Park Tesla on Your Watch List

06/11/2020 5:00 am EST


Stephen Leeb

Founder and Research Chairman, Leeb Group

We are tempted to add Tesla (TSLA) to our Growth Portfolio. We’ve projected growth of 35%. We hesitated, though, because Tesla has a fair amount of debt, raising the risks if economic growth fails to materialize, suggests Stephen Leeb, editor of The Complete Investor.

We also can’t rule out a stock offering or more borrowing. So we prefer to wait until we have more complete confidence that a worse-than-expected economic scenario won’t come to pass. Still, if you’re fully convinced we will avert that worst-case scenario, we wouldn’t discourage you from buying the stock now.

Tesla is best known as a manufacturer of electric vehicles (EVs). But it’s more than that. It’s also a technological leader in producing the batteries used both to power EVs and to store renewable energy sources such as solar and wind.

Indeed, its battery technology is the major reason that the company leads on the single feature potential EV buyers care about: the car’s range — how far it can travel before needing to be recharged.

Compared to our recent recommendations, Tesla has both suffered more harm from and been more advantaged by the pandemic. It was harmed because it had to stop production. But on the plus side, competitors may have been damaged more. General Motors (GM), for instance may have been irreparably harmed by losses that hamper its research efforts.

Tesla also gets high marks for its international diversification. Several years ago the U.S. generated 100% of sales. The most recent number was about 50% and falling. It’s noteworthy that the company recently began major operations in China.

That’s a powerful catalyst behind the strong gains in the stock, likely cementing the company’s position as a worldwide leader in a critical aspect of renewable energies.

Still, despite growth estimates far exceeding those for any other major company and potentially extending far into the future, and debt that as a percentage of metrics like EBIDTA is not excessive, the company could be vulnerable if the pandemic proves worse than we expect. Tesla is at the top of our watch list, but only investors with a high tolerance for risk should buy now.

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