Tesla investors hoping for huge gains from CEO Elon Musk's new government role should first understand what kind of stock they're getting into.
"Tesla is not in our '12 Best Ideas' portfolio, not because it's not a great idea, but because it is exceptionally volatile," Nancy Tengler, CEO and CIO of Laffer Tengler Investments, tells Investor's Business Daily's "Investing with IBD" podcast. The stock surged more than 48% following the 2024 election, hitting an all-time high of 488.54 before giving up some of those gains.
Driving the enthusiasm behind Tesla stock is Musk, who became one of President Donald Trump's most vocal and largest financial backers on the campaign trail. Musk's closeness with Trump is extremely likely to result in government regulation and oversight rollbacks that will benefit Musk's organizations, including the electric automaker Tesla.
The stock has shown some signs of wavering, with investors worrying that Trump's campaign pledge to target subsidies of electric vehicles will hurt EV makers like Tesla. Musk has proposed that Tesla stock is positioned to thrive without the benefits.
Audio Version Of Podcast
Tesla Stock Gains On Autonomous Driving, Musk's Posturing
Tengler sees some positives in Tesla, like its progress on autonomous driving and its energy efforts. At an event late last year, Tesla previewed its Robotaxi, a fully autonomous vehicle with no steering wheel, to be sold alongside its regular lineup of electric vehicles. (The Robotaxi would require ADAS Level 4 or Level 5 autonomous technology, which no automaker has yet been able to achieve.)
Musk's proximity to Trump is likely to make it easier for Tesla to gain regulator approval and reduce scrutiny as it develops self-driving technologies. The CEO has also claimed its self-driving technologies use generative AI.
The Fundamental Factors For Tesla As A Long-Term Stock
But Tesla also carries some risks, particularly its tendency to overpromise, miss deadlines, and under-deliver in the actual product. For instance, the Robotaxi reveal was "long on cool, but short on details," said Tengler, who attended the event.
Tengler says she judges Tesla using the same 12 fundamental factors she uses to judge other stocks, a list that includes qualitative factors like market growth, outperformance catalysts and management. Her list also includes quantitative factors like revenue, operating margins, relative price-to-earnings ratio, free cash flow, dividend coverage, its asset turnover ratio, use of cash, leverage and financial risk.
While it does not succeed in every one of Tengler's factors, Tesla still has some important upsides. "The catalyst for outperformance is critically important to us," said Tengler. She cites the automaker's energy business, as well as potential upside from full self-driving and autonomous vehicles.
She also points to strong investor support for Tesla stock creating a floor for its price. "I discovered two things (at the robotaxi reveal)," Tengler said. "The innovation continues, and the devotees don't really care about the details."
Tap here for more on Nancy Tengler's metrics in finding long-term opportunities.
Follow Mike Juang on X at @mikejuangnews and on Threads at @namedvillage.
