Tesla's (TSLA -1.11%) stock is on fire lately as its market cap heads toward $1 trillion, reflecting investors' optimistic expectations of its prospects in its electric vehicle (EV) business and other newer ventures.
However, it is vital to remain realistic. Several of these ventures, such as the robotaxi and Tesla bot, will likely require significant time (and investments) to demonstrate their economic viability.
Thankfully, Tesla has many activities within its "traditional" business that can occupy its attention for years, ensuring the sustainability of its growth engine. Here are two clear avenues to sustain its growth trajectory.
Image source: Getty Images.
Selling more cars
Tesla is a frontrunner in the electric vehicle market. The company's early entry into the EV space, combined with its innovative technology and compelling product offerings, gives it plenty of edge against the incumbents and new entrants.
Despite its leadership position, Tesla has just touched the tip of the iceberg. The increasing environmental concerns from carbon emissions, favorable government policies, and the maturing of EV technology (resulting in a lower cost of ownership) are some of the significant trends that will sustain the growth of the EV industry. As the rising tide lifts all boats, Tesla will benefit from these tailwinds.
Still, Tesla is trying its best to distance itself from its competitors. One thing is that it is constantly expanding the range of vehicles offered to customers. It already has the Model S, Model 3, Model X, and Model Y range of cars and is bringing in the Cybertruck and Tesla Semi in the near term. Widening the range of vehicles offered helps Tesla reach new market segments, expanding its total addressable market.
Besides, Tesla is on a global price reduction campaign to grow sales volume and increase market share. The idea is simple. Using its high operating margin as a weapon, the company can reduce its selling price to make its car more affordable. As affordability grows, more consumers -- especially those who historically avoided Tesla due to its high price tag -- may now be able to afford a Tesla.
Tesla aims to sell 20 million electric cars by 2030. Comparatively, it delivered just 1.3 million vehicles in 2022, suggesting a considerable growth runway ahead.
Making money from services
While selling cars is the obvious way to grow, Tesla has another less obvious but equally lucrative growth opportunity -- which is to make money from services.
As a start, Tesla operates a network of nearly 5,000 supercharger stations and more than 45,000 connectors, providing high-speed charging for Tesla vehicles. This business will naturally grow with a growing number of Tesla vehicles on the road.
But that's just one part of the story. Tesla has already opened some of its charging stations to non-Tesla branded cars, with more expected soon. Non-Tesla car owners must pay more per charge or sign up for a monthly subscription to gain the low price that Tesla owners enjoy. Either way, Tesla will be a significant winner.
Besides, Tesla owners will spend money on various services, including connectivity, in-car entertainment, software updates, security and safety features, etc. For example, customers can now videoconference on their touchscreen via Zoom Video Communications, stream videos from the car interior camera, and even play games in the Steam library. You can count on more of these in-car features in the future, especially as Tesla continues to improve its autonomous driving capabilities. Ultimately, these new services will open up unique monetization opportunities for the company.
In 2022, Tesla's automotive service revenue grew by 60% to $6.1 billion, accounting for around 8% of Tesla's total automotive revenue. Comparatively, car sales revenue increased by "just" 52%. There is a good chance for the service revenue to sustain its high growth rate and expand its share of the pie in the next five years.
In short, Tesla is well-positioned to grow in the next few years, just by selling more cars and services.
