When you want to track what stocks are popular among retail investors, one good gauge is Robinhood Markets' Investor Index, which tracks the 100 most commonly held stocks among users of the popular Robinhood trading platform. And near the top of the list is electric vehicle (EV) maker Tesla (TSLA 12.06%).
The vehicle manufacturer has become a behemoth in the EV market, and the health of the company is often used as a barometer for the rest of the industry. Here's what the company is doing right and why it could trounce the market over the long run.
Image source: Tesla
Tesla's productivity was all charged up last year
Tesla had a phenomenal 2022, producing 1.36 million vehicles -- up 47% from the previous year. Just as important as that production increase is the fact that the company delivered nearly as many vehicles in the year as it produced -- 1.31 million -- indicating that it is adept at turning vehicle production into vehicle sales.
On that front, Tesla's 2022 annual revenue figure delivered as well. The company generated $81.5 billion in sales for the full year, up 51% from 2021. And those sales gave the company's earnings a jolt, with net income more than doubling to $12.6 billion.
Tesla is on track for a strong 2023 as well. The company reported a 36% increase in deliveries for the first quarter, reaching 422,875 vehicles, which set a quarterly record for the company.
Superior pricing position
The EV market is getting more crowded, and that put some pressure on Tesla to lower prices to increase demand. While some investors may take this as a worrying sign, the ability to lower prices and still generate profit is a competitive advantage compared to many other EV companies.
Tesla said in its 2022 earnings report that while its average selling prices (ASPs) have halved since 2017, operating margins grew quickly thanks to more efficient operations.
In its 2022 report, management said: "While ASPs halved between 2017 and 2022, our operating margin consistently improved from approximately negative 14% to positive 17% in the same period. This margin expansion was achieved through introduction of lower-cost models, buildout of localized, more-efficient factories, vehicle cost reduction, and operating leverage."
This efficiency is even more important right now, as inflation is elevated and the U.S. economy prepares for a recession. Small EV start-ups and even large automakers transitioning to EV production will have a harder time catching up to Tesla's economy of scale, which took years to build.
Keep the horizon in view
Tesla has performed exceptionally well compared to the broader market, with the company's share price soaring 272% over the past three years compared to the S&P 500's 47% increase.
But the market is still pretty volatile right now, and Tesla's stock isn't immune to share price swings. Instead of getting caught up in the short-term noise, investors should look at Tesla's superior position in the EV market right now and stay focused on the long view. And if you're tempted to sell when things get bumpy, it's always worth revisiting your original investment thesis to help keep you on track.
