Pros and Cons of Buying Tesla Inc (TSLA) Stock

Tesla Inc (Nasdaq: TSLA) seems to be something of a hybrid auto manufacturer and technology company -- a definition that doesn't seem to appeal to professional investors these days.

The California-based company specializes in the design, development, manufacture and sale of fully electric vehicles, energy generation and storage systems. Additionally, Tesla also provides vehicle service centers, supercharger station and self-driving capability. Its Energy Generation and Storage segment includes the design, manufacture, installation, sale and lease of stationary energy storage products and solar energy systems, along with the sale of electricity generated by its solar energy systems to customers.

On the auto manufacturing side, competing companies primarily includes Daimler, Ford Motor Co. ( F), Honda Motor Co. ( HMC), Nissan, Volkswagen and Toyota Motor Co. ( TM). Tesla first went public in 2010, offering 13.3 million shares at $17 per share. The stock now trades at $330 per share -- if you'd purchased Tesla at its IPO price your return on investment today would be more than 1,000 percent.

[See: A Look Into the Future for 7 Top Auto Stocks.]

Tesla's stock story is also one of great volatility, bogged down by a history of missed manufacturing deadlines, controversial market-moving comments by company founder Elon Musk and a steady stream of investors ready, willing and able to short Tesla stock. In fact, many Wall Street experts are bearish on Tesla stock.

Despite all that, the stock is on an upward trajectory in 2018, but remains volatile as investors mull over whether Tesla is a car company or a technology company -- or whether that distinction really even matters.

TSLA stock at a glance. TSLA is trading near $335, up 32 percent since early April and buoyed by bullish investor sentiment on Tesla's ability (so far) to deliver 5,000 Model 3 vehicles per week through the second half of 2018 -- a benchmark investors weren't sure Tesla could clear.

In mid-June, Tesla saw its stock price fall by 5 percent over concerns of a looming trade war between China and the U.S., and partly over the announced closing of 12 solar energy centers as part of a significant cost-cutting campaign.

After sluggish plant production growth, Tesla's Model 3 sedans are moving off production. If the company can consistently manufacture 5,000 Model 3s per week, Tesla executives expect gross margins to rise, moderately at first, but by 25 percent in 2019, which should result in an upswing for TSLA stock.

Pros of buying TSLA stock. It's hard not to get excited about a company like Tesla. Musk is a visionary CEO who is on a mission to make sleek, affordable electric cars available to the general population. He has legions of admirers and his Twitter feed is a must-read for automotive enthusiasts and investing professionals alike.

With a market capitalization of $56 billion, Tesla is bigger than the Detroit automakers General Motors Co. ( GM, $55.6 billion) and Ford ($44.2 billion). Its stock outperformed both of those companies so far this year, earning 7.6 percent. Both GM and Ford are in the red for 2018.

Musk dreams big and then acts on his impulses. He owns SpaceX, which makes rockets and rocket engines, and has the stated goal of reducing the cost of spaceflight and sending humans to Mars. He wowed the market in November by unveiling the sporty Tesla roadster, and then made more headlines months later launching one on a SpaceX rocket and sending photos back to Earth of an astronaut suit seated behind the wheel as the red sports car floated in space.

Musk also is working on a high-speed transportation system called Hyperloop that he says could connect Los Angeles to San Francisco, and could connect New York to Washington, D.C. He was granted a permit this year by the District of Columbia to begin digging on the northeastern side of the city. His Boring Company earlier this year made more waves by selling $500 flamethrowers to the general public -- another venture promoted by Musk on his Twitter feed -- to raise $10 million.

Cons of buying TSLA stock. Many stock experts are not enthusiastic about Tesla stock moving forward. Tesla has not yet turned an annual profit, and stock experts are concerned that TSLA stock has been inflated by production expectations that Musk and the company haven't been able fulfill.

Erik Gordon, professor at the Ross School of Business at the University of Michigan, says investors have to be "brave or delusional" to buy TSLA stock. "The company seems like an operational mess," he says. "Promised deadlines are missed. Manufacturing problems persist. Employees come and go. Things are bad enough that Musk suspects sabotage. It is a high-risk stock, and given the stock's price, it's not clear how high the reward can be."

[Read: Shouting CEO, Changing Rules: Inside Tesla's Model 3-Building Sprint.]

Investors also say it's hard to get a good handle on exactly where Tesla stands, performance-wise. Musk has famously been sleeping on a Tesla factory floor and erected a makeshift production tent in a parking lot to increase June production numbers. Reports circulated that Musk ordered mandatory weekend shifts and pulled workers from other Tesla production lines to hit his long-awaited production goal of making 5,000 Tesla Model 3s in a week.

But even as Musk publicly basked in the achievement this week, Tesla stock fell because investors and analysts don't believe Tesla can sustain those numbers.

"Tesla is the most dramatic company in the business," says Tom Nardone, a former Ford Motor executive and CEO at PriveCo Inc. "Elon Musk says a bunch of stuff which seem to indicate one thing, and then the quarterlies, which are legal documents filed with the U.S. Securities and Exchange Commission, say something completely different. He doesn't outright lie, but his statements are as humanly close to a lie as possible."

Nardone says that Tesla is "so far behind" in manufacturing the Model 3 that it is a wonder the stock hasn't completely tanked. "The only explanation I can find for why the stock hasn't cratered is that people that do own the stock have fallen under his charismatic spell and they believe what he is saying and even extrapolate from his words things that he hasn't said," he says. "It is almost a cult."

The bottom line on TSLA stock. Experts also say that Tesla is about to face increased competition in the luxury car market and that won't help the company stock either.

[See: The 10 Most Valuable Auto Companies in the World.]

"That's coming from companies who are ramping up their spending on research and development in the space, and who also happen to already be more efficient in making cars," says Asad Gourani, founder & CEO at AG Wealth Management, in Ann Arbor, Michigan. "Also, valuation-wise, there seems to be a disconnect between the stock price and the fundamentals of the company, Tesla is valued today at almost $57 billion, which is almost equal to GM's valuation, yet the company sells only a fraction of the cars that GM sells while not even having positive cash flows.

"It's hard to make an argument that the stock isn't already priced to a best-case scenario at these levels," he says.

Brian O'Connell is a contributing financial writer for U.S. News & World Report. A former Wall Street bond trader and the author of two best-selling books; "The 401k Millionaire" and "CNBC's Creating Wealth", he has 20 years experience covering business news and trends, particularly in the financial, technology, political and career management sectors. His byline has appeared in dozens of top-tier national business publications, including CBS News, Bloomberg, Time, MSN Money, The Wall Street Journal, CNBC, TheStreet.com, Yahoo Finance, CBS Marketwatch, and many more. Visit his web site at: https://brianoco.contently.com/. Or, visit this Amazon.com link for a list/review of some of his book titles. Reach out to him on LinkedIn.