Tesla (NASDAQ:TSLA) stock has been a favourite of investors for a number of years, frequently leading the market in trading activity.
The stock is up 81% in 2023, as investors hoped the worst was over for inflation, rising interest rates, and a host of other issues.
As a long-term shareholder in Tesla, I’ve seen how the stock can perform in good times and bad. Many fear that Tesla stock is overhyped, leading to an excessive price-to-earnings (P/E) ratio of 52. This is difficult to dispute when compared to rival GM at 5.7 times, and Ford at 4.6 times.
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Due to steep growth rates, analysing companies like Tesla can be challenging. A discounted cash-flow calculation suggests the Tesla stock price of $207.46 is 34% above fair value of $154.78.
However, I prefer to focus on the performance of the company itself. I have three key reasons why I’m excited for what Tesla has in store.
Product development
Tesla is naturally synonymous with electric vehicles (EVs). However, one of my favourite features to see with a company is a growing product line across diverse sectors. Tesla boasts EV manufacturing, energy generation, batteries, insurance, robotics, and AI as current and potential income streams.
Many areas are in the early stages of development, but look promising. By developing high-quality products, solving some of the greatest challenges we face, such as climate change and energy security, Tesla clearly has enormous untapped customer bases. As the cost of production declines, and manufacturing capacity grows at incredible pace, the future looks good.
Competitive edge
It’s clear that EVs are going to play a huge part in the future of transport. Almost all legacy automakers are making this shift, but Tesla has a key advantage. Rather than adapting, the company has been executing since day one.
Factories are consequently streamlined and purpose-built for EVs. Teams are highly skilled, and the global infrastructure is growing rapidly. Tesla recently announced it had delivered a record-breaking 422,875 vehicles in the first quarter alone.
This strategy has led to incredible economies of scale, and flexibility in pricing. As inflation rose, Tesla opted to cut prices. With demand for EVs soaring, and plentiful government incentives making these more affordable, choosing Tesla over a fossil fuel vehicle is increasingly appealing.
Investor and customer enthusiasm
There are few growth stocks with Tesla’s level of enthusiasm. Investor events have a party atmosphere, and Tesla’s controversial CEO Elon Musk is more celebrity than the head of a business.
Despite the recent decline, retail investors continue to buy more Tesla stock. The Twitter acquisition, and economic and geopolitical uncertainty have all weighed on the company, but investors largely remained. With such loyal following, and the expectation that customers buying their first Tesla are likely to remain, the high valuation feels less problematic to me than it would be for a company with lower demand.
What’s next?
I’ve held Tesla stock since 2018, and that won’t be changing any time soon. Volatility is constant in the share price, but I see a quality company with all the factors needed for success. If Tesla can expand into new regions, and the cost of manufacturing continues to trend downwards, I believe there is still further growth in Tesla stock ahead.
