla reversed course and said they would no longer accept Bitcoin because retail investors, who mine Bitcoin, actually cause more harm than good to the environment. Bitcoin mining actually consumes a significant amount of fossil fuels. At a conference that year, Musk suggested Tesla could help Bitcoin miners. He said that if Minors can use over 50% green energy to mine, Tesla would consider allowing purchases to be made with Bitcoin again.
  • In 2021, Tesla moved its headquarters from Palo Alto, CA to Austin, TX.
  • In October of 2021, Tesla’s market cap reached $1T, the sixth company in the US to do so. This milestone was achieved when Hertz announced it would buy 100,000 Teslas for its fleet.
  • In 2022, Musk said in an email to employees that they would reduce their headcount by 10% because the company was becoming overstaffed in many areas.
  • In August of 2022, Musk claimed that Tesla had made more than 3 million cars.
  • As of October of 2022, Tesla offers four car models including the Model S, Model 3, Model X, and Model Y. They no longer sell the Tesla Roadster but they are working on a second generation Roadster, a Semi-truck, and the Cybertruck.

Step 3: Tesla Business Model

How does Tesla make money?

➡️ Goal: It’s important to know how a company makes money. A mature business model has multiple streams of revenue which allow the company to weather downturns in the economy.

Tesla generates revenue through 4 categories

  • Automobiles
  • Energy (Includes Solar Roofs and Solar Panels)
  • Leasing
  • Services, accessories, and other

Here is a breakdown per category

  • Automobiles – 87.4%
  • Energy – 3.9%
  • Leasing – 2.6%
  • Services, accessories, and other – 6.1%

Here is a breakdown of costs per product line:

Automobiles

  • Tesla Model S – Starting price: $96,590
  • Tesla Model S Plaid – Starting price: $127,590
  • Tesla Model 3 – Starting price: $40,390
  • Tesla Model X – Starting price: $112,590
  • Tesla Model Y – Starting price: $58,190

Solar Roof

To replace your roof with a Tesla Roof can cost about $55,000 for a 2,000-square-foot home, before incentives. If you decide to purchase a Solar Roof, you also need to purchase a Powerwall battery unit which costs $6,500, and installation which can cost $4,000. This can bring your total Solar Roof investment north of $65,000 before incentives. Federal and state-level incentives can provide a tax credit of up to 26%. The Solar Roof also comes with a 25-year warranty and have an expected life of 25 years. Before you consider investing in a solar roof, contact Tesla as they only install solar roofs in certain locations.

Solar Panels

Tesla Solar Panels can cost between $9,000 and $50,000 depending on how many panels you purchase. If you decide to purchase Solar Panels, you also need to purchase a Powerwall battery unit which costs $6,500, and installation which can cost $4,000. This can bring your total Solar Panel investment between $19,500 and $60,000 before incentives. Solar Panels also come with a 25-year warranty, Federal and state-level tax credits of up to 26%, and an expected life of 25 years.

How to save money with a Tesla Solar Roof or Tesla Solar Panels.

Let’s run the numbers on a Solar Roof and Solar Panels. In these examples, we’re saying the full energy bill is reduced to $0. That is not always true in reality but it makes the math easier to understand. If you truly want to understand how much you can save, please consult a specialist at Tesla.

Tesla Solar Roof

  • Total upfront investment on a 2,000-square-foot home: $65,000
  • Apply the 26% tax credit: Save $16,900
  • Revised total up-front investment: $48,100

If you invest $48,100 in a Tesla Solar roof, here is how long it will take to payback the investment.

  • 25-year payback time: $1,924/year or $160/month – If your electric bill is around $160/month or less, your payback time will be 25 years.
  • 20-year payback time: $2,405/year or $200/month – If your electric bill is around $200/month, your payback time will be 20 years.
  • 15-year payback time: $3,206/year or $267/month – If your electric bill is around $267/month, your payback time will be 15 years.
  • 10-year payback time: $4,810/year or $400/month – If your electric bill is around $400/month, your payback time will be 10 years.

Tesla Solar Panels

  • Total upfront investment: $26,000
  • Apply the 26% tax credit: Save $6,760
  • Revised total up-front investment: $19,240

If you invest $19,240 in a Tesla Solar roof, here is how long it will take to payback the investment.

  • 20-year payback time: $962/year or $80/month – If your electric bill is around $80/month, your payback time will be 20 years.
  • 15-year payback time: $1,282/year or $106/month – If your electric bill is around $106/month, your payback time will be 15 years.
  • 10-year payback time: $1,924/year or $160/month – If your electric bill is around $160/month, your payback time will be 10 years.

