Is this the Perfect Time for Tesla?

The era of electronic vehicles has just begun and Tesla (TSLA) has emerged as the undisputed leader in the newly growing EV space. The company has made a historic run over the past couple of years, gaining over 1000%. Although last month the stock took a bit of a hit, the market still expects Tesla to remain bullish in the coming years because of its enormous growth prospects. 

Tesla is one of the largest companies in the world that designs, manufactures, and sells high-performance fully electric vehicles and energy storage products. The electric vehicle and clean energy company is the most valuable automaker in the world, which through its subsidiary called Tesla Energy, develops and installs photovoltaic systems across the United States. 

With Elon Musk at its helm, Tesla stock has blown up and disrupted the automotive industry in a massive way. Moreover, it is also developing a reputation as one of the best artificial intelligence companies in the world. With clear dominance in such growth-oriented industries, it can be rightly concluded that the company can continue to preserve its value in the coming years as well.

Daniel Ives from Wedbush had the same opinion about Tesla last month and had maintained a Buy rating. Ives said that the linchpin of his previous bull stance on Tesla has been China, which he estimated would represent 40% of the electric vehicle (EV) market leaders’ deliveries of 2022.

The First Mover Advantage

Electric vehicles have taken the world by storm these days as everybody is getting increasingly conscious about the environment and carbon emissions. The EV industry is therefore getting all the necessary momentum it required and is growing quite rapidly. As per the International Energy Agency (IEA), the number of EVs on the roads has grown to over 10 million in the past decade.  

Tesla is one of the first companies that has benefitted from this rising demand for EVs. Having the first-mover advantage, the company was able to capitalize on the rising demand pretty well and thereby account for nearly 80% of all new EV registrations in the United States in the first half of 2020. Moreover, to grab the most market opportunities, Tesla has ramped up its delivery capacity from about 63,000 vehicles in first-quarter 2019 to 241,000 vehicles in third-quarter 2021, and expects to achieve an overall goal of 20 million cars per year by 2030.  

This shift in preference from conventional cars to EVs is not temporary and the demand for EVs is only going to increase in the coming times. As per ResearchAndMarkets.com, about half of the newly sold cars by the end of the decade are going to be EVs. It is said over $500 billion are going to be invested collectively by global carmakers in developing EVs and battery technology. With its innovative engineering capabilities and head start on this industry, Tesla would be able to grab the best opportunities in the market.

Finally Witnessing Profits

After years of losing money, Tesla has finally started reporting impressive results. In the third quarter of 2021, the company’s revenue stood at $13,757 million, representing a 57% year-over-year increase while its EBITDA also saw a 77% rise. Moreover, its operating margin of 14.6% for the quarter is an all-time high. Additionally, the year-over-year improvement in solar deployment and supercharger connectors were 46% and 51%, respectively.

Markets expect to see continuously improving results in the future, as Tesla has dramatically expanded its production capacity recently following the improvements at the factory in California, and the opening of Gigafactory Shanghai. The company has also localized its China businesses to cut down on shipping costs associated with moving cars across the ocean. 

The TipRanks’ Stock Investors Tool indicates 13 out of 26 Analysts have given Tesla a Buy Rating and 8 have suggested a hold on its shares. The remaining 5 have suggested a sell. The highest price target for the stock is $1580 which is a potential upside of a little over 56% from its December 23 closing price of $1008.87. The average Tesla price target of $1,004 represents 8.2% downside on the stock.

More than Just a Car Maker

High demand for EVs is not the only contributing factor to Tesla’s high valuation. Its innovation extends to several other areas. Tesla’s partnership with SpaceX is one such example. Moreover, Musk wants people to eventually identify Tesla as an artificial intelligence and robotics company as well. For that purpose, he has positioned Tesla as a frontrunner in the race to build an autonomous vehicle.  

Tesla collects data from both vehicles and drivers using internal and external sensors and cameras, and with that generates detailed maps that measure traffic speed, locate construction, identify hazards, and more. Machine Learning is used by the company to update its entire fleet, while edge computing is leveraged for making real-time decisions at the individual car levels. Other than that, Tesla also uses a third level of artificial intelligence to create networks with other nearby Tesla vehicles in order to enable the seamless exchange of information among them.

McKinsey and Co. has estimated that the total addressable market for such vehicle analytics might be worth as much as $750 billion a year by 2030. So, having access to such quantities of quality data is surely going to benefit Tesla largely and aid in determining its future course of actions.

Tesla is a premium quality stock and is expected to remain the same in the coming years as well. It is said that innovation is the key to success in the modern business environment, and Tesla, with its highly innovative capabilities, has created a particular niche for itself which has differentiated the company from most others in the industry.

So, despite the Tesla stock being quite an expensive one at the current level, upon consideration of its strong competitive position in the market and the massive growth opportunity it offers, Tesla is the perfect bargain for growth investors.

Disclosure: At the time of publication, Hashtag Investing did not have a position in any of the securities mentioned in this article.