Should I Buy Shares in Tesla?

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Should I buy shares in Tesla, or perhaps short the stock?  This thought was prompted by the recent large jump in the share price which has made the company worth more than Ford, General Motors and BMW put together. But there is still a considerable short interest in the company based on the fact that the financial ratios look far fetched and are discounting a lot of future growth. Plus of course the doubters worry about the leadership of Elon Musk.

The technology in Tesla cars is brilliant (I have had a test drive of a Model S) and is claimed to be way ahead of competitors. But other auto makers are fast catching up. Announcements by the UK Government that no diesel, petrol or hybrid vehicles can be sold after 2035, or even 2032 as the UK seems to be making decisions on the hoof on this matter, and by EU directives that promote the sale of zero emission vehicles has meant that everyone has realised the future is electric. That’s even if there are doubts about the grid capacity and how people will recharge them. As a result there are plenty of new electric vehicles from major car manufacturers being announced.

But I have decided not to purchase or short Tesla shares. There is one simple reason why. It’s basically a bet as to which car manufacturer will end up the most successful and make real money as a result. It’s not even a “binary bet” as there are many horses in the race. I simply have no clue as to which will be the winners or losers. So it’s not the kind of investment I like. It’s for speculators not investors.

There was a very relevant quotation repeated by Kate Burgess in the FT yesterday on this subject. Apparently Warren Buffett said “The wise bet in the early days of cars was to short pony traps rather than try to pick the winners”. So sell Shell and BP perhaps, although that might be a simplistic analysis as they are involved in gas and plastics production also. But you should disregard BP’s claim to be zero carbon by 2050 – it’s only window-dressing. Instead buy software companies and battery manufacturers or those helping to develop automated vehicles such as AB Dynamics (ABDP).

For more analysis of Tesla you could also read the latest edition of Shares magazine who have an article headlined “Why Tesla shares can’t continue to motor”. It covers the arguments for and against the company in some depth.

A second reason for not investing in the company is that this is clearly a stock that is very heavily researched by institutional investors, even if they have ended up with contrary opinions. How could I as a private investor without a big team of researchers behind me hope to come to better conclusions? I may find it better to simply rely on funds/trusts who are holding the company (Scottish Mortgage has a big stake in Tesla for example). They can also follow the company closely when I cannot.

I find it easier to make money as a direct investor in companies in smaller or mid-cap stocks. I often get wrong-footed by the changing views of big company analysts.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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