Since its IPO roadshow more than a decade ago, electric vehicle pioneer and kingpin Tesla (TSLA) has been one of the most controversial, dramatic, and volatile stocks on Wall Street. Before the company went public, financial TV personality Jim Cramer had already cast doubt on the EV-maker. To Jim’s defense, there had not been a highly successful U.S. auto start-up in a century, let alone an EV-maker. Worse, Tesla was unprofitable, and the economy was still reeling from the worst financial crisis since The Great Depression.
Nevertheless, Tesla has defied the skeptics and has gained more than 17,000% since its inception. The meteoric long-term stock performance has propelled Tesla to have the largest market cap ahead of global automaker juggernauts like Toyota (TM),Ferrari (RACE),General Motors (GM), and Ford (F). However, when comparing major automakers based on revenue, Tesla falls to the eleventh spot. Meanwhile, the stock has retreated significantly since reaching a split-adjusted all-time high of $414.50 in November 2021. Are Tesla’s best days behind it, or is the correction an opportunity?
To answer that question, let’s look at the key catalysts and data points:
Tesla Valuation
The most prominent bearish argument for TSLA has been and continues to be, its valuation. Bears may ask, “Why should Tesla have the largest market cap when it generates nowhere near the largest revenue?”
I attribute two reasons to the premium on Tesla shares:
1. TSLA EPS Growth and Profitability: Investors are willing to pay a premium for a company that is growing rapidly and is expected to in the future. For example, GM earned a gross profit of ~19 billion in 2023 after being in business for 115 years. Meanwhile, TSLA’s gross profit of $13.4 billion was not far behind GM. In other words, Tesla has shown the ability to grow faster than its rivals and steal market share.
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Image Source: Zacks Investment Research
2. Tesla is more than a Car Company: Tesla skeptics often forget the fact that Tesla has its hands in several fast-growing businesses, such as solar and clean energy, EV charging ports, and its Full-Self-Driving (FSD) technology. All else equal, tech companies enjoy higher valuations than automakers – TSLA has both.
Robotaxi and FSD Will Determine Tesla’s Success
Tesla skeptics say that Elon Musk blows hot air into the market, pumps his stock, and does not back up his words. However, using history as a precedent, I would push back on that assumption. CEO Elon Musk has defied the naysayers every step of the way, from the success of the Model S to the low-cost Model 3. At the same time, Elon’s ambitions have often seemed like pipedreams. Nevertheless, it’s impossible to argue that he has not produced immense shareholder value.
Though Elon Musk has produced results, those results are not always in sync with his timelines. Walter Isaacson’s “Elon Musk” biography provides many examples of this phenomenon. The latest example is the highly anticipated Robotaxi event, which has been pushed back twice so far. Finally, it appears Musk and the Tesla team will unveil the Robotaxi at the Warner Brothers campus on October 10th.
How groundbreaking is Tesla’s Full-Self Driving (FSD) Robotaxi?
Elon Musk has said that he is betting the company on it and TSLA shares could be worth $5 trillion by 2030. Robotaxis could make the company and its cars extremely valuable because TSLA owners could turn their cars into ridesharing mediums like Uber (UBER) without needing to be in the car Tesla would capture a piece of this revenue. Though Tesla is locked in a tough battle for Robotaxi supremacy with Alphabet (GOOGL) owned Waymo, there is likely room in the market for both companies to prosper. Furthermore, a study by ARK Invest found that Tesla’s FSD technology is 18x safer than the average U.S. car.
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Image Source: ARK Invest
Lower Interest Rates: A Bullish Catalyst for Tesla
Elon Musk has criticized the Federal Reserve for not cutting interest rates sooner. That said, late last month Fed Chair Jerome Powell confirmed rate cuts for the upcoming September FOMC. Lower rates reduce the cost of borrowing, making it cheaper for consumers to finance high-priced purchases like EVs.
Cybertruck in Production
Late last year, Tesla’s futuristic space ship-like Cybertruck began to be delivered to clients in North America. I have already seen numerous Cybertrucks in my home of Miami, but as the company increases and attains more efficient production, Cybertruck will become more prevalent throughout North America. Meanwhile, Tesla has a Cybertruck tour planned for Asia, which suggests the company will eventually expand its sales areas.
Tesla Sales Show Signs of a China Recovery
China is the largest market in the world, accounting for more than 50% of global EV sales. Though Tesla has a presence in China, its sales have lagged recently due to strong competition and a weak Chinese economy. Nevertheless, Tesla’s August sales might mark the turning point for its Chinese business. Its more than 60,000 sales for August trounced July sales by 37% and marked the strongest month of 2024.
Tesla Technical Analysis
TSLA shares have recently triggered two very bullish signals. First, TSLA cleared a downtrend line dating back to July. Second, the 50-day crossed above the 200-day moving average, triggering a “Golden Cross.”
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Image Source: TradingView
Conclusion
Since the Tesla IPO, Elon Musk and his team have defied the odds and proved the skeptics wrong. Though Tesla has gone through a rough patch recently, several signs that suggest TSLA will be a top performer into 2025.
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