Most investors wouldn't be surprised to know that Tesla (TSLA 5.34%) is one of the best-performing stocks in the last decade -- it has skyrocketed 1,376% as of Feb. 19. This means a $70,000 investment in Tesla 10 years ago would be worth a cool $1 million today. This gain crushes what you would've earned putting money in an S&P 500 index fund.
Tesla shares have taken a breather recently, currently sitting 51% below their peak price. But as we look out over the next decade, can this top electric vehicle (EV) stock make you a millionaire? Here's what you need to know about Tesla.
Changing the automotive industry
This business deserves a ton of credit for how it completely changed the global automotive industry. Of course, the climate crisis was a key driving force behind the need to bring about electric cars. But until Tesla released the Model S in 2012, there wasn't a truly successful EV that hit the market and had broad appeal from consumers.
Today, Tesla offers four key models. In addition to the S, it sells the X, 3, and Y, with a pickup truck on the way. In fact, the model Y, which is the smaller SUV, became the world's best-selling car in Q1 2023, beating out the Toyota Corolla. That's an incredible feat that points to Tesla's achievements thus far.
There's no denying that from a purely product focus, Tesla builds some of the most stylish and tech-savvy vehicles on Earth. Add this design and engineering prowess to a powerful brand, and it makes sense that these cars can command premium prices.
It's also worth pointing out that Tesla has lowered production costs by developing scale advantages as they relate to its manufacturing capabilities. The company has been consistently profitable since 2020, while many rivals struggle to break even with their EV segments. Tesla sold 1.8 million cars in 2023, up 38% year over year, giving it a commanding share of the U.S. market.
Ongoing challenges
Despite an impressive history, the past couple of years haven't been too kind to this business. Macroeconomic headwinds, spurred by higher interest rates and ongoing inflationary concerns, make buying new cars less affordable for consumers. Focused on saving money and stretching their budgets, people can hold off on making a purchase until they have more confidence about the state of the economy.
This is hitting Tesla's financials. Its revenue rose 19% in 2023, and this figure increased by just 3% in the last quarter. The slowdown is notable, given the business was putting up ridiculous growth numbers for most of the past decade.
And the current situation also highlights how competitive the industry has become. Tesla executives have chosen to cut vehicle prices numerous times to maintain or grow market share. But this didn't prevent Tesla giving up its global industry lead to Chinese rival BYD, which sold more units in the last three months of 2023.
Lower prices, coupled with decelerating growth, are pressuring profitability. The business saw its gross and operating margins shrink considerably between 2022 and 2023.
The path to $1 million
With the ongoing decline in Tesla's stock price, it trades at a price-to-earnings ratio of 46.4 today. This is a much more attractive valuation than just three years ago. But I still view shares as being expensive.
Tesla's remarkable success has invited a lot of competition, both from legacy automakers and EV-focused upstarts. Consequently, the next 10 years will be much more difficult for the business when it comes to posting strong revenue and profit growth.
Investors hoping for similar returns to the past should lower their expectations. However, Tesla could still make you a millionaire if you believe in its prospects and maintain a truly long time horizon that spans multiple decades.
