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Has Elon Musk constructed the very best electrical car firm on Wall Road?


Posted on
May 09, 2022
by
Zachary Visconti

Electric vehicles are quickly becoming the norm for automakers, with Tesla leading the pack for the burgeoning industry. And while the company’s EVs have made it what it is today, Elon Musk’s artificial intelligence and autonomous mobility plans may make it what it is tomorrow — which is why many investors consider Tesla the top electric vehicle stock worth owning. 

Above: Tesla CEO Elon Musk (Flickr: Steve Jurvetson)

Beyond Elon Musk’s leadership in the EV market, Tesla may also be worth betting on because of its exciting future, according to The Motley Fool. Tesla’s current operating margin is also more impressive than the rest of the auto industry, which positions the automaker well to leverage its position in the fast-growing EV sector.

According to the International Energy Agency, EV sales made up around 9 percent of all car sales in 2021, a figure that has more than tripled since 2019. A recent report from Grand View Research expects the company’s sales to grow at about 38 percent per year through 2027, due to expected production cost dropoffs and improved battery ranges.

Tesla’s 19.2-percent operating margin this year is up from the automaker’s 14.7-percent operating margin held in Q4 2021. Compared to close competitors, Tesla pays around 10 percent less on battery packs, spending around a whopping 24 percent less than the industry average, as detailed in a report from Cairn ERA.

Part of Tesla’s efficiency comes from its already highly automated factories, which has allowed the company to increase vehicle production at facilities around the world. In the last year, efficiency has also led to increasing revenue, where Tesla saw revenue increase by 73 percent over the last year to $62.2 billion. Additionally, free cash flow increased by about 188 percent in the past year to around $6.9 billion.

Logistically speaking, Tesla’s recent opening of both Gigafactory Berlin-Brandenburg and Gigafactory Austin, Texas offer the automaker another unique advantage. Tesla’s EV business can look forward to launching the Cybertruck in 2023 and its next-generation 4680 batteries throughout this year, as it currently looks to ramp up Model Y production at both plants.

Above: CNBC analysts discuss the outlook for Tesla (YouTube: CNBC Television)

Beyond the car business, Tesla CEO Elon Musk expects an autonomous robotaxi to hit the streets with volume production by 2024. Ark Invest, as one example of a firm that’s bullish on Tesla, expects the company’s robotaxi business to generate around $2 trillion in annual profits by 2030, piggybacking on the automaker’s Full Self-Driving which is already available.

The humanoid Tesla robot “Optimus” is also expected to bolster the company’s revenue.

In a statement at Tesla’s Q1 earnings call, Musk said, “Optimus ultimately will be worth more than the car business, worth more than FSD.”

Whether on future endeavors or on valuation alone, Tesla remains an important stock to watch. Tesla is currently worth more than the next 14 automakers combined with a price-to-sales ratio of 19 — more similar to the valuation of a software company rather than an auto company.

Where some investors consider Tesla overvalued, others see the potential for the automaker to continue to expand its dominant position in the EV race. It’s worth noting that Apple was considered overvalued before releasing the iPhone, and some doubted Amazon prior to it reaching its current $1.4 trillion valuation.

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Source: The Motley Fool / CNBC Television

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