Last week was a positive one for investors, with the Nasdaq-100 technology index jumping by 3.3%. But it was even better for shareholders of electric vehicle (EV) powerhouse Tesla (TSLA 4.96%), because that stock surged 7.5%.
The strong gain followed the company's annual meeting and CEO Elon Musk's interview with CNBC journalist David Faber, where he shared a number of Tesla updates and even revealed some information investors hadn't heard before. Here are five of the biggest takeaways, and they might even convince you to buy the stock.
1. Elon Musk is about to spend more time at Tesla
Last year, Musk acquired social media platform Twitter in an enormous deal worth $44 billion. He has served as the company's CEO ever since, navigating a very difficult period where he says it was just months away from bankruptcy. But now that the situation has stabilized, he's ready to step away from the executive role.
On May 12, Musk announced he'd hired longtime media executive Linda Yaccarino to be Twitter's new CEO. It will free up a significant amount of his time, and on CNBC he revealed plans to spend more time at Tesla with a specific focus on its artificial intelligence (AI) projects.
2. Tesla is going to start advertising for the first time
Tesla has never had a demand problem before. In fact, it had an estimated order backlog of 68,700 units at the end of April. That figure is falling, but it's important to remember that the company is operating in a very difficult economic environment right now. As a result, it has cut prices on its vehicles six times this year (followed by one price rise).
Musk is now interested in advertising for the first time ever. He says Tesla ads should be informative but artistic, with a focus on dispelling common misconceptions that its vehicles are expensive when, in fact, they sell for below the average cost of a new car in America. Musk also wants to highlight the work Tesla has done on the safety front.
Advertising campaigns could attract new customers who aren't yet sold on the idea of owning an electric vehicle, much less a Tesla.
3. Tesla could (theoretically) sell cars for zero profit on purpose!
Thanks to its innovative manufacturing process and its first mover advantage in the electric vehicle market, Tesla can produce cars at a much higher gross profit margin than other automakers (whether electric or internal combustion-powered).
Its gross margin came in at 19.3% in the recent first quarter of 2023 even after the price cuts, which was still comfortably higher than Ford's (F 0.69%) 15% and General Motors' (GM 1.20%) 13%. In the past, Tesla's automotive gross margin was as high as 32.9%.
So why would Musk say the company could sell cars for no profit in the future? Well, it's simply a thought exercise and probably won't happen, but he pointed out that Tesla is the only automaker on track to deliver fully autonomous self-driving software.
Software products generally carry a gross margin of between 70% and 80%, so if the company sold each car at breakeven, it would still make a significant profit when each customer installs the autonomous technology. But there's more...
4. Autonomous driving could come in 2023, and it will change everything
You might be wondering whether a large number of customers would actually want self-driving capabilities in their Tesla. But according to Musk, it's about more than just convenience.
He says the typical passenger vehicle is only used around 10 to 12 hours per week, spending most of its time parked at the owner's home or workplace. By installing autonomous driving software, that vehicle could spend 50 hours per week serving as a robotaxi and earning money in the process. This business alone could drive the gross margin of each Tesla to as high as 70% over time!
Musk says Tesla would split revenue 50/50 or potentially even 70/30 in favor of the car owner when robotaxis become a reality, which could be as soon as this year.
There is typically a collision for every 500,000 miles driven in the U.S. -- but for a Tesla running the latest full self-driving beta, there's a collision for every 3.2 million miles driven. In other words, an autonomous Tesla is statistically much safer than a human driver, so a widespread release could be around the corner.
Image source: Tesla.
5. Cathie Wood's Tesla analysis is the best Musk has seen
Tesla is one of the most followed stocks on Wall Street, but Musk says the recent analysis by Cathie Wood and her firm Ark Investment Management is the best he's seen.
According to Ark's simulations, there's a 55% chance Tesla's robotaxi will be ready for commercial operation either this year or in 2024. It estimates customers are currently driving around 1 million miles per day in full self-driving mode with the beta version, which helps to train and constantly improve the AI models.
The firm believes Tesla will amass $6.1 trillion in enterprise value by 2027, with its new robotaxi business accounting for 67% of that total. It would make the company one of the dominant players in the emerging autonomous ride hailing industry, which could be a $14 trillion opportunity by then.
Ark's projections translate to a Tesla share price of $2,000 in 2027, which represents a whopping 1,010% gain from where it trades today. That's a substantial amount of potential upside for investors who buy the stock now.
