Up just 3% this year, what’s going on with Tesla stock?

This has been a wild month for Tesla (NASDAQ: TSLA). The Tesla stock price jumped 20% in a single day’s trading. For a company with a market capitalisation of close to $800bn at the moment, that is unusual.

Over five years, the electric vehicle maker has been a star performer. Its share price has grown by 1,119% during that period.

So, if I had invested around £8,200 five years ago I would now have a holding worth £100,000 (ignoring exchange rate fluctuations between the pound and dollar during that period).

Yet so far in 2024, even after that leap this month, Tesla stock is up just 3%.

Over a 10-month timeframe, that is not the sort of performance many investors have grown to expect from the company is recent years.

What is going on – and might now finally be the time for me to add the company to my portfolio?

Tesla’s shifting world

Tesla is more than just an electric vehicle business. Its energy storage operation is growing and has significant long-term potential in my opinion, for example.

In the third quarter, Tesla deployed 6.9 GWh of such products. That is 47% of what it deployed across the whole of last year, which in turn was double its prior year level.

But Wall Street’s focus remains firmly on the car side of the business. Here, I think the volatile performance of Tesla stock can be put into perspective.

Tesla’s vehicle deliveries grew 6% year on year in its most recent quarter. With over 460,000 vehicles delivered during the period on top of a large installed customer base, this is an increasingly mature and sizeable business.

But the commercial landscape is changing significantly, I reckon. Rivals have increased their sales too. That increasingly puts pressure on profit margins across the industry, including for Tesla.

Additionally, price-insensitive early adopters have long since been driving their Teslas. To keep growing sales volumes at anything like its historic rate, Tesla will increasingly need to offer more affordable cars for the middle market. That is a risk to its revenues and especially its profit margins.

Ongoing questions about valuation

I think that context helps explain why Tesla stock has been moving about despite the company’s growing sales, strong brand, large user base, and opportunities in areas such as automated taxis.

Meanwhile, questions about Tesla’s valuation remain.

Rival BYD overtook Tesla last quarter in terms of sales, yet its market capitalisation is around one-seventh that of its US rival.

A direct comparison may not be overly helpful: BYD is listed on a different stock exchange, has a somewhat different business to Tesla’s as it is more squarely focussed on vehicles and batteries and also has strengths in different markets compared to Tesla. But it does raise the question of whether Tesla merits its sizeable share price premium relative to peers.

Tesla stock now trades on 69 times earnings. Even given its growth prospects, that is far richer than I am comfortable with as an investor.

For now, then, I have no plans to  add the share to my portfolio.