Is Tesla Stock a Buy?
Tesla's stocks have experienced a significant increase this year mainly due to the renewed interest of consumers in the stock market. This booming performance can also be attributed to the impressive financial outcomes achieved by the company in the previous two quarters.
Although Tesla has a market capitalization of around $800 billion, its shares have decreased by 38% since the peak price it reached in November 2021. This presents a good chance to examine this prominent company further.
Should you invest in this leading electric vehicle (EV) company? We must examine notable updates and broader factors before making a decision.
During the period from April to June, Tesla made $24.9 billion in revenue, which is a 47% increase compared to the same time last year. Although this growth is significant, it is not as high as the growth the company had posted in previous years. For instance, in 2021 and 2022, Tesla's sales increased by 71% and 51%, respectively. The reason behind this slowdown is attributed to macroeconomic factors, such as the rise in interest rates.
Although Tesla played a major role in leading the EV movement to the mainstream, the market is now fiercely competitive. It faces strong contenders, such as traditional automobile companies like Ford Motor and General Motors, as well as newer start-up ventures such as Rivian Automotive and Lucid Group. The way forward for Tesla will not be as effortless as it has been in the last ten years, due to the multitude and diversity of EV choices available to consumers.
A busy market has caused lower profits for Tesla. During Q2, their gross and operating margins dropped compared to the same period last year, with gross margin at 18.2% and operating margin at 9.6%. The U.S. and China are currently experiencing competition in terms of pricing, leading Tesla to join in and try to grow their portion of the market.
It's not a shocker that Elon Musk, the creator and leader of the company, still has a positive attitude towards its future. He understands that lower profits are not ideal for shareholders, as they may indicate negative developments. This concern is reasonable.
Despite this, Musk is encouraging investors to focus on the bigger picture and think long-term when it comes to their investments in the company. The ultimate objective remains the same: to bring fully autonomous driving capabilities to their electric vehicles. If they succeed in achieving this goal, Tesla's profits could soar to new heights beyond their current levels.
Tesla has an innovative technology that has the potential to revolutionize the automotive industry. With this cutting-edge technology, they can operate an entire fleet of electric vehicle taxis that are completely self-driving. This will drastically reduce the costs previously associated with hiring top tech experts and investing in artificial intelligence projects. Instead, the new technology promises to bring in significant profits for Tesla. The ultimate goal is for Tesla's FSD software to generate substantial revenue for the company.
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While investors are concerned about Tesla's decreasing profitability, it's important to also consider the bigger picture. With Elon Musk leading the way and implementing his innovative ideas, Tesla has endless possibilities. Therefore, it's not unreasonable to assume that if the company reaches its ambitious objectives, its market value could increase by two or three times within the next decade.
During the earnings call of Q2 2023, Musk expressed his firm conviction that Tesla is an excellent investment for the long haul. He also encouraged investors not to fret about fluctuations in the market.
However, considering the company's present price-to-earnings ratio of 71, it's essential for investors to have confidence in the company's ability to introduce the Full Self-Driving technology earlier rather than later. This breakthrough has to be a significant aspect of your investment strategy if you wish to purchase shares comfortably at today's high valuation. It's crucial to believe that this advancement will result in significant profitability gains.
However, there is still a lot of uncertainty regarding this matter. Therefore, it may be wise to only invest a small portion of your overall investment portfolio into Tesla stock if you are optimistic about its potential success.
Neil Patel and his clients do not hold any stock mentioned in this blog. However, The Motley Fool has invested in Tesla and recommends both investing in and purchasing long-term options for General Motors, specifically the January 2025 $25 calls. They have also revealed a disclosure policy regarding their investment recommendations.
