Tesla (TSLA 0.88%) is one of those stocks that's pretty divisive in the investing world. Most investors either love it or hate it. But one thing you can't deny is that the company's stock has been massively successful.
Still, with rising competition in the electric vehicle space from both EV-specific companies and traditional automakers, many investors are wondering if Tesla's stock is worth the risk -- not to mention the stock's high valuation.
I think that it is and there are two reasons why investors may want to consider adding small Tesla positions to their portfolios.
Image source: Tesla.
The EV market has lots of room for more growth
While EVs may not seem like a novelty in the automotive market anymore, they are still very far from common. Research firm Canalys recently found that EV sales accounted for just 9% of all global passenger car sales in 2021.
Should that small percentage worry inventors? Not at all. Because before this decade is complete, EVs will account for 48% of vehicle sales according to Canalys' estimates.
Even if these estimates are a little off, there's still a potentially huge surge in electric vehicle sales on the horizon.
The great news for Tesla investors is that the company is already a global EV brand with factories and a sales pipeline in the largest EV markets, which are the U.S, China, and Europe. As EV sales grow across the globe, Tesla has already laid the groundwork to benefit from consumers' shift to battery-powered vehicles.
Tesla's early lead won't be easy to overcome
If Tesla were just getting started with building and selling EVs, then the case could be made that the company may not be able to fully take advantage of the EV market's growth in the coming years.
But that's not the case at all. Tesla has slogged through some difficult years of production, but much of its early hiccups appear to be in the rearview mirror.
Case in point is the company's recent vehicle production figures. Tesla produced an impressive 305,000 vehicles in the first quarter, up nearly 70% from the year-ago quarter.
That figure may still be small when compared to production numbers of traditional automakers, but if you compare it to other EV-specific brands, it's actually quite good. Consider that the electric truck and SUV maker Rivian Automotive -- which is backed by both Ford and Amazon -- is facing production headwinds right now, and says it will produce just 25,000 vehicles for all of 2022.
NASDAQ: TSLA
Key Data Points
That's not a knock against Rivian -- I actually think the company could be a good long-term EV bet -- but it shows just how far ahead of the EV competition Tesla is.
Sure, traditional automakers who are building EVs will challenge Tesla. But the company's expansion of factories should help it with that. Tesla just brought two new factories online in Texas and Germany, and Tesla CEO Elon Musk said on the company's recent earnings call that this year's vehicle production could increase by as much as 60% compared to 2021.
It's also important to note that Tesla doesn't need to match the big automakers' production numbers. It just needs to continue growing right along with the expanding EV market as it's already doing.
Keep this in mind
Tesla's stock likely won't put up the same returns it has in the past, but with the company's current lead in the burgeoning electric vehicle market, Tesla has the potential to continue growing at a healthy clip and potentially outpace the gains of the broader market over the next few years.
