Although Tesla (NASDAQ: TSLA) shares are currently 40% below their all-time high, a level that was reached in late 2021, the disruptive industry leader has seriously rewarded its investors in 2023.
If you were smart enough to buy $1,000 worth of Tesla shares at the start of the year, you'd have about $2,000 right now. Talk about an outstanding nearly 100% gain in such a short period of time. I'm sure any investor would have loved to own this electric vehicle (EV) stock over the past nine months.
For what it's worth, the tech-heavy Nasdaq 100 Index is up 34%. It's clear that investors are turning even more optimistic again when it comes to Tesla.
However, the business is dealing with some challenges at the moment that should be understood in light of its big-picture story.
In a period of still-rising interest rates, elevated inflation, and general uncertainty around the state of the economy, it's really encouraging to see that Tesla was able to increase its revenue in the first six months of 2023 by 35%, compared to the same period a year ago. That's still an impressively rapid rate of growth, albeit much slower than in the last two full fiscal years.
However, the key theme of 2023 has been the multitude of price cuts that Tesla has taken to try to reinvigorate demand from consumers, exactly at the same time that affordability has declined due to high interest rates. CEO Elon Musk's goal is for Tesla not to lose its massive lead in the EV industry, but skeptics aren't buying it. They can see just how competitive the market is becoming nowadays, and they're viewing this as more of a defensive move.
Tesla deserves a ton of credit for achieving financial success in an industry that isn't known for its companies generating a lot of profits. In 2021 and 2022, the company posted an automotive gross margin of 29.3% and 28.5%, respectively. Tesla's operating margin was 16.8% last year. But those pricing cuts have pushed margins down through the first two quarters of 2023. For comparison's sake, operating margins at Ford and GM have averaged less than 7% in the last five years, so Tesla is still ahead of these rivals.
Wall Street analysts expect things to slow dramatically, with revenue forecast to rise 16% in the current quarter on a year-over-year basis and 10% in the fourth quarter before picking back up next year. Perhaps shareholders should be a bit cautious as well.
"It's also important to keep in mind the uncertainty in the macro environment, which can impact our execution positively or negatively in the near term," CFO Zachary Kirkhorn said on the second-quarter 2023 earnings call.
Based on the stock's significant outperformance this year, it looks like investors are shrugging off the softer profitability trends and muted outlook for the rest of the year, and instead keeping their eyes on Tesla's ultimate vision.
The objective is to develop a worldwide fleet of autonomous robotaxis that can earn extremely high margins for the business. That's why Tesla is working so hard on its Dojo artificial intelligence-powered supercomputer, which can help advance progress toward building out full self-driving capabilities. The company wants to be a leader in AI, and it thinks the perfect use case for it is in its vehicles.
"In the long term, Autonomy, we think, is going to just drive volume through the ceiling next level and -- and our sort of future robotaxi products -- dedicated robotaxi products, we think, have like quasi-infinite demand," Musk posited on the call. Investors who believe in this long-term outlook might still consider buying the stock.
While I don't think Tesla will repeat its 2023 performance thus far over the next nine months, I can see why some bullish investors would still hop on the bandwagon today, despite the company's already massive market cap and steep valuation. The upside is extremely large should Musk make good on his grand ambitions.
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Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool recommends General Motors and recommends the following options: long January 2025 $25 calls on General Motors. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.