Owning shares of Tesla (TSLA 0.79%) can be a roller-coaster ride, and the last 12 months have been no exception. Tesla shares plummeted in 2022, but this year, they've come roaring back to life and are up 39% year to date.

So, given the current uncertainties in the electric vehicle (EV) market -- and the stock market overall -- is now the right time to load up on shares of the EV giant? Let's take a closer look.

Person looking at a computer screen.

Image source: Getty Images.

The bear case: Lower prices, lower margins

The bear case for Tesla focuses on two declining figures: the price Tesla charges to purchase a vehicle, and its profit on each sale. This year, both figures have decreased.

For example, the purchase price for a Tesla Model S Long Range has dropped from $106,190 to $91,380. The company's cheapest vehicle, the Tesla Model 3, is now available for $41,880 -- down from $48,190 in 2022. That makes the Model 3 cheaper than the average new car sold in the U.S.

And while this is all great news for consumers looking to purchase a new, affordable electric vehicle (EV), it's not necessarily great news for Tesla shareholders. That's because those reduced prices drive down profit margins for Tesla.

TSLA Operating Margin (Quarterly) Chart

TSLA Operating Margin (Quarterly) data by YCharts

Indeed, Tesla's operating margin has decreased from 19% in early 2022 to 11% as of its most recent quarter. Similarly, gross margins have dropped from 29% to 19%.

This demonstrates that the battle to dominate the EV market will be a costly one for Tesla, and it gives Tesla bears a strong argument that demand for the company's EVs is decelerating.

The bull case: More production, more pathways to profit

There are, however, reasons for investors to be optimistic about Tesla, despite the concerns over its margins.

First, the automobile industry is undergoing a sea change. The internal combustion engine is on the way out, and EVs are coming -- lots of them.

Tesla has the early lead in the race to meet the world's demand for EVs. And it's an enormous lead. In the first quarter of 2023, Tesla produced and sold over 400,000 EVs. For comparison, General Motors sold slightly more than 20,000; Ford managed less than 11,000.

But Tesla's EV leadership goes beyond just production figures. Recently, Elon Musk reiterated that Full-Self-Driving (FSD) will be a game-changer for Tesla. Musk predicted that the release of FSD software might lead to a 'ChatGPT' moment for Tesla, and that FSD might only be a year away.

Granted, Musk and Tesla have been too optimistic on their FSD predictions in the past. Nevertheless, with millions of Teslas already on the road, the possibilities that could be unlocked with FSD are massive. Even if only a fraction of those vehicles are put into service as robotaxis or delivery vehicles, they could still disrupt numerous industries that rely on human drivers.

Is Tesla a buy?

Tesla is facing headwinds from its shrinking margins. However, the company continues to ramp up production, while still innovating. For investors willing to ride along for the long haul, I think Tesla will see its margins -- and stock -- soar higher in the years to come.