Better Buy: Tesla Stock or Nasdaq Fund? | Smart Change: Personal Finance

(Mark Blank)

after, after Tesla‘s (NASDAQ: TSLA) A recent 3-for-1 stock split, you might be wondering if now is the perfect time to buy Elon Musk’s dynamic electric vehicle (EV).

The split was not beneficial to the stock; Its price has fallen by almost 10% since its entry into force.

But this drop likely has more to do with the massive sell-off in the market as concerns about prolonged inflation continue to punish stocks.

Long-term investors realize that lower stock prices create potential buying opportunities. Even with heavy technology Nasdaq Composite It’s also down more than 10% over the past few weeks, so what’s the better opportunity now: Tesla or the Nasdaq index fund?

If you’re an investor with a strong stomach for volatility, I think Tesla offers even greater potential due to its many similarities with other once-in-a-generation stocks.

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Image source: Getty Images.

Unmatched efficiency

Many of today’s large companies have one thing in common: they are upending traditional business models.

Tesla has done this in many ways, but nothing is more evident than its manufacturing efficiency. This was largely achieved through Musk’s first principles approach to building his cars.

atomic habits Author James Clear defines First Principles of Thinking as “…the process of boiling the process down to the basic parts that you know to be true and evolving from there.”

The average car consists of about 30,000 parts. By contrast, the Tesla Model 3 consists of about 10,000 parts, and the propulsion engine consists of only 17 to 18 individual parts compared to the standard internal combustion engine, which has about 200 parts.

Tesla was able to achieve this manufacturing efficiency with the Giga Press, a large-scale die casting machine. Instead of casting thousands of individual parts and welding or gluing them together, a Giga press can produce large vehicle parts in a single mould.

For example, the entire back of the Model Y is cast in a single mould, which traditionally consists of more than 70 individually produced parts. This innovation alone eliminates nearly 300 robots and reduces bodywork workshop space by 30%.

This manufacturing efficiency can be seen in the company operating margins, which greatly outperformed the competition.

TSLA Operating Margin (TTM). data by YCharts. TTM = last 12 months.

Tesla is a data company

The biggest control many investors make when analyzing Tesla is to think of it as just a car manufacturer. You have probably seen the various articles that suggest that Tesla Market value Equivalent to nearly all other major auto manufacturers combined.

While Tesla’s leadership in electric vehicles certainly contributes to its lofty valuation, I think the main rationale has more to do with its data-centric business model.

Tesla vehicles are computers on wheels, and like all of today’s best companies, the company makes use of data captured by its computers to maximize its value proposition.

This is clearly seen in its push towards self-driving. While musk Highly optimistic about the company’s fully autonomous drive (FSD) feature release, Tesla has been beta testing it for nearly two years, recently passing more than 100,000 vehicles on the road to actively test the software.

for reference, the alphabet‘s (NASDAQ: GOOG)Waymo, the leading competitor in the self-driving space, has an estimated 600 self-driving vehicles being road-tested today.

FSD is built on the basis of machine learning, So every mile the owners go in theory enhances its capabilities. Tesla’s leadership in self-driving vehicle testing is just one example of how it is using its proprietary data as an advantage over its competitors.

Other examples of the company’s use of data capture can be seen in its metrics-based insurance product as well as over-the-air software updates.

While the valuation is high, profits are flowing

Tesla evaluation It is undoubtedly the biggest concern for buying the stock. With a price-to-earnings (P/E) ratio of over 100, there’s not much to claim that the stock is cheap.

But while this rating is high, consider how P/E has been reduced significantly over the past few years:

TSLA PE ratio. data by YCharts.

This is partly due to the downturn in the market in general, but it is also a result of Tesla’s significantly increasing profitability.

Tesla’s consolidated net income (loss)

2017

2018

2019

2020

2021

YTD

($2.2 billion)

($1.1 billion)

($775 million)

$862 million

$5.6 billion

$5.4 billion

Data source: Tesla. Table by author.

Tesla is not a value game, but a bet on optional. Even at today’s exorbitant prices, I think there would be a massive upside if the company introduced a wide range of disruptive products (self-driving, automated taxis, robotics, solar, and more).

Very few of the most valuable companies today ever trade at traditionally cheap valuations. There is certainly a risk in this investment, but the range of potential results for Tesla is astronomical, and it reminds me very much of another high-flying tech company that has been criticized for years as being wildly exaggerated.

it’s a Amazonwhose founder, like Elon Musk, also sends rockets into space.

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John Mackie, CEO of Whole Foods Market, an Amazon company, is a member of The Motley Fool’s Board of Directors. Susan Fry, CEO of Alphabet, is on the board of The Motley Fool. Mark Blanc He has positions at Tesla. Motley Fool has and recommends positions in Alphabet (A shares), Alphabet (C shares), Amazon and Tesla. Motley Fool has a profile Disclosure Policy.

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