If your aim is to pick individual stocks that can beat the market, it would've been impossible to find a better investment than Tesla (TSLA 3.54%).
Over the past 10 years, shares of the Elon Musk-led business are up a whopping 3,560%. This means that a $1,000 investment in Tesla in July 2013 would be worth $36,600 today. That is a truly outstanding return. For comparison's sake, the S&P 500 is up just 233% during this time, and this includes the reinvestment of dividends.
I think it can be a worthwhile exercise to look at where this leading electric car company has been over the past 10 years, and how it's positioned to possibly continue its success in the decade ahead.
Looking in the rearview mirror
The most important factor in Tesla's monumental share-price performance has to be its revenue growth. Revenue in the first quarter of 2023 totaled $23.3 billion, 4,000% higher than Q1 2013's $562 million. That translates to a brisk compound annual rate of 45%. It's hard to find businesses with this type of rapid expansion.
By helping pioneer the entire electric vehicle (EV) industry, and by bringing these cars to the mainstream, Tesla has enjoyed tremendous first-mover advantage in the space. And it now benefits from strong brand awareness for its high-performance and tech-enabled vehicles.
In the first three months of this year, Tesla delivered 423,000 vehicles, a massive jump from the 20,000 cars it initially planned to deliver in all of 2013. Huge improvements in manufacturing capabilities, most notably by building new factories in the U.S., China, and Germany, have helped boost volumes. Moreover, whereas Tesla's first-ever model was the sporty Roadster, it now has four active models under its umbrella.
What really stands out to me about Tesla's fundamentals in recent years, besides its outsized top-line growth, is the company's progression toward improved profitability. In 2019, the business posted a net loss of $775 million, only to post its first profit of $690 million in 2020. The net income margin expanded over the next two years, coming in at 15.4% in 2022.
A long journey ahead
I don't believe that Tesla's growth strategy looking forward will be much different than what got it to this point. This mainly involves selling more of its cars in the markets that it's in. It can also include introducing new models. People have been waiting for production on the Cybertruck to start. Tesla has also delivered a small number of its poweful semi-trucks.
A discussion about Tesla's future isn't complete without talking about the possibility of fully self-driving (FSD) vehicles. We might still be a long way away from a sizable chunk of cars on the road being autonomous, but for Tesla, the potential to supercharge its business is certainly there. Tesla can earn subscription fees from people who choose to enhance their cars with FSD capabilities. And because this is all software, the margins could be extremely high, providing a boost to the overall company's bottom line.
Investors also need to know about Tesla's energy ambitions. The business sells solar energy systems and energy storage products today, both seeing strong growth. Tesla's 2023 Investor Day presentation started with a huge focus on how the world can run on more sustainable energy, and rely less on fossil fuels, over time. So it's strikingly clear that shaking up the energy landscape is also on Musk's mind.
It's extremely difficult to try to predict with any reasonable level of accuracy what this company will look like in 10 years. It could be the same as it is now, selling more high-end EVs than rivals, and these might be fully self-driving. Or it could generate most of its revenue from energy initiatives, at which point it would be an even more important business on the world stage than it is today. Tesla certainly has optionality.
As of this writing, shares trade at a below-average price-to-earnings ratio of 77. If that doesn't scare you away, it might be time to buckle up and add Tesla to your portfolio.