It's been tough sledding for Tesla (TSLA 14.43%) in 2024. The electric vehicle (EV) giant's stock has been declining for the greater part of a year, and is now down more than 50% from its all-time high of $407. However, for those with a long-term investing horizon, Tesla remains an ideal growth stock.
As Tesla management stated on its most recent earnings call, the company is currently between two growth cycles. During the prior one, the Model Y became the world's best-selling vehicle and the company became the world's most valuable automaker. In the growth cycle to come, CEO Elon Musk believes it could become the most valuable company in the world.
Here are three things that investors need to know if they are considering buying shares of Tesla as it prepares for that hoped-for growth cycle.
Image source: Tesla.
1. Tesla will continue expand its global footprint
Tesla is one of the few electric vehicle manufacturers with a truly global presence. The company has factories in Germany, China, and, of course, the United States. In addition, it is currently in the beginning stages of construction for a new factory in Mexico. Yet this next growth phase will consist of entering new markets where EV adoption is still relatively low. Next up for Tesla are its entrances into India and Southeast Asia.
India -- the world's most populous country and third-largest vehicle market -- is viewed by many companies as the crown jewel of EV markets. In just the last few months, Tesla spearheaded a push to convince India's government to lower the import duties on EVs, paving the way for a new factory there in the coming years. After several meetings between Tesla executives and top Indian officials, a Tesla factory in India seems to be a matter of "when," not "if."
Building off the momentum in India, Tesla also plans to enter the burgeoning Southeast Asian market. As it currently stands, Thailand seems to be the leading candidate for a new factory. While negotiations are still at an early stage, the Thai government has already disclosed that they have offered Tesla a robust incentive package to set up shop in the country. Tesla could follow its already-proven blueprint in several emerging economies and tap into markets that are only in the beginning stages of EV adoption.
2. The next-generation vehicle could be scrapped
Since 2022, Tesla has publicly disclosed plans to develop a significantly more affordable EV. In the Q4 2023 earnings call, CEO Elon Musk touted that Tesla will unveil a sub-$25,000 car known as the Next-Gen vehicle or Model 2 sometime in 2025.
The vehicle would reportedly feature an innovative design that would streamline the manufacturing process and help boost Tesla's production output. However, a recent report from Reuters published on April 5 disclosed that Musk was nixing the plans for the Model 2.
In light of considerable progress made by Chinese competitors like BYD to mass-produce inexpensive vehicles, Reuters reported that Musk held an all-hands meeting in late February, announcing that the company is pivoting its focus from the Model 2 to move full steam ahead on what he believes to be a more lucrative endeavor—robotaxis.
While Musk claimed that the Reuters article was false, he subsequently followed up with a post on X stating that Tesla would unveil its self-driving robotaxi on August 8. To clarify just how impactful the robotaxi business could be, Ark Invest chief Cathie Wood projects that robotaxis (the whole industry, not specifically Tesla's piece of it) could generate up to $500 billion in revenue worldwide. That's more than 10 times Tesla's $97 billion in 2023 revenue.
While Musk is known for being overly optimistic about technologies and timelines, several catalysts he has anticipated for years are beginning to converge. Considerable progress continues to be made on Tesla's full-self-driving software, and its supercomputer, Dojo, which is used to train its autonomous driving, appears to be growing more capable by the day. Should this trajectory be maintained, Tesla's coming growth cycle could be unlike any the world has ever seen.
3. Investors must adjust their expectations
As ambitious as Tesla's goals are, it's no secret its stock has been beaten up recently. Its down more than 35% year to date and nearly 60% off its all-time high.
To be honest, the share price performance probably won't get better anytime soon. Those years of monumental gains are likely in the rearview mirror -- at least for now. The culprit is the weakened EV market.
Higher interest rates have boosted the real cost of buying any car. As such, while analysts expect the EV market to grow in 2024, it will grow more slowly than in years past. While this isn't great news for Tesla, there's some consolation in the fact that this isn't a problem only Tesla faces. Virtually every other major EV maker has felt these impacts as demand stagnates.
To provide some context, investing in Tesla today could be akin to investing in it pre-2020. Between 2015 and 2019, when it was building for its first growth cycle, its stock only climbed from $14 to $28. While that doubling in price was a strong showing, it was nothing compared to the massive run-up the stock had in 2020 and 2021, when it increased by more than 1,250%. While the days of Tesla growing by more than 1,000% are in the rearview, assuming that Tesla's stock doesn't have more room to grow as these new technologies develop would be a gross mistake.
During this challenging stretch, investors need to temper their expectations. If you plan on investing in Tesla today, it must be with a long-term outlook. As the company focuses on developing products that will fuel the next growth cycle, its performance will likely be lackluster in the short-term as it prioritizes future growth. However, this offers a rare opportunity to invest in one of the world's most innovative companies.
