When Tesla (NASDAQ:TSLA) stock was listed in 2010, it commanded a market capitalization of $2.23 billion. After almost a decade and a half, Tesla’s market valuation is at $690 billion. For an investor holding Tesla stock since listing, the compound annual growth rate of returns would be almost 50%.
Unquestionably, Tesla stock has been a massive value creator. However, the journey has been characterized by challenging times and skepticism from analysts.
If there is one factor that has kept Tesla going, it’s the innovation edge. In May 2024, Nvidia (NASDAQ:NVDA) CEO Jensen Huang stated that Tesla is “far ahead” in self-driving cars. This statement underscores my point that the electric vehicle (EV) company has thrived as much as it has from its focus on novel technologies.
Without a doubt, the EV market is going through challenging times. I however believe that Tesla will navigate market headwinds and emerge stronger. In 2021, Tesla stock had briefly traded above $400. The correction to current levels of $220 is a golden buying opportunity. Once overall market sentiments improve, Tesla stock will be back to creating wealth for investors. And there are several reasons to be bullish on Tesla from a growth perspective.
A Low-Cost Car Could Be A Game Changer
The electric vehicle industry has been depressed for multiple reasons. One is intense competition that has impacted growth and margins. A potential way to accelerate growth is through the production of low-cost cars.
There seems to be something brewing on Tesla on that front. The company’s new “unboxed” production system can be a game changer. Reports indicate that if the new assembly process is successful, Tesla can cut the production cost by half.
It’s worth noting that Elon Musk had talked about a new manufacturing system that’s likely to be “far more advanced than any automotive manufacturing system in the world.” In all possibilities, Tesla will surprise the markets in the next 12 to 24 months.
Another important point to note is that Tesla still has the brand pull. However, the cost factor has impacted the company’s growth in emerging markets. If the production cost is cut by half, Tesla is likely to see significant growth in deliveries coming from emerging economies.
Strong Fundamentals And Prudence In Investments
As of June 2024, Tesla reported cash and equivalents of $30.6 billion. Further, even with margin compression, operating cash flow for the first six months was $3.9 billion. This implies an annualized OCF potential of $8 billion.
While several emerging EV companies continue to struggle with cash burn, Tesla has robust financial flexibility. I like the fact that the company has been prudent in making big investments. Recently, Tesla indicated that it plans to raise production by “50% from 2023 to its current capacity of close to three million vehicles” before investing in new manufacturing.
Instead of boosting capacity in relatively sluggish market conditions, Tesla is investing in technology. Robotaxis can be another growth catalyst for Tesla in the next 24 to 36 months. In a recent earnings call, Elon Musk was quoted saying “If somebody doesn’t believe Tesla’s going to solve autonomy, I think they should not be an investor in the company.”
Elaborating on the Robotaxis potential, Ark Investment Management’s Cathie Wood believes that Tesla stock will surge 10-fold on robotaxis. Even if we take a conservative view, Tesla stock can surge by 3x to 5x on the autonomous taxi platform business.
Bottom Line: Don’t Bet Against Tesla
Tesla has proven naysayers wrong since 2010. The company has been a massive wealth creator and I remain bullish on the company’s long-term outlook.
It’s worth noting that once Tesla plans manufacturing expansion, countries like India, Mexico, and Indonesia are likely to be on the radar. Further, with low-cost cars, the EV company is likely to make significant inroads into emerging markets. The correction in Tesla stock is therefore a good buying opportunity for investors who are bullish on the continued adoption of EVs globally.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or
indirectly) any positions in the securities mentioned in this article.