One of the most closely followed stocks on Wall Street is Tesla (TSLA 1.90%). For years, Tesla built an extremely loyal following among the retail investor community, while many on Wall Street were skeptical of its long-term ambitions. Part of the reason why Tesla and its investment prospects remain so polarizing is because the company operates across a variety of different industries, and getting clarity from its eccentric CEO, Elon Musk, can prove difficult.
Is Tesla a car company, an energy business, or an artificial intelligence (AI) play centered around robotics? Well, I'd argue that it's all of the above -- and more.
For all the coverage and hype around Tesla, there's one aspect of the business that's still overlooked. The best part? It could add billions of dollars of value to Tesla sooner than people realize. Let's dig into why Tesla's supercharger network could represent a lucrative growth catalyst for the electric vehicle (EV) maker and how the company stands to benefit.
What is the Supercharger network?
The Tesla supercharger network is a fleet of charging stations that drivers can use to power up their vehicles -- basically Tesla's version of a gas station. Superchargers are typically located near highways and drivers pay a fee based on how much energy the battery draws while charging. As of today, Tesla has over 20,000 Superchargers in service in the U.S.
And thanks to a wave of agreements announced in the past few months, these charging stations are no longer just for Tesla EVs. Rival automakers, including Ford, General Motors, Rivian, Polestar, BMW, Hyundai, Honda, and Lucid Group, among others, have adopted Tesla's North American Charging Standard (NACS). Drivers of EVs from these companies can access Tesla's Supercharger network now (or in the near future).
This is a huge development. Seemingly overnight, the Supercharger network and its growth prospects have become a lot more enticing. So, just how big could this new operation become?
Image source: Getty Images.
Wall Street says it's an "AWS moment"
One of my favorite equity research analysts on Wall Street is Dan Ives of Wedbush Securities. Ives is best known for covering the technology sector and often making more bullish predictions than some of his peers. During an interview segment on CNBC, Ives referred to the mass adoption of Tesla's supercharger network as an "AWS [Amazon Web Services] moment" or an "Apple Services moment."
In other words, Tesla has created an entirely new revenue stream out of its legacy EV business. The company has an opportunity to monetize EV drivers, regardless of who made the car. Not only that, EV charging is a recurring revenue stream, akin to AWS and Apple services, both of which represent tens of billions of dollars of revenue each year for the tech giants.
Ives goes a step further by explaining how the margin profile in this business could mimic that of software. Software-as-a-service (SaaS) businesses typically carry high gross margins -- sometimes in excess of 70% to 80%. It's easy to draw the comparison for Tesla and project that revenue from its Supercharger network partners will also be a high-margin category for the company, which should help expand profits and cash flow over time.
While it's early days, Ives predicts revenue from charging stations could range between $10 billion and $20 billion per year within the next decade. Obviously, in order to reach this level of scale, a lot needs to go right. Tesla and its competitors will need to continue increasing vehicle production, and the demand for EVs can't afford to plateau.
Is this enough to buy the stock?
On the surface, I would say the recent developments around the supercharger network are not enough on their own to make Tesla stock a buy. However, when it comes to valuation, there's a methodology called "sum of the parts" that Ives has also referenced, and it really applies here.
A sum-of-the parts analysis breaks down the various product lines of a business and assesses each one individually. For Tesla, an investor would need to look at the following categories: EVs, solar panels, batteries, robotics, and charging stations. When you look at it this way, investors can see that Tesla is far more diversified than a typical automaker.
That list doesn't even include Tesla's self-driving technology, which could become a $500 billion business. Moreover, according to Musk, the inroads that Tesla is making in self-driving and robotics have the potential to make it the most valuable company in the world, and Tesla's battery technology and lithium refining operation could also lead to additional licensing opportunities down the road. The big takeaway here is that Tesla has many different ways it can monetize its various businesses, so when you consider the entire operation, the bull case is a lot more compelling.
Data by YCharts.
The chart above compares the forward price-to-earnings (P/E) multiple of Tesla and its "Magnificent Seven" peers: Amazon, Apple, Microsoft, Meta Platforms, Alphabet, and Nvidia. Tesla has the richest valuation by a wide margin, but the opportunities I mentioned above justify that premium.
The mass adoption of Tesla's charging standard and Supercharger network is the first sign that many in the EV industry have fallen too far behind Tesla and know it. Tesla remains far ahead of its competitors when it comes to profitability and unit economics, and it has been able to reinvest its cash flow into robotics, AI, self-driving, and energy storage.
Shares have trending down in the past few months as the tech sector cools off, and this is an opportunity to dollar-cost average into a long-term position at an attractive price point.
