Tesla is great. Here’s why you shouldn’t buy it

There are some companies that deserve a tip of the hat simply because of how revolutionary they were and the disruption they caused. Most people would agree with that adze (TSLA 0.93%) falls into this category of industry pioneers.

This top electric vehicle (EV) stock has worked extraordinarily well for investors as it has skyrocketed 1,100% over the past 10 years. But with Tesla trading an alarming 49% discount to its all-time high, you might want to consider adding the business to your declining portfolio.

Don’t get me wrong. Tesla is great, especially because of its innovation, but here are three key reasons why you shouldn’t buy it.

Hitting a speed bump

Part of the fall in Tesla shares has to do with disappointing financial results. Long gone are the days when the business reported monstrous growth.

Tesla posted a slight single-digit year-over-year gain in the last six months of 2023. And after revenue fell nearly 9% in the first quarter of this year, it rose just 2.3% in the quarter ending in June. .

Financial results that once resembled a hypergrowth software enterprise now look like a typical car manufacturer. Tesla can’t escape the current macroeconomic climateone where consumers feel less inclined to spend on expensive electric vehicles in a higher-interest environment.

Competition is also fierce. Tesla isn’t the only game in town. Both domestic and international rivals want a piece of the EV market. To stay competitive, Tesla has had to cut prices for its vehicles, which have eaten into margins.

Delays are normal

The monumental rise in Tesla stock can certainly be attributed in part to the success of its electric vehicle operations. After all, it’s amazing that the Model Y was the best-selling car on the planet in 2023.

However, another important factor that led to the market’s love affair with this business deals with what Tesla TO be in the future. It will be a leading battery manufacturer, a robotics manufacturer or an operator of a the global robotaxis fleet? The fact that it is difficult to know the answer is troubling.

Founder and CEO Elon Musk is a visionary. No one denies that. And he deserves so much credit for constantly pushing the envelope. But it has a history of over-promising and under-delivering when it comes to product introduction timelines. This makes it difficult to be a long-term investor.

An expensive stock

In November 2021, Tesla traded with a nosebleed price-earnings ratio (P/E) ratio of nearly 400. Due to the stock’s decline, it now sells for a P/E multiple of 60. However, I still see this as expensive.

Tesla remains a story stock. The aura surrounding Musk has and will likely continue to warrant a market premium. I don’t think it’s a gamble worth taking.

If you’re serious about buying this stock today, one thing you need to believe with absolute certainty is that the business will return to strong revenue growth and healthy margin expansion. I’d like to give Tesla the benefit of the doubt here, but given the intense competition in the EV industry, coupled with consumers who aren’t as interested in buying these cars as they once were, it’s not hard to take a tempered view.

Furthermore, potential buyers must believe that Musk will one day shock the world and make his robotaxi dreams come true. Because there is so much uncertainty about the final outcome, I have no idea if this will ever happen.

What Tesla has achieved so far is truly amazing. But there are compelling reasons to transfer the stock.