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Should You Buy Tesla?

The electric car pioneer is ramping up production. Here's what we think it's worth.

Tesla (TSLA) has a chance to be the dominant electric vehicle maker, and a leader in autonomous vehicles, and a sustainable energy company with energy generation and storage products.

That's a lot of "ands"--and a lot of possibility. No wonder Tesla has been a market darling this year.

Further, the company has brand cachet, and at Morningstar, we expect Tesla will continue to innovate and remain ahead of both startup and established competitors. Plus, if Tesla can in fact slash battery cell costs as it has suggested, its cost advantage versus its competitors may be hard to beat. The company has moderate competitive advantages, which we call a narrow economic moat.

Despite all that, is Tesla worth the hype?

Dave Whiston, who covers the stock for Morningstar, points out that the firm's production capacity, while growing, is still somewhat limited. Tesla's mission to make electric vehicles increasingly more affordable will require more assembly plants, which we think will cost billions a year in capital spending and research and development.

Moreover, we think global mass adoption of pure electric vehicles is still years away; it's a story that may not play out until next decade.

Lastly, we see immense key-man risk for the stock, as Tesla's fate is closely linked to founder and CEO Elon Musk's actions. Should he leave the company or be banned from running Tesla, we wouldn't be surprised to see the stock decline significantly. 

 

Bottom line? Investing in Tesla comes with tremendous uncertainties. We think shares are worth $319 apiece--and aren't for the faint of heart.

Morningstar sector strategist David Whiston provided the research behind this segment.

Morningstar does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.