With a trailing-10-year return of 2,420%, Tesla (TSLA -1.11%) has been an outstanding stock for investors to own. A relatively small $1,000 investment in December 2013 would be worth a whopping $25,000 today.
Right now, the stock sits 42% below its all-time high in November 2021. Opportunity-seeking investors might want to pull the trigger and buy the dip. But if you're thinking of buying Tesla shares today, first take the time to understand the following important factors about this business.
Industry landscape
Tesla's huge lead in the electric vehicle (EV) industry has propelled it to an enviable position. Its cars represent half of all new EVs sold in the United States.
Growth over the past decade has been spectacular. Revenue of $23 billion in the 2023 third quarter (ended Sept. 30) was 5,236% higher than in the same period of 2013. And this year, Tesla is on pace to produce 1.8 million vehicles. For comparison's sake, the business delivered 22,000 cars in 2013.
However, outsize success doesn't go unnoticed, and capitalism invites competition. There are now numerous car manufacturers in the EV market, which will surely make it more difficult for Tesla to post the same level of rapid growth over the next 10 years.
This year, the main story in the industry has been price cuts. Even the almighty Tesla hasn't been able to escape this pressure. In the process, the company's margins have decreased.
Tesla's premium brand status and robust manufacturing capabilities have helped the company generate positive GAAP net income since 2020, an achievement that smaller rivals only dream of. This advantage gives Tesla more wiggle room to engage in ongoing price wars while maintaining profitability.
Macro headwinds
Tesla trades at a price-to-earnings (P/E) ratio of 76.7. That's extremely expensive compared with legacy auto stocks such as Ford and General Motors. It even represents a sizable premium to luxury-car brand Ferrari.
Investors have labeled Tesla as a tech company based on its disruptive and innovative potential. But the macro backdrop has revealed that there are some things this business just isn't immune to.
Just look at rising interest rates. Since the Great Recession, interest rates had until recently been at historically low levels, spurring demand from borrowers for things like auto loans. Now that interest rates are elevated, Tesla was able to post only single-digit revenue growth in the latest quarter.
"If the macroeconomic conditions are stormy, even the best ship is still going to have tough times," CEO Elon Musk said on the Q3 2023 earnings call.
Musk's ambitions
A decade from now, Tesla could look like a totally different company from what we're accustomed to today. Musk is fully focused on developing autonomous driving capabilities so that one day, Tesla can launch a robotaxi service. The hope is that people won't want to own cars anymore, since using this service would be incredibly cost-effective for a consumer looking to get from one place to another.
Ark Invest, headed by Cathie Wood, is typically extremely bullish with its forecasts. The company, which owns a significant chunk of Tesla stock, believes that by 2029, the global robotaxi market will generate annual sales of $9 trillion, from basically nothing today. Tesla is positioning itself to be at the forefront of this opportunity.
