Is Tesla Stock a Buy?

As the largest automotive manufacturer in the world, Tesla has been a standout performer in recent years. The company’s stock has risen more than 1,250% over the last half-decade and is already up 160% thus far in 2023.

In fact, TSLA’s share price experienced another significant surge earlier in June, further adding to its impressive gains this year.

This upward trend was driven by several key business developments, most notably the widespread adoption of the company’s North American Charging Standard (NACS) power port.

While that milestone undoubtedly brought delight to its shareholders, there was even more good news with the release of Tesla’s second quarter 2023 vehicle production and delivery numbers for the period.

Fascinatingly, the firm increased its total deliveries count to 466,140, representing an 83% uptick for the metric from the same time last year.

However, certain pessimistic analysts have been eager to highlight that a significant portion of Tesla’s sales expansion can be attributed to the proactive discounting strategies pursued by the company as of late. Although this approach may contribute to positive figures, it is anticipated that TSLA’s profitability will inevitably suffer in the long run.

That said, the approach taken by Elon Musk to sell more vehicles at a reduced profit margin is not solely a reaction to the escalating rivalry within the electric vehicle sector, but also a strategic maneuver to establish a broader and more promising prospect for TSLA in the long run. Despite the economic challenges posed by surging inflation and increasing interest rates, its implementation of price reductions has effectively enticed new clientele to the enterprise.

Indeed, Tesla’s in-house design and manufacturing strategies materially reduce costs – often in ways other corporations can’t replicate.

For instance, by reducing costs and improving efficiency, Tesla aims to overcome production constraints and lower prices to grow demand. The company has been building smaller factories for new powertrain production, designing its own transistor packages, and eliminating the use of rare earth elements in its EVs.

Nevertheless, in addition to the raw financial mechanics that inform its business model, there are two other critical factors at play. And if these turn out to be as lucrative as expected, they could again catapult TSLA’s market cap back into the coveted trillion-dollar club.

 
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Can Musk Leverage The Rise of AI?

While Tesla’s main involvement with artificial intelligence (AI) is through its self-driving capabilities, it could still be a meaningful cash generator. However, the firm’s recent rally alongside AI stocks may not be as beneficial as it seems, as most machine learning hype is centered on large language model chatbots, which doesn’t necessarily translate to the domain that Tesla operates within.

Consequently, its AI efforts are primarily aimed at developing self-driving cars, where the company can collect vast amounts of data from which it can train its autonomous driving system. As such, TSLA is developing its Dojo supercomputer to enhance its data processing capabilities, specifically built to train its AI model using video from Tesla vehicles.

In its Q4 and FY 2022 update, TSLA reported installing about 400,000 vehicles with its full self-driving (FSD) product. The FSD upgrade costs $199 per month and requires a $15,000 base cost for installation.

On the other hand, Tesla has yet to disclose how many of these cars have the monthly add-on – but if close to all of those vehicles were to have it, that could bring about nearly $1 billion in annual revenue for the company.

Will TSLA’s Cybertruck Make A Decisive Difference?

Despite the long wait for its latest offering, ARK Invest analyst Sam Korus believes the demand for Tesla’s electric Cybertruck pickup vehicle is stronger than ever.

Unfortunately, production has been delayed multiple times, prompting skepticism about its potential impact. All the same, Korus remains optimistic about its prospects, suggesting that the anticipation for the Cybertruck has not waned, and the use case for the vehicle could surprise everyone once it’s finally released.

With the production of the Cybertruck anticipated to commence in 2023, TSLA has purportedly accumulated more than one million pre-orders for this vehicle, signifying strong consumer interest. Should these reservations convert into actual sales, the Cybertruck has the potential to become a reliable source of income for Tesla.

Even so, the Cybertruck’s success is not guaranteed. The vehicle’s unconventional design has been divisive, and it’s still being determined how it will be received by the broader market. Additionally, the Cybertruck will compete with other electric trucks, including models from established automakers and startups.

Despite these challenges, it’s more than just ARK Invest that believes in the transformative potential of the Cybertruck. In fact, according to fund manager Gary Black, it’s anticipated to be a game-changer in the electric vehicle (EV) industry, potentially propelling substantial expansion for the company.

As a former executive at Goldman Sachs who now oversees his own fund, Black has been an unabashed advocate of TSLA and its CEO, Elon Musk, contending that the Cybertruck has the potential to serve as a pivotal top-line catalyst for Tesla, considering the scale of the relevant market in the United States. The distinctive design and characteristics of the Cybertruck, coupled with Tesla’s esteemed brand image, have the potential to make it a sought-after option among consumers.

Luckily for Tesla, the company doesn’t just get the thumbs up from Sam Korus and Gary Black – it also has the backing of the broader financial industry as well.

Indeed, only five of the 38 Wall Street analysts who’ve weighed in on TSLA’s fortunes in the last 90 days have declared the stock a sell. Interestingly, 15 have so much confidence in the firm that they’ve rated it as a buy or a strong buy, with the remaining 18 suggesting the firm is a hold.

Conclusion

Tesla’s remarkable stock rise has been fueled by clever strategic decisions and robust delivery growth. But despite the possible future impacts of aggressive price cuts, Tesla’s ability to reduce costs is drawing in new consumers.
 
Moreover, the company’s foray into AI and the launch of the much-anticipated Cybertruck present potential new revenue streams, and while some risks persist, most Wall Street analysts lean towards optimism about Tesla’s future.

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