Is Tesla stock worth its “extreme” valuation?

Is Tesla (Tesla Stock Quote, Chart, News NASDAQ:TSLA) worth it?

That question has been hounding investors for years now, with the intensity only building as the stock soars into the stratosphere.

Yet even as the more established car makers jump into the electric vehicle space, it’s clear that Tesla has positioned itself as the way of the future. And so far, says portfolio manager Paul Harris, that’s made all the difference.

“Tesla is the brand name that people know about,” said Harris, partner at Harris Douglas Asset Management, in conversation with BNN Bloomberg on Monday. “There are many companies [including] Ford and GM — all the major car companies are coming up with electric vehicles. But I think the difference is that Tesla, they make a really beautiful car and I think that it has grabbed the imagination of most people who are looking to buy an electric vehicle, as opposed to the [Chevrolet] Volt or something like that. So I think that's the issue.”

“I can’t talk to the valuation which is very extreme, but they know what they want to be and I think it’s difficult for the GMs of the world and the Fords of the world because they're kind of stuck in between these two worlds. They can’t get rid of their combustion engine because it feeds a lot of their growth,” Harris added.

Tesla’s share price is once again taking off, just weeks after a five-for-one stock split and then a major pullback in tech stocks caused TSLA to lose, at its worst, 30 per cent of its value in a matter of days.

Tesla finished last week at $372 per share, which was still up more than 340 per cent for 2020 alone, as investors continue to bet on Tesla’s ability to not only dominate the electric vehicle market for the foreseeable future but to grow its share of the entire car industry, gas-powered cars included. With a market cap towering above all of the world’s automakers — many of whom sell tens of millions of vehicles each year compared to

Tesla’s numbers in the hundreds of thousands —its current valuation by some accounts would call for practically every car on the road to soon be a Tesla.

Harris argued that while the e-vehicle market will continue to grow, the gas-powered car is not going away anytime soon, meaning Tesla’s growth will have its limits going forward.

“You’re seeing more and more of these companies dedicating more and more capital to electrification, and I think it will be a larger part of the car industry, and there's going to be more pressure globally and especially in Europe to force down emissions on the car side and there is a lot of subsidizing of the car industry in Europe on the electrification side, too,” Harris said.

“That’s the direction,” Harris said, “[But] hydrocarbons are going to be around for a long time. And electrification is not taking over the car industry. I think down the road you’ll get a different balance than exists today, where electrification can be certainly a larger percentage of the automobile industry than it is today. But I think that hydrocarbons are going to be around for quite a while still.”