Some companies elicit strong emotional reactions from both their bulls and their bears. Rather than simply following the data and attempting to make a rational judgment about such stocks as investments, investors wind up rooting for or against the company. Usually, their views will have something to do with the valuation, the management, or their opinions of those people who have equally strong -- but opposite -- takes on the company in question.
It's hard to think of a company that better exemplifies this than Tesla (TSLA 4.96%). But after years of analysts predicting its bankruptcy or accusing CEO Elon Musk of deception, the numbers are clear. Here are three charts that help explain why some investors are convinced that the electric vehicle leader is rewriting the rules and will come out on top.
Image source: Getty Images.
Overcoming challenges to maintain momentum
Auto manufacturers are facing headwinds on several fronts. First, supply chain constraints are making it hard to source materials -- especially semiconductor chips. In January, the U.S. Commerce Department called the shortages "alarming." Second, the tight labor market has become a problem, and it's projected to get worse. Finally, China's "zero COVID" policy has led the government in Beijing to impose new lockdowns recently in areas where cases were rising. Among those locales is Shanghai -- a metropolitan area with a population three times the size of New York City, and arguably the country's most important manufacturing hub.
Despite these issues, Tesla's production grew at a robust rate in the first quarter. Total revenue climbed 81% and trailing-12-month production topped 1 million vehicles.
The company was forced to shut down production at its Shanghai factory at the end of the quarter, but manufacturing there has since resumed. On this week's earnings call, Musk applauded the Shanghai team and suppliers, saying the company is on pace to meet its goal of a 50% production increase this year. Not surprisingly, he went even further, suggesting a stretch goal of 60%. The last quarter was difficult, but Tesla delivered.
Rapidly building manufacturing capacity
Some onlookers have criticized Tesla for the amount of money it has spent building huge factories all over the world. It was a fair criticism. The company had $6.5 billion in operating income last year and has accumulated $10 billion in debt. That's on top of nearly doubling its share count over the past decade to raise capital. In just the past three years, Tesla has plowed roughly $13 billion into capital expenditures. But it appears the money was spent wisely.
TSLA Capital Expenditures (TTM) data by YCharts
It's hard to argue with the results. Not only is production accelerating, but Tesla also began shipping vehicles from its gigafactories in Berlin and Texas in the past two months. The company just eclipsed 1 million vehicles produced over the past 12 months and has its sights set on as many as 20 million per year eventually. That partially explains why its stock price has increased nearly 15-fold from the beginning of 2019 through the end of 2021. For a manufacturer, that scale means one thing -- profits.
Scale is leading to higher profitability
Wrapping up 2021, Musk said the company's focus this year would be scaling output. What it has already achieved has led to the highest profitability in the auto industry.
TSLA Operating Margin (TTM) data by YCharts
In the latest update, Musk pointed to lessons learned from Shanghai as one reason he expected to ramp production capacity in Berlin and Texas even faster. It might be time for skeptics to rethink their position.
Updating the mental model
Of course, humans aren't really wired to change our minds readily. Numerous studies of cognitive bias have revealed that it's tough for people to update their opinions even when presented with incontrovertible proof that they are wrong.
For those of us who -- for whatever reason -- questioned Tesla's prospects, the data in its favor keeps piling up. The company is executing well in a challenging environment while laying the groundwork for massive increases in production and profits. And it's already the most profitable high-volume car company in operation -- at least, based on its income statement.
Tesla shares could go to the moon from here or come crashing down to earth -- the market is unpredictable. But investors can't deny that Tesla has largely cleared the hurdles it needed to so far, and it looks poised to leap those ahead of it, too.
