If you’d invested $10,000 in Tesla to go public in 2010, here’s what you’d have now: The Motley Fool Germany | Jewelry Dukan

Regardless of how long you’ve been investing your money in the stock market, it’s been a challenging year. They’ve been timeless since hitting their respective all-time highs between mid-November and the first week of January Dow Jones industry averagebroad based S&P500and growth oriented Nasdaq Composite, have lost up to 19%, 24% and 34% of their value respectively. In fact, the S&P 500’s first-half performance was its worst in over half a century.

Despite this short-term pain, time has proven to be an incredible ally for investors. Every double-digit percentage drop in major US indices throughout history (with the exception of the current bear market) has eventually been reversed by a bull market rally. In other words, patience really paid off.

But it also doesn’t hurt to invest in pioneering companies.

A Tesla Model S is being charged. Image source: Tesla.

Here’s how much $10,000 invested in Tesla on day one is worth now

Over the past 10 years, the S&P 500 has returned a whopping 183%, and that doesn’t include dividends paid. But among the 500 companies that make up the index, 20 of them have returned about 1,100% or more over the past decade. Even if you had just one of these breakthrough stocks in your portfolio in the last decade, it could have resulted in life-changing wealth.

But among the best-performing stocks on the S&P 500 over the past decade, one company stands in a class of its own: the electric vehicle (EV) maker. Tesla (TSLA 0.38%). Note that Tesla was admitted to the S&P 500 in December 2020.

When Tesla had its initial public offering (IPO) on June 29, 2010, the company valued the 13.3 million shares it was offering at $17, which was above the expected IPO range of $14 to $16. However, Tesla has gone through two forward stock splits since its IPO. The Company enacted a 5-for-1 split on August 31, 2020 and recently completed a 3-for-1 split on August 25, 2022. That means its split-adjusted IPO price is about $1.13 per share. Tesla stock closed just below $300 this past weekend.

If an investor invested $10,000 at Tesla’s IPO price, they would have purchased 588 shares (excluding fractional shares or commission-related expenses). Factoring in the Tesla stock splits, this investor would hold 8,820 shares on day one today. In other words, a $10,000 investment in Tesla’s 2010 IPO would now be worth a whopping $2,643,178. For those of you scoring at home, that’s a 26,332% increase in value in just over 12 years.

That’s why Tesla was virtually unstoppable

How on earth does a stock go from relatively unknown to the 5th largest publicly traded company in the US in just 12 years? The answer lies mostly with innovation and its CEO, Elon Musk.

Tesla is the first automaker in over five decades to successfully scale from the ground up to mass production. Even as the company struggles with semiconductor chip shortages and China’s zero-COVID policy, which have led to generalized parts shortages and production delays at its Shanghai gigafactory, Tesla appears firmly on track to surpass 1 million electric vehicles produced and shipped. In the first six months of 2022, the company delivered 564,743 electric vehicles.

In addition, electric vehicles represent an unmissable growth opportunity in the coming decades. To combat climate change, most developed countries are emphasizing clean energy initiatives. This includes clean energy transportation for consumers and businesses. It will take decades for this vehicle replacement cycle to take shape, giving Tesla a long runway to grow its business.

Tesla’s premium rating also reflects the company’s tangible competitive advantages and innovations. The company’s batteries not only outperform North American competition in terms of production, but also offer better capacity, range and performance than virtually all of its mostly up-and-coming EV competitors. A number of Wall Street analysts believe Tesla won’t admit those first-mover advantages.

Tesla’s gain of more than 26,000% since its IPO is also the result of investors’ faith in Elon Musk as a visionary. As CEO, Musk has put four electric vehicles into production, recently overseen the opening of two new gigafactories, and offered plans to put the Cybertruck and Semi into production as early as next year.

After all, Tesla has kept moving into the profit pillar. For the past five quarters, the company has generated GAAP earnings of between $1.14 billion and $3.32 billion.

A blue road sign that reads Risk Ahead.

Image source: Getty Images.

Tesla could be heading for a breakdown

While there’s no denying that Tesla’s naysayers up to this point have been decidedly wrong (myself included), there seems to be more sustained headwinds than catalysts for Tesla at its current $939 billion market cap.

For starters, the company is being treated as if it weren’t cyclical and will somehow escape the supply chain challenges other automakers are currently facing. If the US and global economies continue to weaken after historically high inflation, consumers will almost certainly cut back on spending. That means even next-gen automakers like Tesla could see lower demand for electric vehicles.

Building on that point, Tesla stock closed last week at a nosebleed multiple of 56 times Wall Street’s forecast earnings per share (EPS) in 2023. Even considering that Tesla is making it to the In the habit of easily beating Wall Street’s relatively low EPS forecast, we’re talking about a mass-produced company in an industry known for trading in single-digit price-to-earnings multiples. Though Tesla generates revenue from its energy storage and solar installation operations, the vast majority of its sales are tied to (pardon the pun) cyclic electric vehicles.

Something else to consider is that Tesla still gets a boost from selling renewable energy certificates (RECs). Although the company is now profitable by selling its core products (EVs), nearly $2 billion of its nearly $10.7 billion total GAAP 15-month GAAP revenue comes from RECs. In short, RECs inflate how profitable Tesla really is, making its nosebleed valuation that much worse.

But the biggest red flag of all might be Elon Musk. Though Musk is a visionary, he has caused all sorts of legal, financial, and operational problems for the company he runs. Notably, almost every prediction Musk made about when a new electric vehicle or technology will be available will not materialize. Given that these forward-looking innovations and new EV offerings are heavily integrated into Tesla’s valuation, this is a big concern.

Though patience has paid off well for long-term investors in Tesla, this top performer appears to be headed for a meltdown.

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