Out of the several companies making up today's electric vehicle (EV) landscape, one company stands out as the quintessential choice for investors: Tesla (TSLA 15.31%). While the industry is full of contenders vying for market share and jockeying for the top spot, they all face the incredibly challenging task of catching up to Tesla.
Its stock has slipped in recent months, and specifically over the last few days as rumors of CEO Elon Musk ditching plans to launch an affordable model swirled. But Tesla still presents a rare and compelling opportunity for the long-term investor. Let's delve deeper into why Tesla reigns supreme among EV stocks and why now is the opportune moment to capitalize on this investment.
Image source: Tesla.
Dominance in the EV arena
Analysts expect that by 2030, 2 out of every 3 vehicles sold worldwide will be an EV. Naturally, this potential growth has attracted legacy automakers and start-ups to the industry. However, while there is more competition than ever before, the supposition that there is competition is a gross misrepresentation. In almost every regard, Tesla still reigns supreme.
In terms of production, Tesla is a clear leader. The company produced over 1.84 million vehicles in 2023, roughly 15% more than the next closest competitor, BYD. Yet where Tesla truly shines is its ability to minimize costs and maximize profits. Thanks to its perfected and streamlined supply chain. Tesla brought in $8,200 in profit on a per-vehicle basis, nearly 5 times more than BYD.
With more profits, Tesla generates significantly more income and has built a formidable cash reserve of $29 billion. This financial strength makes it a force and will likely keep it at the top of the industry for the foreseeable future.
While other EV makers are consolidating, Tesla's robust finances allow it to invest in operations and expand production capacity. With a new factory under construction in Mexico and potential new factories in India and Thailand on the horizon, Tesla is positioned to solidify itself as the world's leading EV maker for years to come.
Beyond the wheels: Tesla's multifaceted vision
Tesla's dominance in the EV industry is well established, which will ensure that it benefits from increasing adoption trends. However, its true long-term potential shines through when evaluating its endeavors beyond EVs. From artificial intelligence and self-driving robotaxis to humanoid robots and innovative energy solutions, Tesla stands at the forefront of technological innovation.
Admittedly, it remains difficult to quantify the net impact these technologies will have because no such market exists for many of them. As of now, one of the few estimates conducted on this transformative technology cames from Cathie Wood's Ark Invest. To assess the influence of a robotaxi fleet, Ark's researchers conducted a Monte Carlo simulation that produced several outcomes for what Tesla's stock price could one day reach depending on how much revenue and income robotaxis would generate.
The results were astonishing, to say the least. Taking the average of the tens of thousands of outcomes, Ark Invest concluded that a robotaxi fleet could account for nearly half of Tesla's revenue. With continued growth in its EV business, this would push total revenue for Tesla past $1 trillion, nearly 10 times today's revenue. Should all go to plan, Ark forecasts a Tesla share price of $2,000.
The robotaxi analysis by Ark shouldn't be taken as gospel. However, it does show just how transformative these technologies that Tesla is developing can be. While it remains challenging to quantify how much revenue robotaxis or humanoid robots can produce, rest assured it will be considerable.
Seizing the buying opportunity
Despite its reputation as a portfolio leader, Tesla's stock has witnessed a notable downturn in 2024, shedding over 30% since the beginning of the year. The reason for these struggles likely has one culprit: high interest rates and sluggish growth. With the cost of owning a car higher than in previous years, Tesla's profit margins have taken a hit.
Evidence of this waning recently appeared in Tesla's first-quarter 2024 production update. Total sales in Q1 fell by roughly 20% compared to the previous quarter. It was also the first time that Tesla reported fewer year-over-year sales since 2020.
In full transparency, management admitted that 2024 will likely be a lackluster year for the company and the EV market as a whole. However, Tesla is perfectly suited to weather this short-term challenge. With its robust financial strength, Tesla is much better prepared to navigate a turbulent market than other EV makers like Rivian Automotive, which operates at a loss.
In that same earnings call, Tesla management described its current situation as between two major growth cycles. The first growth cycle saw its Model Y become the best-selling vehicle worldwide, pushing Tesla to be the most valuable automaker. Should everything go to plan, the subsequent growth cycle will be fueled by its robotaxi fleet (currently scheduled for release on Aug. 8) and its humanoid robot, Optimus.
Tesla's recent stock price dip presents an enticing opportunity for investors with a long-term investing horizon. By seizing this opportunity, investors can position themselves to ride the wave of Tesla's innovative future. As the EV market continues to evolve and the development of its futuristic technologies progresses, Tesla remains poised to solidify its dominance, making it the ultimate EV stock to buy with $1,000 right now.
