Through the first 10 months of 2024, shares of Tesla (TSLA -5.04%) were essentially flat, despite the extreme volatility they exhibited. That was certainly troubling for investors to see, particularly when you consider that the tech-heavy Nasdaq 100 Index was up 18% during that same period of time.
But since the presidential election on Nov. 5, Tesla shares have rocketed 77% higher (as of Dec. 18). The booming EV stock now trades just 8% off its all-time record, as it benefits from tremendous momentum.
Looking toward the future, the question to ask is Tesla a millionaire maker?
Looking in the rearview mirror
I definitely don't doubt that early Tesla shareholders have gotten rich off their holdings. In the past decade, the stock has soared 3,110%, a gain any investor would be excited about. This means that had you invested about $31,000 in Tesla in mid-December 2014, you'd be sitting on a cool $1 million today. This business has indeed been a millionaire-maker in the past.
Tesla's rise can be attributed to its ability to disrupt the traditional auto industry. While the Model S sports sedan was first launched in 2012, the business now offers five total passenger vehicle models, all of which have unique designs and innovative tech features that consumers appreciate.
Growth historically has been superb. Revenue totaled $25.2 billion in the third quarter (ended Sept. 30), up 300% compared to the same period five years earlier. At the same time, Tesla went from delivering 97,000 vehicle units in Q3 2019 to 463,000 in the latest quarter. This volume gives the company 17% global market share in the EV industry.
It's also worth pointing out that Tesla's cost advantages, as well as its premium brand positioning, enable it to earn consistent profits. In the past five years, the quarterly gross margin and operating margin have averaged 19.9% and 10.2%, respectively. Tesla's bottom-line performance compares quite favorably to legacy automakers whose EV segments continue losing billions of dollars.
Keep your eyes on the road
Investors who have been on the sidelines watching Tesla's ascent wonder if the stock can keep its unbelievable streak going in the years ahead. It's easy to be critical in this regard.
Tesla's latest stock surge is likely credited to founder and CEO Elon Musk's close ties with President-elect Donald Trump. With the hopes of favorable regulatory policies toward laws surrounding full self-driving (FSD) technology, the market could be anticipating a smooth path for Tesla.
For what it's worth, the business has plans to launch ride-hailing services in California and Texas next year. But if the legal framework becomes more accommodating, maybe Tesla can make inroads into many more markets in the not-too-distant future.
Even if you were bullish on the possibility of FSD capabilities becoming a commercial success through a combination of Tesla operating a company-owned robotaxi fleet and selling autonomous vehicles to the masses, it's hard to argue that this optimism isn't already fully baked into the current valuation.
As of this writing, Tesla's forward price-to-earnings (P/E) ratio is an eye-watering 177. It's wild to think that at the start of the year, this multiple was just 27. Clearly, market sentiment has shifted in a dramatic way to the upside. When a forward P/E ratio is as high as Tesla's, there is undoubtedly zero margin of safety.
Viewing the present with a clear lens, it's obvious that Tesla remains a car manufacturer that is exposed to macroforces and intense competition. This should help put things in perspective.
While the leader in EVs has been a millionaire-maker in the past, for prospective investors looking to hop on the Tesla bandwagon now, I'm not confident it can get you into the seven-figure club if shares were purchased today. The valuation is just too high.
