How I earned a 10x return in 10 years for my $1M+ investment portfolio with Tesla

Tesla has been one of my best investments in my investment portfolio since I entered back in 2015.

At the time, I had just begun my investing journey in earnest. I had put some of my savings into VOO and other S&P tracking indices, but I wanted to invest in high-growth stocks (other than my Google RSUs).

The 10x10 Rule For Entering Growth Stocks

That’s when I developed my 10x10 rule for growth investing: I would only take a bet on something that I thought could deliver at least 10x returns in 10 years.

Tesla fit that 10x10 rule.

Even today, when I make individual stock bets, I don’t read through hundreds of pages of analyst reports or digest 100+ metrics.

Instead, I ask myself 3 simple questions:

1. Is this industry the future?

2. Is this company operating in a segment that captures value?

3. Is this company a dominant market player?

Here’s how I decided to take a bet on Tesla:

1) Is this industry the future?

• Changing consumer behavior

  
  Ideas don’t sell themselves - least of all if they are designed to appeal to a very narrow circle of people that few consider worthy of emulation. But when you can become a status symbol amongst a niche of users like tech bros, you’re probably onto something.
  

  Silicon Valley was the perfect community for Tesla. It was a place where little-known potential superstars were just discussed casually over dinner or Saturday afternoon in Dolores Park.
  
  Back then, Tesla was just starting to become the talk of the town (Elon proposing Hyperloop, Tesla building new Gigafactories). But a big reason why I decided to invest in Tesla was my first manager at Google.

  
  This was a man who loved his Tesla, not just owning it, but talking about it and driving it around everywhere like he built one.

  
  It’s worth pointing out that by then, electric vehicles (EV) were not new. In fact, they were seen as the paper straws of the car world. Good for the environment, but an inferior product.

  
  Tesla was the first EV that cracked the “cool” appeal to a certain user psyche like my Silicon Valley boss. And when that happens, that typically indicates that a company might be onto the next big thing.

• Government support (e.g., subsidies) for EVs and Tesla

  
  People respond to incentives - and few incentives are more powerful than “free” or cheap money.

  
  Tesla vehicles benefited from federal tax incentives for electric vehicles, which offered up to $7,500 in tax credits for buyers. Additionally, various state-level incentives further promoted the adoption of Tesla's EVs.

2) Is this company operating in a segment that captures value?

• Tesla's business model is based on direct sales and after-sales service, not franchised dealerships - which is very different from how the rest of the auto industry operates. This D2C model cuts out the middleman, and creates a differentiated customer service experience - adding to the brand value.

3) Is this company a dominant market player?

• Tesla was positioned as market leader and also seen as “cool” in its identity compared to the other EVs (like my manager demonstrated)

• The other part that made Tesla unique is that they invested in a charging network - one of the biggest barriers to electric vehicle adoption

• And the thesis broadly played out! A lot of the mainstream broad adoption of EVs owes itself to Tesla

  • Tesla consistently ramped up production and deliveries of its vehicles. From the Model S and Model X to the more affordable Model 3 and later the Model Y, Tesla's ability to scale production and meet growing demand was a significant driver. By 2020, Tesla produced and delivered nearly 500,000 vehicles, a substantial increase from earlier years.

Tesla has been a good run, and it has indeed delivered 10x within 10 years for my investment portfolio. But the stock has become a lot more volatile in recent times and one of the questions people wonder about Tesla is whether it is a tech company, or a tech-enabled car company?

Anyone familiar with the rise and fall of WeWork can tell you this one factor can make all the difference to its valuation.

To date, Tesla has been valued as a tech company while still having some of the margin challenges of an automotive company (very different than the SaaS margins you may see).

Much of its growth had also coincided with the rise of retail investing platforms like Robinhood, especially during COVID where people had little better to do than to punt on companies which were trending on social media.

Exits Are Just as Important as Entries

Even though it has given me amazing returns in the last decade, it’s been a source of my frustration as well, as I am still holding onto the stock during volatile times.

I didn’t have a proper exit strategy for my Tesla stock. My startup housemate Raman and I had a fun little bet going on when he was shorting Tesla while I was long Tesla in the last half year and he’s been profiting off of some of those.

In future articles, I’ll write more about my current thinking on Tesla, deep dive on the last 2 years of performance, and what I wish I did better.

Learnings

• Be curious and eager to learn about emerging trends - insights can come from anywhere, including the car that your boss likes to drive around.

• Plan exits as much as your entries - You need to invest for the long run, which can take as long as a decade to materialize. But nothing lasts forever, and new opportunities are always emerging. One way you can do this is to note down your entry thesis like the 3 questions I answered. When your original answers no longer feel as true, you should plan to either reduce, or exit your original position.

I hope you’ve learned something from how I pick high-growth investments. I’d love to hear about your approach too!