The market for electric vehicles (EVs) is a crowded one. With EV adoption expected to increase at a near-exponential rate, the industry's potential has attracted legacy automakers and start-ups looking to make a name for themselves.
Yet, when it comes down to brass tacks, there is one EV manufacturer worthy of a spot in investors' portfolios: Tesla (TSLA 0.09%). Here are three reasons it is the ultimate EV stock to buy with $1,000 today.
Image source: Tesla.
It's the undisputed global EV leader
Contrary to popular belief, the EV market for investors is primarily a two-horse race between Tesla and the battery-turned-vehicle-maker BYD (BYDDY 3.82%) in China. While virtually every other automaker fails to turn a profit on their EVs, these two stand out from the pack due to their large production capabilities and ability to achieve profitability on an operating basis.
TSLA Operating Margin (Annual) data by YCharts
Yet the key difference between Tesla and BYD is that Tesla is a much more profitable company. As of last count, it earned $7,000 in profits for each vehicle sold. On the other hand, BYD generated roughly $1,300 per vehicle. Over the entirety of 2023, Tesla's total net income came in at $15 billion, nearly four times larger than BYD's.
While BYD and the rest of the competition are trying to ramp up production, they face serious challenges in trying to close the gap that separates them from Tesla. There are likely several reasons Tesla enjoys a comfortable lead, such as its ability to maintain costs with its perfected supply chain. But what is most clear and important is that when it comes down to what really matters -- profits -- Tesla is in a class of its own.
The company of the future
And Tesla is more than just an EV maker. Today, 94% of its revenue comes from vehicle sales. But the company's other endeavors -- like self-driving vehicles and humanoid robots, underpinned by its research in artificial intelligence (AI) -- have the potential to be transformative. While all these innovations remain in development and have yet to hit the market, each holds incalculable potential to bolster Tesla's bottom line.
Consider robotaxis as an example. Based on a simulation conducted by the asset management firm ARK Invest, a robotaxi fleet could send Tesla's profits (and its stock) soaring. Taking the average of the simulation results, ARK Invest concluded that there could eventually be 3 million Tesla robotaxis on the roads, adding up to $200 billion in revenue (for reference, Tesla brought in just under $100 million in revenue last year).
The robotaxi is just one example of the transformative potential of Tesla's technological endeavors, but it is the only one that has been quantified in terms of market impact due to tangible progress in Tesla's full-self driving (FSD) software. Utilizing its supercomputer, Dojo, Tesla achieved a significant breakthrough in the way its AI models learned to process data in September 2023. Rather than having programmers hardwire responses for vehicles, now neural networks learn how to drive by analyzing large datasets of video that Tesla vehicles collect around the world. As a result of this breakthrough, the next release of its FSD software is expected to bring "unprecedented progress." Should it continue, CEO Elon Musk expects FSD to be "really shining bright by late April or early May."
Tesla's expansion and development of new revenue sources is a company priority. What's more, technological endeavors like robotics and AI are at the core of Tesla's future success. We can see evidence of this based on the growth of its energy generation and storage segment, which nearly quadrupled profits in 2023.
Quantifying the impact of these innovative technologies is inherently challenging since they will likely create entirely new markets that don't exist. In other words, there is no measuring stick to project just how influential robots, AI, and the like will be. But they all could all end up transforming Tesla's bottom line and the way we live.
NASDAQ: TSLA
Key Data Points
It's a rare opportunity
Even when keeping comparisons within the realm of EVs, Tesla still stands out from the crowd. Its financial strength allows it to expand into markets and build new factories abroad, which the majority of competitors can't do yet because they lack the capital.
While its stock has slipped due to factors such as higher interest rates that make the cost of buying a car greater, along with revised projections in EV sales growth, these effects should be temporary. Should interest rates fall, which could occur this year, Tesla's EVs segment should regain its footing.
Even better, as progress continues in developing technologies of tomorrow, consider the recent dip in prices as a rare opportunity to invest in one of the most innovative companies on the market. Things might look shaky today, but don't miss the forest for the trees.
