In the midst of economic uncertainties marked by soaring interest rates and persistent inflation, growth stocks find themselves in a challenging spot. The prevailing narrative involves a shift toward safer, value-oriented investments as borrowing costs rise, liquidity tightens, and volatility rears its head. However, within this complex market landscape, Tesla (TSLA -1.11%) emerges as a growth stock with enduring potential despite the current headwinds.
With an unwavering commitment to innovation and dominance of the electric vehicle (EV) industry, Tesla's stock has surged by an astounding 18,000% since its Nasdaq debut. Despite this meteoric rise, skepticism about Tesla's ability to sustain such rapid growth is likely warranted.
However, recent achievements and strategic initiatives suggest that Tesla's best days are far from over, making it an enticing prospect for long-term investors, particularly in the face of a potential market downturn.
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Undisputed EV dominance
One of the clearest aspects of Tesla's long-term potential is the evolving trends in EV adoption. In 2023, almost one in five cars sold globally will be an EV, up from just one in 10 two years ago. And this growth likely won't stop. At the current pace, analysts project that by 2030, EVs will account for nearly two-thirds of global auto sales.
Due to this immense opportunity, legacy automakers and start-ups are quickly joining the EV race and jockeying for market share. Yet, these newcomers are quickly realizing that mass-producing EVs is no easy task. Competitors like Ford anticipate a $4.5 billion loss in their EV sector, while notable up-and-comer Rivian recently reported an average loss of more than $30,000 per vehicle..
Tesla's resilient long-term potential
Thanks to its dominance of the EV market, Tesla has bolstered its financial position over the years, making it uniquely suited to weather any market downturn. With a whopping $26 billion in cash, Tesla can afford to not only lower prices on vehicles (a strategy implemented this year that led to gross profit margins taking a hit) but also continue to invest in technological research and development (R&D) efforts.
With plans to spend more than $1 billion on R&D in Q3 alone, these investments are primarily devoted to its build-out of Dojo, the company's supercomputer that plays an integral role in its pursuit of autonomous driving. As one of the most powerful computers in the world, Dojo processes vast amounts of video data that train artificial intelligence models aimed at achieving higher levels of autonomy. With successful development (which thanks to a series of breakthroughs seems like a matter of "when" rather than "if"), CEO Elon Musk plans on launching a robotaxi business.
Citing near "quasi-infinite demand," Musk isn't alone in his belief that an autonomous ride-hailing service would transform the world and Tesla's bottom line for the better. Analysts from Ark Invest support this vision, projecting a staggering $450 billion in revenue from robotaxis by 2027 -- a more than 300% increase from current revenue levels.
A company that checks all the boxes
Tesla has transcended its start-up origins to become a driving force in the EV industry. In just a little more than two decades, it has become the most valuable auto company in the world and a technological pioneer shaping our future.
While a market downturn would likely impact Tesla's near-term valuation, the company is in a secure position thanks to its robust financial strength. Not only is it aptly suited to survive a shaky economic landscape, but it will likely continue to benefit from evolving trends in EV adoption, autonomous driving, and artificial intelligence. With sound finances and valuable long-term growth prospects, Tesla arises as one of the few stocks worth holding in a market downturn.