Step 4: Tesla News

➡️ Goal: It’s important to highlight important company-specific news as well as industry-specific news over the last month and year. We don’t need daily news on a company to make buy or sell decisions because we’re investors, not traders. Overall, we want sufficient news to understand where a company and industry are heading over the next year or few years.

This article from solarreviews.com states that for most homeowners, a Tesla Solar roof isn’t a worthwhile investment. It may take the entire life of the solar roof (approximately 25 years) to achieve a payback time. 

This video from Yahoo Finances states that Porsche is changing focus to electric vehicles. They are looking to manufacture electric sports cars. By 2030 they plan on manufacturing 80% electric and 20% gas vehicles.

This article from cnn.com states that Tesla is being sued for the compensation package that was provided to Elon Musk. As paraphrased from the article, Musk is a part-time CEO yet the highest-paid CEO of all publicly traded companies in the world. As shareholders, we want to see the CEO focus on increasing sales and profitability. With Musk, he’s now distracted by Twitter on top of his leadership roles at SpaceX and The Boring Company. Regarding compensation at Tesla, Musk doesn’t receive a salary. His pay involves a 10-year grant of stock options which are vested when Tesla hits certain targets. The value of these options are around $50B today. The article also highlights that Musk is notorious for making big decisions on a whim without the board’s approval. He’s becoming more of a risk for shareholders and something needs to change.

This article from carscoops.com talks about the competition heating up for Tesla. The biggest threats include Ford, GM, VW, and Hyundai. Elon Musk told Financial Times that VW is the biggest competitor on the world stage.

This article from marketwatch.com states that Tesla is recalling more than 300,000 vehicles in the US because a software glitch can make taillights go off intermittently, creating a risk of collision. 

This article from investorplace.com states that Tesla is recalling 30,000 vehicles due to an airbag issue where the airbags are not deploying on the passenger side during low-speed collisions. Fortunately, this issue looks like it may be resolved through a software update.

This article from cnet.com lists the top 5 top-selling EVs in the US in 2022.

  1. Tesla Model Y – 191,451 sales
  2. Tesla Model 3 – 156,357 sales
  3. Ford Mustang Mach-E – 28,089 sales
  4. Tesla Model S – 23,464 sales
  5. Chevy Bolt – 22,012 sales

This article from cleantechnica.com lists the top-selling EVs in the world in 2022.

  1. Tesla Model Y
  2. Tesla Model 3
  3. Wuling HongGuang Mini EV
  4. BYD Song Plus
  5. BYD Qin Plus
  6. BYD Han
  7. BYD Tang
  8. BYD Dolphin
  9. Li Xiang One
  10. VW ID.4
  11. Chery QQ Ice Cream
  12. Hyundai Ioniq 5
  13. Changan Benni EV
  14. BYD Yuan Plus
  15. Chery eQ1
  16. Kia EV6
  17. Hozon Neta V
  18. GAC Aion Y
  19. Ford Mustang Mach-E
  20. Gac Aion S

This same article from cleantechnica.com lists the top-selling EV manufacturers in 2022.

  1. BYD
  2. Tesla
  3. SGMW
  4. SAIC
  5. VW
  6. BMW
  7. Chery
  8. GAC
  9. Kia
  10. Mercedes
  11. Hyundai
  12. Volvo
  13. Dongfeng
  14. Audi
  15. Ford
  16. Peugeot
  17. Changan
  18. Li Auto
  19. Great wall
  20. Hozon

For the latest news on this stock, please login to Tykr.

Step 5: Tesla Competition

➡️ Goal: It’s important to understand who the competitors are and how their financials rank against this company. Try to find 5 other competitors to rank against based on Score. The best way to find competitors is to Google “XYZ competition” and replace XYZ with the company name. You can also go to Tykr and click on the “Similar Stocks” tab on each stock to see similar companies in the same industry.

  • Tesla (TSLA)
  • Summary: On Sale
  • Score: 94/100
  • MOS: 63%
  • Share Price: 180
  • Fair Value: $376
  • Revenue: $53B

Ford (F)

  • Summary: Watch
  • Score: 50/100
  • MOS: 47%
  • Share Price: 14
  • Fair Value: $23
  • Revenue: $136B

GM (GM)

  • Summary: Watch
  • Score: 89/100
  • MOS: 0%
  • Share Price: 39
  • Fair Value: $40
  • Revenue: $127B

Volkswagen AG (VWAPY)

  • Summary: Watch
  • Score: 50/100
  • MOS: 41%
  • Share Price: 14
  • Fair Value: $23
  • Revenue: $250B

BYD (BYDDF)

  • Summary: Watch
  • Score: 72/100
  • MOS: 47%
  • Share Price: $22
  • Fair Value: $37
  • Revenue: $216B

Porsche (POAHY)

  • Summary: Watch
  • Score: 39/100
  • MOS: 52%
  • Share Price: $6
  • Fair Value: $10
  • Revenue: $106M

Li Auto (LI)

  • Summary: On Sale
  • Score: 61/100
  • MOS: 86%
  • Share Price: $17
  • Fair Value: $70
  • Revenue: $27B

For the latest news on this stock, please login to Tykr.

