Tesla (TSLA 0.88%) just had one of its most disappointing quarterly periods ever. That's not surprising, considering the backdrop of slowing electric-vehicle (EV) sales growth, but it's disappointing, nonetheless.
The stock market is forward-looking, and Tesla shares had already been beaten down based on lower vehicle production and deliveries, compared to the prior-year period. The stock has declined nearly 40% so far in 2024, even after shares rebounded when first-quarter results were announced.
NASDAQ: TSLA
Key Data Points
The Tesla of tomorrow
That bounce in the stock was due to investors looking at the future. There will be a more affordable EV offering coming from Tesla.
Previous reports had speculated that such a plan had been canceled. And on the conference call with investors, CEO Elon Musk plainly said he believes the company will still sell more vehicles this year than in 2023. Continued growth is something investors badly want to see.
But a small annual increase in vehicle sales isn't what might make Tesla the best EV stock for retail investors to buy now. The Tesla of tomorrow is more about automation, artificial-intelligence (AI) driven computing power, and strong growth in Tesla's energy businesses.
Regarding the latter, consider what Chief Financial Officer (CFO) Vaibhav Taneja told investors during the conference call:
Our energy business continues to make meaningful progress with margins reaching a record of 24.6%. We expect the energy storage deployments for 2024 to grow at least 75% higher from 2023.
Tesla's energy segment includes energy generation, as well as storage for both consumer and commercial uses. The segment has already been a steady grower over the last two years.
Data source: Tesla. Chart by author.
Investors who see utilities and other businesses moving toward large-scale energy storage to buffer an electric power grid under growing pressure should consider owning Tesla stock.
Transition to automation
For now, investors have their focus on the EV business. And Tesla seems to be pivoting now in response to the slowdown in EV demand.
Elon Musk has long said he expected Tesla to produce a lower-cost model that could appeal to a mass market. He touted a future change to the manufacturing process to increase efficiency, allowing that product to be profitable.
Now, however, the company has shifted that thinking. Musk said the company is pulling up the timeline on that product but will produce it on the current manufacturing lines. That allows the company to utilize existing capacity and minimize capital spending for the new product.
Whether that product will be popular remains to be seen as it could be viewed as just a slimmed-down version of the existing Model 3. But in the near term, the plan will conserve cash. Investors should like that, with sales growth in a trough right now.
Tesla still exited the first quarter with about $27 billion in cash and equivalents. Musk's vision is to use that money to fund expanding computing power and eventually launch a robotaxi -- or what Musk also called a Cybercab.
While a fleet of self-driven vehicles may be hard to envision at this point, Musk compared it to the evolution of the elevator. He stated:
And in my view, this will be much like elevators. Elevators used to be operated by a guy with relay switch...So [now], we just get [in] an elevator and press [the] button, we don't think about it.
Ordering a driverless car on your phone is still years away -- if it ever comes to pass. But for investors, that doesn't mean owning the stock now is a bad idea.
Tesla is already more than just an EV company, and EV sales are likely to continue to grow globally. Those who think the upcoming more affordable model and the energy business can bridge the gap to driverless cars in the future could do well buying Tesla stock now.
