The bear market in the technology sector has been brutal to companies like Tesla (TSLA 1.53%), which have historically traded at valuations well above stock market norms.
Amid the carnage, Tesla stock had three-quarters of its value wiped out from peak to trough, but it's off to a red-hot start in 2023 with a 38% gain as of this writing. Its 2022 full-year financial results (released Jan. 25) helped to reignite investors' appetite, especially as CEO Elon Musk was particularly upbeat on the company's prospects for 2023.
Tesla stock may already be a top performer so far this year, but here's why it's still a screaming buy.
NASDAQ: TSLA
Key Data Points
2022 was a monumental year for production, and 2023 could be even better
Tesla underwent its largest expansion in its history in 2022 with the opening of two new gigafactories, one in Austin, Texas, and the other in Berlin. They join the existing facilities in California and Shanghai, and have doubled the company's manufacturing capacity to two million electric vehicles per year.
Tesla is working to ramp up its new plants and managed to increase production 47% year over year to 1.37 million cars in 2022. But 2023 could be the year Texas and Berlin operate closer to full capacity with about 1.8 million units on the cards, based on the company's most recent guidance. Elon Musk has said Tesla could even hit two million cars if there are no external interruptions.
That would mean production growth above Tesla's ambitious annual target of 50%, which the company expects to meet every year for the foreseeable future.
But 2023 could bring further progress on the expansion front. Tesla just announced a $3.6 billion overhaul for its factory in Nevada, where it produces battery packs and other electric vehicle components. The plan features two new facilities at the same location that will increase existing capacity for batteries and components, plus serve as the main production hub for the new Tesla Semi truck, which began shipping in late 2022.
Tesla could hit a symbolic revenue milestone in 2023
Tesla's revenue growth has been just as impressive as its production growth during its rise to the top of the electric vehicle industry. But in 2023, analysts are predicting revenue will cross $100 billion for the first time in the company's history.
While that would be a great achievement, it would mark a slowdown in top-line growth to just 31% compared to 2022, when revenue rose 51%. Given the rapid growth in vehicle production and sales, how is that possible? Well, Tesla has been slashing prices on its cars, and analysts are factoring that into their calculations.
Notably, the fourth quarter brought margin compression, which is a natural consequence of price cuts. Tesla's automotive gross profit margin came in at 25.9%, about 470 basis points lower than the year-ago period. That could also be a drag on its earnings power.
With that said, on the fourth-quarter earnings call, Musk told investors customers are currently ordering vehicles twice as fast as Tesla can produce them, and January's order volume was the strongest in the company's history for this period. As it turns out, price cuts are having a phenomenal impact. Analysts' revenue estimates for 2023 might prove to be too low.
Tesla is a long-term story
It's tempting to focus on the latest quarterly or annual results, but Tesla has so much more to offer. By 2030, Musk envisions a company producing 20 million electric vehicles with the help of at least 10 additional gigafactories, so the next few years could be very busy in terms of expansion.
It's also important to focus on Tesla's other businesses like its solar power and battery storage segment, which generated $3.9 billion in revenue during 2022. The company deployed 6.5 gigawatt-hours of storage for the year, up 64% from 2021 and up 528% since 2018.
But one of its largest opportunities could be realized toward the end of the decade. Tesla plans to mass produce a humanoid robot, called Optimus, by 2027. With a price tag of $20,000, this could be a multibillion-dollar windfall that could change manufacturing and low-skill labor forever.
On the electric vehicle front, Tesla is set to unveil a new model at its investor day on March 1, which could help the company maintain a long-term edge over its competitors.
Despite the great run in Tesla stock year to date, its forward price-to-earnings (P/E) multiple is still under 30. While that's a premium to the tech sector average -- represented by the Nasdaq-100 index, which trades at a forward multiple of 23 -- it's still substantially lower than the valuation the stock commanded in 2020 and 2021 when it approached 100.
So, for all of Tesla's progress and potential, investors can still pick up the stock at an attractive price.
