With a reputation that precedes its name, Tesla (TSLA -1.11%) has risen to become one of the most prominent companies in the world today. Yet, as much success as the company has had over the last few years, the start to 2024 has been rather dismal.
Since the beginning of this year, Tesla stock has shed more than 30% and is currently trading at its lowest point in nearly a year. But rather than panicking, investors should view this as a great opportunity to grab shares of a company whose products hold the potential to transform society.
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Why Tesla has been struggling
Before getting into reasons why Tesla is an attractive buy at today's prices, it's important to understand why its stock has sputtered. The most apparent explanation is likely the current economy.
With inflation proving to be stickier than assumed and interest rates remaining elevated, the cost of buying a car is significantly higher than in years past. As consumers tighten their purse strings, the prosperity Tesla found in the early 2020s is now diminishing.
Making matters more problematic, there is evidence that the customer base for EVs is shrinking. Consumers who can afford new EVs and likely consider themselves trendsetters have already purchased a vehicle.
Now, the remaining customer base consists of those who don't necessarily care about switching to EVs nor can afford one. Robert Jenkins, research director at the London Stock Exchange Group, summed it up best when saying in a recent report quoted in New York magazine that "Early adopters have come and gone."
Several industry analysts project that while EV sales will grow in 2024, they won't rise at the rate of previous years. In 2023, total U.S. EV sales reached a record 1.19 million, a 46% increase from the previous year. Estimates for 2024 predict a jump of around 20% to 30% compared to last year.
A company unlike any other
After years of a favorable economy catapulting Tesla to become the most valuable automaker in the world, it now finds itself in a challenging stretch. But like any economic pattern, periods of contraction are typically followed by growth.
As the world's most productive and profitable EV maker, Tesla has the financial strength that makes it uniquely suited to weather a turbulent economy. Once interest rates begin to fall and inflation is wrestled to submission, which could occur this year, the company's EV segment should be back in business.
Yet the most alluring aspect of Tesla isn't its EVs. While the introduction of a $25,000 next-gen vehicle in 2025 holds the promise of catering to cost-oriented consumers, it is the company's various technological endeavors that make it worth buying today.
They sound like they belong in a sci-fi movie. It is actively developing humanoid robots, self-driving vehicles, robotaxis, and innovative energy-storage solutions. Each of these endeavors alone holds the potential to transform not only Tesla's bottom line but also society itself.
Preparing for the next wave of growth
In the short term, investors should probably rein in expectations for Tesla. But this is a long-term investment.
On the most recent earnings call, CEO Elon Musk acknowledged that 2024 will likely be lackluster for investors who grew accustomed to Tesla's previous years of growth. But as he described, the company is currently between two major growth cycles.
The first growth cycle catapulted Tesla into being the most valuable automaker and made the Model Y the best-selling vehicle worldwide. But the coming growth cycle will be fueled by its next-gen vehicle, robotics, artificial intelligence, and much more.
Once these technologies are fully developed, Musk envisions Tesla one day becoming the most valuable company overall in the world.
In many ways, investing in Tesla today could be similar to investing in it before 2020. Should a similar path be followed in the coming years, this growth cycle could send it to heights not yet seen, making the stock's recent slip an especially opportune moment.
