Electric vehicle (EV) stocks were a hot commodity in 2020 and part of 2021, but investors' enthusiasm has mostly cooled as of late.
And who can blame them? Supply chain issues, rising material costs, inflation, and a potential recession have wreaked havoc on EV stocks over the past year.
But the slowdown that EV stocks are experiencing right now is likely due to temporary speed bumps. EVs are well on their way to becoming a staple in the automotive industry, and nearly every major carmaker is betting on them.
For investors looking for an electric car stock that has a very solid business -- and that's profitable! -- Tesla (TSLA +3.87%) still looks like a top pick. Here are three reasons.
Image source: Tesla
1. Production and deliveries continue to expand
While smaller EV start-ups are trying to ramp up their production and vehicle deliveries, Tesla is humming along.
The company recently reported its fourth-quarter production and delivery figures (its fourth-quarter financial results will be released on Jan. 25). Vehicle production spiked 44% to 439,701, and deliveries jumped 31% to 405,278 in the quarter.
Just as impressive was the fact deliveries for the full 2022 year were up 40% compared to 2021, reaching 1.31 million.
Tesla isn't immune to production issues, but the company has done a good job bringing new factories on line -- in Austin, Texas, and Berlin last year -- and ramping up production at existing plants.
The production and delivery increases will help Tesla reach its target of 2 million vehicles produced in 2023, and could eventually help the company achieve CEO Elon Musk's goal of selling 20 million vehicles annually by 2030.
NASDAQ: TSLA
Key Data Points
2. The EV market is growing fast
Tesla is already the leading EV maker in a rapidly expanding market. Consider these estimates for EV growth in the coming years:
- The EV industry will be worth an estimated $1.4 trillion by 2027, Statista says.
- An estimated 60% of all new car sales in 2030 will be EVs, according to the International Energy Agency.
- A TrueCar survey in September showed that nearly 60% of Americans are interested in buying EVs, up 7% from earlier in 2022.
- The Inflation Reduction Act provides incentives of up to $7,500 for buying certain EVs. Some of Tesla's vehicles are once again eligible for an EV tax credit.
These estimates and stats don't guarantee the success of EVs or Tesla over the coming years, but they are all strong indicators that the automotive market's transition to EVs is well underway. And with Tesla a top EV maker, the company is in a great position to benefit.
3. Tesla's revenue and earnings are growing
In Tesla's third quarter (ended on Sept. 30), the company's revenue increased by 56% to $21.4 billion. The recent revenue increase is part of an impressive trend of Tesla's sales growth over the past five years (see chart below).
Image source: YCharts.
Not only are sales increasing, but Tesla is also profitable -- a status not many EV companies enjoy. In the third quarter, the company's non-GAAP (adjusted) earnings increased 69% to $1.05 per share.
And Tesla has enviable automotive gross margins of 27.9%, among the highest in the industry. While many small EV start-ups are losing money fast, Tesla appears to have hit its stride with vehicle sales and profitability.
A few things investors should keep an eye on
Tesla's stock isn't cheap. Its current price-to-earnings (P/E) ratio is 38, compared to two other automakers that are making big bets on EVs -- Ford and General Motors -- with P/E ratios below 6.
Also, Musk's current focus on Twitter and the drama surrounding his management of the social media company aren't helping Tesla shareholders and have proved to be distractions.
But I think over the coming years, based on the three reasons listed above, Tesla's stock could bounce back from its current drop and continue to hold a lot of potential for long-term investors.
