Less than 12 months ago, Tesla (TSLA -1.06%) stock reached an all-time high of $414.50 -- adjusted for its recent 3-for-1 stock split. But it has since declined by more than half, touching a new 52-week low of $204.16 last week amid a slowing economy and the deepest bear market in the technology sector since the 2008 Global Financial Crisis.
But Tesla still holds plenty of promise as a business, especially over the long term. Here's why investors should use the dip in its stock as a buying opportunity.
Image source: Tesla.
Tesla isn't just another car maker
Tesla's valuation is often the source of fierce debate on Wall Street. The company is worth about $680 billion, which means it's 14 times the size of Ford Motor Company, for example -- despite Ford selling 4.1 million cars over the last four quarters, compared to Tesla's 1.2 million.
However, the two car makers are not an apples-to-apples comparison. Tesla has a discernible first-mover's advantage in the electric vehicle space, with an annual production capacity of 2 million units already, a level Ford doesn't expect to reach until 2026.
The company's innovative manufacturing process is also the envy of its largest competitors, including Volkswagen Group, which says Tesla is the benchmark in that department. Why is that important? A more efficient production process means lower costs and more profit, and Tesla currently maintains the highest automotive gross profit margin of any other car maker. It came in at 27.9% in the recent third quarter of 2022 (ended September 30); for comparison, Ford's is currently 15.7%.
That alone warrants a higher valuation for Tesla, as investors should expect the company to out-earn the competition in the long run.
But Tesla is also a leader in self-driving software technology, and by some estimates that market could be worth over $2.1 trillion by 2030. With the company's fully autonomous robotaxi slated for release in 2024, it will potentially reclaim pole position on that opportunity. This is a technology that other car manufacturers could take far longer to crack, because it requires years' worth of real-world data.
Then there are Tesla's other businesses like residential solar power generation and storage, the demand for which is so high that the company is struggling to keep up. And at Tesla's recent artificial intelligence (AI) day, it revealed a new humanoid robot called Optimus that could change the workforce forever.
Tesla is just getting warmed up
This has been a big year for Tesla. It opened two brand new gigafactories in Texas and Germany that doubled its previous annual production capacity of 1.05 million electric vehicles to 2 million. But recent comments by Elon Musk suggest this is merely the beginning of Tesla's global domination.
The eccentric CEO outlined ambitions to produce 20 million cars annually by 2030 from as many as 12 additional gigafactories. What could that mean for its revenue?
Wall Street analysts are predicting Tesla will generate about $120 billion in sales during 2023, and we know the company will likely be producing vehicles at a run rate of 2 million per year. So if that production figure rises tenfold, Tesla's annual revenue could exceed $1 trillion by 2030 -- assuming vehicle prices remain consistent with today's levels.
Of course, there are significant risks to those estimates, and competition is probably the biggest. Micron Technology, which makes computer chips for electric vehicles, predicted that 100 new models would hit the market in 2022, so the question is how much share Tesla can maintain in the long run. That's the big unknown.
But there's also potential upside for Tesla
Take Optimus, for example. Aside from the obvious pie-in-the-sky applications for humanoid robots inside the home (we've all seen the movie I, Robot), Optimus could change the face of modern manufacturing. Many of the low-skill jobs that companies are struggling to fill today could theoretically be completed by advanced robots, and they can operate around the clock.
Optimus should hit the market in 2027, and Musk intends to eventually sell millions of units, so with a price tag of $20,000, this opportunity could be worth billions of dollars.
Then there's the robotaxi business, which could change mobility forever. The expectation is that Tesla's model won't require any human intervention whatsoever -- it may not even have a steering wheel or pedals -- so it could revolutionize the way we move around, and upend the logistics business.
Tesla stock is down 41% year-to-date, but focusing on what might happen in the next few months, or even next year, is short sighted given the sheer number of opportunities this company could unlock over the next decade. That's why, irrespective of the economic environment and shaky stock market right now, investors should consider taking advantage of the dip in Tesla stock.