Step 6: Tesla 4Ms

➡️ Goal: All of our homework on this company leads up to the 4M checklist. A lot of investors only look at the numbers. Yes, it’s important to look at the first M (MOS) which is the math part of investing but it’s also important to look past the numbers and also look at the business, the competition, and the management. If all 4Ms pass, we should have high confidence in buying this stock.

✅ MOS: Tesla’s financials are incredible. The 94/100 shows this company is well operated and the MOS of 63% shows that Tesla has nice upside potential. As of December of 2022, this stock is down 55% from its all-time high. 

✅ Meaning: We know EVs are the future as auto manufacturers around the world compete for market share. The challenge with all auto manufacturers is supply chain. I personally like software companies because you don’t have to source metals, plastics, and components to generate sales. With automobiles, the supply chain costs are high. When you compare Tesla to a company like Apple, you still have to source raw materials but the materials required to sell one unit can fit into the palm of your hand. With automobiles, you need thousands of pounds of materials to sell one unit. Although the world has enough raw materials today, the impact on the environment to manufacture, mold, and shape materials is something to consider. 

❌ Moat: EV competition is catching up and even passing Tesla. VW is a big global threat, especially in Europe. We also have Chinese companies threatening global sales including BYD, SGMW, SAIC, Chery, and GOC. GM and Ford will continue to challenge Tesla in the US and globally as well. Yes, Tesla has a strong brand moat but the market is becoming saturated and will likely become more saturated over the next 10 years.

❌ Management: When I invest in a company, I want the CEO fully dedicated to one company. Yes, they can serve on the board of other companies, as a lot of CEOs do, and yes they can invest in other companies, as a lot of CEOs do, but the CEO needs to be focused. Aside from Tesla, Elon Musk also spends time on SpaceX and The Boring Company. Now, with Elon’s acquisition of Twitter, he’s more distracted than ever. In my opinion, this was the worst time to buy another company, especially a company like Twitter, which does not complement the Tesla brand. When one company buys another company, or in this case a CEO buys another company, it’s wise to complement the ecosystem.

Examples include the following:

Microsoft buying Activision Blizzard – This was a wise investment because Microsoft sells Xbox, a top-selling video game system. Activision Blizzard is one of the largest video game publishers with popular games including Call of Duty and Overwatch.

Intuit buying Mailchimp – This was a wise investment because Intuit serves small and mid-sized businesses. Mailchimp, also serves small and mid-sized businesses. The acquisition will allow intuit to cross-sell Mailchimp to its audience and allow Mailchimp to cross-selling intuit products to its audience.

PayPal buying Venmo – This was a wise investment because PayPal already has a large consumer base. Venmo became a more popular consumer money transfer platform than PayPal and in this case, instead of trying to beat the competition, PayPal acquired the competition. Now PayPal can offer other consumer products to the Venmo consumer base including Honey.

As the article above from cnn.com states, Musk is indeed a part-time CEO. Shareholders are not getting their full attention and with the competition at the front gates, the castle may fall. In this circumstance, Tesla’s revenue growth may not continue as it has in the last few years.

A quick look at the Glassdoor rating shows Tesla has a 3.6/5.0 and a CEO approval of 73%. That’s actually not too bad. Ideally, we want to see a 4.0/5.00 and a CEO approval of 80%. Both are very close. The question is, how will these scores look a year from now? Distractions from Twitter can’t be good for the Tesla culture. 

If you’re interested, you may complete your own 4M checklist on this stock or other stocks by logging into Tykr.

Step 7: Is Tesla (TSLA) stock a good buy?

Although the financials look great now, the two big issues I see are the Moat and Management. There are a lot of competitors around the globe today and more new EV startups going to market. At the same time, Musk is becoming too distracted. If I were him, I would part ways with Twitter and place my full attention on Tesla. If Tesla wants to stay ahead of the competition, they need full dedication from the CEO.

If you own this stock or want to buy this stock, you will most likely see a nice rally when the market corrects. The question is, should I hold Tesla for the long term? At this time, I would argue no.

—

The Summary, Score, and MOS of this stock may have changed since the posting of this review. Please login to Tykr to see up-to-date information.

If you found this stock review interesting, you may also like this review on Zim Integrated Shipping Services.

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