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Is TESLA STOCK Overpriced or Underpriced? 🚗
Whenever I make a video about Tesla $TSLA , there's a lot of conversation going on about the video. Some people will agree with what I say, others will disagree and both of these groups have good arguments against or for Tesla. On which side am I? I'm sure you all know that I don't invest in Tesla. It is not a stock for me. That's because I believe that Tesla is overpriced but there are many people who believe that Tesla is underpriced. Maybe these people are right and I am wrong.
Let's compare Tesla with other car companies, for example, BMW $BMW.DE . Both companies have about the same market cap of around $45 Billions. BMW produces 2.5 million cars a year while Tesla produces 250 000 cars a year. Tesla is the leader in electric vehicles and also in autonomous vehicles, there is no doubt about that. Nobody can tell me that there is a better company than Tesla in EV. BMW and other car companies are still lagging behind. Tesla is the leader for several reasons. They are making the best batteries and also because of the superchargers. Other car companies have been making cars running on gasoline for so many years now that it is hard for them to change their business model. That's another reason why they are lagging behind Tesla.
Does Tesla have a moat? Yes, for the time being mainly because of the batteries and the superchargers. How strong is this moat? It all depends on when other car companies are going to catch up with Tesla. It is just a question of time before they start investing in EV and autonomous vehicles. BMW pays a very generous dividend with a yield of over 5%. I would have preferred their free cash flow into developing EV than returning the money to shareholders. But nevertheless, they are making progress and faster than many other car companies.
BMW is currently the most profitable car company in the world with a profit margin of 8% compared to the industry average of about 4%. That's because they sell to a high end niche with their BMW, Rolls Royce and Mini brands. Tesla, on the other hand, is not profitable yet. BMW is trading under its book value while Tesla has a deficit(negative book value). It means if you liquidated all the assets of BMW today and repaid all the debt, you'll have more money left than what you would pay for the stock. We should not forget that BMW has one of the strongest and most valuable brands in the world, which is around twice its book value. It is safe to say that BMW is underpriced but what BMW lacks is a moat. BMW competes with Daimler $DAI.DE , Rolls Royce compete with Bentley (owned by the Volkswagen Group $VOW3.DE ).
For me these numbers are very important and if I had to choose between investing in Tesla or BMW, I would have invested in BWM(which I did and it didn't turn out well). The reason why I don't invest in BMW is because of the high capital expenditure. The car industry is a capital intensive industry. The reason why Tesla stock has been doing so great in the past years is not really because of numbers, it is because of Elon Musk. He is one of the greatest CEOs of our time and investors are really expecting him and Tesla to succeed. Tesla is at the same phase that Apple $AAPL was in the late 1990s. In a difficult financial situation but with a legendary CEO with a vision that can revolutionize the industry. Unfortunately for me this is not a good reason to put the current price on Tesla. Maybe I'm wrong and Tesla will really be a trillion dollar company in 2030 but there are better investments out there where I can expect the same results with less risk. The best company to invest in is a company everybody is ignoring, nobody is talking about, nobody knows about.
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