Electric vehicles are a hot investment topic, and for good reason: Precedence Research estimates that the market could balloon from roughly $200 billion this year to as much as $1.1 trillion by 2030. Tesla (TSLA -1.11%) was the first mover, and various new companies are trying to follow in its footsteps.
But there's no need to complicate things; winners can keep winning. Tesla has carved out market share and has strong fundamentals and future growth opportunities, making it my top electric vehicle stock to buy and hold forever.
A head start on the competition
Electric vehicles weren't mainstream until Tesla launched the Model S in 2012. Roughly a decade later, electric is arguably the future of the automotive industry. Not only is Tesla widely recognized as the pioneer of electric vehicles, but competing automakers that built their companies on gas engines are trying to balance the past and future -- a challenge that Tesla doesn't have.
Perhaps due to its head start or CEO Elon Musk's fame, it's probably not a stretch to say that most people picture a Tesla when they hear the words "electric vehicle." Tesla's brand power is rivaled by few, which translates to a market share where it owns roughly two-thirds of the electric vehicle market in the United States. Tesla also has a growing presence in China, the world's largest electric vehicle market.
Don't underestimate the importance of Tesla's current market position. Manufacturing vehicles is tough to start with, and electric cars are very high-tech. Tesla's competitors are struggling to ramp up production -- growing pains that it already went through years back.
For example, Lucid Group, a new competitor that Saudi Arabia backs, just produced 2,282 units in the third quarter. Legacy automaker Ford, which Musk disclosed was Tesla's closest competitor in the third quarter, sold an estimated 18,257 electric vehicles. Both of those pale in comparison to Tesla, which made 365,000 units.
Tesla's market share has slipped some as competitors cumulatively bring alternatives to the market. Still, the company's so far ahead in production that it's hard seeing it giving up its dominance anytime soon.
Already a cash cow
Notably, Tesla isn't growing at the cost of profitability. Its free cash flow is $8.9 billion over the past four quarters, buffering a balance sheet with a net cash position of roughly $19 billion. That's a war chest of capital to fund new factories and develop new products. Plus, a strong balance sheet reduces the risk of needing cash during a recession.
LCID Free Cash Flow data by YCharts
You can see above that newer competitors like Lucid and Rivian Automotive are burning cash because they don't have enough production to make up for the costs of running factories.
Eventually, they could sell new shares to the market to raise money. This is called dilution; increasing the number of shares means that each share represents a smaller piece of the company-typically a bad thing for the share price. Investors probably don't need to worry about this as much with Tesla because the company generates so much cash at this point.
Years of growth ahead
Financially, Tesla looks like the company best equipped to navigate the short-term challenges of a bear market and potential recession. However, Tesla's eye for the future seals the deal as the electric vehicle stock to own for the long haul. Consider that virtually all of its competition is still simply catching up; new competitors and legacy automakers are just trying to establish a product line and grow production.
But Tesla's looking to the future with multiple irons in the fire. It's building an electric semi to capture opportunities in the commercial industry. The upcoming Cybertruck will open up the company to the passenger truck market. Tesla is years into working on autonomous driving and has aspired to someday bring automated taxis to market. Its renewable energy business could play a role in the energy grid of the future. Finally, Tesla recently announced Optimus, an android that could create an entirely new market opportunity.
Collectively, Tesla has the flexibility to go after several substantial market opportunities-multiple swings at-bat that makes the company somewhat unique. Of course, you can't know whether it will execute these opportunities or how long it will take. Tesla is infamous for missing timelines. But a long-term investor willing to give Musk and the company the time to bring their visions to life could reap the rewards of steady innovation. The company's financial stability and long-term ambition make the stock my favorite electric vehicle idea for the long term.
