Tesla (TSLA +0.69%) shares are on fire this year. After a horrendous 2022, where shares fell more than 65%, the stock has exploded higher this year and is up 85% year to date.
Is there still time for investors to scoop up shares of Tesla? Let's have a closer look.
Image source: Getty Images.
Tesla delivered excellent quarterly results as vehicle production continued to ramp up
In the latter half of 2022, there was much concern that Elon Musk's purchase of Twitter would hurt Tesla's execution if the mercurial CEO became distracted with his new social media project. However, Tesla's magnificent fourth-quarter 2022 earnings results have poured cold water on that narrative.
The company blew away expectations with the following notable highlights:
- Highest-ever vehicle deliveries of 1.31 million in 2022
- Record quarterly highs in revenue, operating income, and net income
- Earnings per share of $1.19, vs. $1.13 consensus estimates
NASDAQ: TSLA
Key Data Points
About 85% of Tesla's revenue came from automotive sales, so Tesla needs to continue pumping out vehicles -- and it's doing exactly that. With 1.31 million vehicle deliveries in 2022, the company's sales surged 40% over 2021.
Tesla's total vehicle production capacity now stands at around 1.9 million across its factories in Shanghai, California, Texas, and Germany. Furthermore, the company delivered the first of its Semi vehicles in December, and 2023 should see the first deliveries of its Cybertruck. Those new additions to the lineup will only boost the company's overall sales figures.
As a result, Tesla's long-standing goal of producing and selling 20 million vehicles per year -- which would make it the largest vehicle manufacturer -- seems plausible. The company is closing in on the top 10 in worldwide sales, growing much faster than its competitors.
Higher volumes allow Tesla to squeeze the competition
Expanding production isn't Tesla's only goal. It's after something far more important: Dominating the competitive landscape. Tesla already has -- by far -- the best gross margins in the automotive industry.
TSLA Gross Profit Margin data by YCharts.
These fat gross margins allow Tesla to lower prices as production levels increase -- something the company has already done in 2023. By contrast, the company's competitors can't respond in kind -- at least not without threatening to sell their vehicles at a loss. For instance, General Motors has already cut the price of its Cadillac Lyriq, even though the company only sold 122 of them in 2022.
High pension costs, aging factories and supply chains, and a complex dealership structure are some of the challenges legacy automakers face in boosting their margins. This makes it difficult to thwart Tesla's rise.
Is Tesla a buy?
Tesla is hitting its production targets and crushing the competition, but is that already baked into its share price? Yes and no.
Shares have skyrocketed in value so far this year as it's become clear that the company is firing on all cylinders. Even so, shares remain down 35% from one year ago. The concerns about Musk's Twitter purchase -- combined with his personal sales of Tesla stock -- may have given investors a tremendous opportunity.
Shares trade at a price-to-earnings multiple of 55. That's expensive -- but historically cheap for Tesla. Besides, with revenue growth of 37% and a return on equity of 32%, you're paying up for quality. At any rate, Tesla stock still looks attractive, and long-term investors will likely be rewarded for buying now.
