Cathie Wood has been one of the biggest Tesla (TSLA 4.96%) bulls on Wall Street. The stock has been at or near the top holding in several exchange-traded funds (ETFs) run by Wood. But Wood was still a seller of Tesla shares beginning last fall when the stock was near its highs and again in the spring of this year.
Wood's trading has certainly been timely, buying back shares when the stock dipped and selling some off after it rose higher. That's why investors should note that Wood has been buying again in October, including another 66,190 shares for the ARK Innovation ETF the day after Tesla reported third-quarter earnings. Here are three good reasons why Wood is in bull mode with Tesla stock again -- and why you should be too.
Cathie Wood likes growth
Wood's latest buy came after the stock sank following Tesla's Q3 report. Some analysts were focusing on the admission by management on the earnings call that it expects to come up short of the 50% growth goal for 2022 vehicle deliveries versus last year. Importantly, however, Tesla still projects it will meet that goal for vehicle production. The difference will be due to shipping bottlenecks the company has been experiencing.
In Q3, Tesla produced 22,000 more vehicles than it delivered due to those logistics issues. But those cars have buyers and aren't just going to inventory. Whether customers take ownership in one quarterly period versus another shouldn't matter to long-term investors. And it's not just production that is growing at a fast rate. Total revenue grew 56% year over year in Q3 and net income more than doubled.
Profitability remains strong
Another concern for some investors is how Tesla's profit margins will hold up as competitors start to enter the market en masse. Automotive gross margin did, in fact, drop 258 basis points year over year. That's not overly surprising as supply chain constraints and rising material and labor costs increase expenses for companies in the automotive sector.
But Tesla's automotive gross margin held steady at 27.9% versus the prior quarter. That implies that the company is making up for added expenses. Ford recently warned investors that it expects an extra $1 billion in "inflation-related supplier costs" in Q3 alone. Tesla has raised prices on its products, and investors should take it as a good sign that those price hikes are helping and are also not sapping demand.
Image source: Tesla.
Contributions from other products
Some Tesla critics point to the fact that the company has a limited product lineup that hasn't been updated for years. But the electric Semi Truck will begin deliveries on Dec. 1 to its first customer, PepsiCo. The Cybertruck is also on the "final lap," according to CEO Elon Musk, and should begin deliveries next year. Down the road, Tesla is expected to introduce a lower-priced electric vehicle (EV) that will expand its product line of passenger vehicles, too.
Musk also told investors the company is working as quickly as possible to increase battery-production capacity. Its energy division also includes battery storage and solar rooftops, and has more demand than it can supply. Sales from that division represented 5% of total revenue in Q3 as its energy-storage deployments jumped 62% year over year.
All of that should result in many years of growth to come from different places for Tesla. Some investors may be concerned about the current state of the economy. This week, Musk commented on that, calling Tesla's business "recession resilient" due to the global momentum transitioning to electric vehicles.
Cathie Wood may do a lot of buying and selling in her funds, but individual investors should be looking at where the company will be years from now. Tesla looks to be well positioned. Its valuation remains high with a trailing-12-month price-to-earnings (P/E) ratio around 60. But if Tesla continues to grow production and net income at these levels, those long-term investors who follow Cathie Wood's lead and buy at current price levels would seem to be making a good investment.
