Tesla Stock: Navigating Shariah Compliance for EV Investors

Syed Bukhari

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Is Tesla Stock Shariah compliant / Halal?

Tesla Stock: Navigating Shariah Compliance for EV Investors –Tesla is an American multinational automotive and clean energy company that designs and manufactures electric vehicles, stationary battery energy storage devices, solar panels and shingles, and related products and services. The company operates in two reportable segments: automotive and energy generation and storage.

The automotive segment includes the design, development, manufacturing, sales, and leasing of high-performance fully electric vehicles, as well as sales of automotive regulatory credits. It also includes services and other revenue streams, such as non-warranty after-sales vehicle services and parts, sales of used vehicles, retail merchandise, paid Supercharging, and vehicle insurance revenue.

The energy generation and storage segment includes the design, manufacture, installation, sales, and leasing of solar energy generation and energy storage products and related services, as well as sales of solar energy systems incentives.

Is Tesla Stock Shariah compliant / Halal?

Tesla Stock -Shariah Compliance Analysis

To determine if Tesla’s stock is Shariah compliant, we need to analyze the company’s revenue streams and financial ratios based on Islamic finance principles.

 Business Activities

The core business activities of Tesla, which are the design, manufacture, and sale of electric vehicles and related energy products, are generally considered permissible (halal) under Shariah law. Electric vehicles and renewable energy solutions are seen as beneficial to the environment and society, aligning with the principles of Islamic finance.

 Tricky Revenue Streams

While the majority of Tesla’s revenue comes from its core business activities, there are a few areas that require closer examination from a Shariah perspective:

1. Services and Other Revenues:

This segment includes revenue from non-warranty after-sales vehicle services and parts, sales of used vehicles, retail merchandise, paid Supercharging, and vehicle insurance revenue. Since no detailed breakdown of this segment is provided in Tesla’s financial reports, it is estimated that approximately 20% of this revenue may come from vehicle insurance, which could be considered non-compliant.

2. Tesla Tequila:

Tesla has previously sold limited quantities of Tequila as a promotional product. While the revenue from this activity is likely negligible, the sale of alcohol-related products would be considered haram (prohibited) under Shariah law.

Financial Ratios

In addition to the qualitative analysis of Tesla’s business activities, we need to evaluate the company’s financial ratios to determine its Shariah compliance.

 Interest-Bearing Debt to Total Assets Ratio

The total interest-bearing debt should not exceed 33% of the company’s total assets. As of September 30, 2020, Tesla’s total interest-bearing liabilities were $13,733 million, which represented 30% of its total assets of $45,691 million. This ratio is within the Shariah-compliant threshold, and Tesla passes this criterion.

Alternatively, the interest-bearing debt can be compared to the company’s market capitalization, which should also be under 33%. Tesla’s total interest-bearing liabilities of $13,733 million represent only a small fraction of its market capitalization of $783.12 billion, well within the Shariah-compliant limit.

 Illiquid Assets to Total Assets Ratio

Shariah-compliant companies should have at least 20% of their total assets invested in illiquid assets. Tesla’s illiquid assets, which include property, plant, and equipment, as well as intangible assets, amounted to $24,217 million, representing 53% of its total assets of $45,691 million. This ratio exceeds the 20% minimum requirement, and Tesla passes this criterion.

Factors to Consider for Halal Investing

When evaluating the Shariah compliance of a stock, it’s important to consider the following factors:

1. Business Activities: Ensure that the company’s primary business activities are halal and do not involve the production or sale of haram (prohibited) products or services, such as alcohol, pork, or gambling.

2. Interest-Bearing Debt: The company’s interest-bearing debt should not exceed 33% of its total assets or market capitalization.

3. Illiquid Assets: At least 20% of the company’s total assets should be invested in illiquid assets, such as property, plant, and equipment.

4. Ethical and Environmental Impact: Consider the company’s impact on society and the environment, as well as any ethical concerns related to its operations or product.

5. Ongoing Monitoring: Regularly review the company’s financial statements and business activities to ensure continued Shariah compliance, as the situation may change over time.

By following these guidelines and conducting thorough research, investors can identify Shariah-compliant stocks that align with their religious and ethical beliefs, while also potentially achieving investment returns.

FAQs

Q: Is investing in Tesla halal?

A: Yes, investing in Tesla is generally considered halal (permissible) under Shariah law, as long as the investor conducts due diligence and avoids companies with riba (interest) and haram (prohibited) products or services.

Q: Is Tesla stock halal?

A: Yes, Tesla stock is considered halal, according to the analysis presented in this article. The company’s core business activities, financial ratios, and overall operations are largely Shariah-compliant.

Q: Is Tesla Shariah-compliant?

A: Based on the information provided, Tesla can be considered Shariah-compliant, as it does not engage in any major haram (prohibited) activities and meets the key financial ratios required for Shariah com

Q:Is it Halal to buy Tesla shares?.

Tesla Stock is in part halal due to the fact Tesla is ordinarily involved in halal industries, it does have subsidiaries which can be involved in non-halal industries along with alcohol, and its debt-to-assets ratio exceeds the threshold for halal investing

Remember, it’s always important to conduct your own thorough research and seek guidance from Islamic finance experts when evaluating the Shariah compliance of any investment opportunity.

Conclusion

Based on the analysis of Tesla’s business activities and financial ratios, the company appears to be largely Shariah compliant. The core business of manufacturing and selling electric vehicles, as well as related energy products and services, is considered permissible under Islamic finance principles.

While there are some minor concerns regarding the “Services and Other Revenues” segment, which may include a small portion of revenue from vehicle insurance, and the historical sale of Tesla Tequila, these issues are estimated to be non-material and do not significantly impact the overall Shariah compliance of the company.

Therefore, it can be concluded that Tesla’s stock is generally considered Shariah compliant, and many Islamic investment companies have included it in their investment portfolios.