Since reaching a peak in 2021, Tesla (NASDAQ: TSLA) has struggled to build much, if any, momentum. After trading at over $400 a share, the stock has been beaten down over the past three years and currently sits at around $185.
While those who invested before 2021 are likely sitting on comfortable gains, those who invested recently may not be so lucky. Perhaps Tesla’s best days are already over, which begs the question: is it too late to invest in Tesla?
Tesla’s Fall Explained
Tesla’s stock decline can largely be attributed to declining gross profit margins. At its peak, Tesla’s margins were over 30%, easily the best in the entire auto industry. Today, those margins have fallen to 17%, which, while still near the top, is now facing some pressure points.
The reason for this decline is multifaceted, but can be traced back to a decline in consumer demand for electric vehicles (EVs). Higher interest rates have deterred potential buyers due to the higher cost of financing a vehicle. In an effort to stimulate demand, Tesla decided to cut prices in 2023. This, combined with higher costs in supply chains and labor markets, caused margins to plummet.
However, interest rates will eventually fall and demand for electric vehicles will likely increase again, as these factors tend to be cyclical. Current trends suggest that rates may finally start to fall by the end of the year. As borrowing becomes cheaper, consumer demand for electric vehicles should naturally increase again.
In addition, Tesla stands to benefit from the general trend in electric vehicle adoption around the world. Governments are implementing stricter emissions regulations and offering incentives to encourage the purchase of electric vehicles, creating a supportive environment for Tesla’s long-term growth.
In addition, the company is expanding internationally. A factory is currently being built in Mexico and there are plans to expand into India and Thailand in the coming years.
A new Tesla is taking shape
Tesla aims to become more than just an EV company. One of the main efforts right now is building autonomous vehicles and eventually launching a robotaxi company. Tesla’s self-driving technology has made great strides, and the company is preparing for a global demo of its robotaxi on August 8.
In addition to autonomous vehicles, Tesla is also readying its humanoid robot, Optimus, for commercial launch, which is expected to happen in 2025. While these efforts are not yet ready for large-scale commercial introduction, Tesla has made remarkable progress. Optimus is already in use in Tesla factories, demonstrating its potential to improve efficiency and reduce labor costs across a wide range of industries.
Taking the optimistic route
Critics will point out that Tesla and deadlines don’t always go well together. But it’s hard to contend with the ability to see this through in the end. If Tesla can replicate a similar level of success in its robotaxis and Optimus as it has with its electric vehicles, it could transform the company and perhaps even society for the better.
While it’s difficult to measure the true monetary impact these two innovations will have, simply because there is no such market for these types of products, some estimates put the total revenue of robotaxis at $700 billion per year and Optimus at around $1 trillion. Combined, and if accurate, this means the two would more than triple Tesla’s current revenue.
At the risk of being optimistic, I believe that Tesla’s best days are yet to come and that it is not too late to invest in one of the most transformative companies of the future. Tesla’s ability to innovate and push the boundaries of technology has been a key driver of its success to date. If the company can continue to lead the EV market while successfully expanding into new areas such as autonomous vehicles and robotics, the company can reach even greater heights.
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RJ Fulton has positions in Tesla. The Motley Fool holds and recommends positions in Tesla. The Motley Fool has a disclosure policy.
Is It Too Late to Buy Tesla Stock? was originally published by The Motley Fool
