Electric vehicle (EV) leader Tesla (TSLA 0.88%) is one of the "Magnificent Seven" stocks, which have excelled over the past year and set the pace for the broader stock market. However, Tesla's shares are experiencing an abnormally steep drawdown of more than 50% from their high.
It's not just Tesla, though. The broader EV industry is grappling with slower demand as consumers struggle with inflation and higher interest rates. Should investors be concerned that Tesla's growth struggles will stretch years into the future?
I don't think so. Here are six reasons why.
1. Tesla's charging network has a competitive edge
Range anxiety is one of the most common objections consumers have to buying an electric vehicle, which makes abundant charging a must-have. Tesla dominates the field here. According to research by The Motley Fool, Tesla's supercharger network spans nearly 2,000 locations and over 21,000 ports across the U.S.
It's so far ahead of other manufacturers that competitors including Ford, General Motors, Volvo, Rivian, Mercedes-Benz, and Nissan are adopting Tesla's charging port and using its network instead. That's a new revenue stream for Tesla, and it only solidifies its importance in the broader EV industry.
2. The Cybertruck is here
Tesla didn't help its stock's momentum during its fourth-quarter earnings call when CEO Elon Musk noted that 2024 will be a transition year as the company prepares for its next growth phase. Part of that growth will come from increasing production of the Cybertruck, which has begun rolling out early deliveries. It's still very new, but some industry reviewers have already given it high marks.
The Cybertruck opens up the U.S. market's truck segment. Over 2 million passenger trucks are sold in America yearly, which is an opportunity for the Cybertruck to carve out some market share. Tesla has risen to approximately 4.2% of the U.S. market without touching trucks.
3. A wildcard product in the works
During Tesla's Q4 earnings call, Musk also mentioned a new product, referring to it as a low-cost, next-generation vehicle. Apparently, it's far along in development and will initially be built in Tesla's Gigafactory Austin location.
Again, more products can appeal to more customers, which is good for growth. Tesla has the luxury of being a more mature company than many other EV start-ups, and you're starting to see Tesla flesh out its product line after riding the Models 3 and Y to high production volume and profitability.
NASDAQ: TSLA
Key Data Points
4. Full self-driving continues development
Much of Tesla's long-term value has come from the anticipation of full self-driving technology, which it has worked on for years now. The company is in the early stages of rolling out Version 12, which replaced over 330,000 lines of code with neural nets and artificial intelligence.
Full self-driving is arguably Tesla's biggest bet. Success could transform the company into a software giant with a product it could license to other manufacturers. Tesla vehicles could become autonomous taxis. Will Tesla succeed? Only time will tell, but advancements in computing and AI that can replace traditional coding are interesting developments.
5. Tesla Bot
Tesla's recent slowing growth is based on its EV business, but so much other stuff can still move the needle. Tesla is developing a humanoid robot called Tesla Bot that can perform simple tasks. A video of the bot walking unassisted already speaks to the progress made thus far.
This product isn't close to the market yet, but it's a reminder of how far into the future Tesla is thinking as a company. A working product would create a new and tremendous market opportunity that Tesla would, once again, be among the first to serve.
6. The energy business is growing
Lastly, Tesla's energy unit doesn't get as much attention as the EV business, but it stands on its own two legs. Tesla deployed 14.7 GWh of energy in Q4, a 125% increase year over year. Energy is yet another massive market that Tesla competes in. The long-term need for renewable energy and off-grid storage could fuel long-term growth for a business unit that contributed just over 5% of total revenue in Q4.
If deployments continue growing, revenue growth should follow. So investors should watch how the energy storage business shakes out over time. It's too soon to tell how profitable or big it could become.
Wrapping up
The great thing about Tesla is that not everything needs to hit perfectly for the company to grow. Its exposure to multiple enormous market opportunities makes it plausible the company will grow for many years to come.
Investors should diversify their investments, but it seems like a no-brainer that Tesla fits into any long-term growth portfolio. Consider buying the stock with confidence.
