If you're someone who has decided that active investing is the right course of action for you, then obviously, your goal is to find stocks that have the potential to beat the market over the long term. And perhaps no business has historically fit this description better than Tesla (TSLA 0.21%).
In the past decade, this electric vehicle (EV) stock has soared 2,360%, absolutely crushing the 272% gain of the Nasdaq Composite index over the same period. In other words, a $10,000 investment in Tesla made in September 2013 would be worth an impressive $247,250 today. Who wouldn't have loved to have this type of incredible performer in their portfolio?
Let's take a closer look at Tesla's path to this point, as well as what investors need to know as we look ahead.
Creating the EV trend
Elon Musk, Tesla's founder and CEO, is one of the greatest visionaries we've ever seen. He has successfully started multiple game-changing companies, but none have had quite the impact as the automotive enterprise. In 2022, EVs accounted for 8% of all new cars sold in the U.S., compared to a near-zero market penetration 10 years ago. It's not a stretch to give the vast majority of the credit for this growth to Musk and Tesla.
Tesla sold 1.3 million vehicles in 2022, up from producing just 3,100 in 2012. And during this time, its revenues rose at a compound annual rate of 70%. Trying to innovate in a massive industry hasn't been easy, but Tesla's rapid rise proves that it has clearly made significant progress. Even more encouraging is that the company is now generating consistent profits.
Tesla's success has been nothing short of impressive, but this has unsurprisingly attracted tons of competition. It must fend off rivals ranging from younger foreign upstarts to traditional domestic automakers that are all vying for a piece of the EV market. In recent quarters, the intense competition has resulted in price wars. Tesla cut the prices of its EV models numerous times in the U.S. and China, leading to contracting margins. I think it's fair to say that the next decade for the company will be more challenging than the last.
What does the future hold?
Investors thinking about adding the stock to their portfolios today need to understand that the Tesla of the future might look very different from its current state. The business is working on its Dojo supercomputer, which utilizes artificial intelligence to help propel the development of full self-driving capabilities. While it's anyone's guess as to when we will see completely autonomous cars on the road, Musk has a firm belief that it's an inevitability. And if it does happen, Tesla's financials could get a major boost.
If full self-driving technology does come about as Musk thinks it will, Tesla would transform into a business that offers a global robotaxi service. In this scenario, the company's fleet of vehicles would be able to drive customers around at any time of the day, earning continuous revenue for Tesla.
"The short-term variances in gross margin and profitability really are minor relative to the long-term picture," Musk mentioned on the Q2 2023 earnings call. "Autonomy will make all of these numbers look silly." Of course, these comments could have just been made to ease shareholder concerns. But they do put the current worries about declining margins into their proper perspective.
Tesla also has huge energy ambitions. The business sells solar panels and other battery storage products, which today make up only a small part of its overall revenues. But given that Musk is a proponent of the clean energy revolution, there's also the possibility that Tesla will one day become an even more important global player in the industry. Furthermore, this might produce more revenue opportunities that are hard to forecast with precision currently.
The result is that there is a ton of optionality surrounding Tesla's long-term prospects. With shares currently 34% off their peak price, investors might be ready to pounce at the opportunity to buy this market-crushing stock on the dip.
