Tesla's (TSLA 0.66%) recent quarterly production and delivery update showed the business keeps motoring along. The company produced nearly 480,000 EVs in the second quarter, and deliveries rocketed 83% higher year over year.
That's leading to boosts in analyst share price targets, as well as earnings estimates. But Tesla stock has more than doubled year to date and is higher by nearly 50% over the past three months. Investors might be wondering whether that combination of things means Tesla stock should be bought, sold, or just held at this stage. Here are some more things to consider when making that call.
The valuation question
Tesla shares have never moved based on traditional valuation metrics. Yet the strength in its earnings over the past year combined with a correction in the stock price brought its price-to-earnings (P/E) ratio down to the mid-20s at the beginning of this year. But the rebound in the market -- and Tesla stock in particular -- has brought the share price back to nosebleed levels.
TSLA PE Ratio data by YCharts.
That's because investors believe there is much more room for Tesla to grow its earnings. Even with many other EV makers entering the market, Tesla still holds about 60% market share in the U.S. No one expects it to hold on to that massive share for much longer. In China, for example, where competition is building more EVs at scale than in the U.S., Tesla holds about a 10% share of the battery electric and plug-in hybrid market.
But EVs still have a less-than-7% penetration in the U.S. automotive market. So even with a declining market share as others ramp up production, Tesla could well hit its 50% annual production growth goal for several more years. After its surprising second-quarter data, the company is in a position to beat its 1.8 million unit production estimate for 2023. While vehicle sales -- and earnings -- should continue to grow in the years ahead, it's not the only growing revenue stream for Tesla.
Services and other revenue
Tesla breaks out its energy business for investors to monitor. Revenue from energy generation and storage grew nearly 150% year over year, reaching more than $1.5 billion in the first quarter. That represented 6.5% of the company's total revenue. It should also continue to grow, as Tesla has invested heavily to grow its facilities in Nevada and California.
But there's another segment that investors need to start paying closer attention to. What Tesla designates as "services and other revenue" includes the company's Supercharger network. That segment also grew strongly year over year in the first quarter and contributed about 8% of total revenue.
Since that time Tesla has agreed to open up its fast charging network to non-Tesla brands. Ford, General Motors, Rivian, and Volvo have all reached deals with Tesla for their customers to use the Supercharger network. While the terms of those agreements weren't disclosed, the move to open its proprietary charging network to others will drive revenue in this segment higher.
The convenience and reliability of Tesla's Superchargers undoubtedly drove some EV buyers to Tesla. There is the possibility that the new strategy will help competitors sell their growing EV offerings. But if the adoption of EVs grows as many industry observers believe, the positive contributions should outweigh any benefits it gives to competing manufacturers. Investors should monitor Tesla's services segment in the coming months and years to see how much it will help drive revenue and earnings growth.
Additional opportunities from Tesla's charging and energy businesses are partly what long-term investors are looking at when buying Tesla shares now. And investors should consider Tesla a long-term investment. For those that might need the money in the near future, it would make sense to sell some Tesla stock now after its recent run. But for those looking for future gains, holding or adding new shares still makes sense now.
