Despite recent struggles, Tesla’s bold ventures beyond electric vehicles hint that its most transformative and profitable days are yet to come.
Since it peaked in 2021, Tesla (TSLA 0.23%) has struggled to build much, if any, momentum. After trading at more than $400 per share, the stock has taken a beating for the past three years and currently sits at around $185.
While those who invested before 2021 are likely to see comfortable returns, those who invested recently may not be so lucky. Perhaps Tesla’s best days have already passed, begging the question: Is it too late to invest in Tesla?
Image source: Getty Images.
Explaining Tesla’s Downfall
The decline in Tesla stock can be largely 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 are down to 17%, which, while still near the top, now faces a number of pressures.
The reason for this decline is varied, but can be summed up in a decrease in consumer demand for electric vehicles (EV). Higher interest rates have discouraged potential buyers due to the increased costs 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 decline.
TSLA Gross Profit Margin data (quarterly) according to YCharts.
However, interest rates will eventually fall and EV demand will likely recover as these factors are typically cyclical. Current trends suggest that rates may finally begin to decline by the end of the year. Of course, as borrowing becomes cheaper, consumer demand for electric vehicles should recover.
Additionally, Tesla will benefit from the general trend in EV adoption worldwide. Governments are enforcing stricter emissions regulations and offering incentives to encourage electric vehicle purchases, creating a supportive environment for Tesla’s long-term growth.
Plus, the company is expanding internationally with a factory in Mexico under construction and plans to enter India and Thailand in the coming years.
A new Tesla takes shape
Tesla is trying to become more than just an EV company. One of her main endeavors now is building autonomous vehicles and eventually starting a robotaxi business. Tesla’s self-driving technology has made significant advances, and the company is preparing for a worldwide demonstration of its robotax on August 8.
In addition to autonomous vehicles, Tesla is also in the midst of getting its humanoid robot, Optimus, ready for market launch, which is expected to occur in 2025. While these efforts are not yet ready for wide commercial release, Tesla has visible progress. Optimus is already being used in Tesla factories, demonstrating its potential to increase efficiency and reduce labor costs in all kinds of industries.
Taking the optimistic route
Critics will point out that Tesla and deadlines don’t always mix well. But it’s hard to argue with her ability to eventually move on. If Tesla can replicate similar levels of success in robotaxis and Optimus as it has with its electric cars, it could transform the company and perhaps society for the better.
While it’s difficult to gauge the true monetary impact these two innovations will have simply because there isn’t such a market for these types of products, some estimates put total robotaxi revenue at $700 billion a year and Optimus at around $1 trillion dollars. Combined, and if correct, that means the two would triple Tesla’s current revenue.
At the risk of being optimistic, I believe that Tesla’s best days lie ahead 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 major driver of its success thus far. If it can continue to lead the electric vehicle market while successfully expanding into new areas like autonomous vehicles and robotics, the company could rise to even greater heights.