A more inclusive and affordable EV model might generate greater development than what the market anticipates.
One of the iconic companies in the world is emerging, and that brand is Tesla (TSLA -4.99%). Speaking volumes about the company’s brand power is the company’s 51% increase in revenue last year, which came on top of the worst year for car sales in more than a decade.
But the stock didn’t benefit from this impressive showing. Investors can fault Tesla’s price cuts on some models, which have analysts worried about margins and whether demand will hold up in a slowdown, as well as the company’s high valuation. The price has increased 52% year to date, but it is still below its highs from last year.
However, the company’s more significant economic advantages outweigh these worries. Let’s examine three elements of Tesla’s operations that shrewd investors know will eventually increase value for stockholders.
Tesla is increasing the size of its target market
Recent price reductions are not a result of weak demand; rather, they are a part of management’s long-term strategy to lower the cost of its vehicles and, as a result, expand the market to which they are sold. Increasing the number of electric cars on offer is one of its objectives. (EVs).
Every year, trucks and SUVs are among the best-selling automobiles. In reality, according to Car and Driver, the top three selling light vehicles in the U.S. last year were all pickups. And with the introduction of its Cybertruck, Tesla will shortly start its journey to enlarge its share of the truck market.
If Tesla wishes to increase its share of the auto market, trucks must be added to its lineup. Statista estimates that around 15 million light vehicles are sold worldwide each year. In 2022, the top-selling pickups each sold about 500,000 units, surpassing all of Tesla’s fourth-quarter deliveries for its entire range.
Elon Musk, CEO of Tesla, stated on the earnings call for the fourth quarter that the Cybertruck won’t significantly affect the company’s bottom line until 2024, despite being slated to debut this year. However, the truck’s design highlights crucial economic advantages for Tesla, on which investors should place their bets.
Tesla is looking for methods to cut costs
The exterior of the Cybertruck is made up of sizable stainless steel plates that are unlike anything else on the road right now. The components and architecture forced Tesla to reconsider its production strategy.
For instance, when constructing a car traditionally, the panels (or body) are assembled first, then the doors are removed, and the interior components are installed. (e.g., the seats, engine, et cetera). This means that before beginning assembly, the team working on the internal components must wait for the team working on the panels to complete their task.
Tesla developed a more effective method that enables multiple teams to work on the construction simultaneously. The business claims that its next-generation vehicles have a 30% increase in space-time efficiency, which is what it refers to as an improvement.
These manufacturing advancements also reflect management’s readiness to lower vehicle costs. In addition to finding creative methods to reduce costs, Tesla is working to lower the price of its electric vehicles.
The company’s profit margin decreased toward the end of 2022, but it still ended the year at close to 17%, which is double what Ford and General Motors had. Tesla’s profitability may continue to rise as the Cybertruck, and other next-generation cars are developed.
With operating profits of $13.8 billion, Tesla has plenty of money to spend on new technologies and drive the EV market.
The worth of the Tesla brand is rising
Tesla stock is very expensive for a car maker at a forward price-to-earnings ratio of 45, but this is a brand that is still increasing in value. It’s a quality that’s hard to quantify but one that many people desire to own: a Tesla.
Tesla saw the biggest increase among the top businesses in Brand Finance’s annual ranking of the most valuable brands, rising from No. 28 to No. 9 on the list. Investors already voted with a recent market cap of $581 billion, so this change in ranking is important.
Tesla may move up the rankings as long as management keeps lowering the cost of its vehicles and growing its range.
Wall Street is worried about how a possible recession might affect demand in the near future. However, Tesla’s ability to make affordable EVs and improve its manufacturing process to keep being the most profitable company in its field are the main things that will give investors returns in the long run.