To The Moon

Tesla faced an onslaught of headwinds last year. Supply chain problems and factory closures hindered production, while high inflation and rising interest rates hammered sales across the auto industry. Tesla managed to grow deliveries 40% to 1.3 million vehicles, but that figure fell short of its medium-term guidance calling for 50% annual growth. Fourth-quarter deliveries also fell short of the Wall Street consensus by a wide margin.

Some analysts have explained that shortfall as a demand problem, but management brushed those concerns aside during the latest earnings call. CEO Elon Musk said the company was receiving orders at nearly twice the rate of production. Better yet, despite encountering a number of roadblocks throughout the year, Tesla reported impressive financial results. Revenue increased 51% to $81.5 billion, and GAAP net income soared 122% to $3.62 per diluted share. Tesla also led the industry with 18.2% market share in battery electric vehicles.

Additionally, the company achieved an operating margin of 16.8% last year, the highest among any volume carmaker. Musk attributes that accomplishment to manufacturing prowess, noting that Tesla has the most advanced manufacturing technology on the planet. Better yet, there are several reasons to believe the company will become more profitable in the future.

Tesla should see its logistics costs fall as production ramps at Gigafactory Berlin, its first European factory, simply because the company can now produce cars locally in that market. Tesla is also scaling production of its 4680 battery cell, a technology that promises to reinforce its cost leadership in battery pack production. The company can already produce battery packs (the most expensive part of an electric car) at a lower cost per kilowatt-hour than any other carmaker, but management says the 4680 cell will eventually cut costs by 56%.

Finally, Tesla sees significant margin upside from its full self-driving (FSD) software. A beta version of the product was released to customers in North America last year, and Tesla plans to take the next step toward autonomous ride hailing by mass-producing a robotaxi next year. Ultimately, management believes FSD technology will be the company's most important source of profitability.

Tesla sits in front of a sizable market opportunity. Global electric car sales are expected to grow at 23% annually to hit $1.1 trillion by 2030, according to Precedence Research. And the autonomous vehicles market is expected to grow at 40% annually to reach $2.1 trillion by 2030, according to Research and Markets. As the current leader in battery electric vehicles and one of the leading AI companies (according to Musk), Tesla is set to benefit from both tailwinds. The stock currently trades at 8 times sales, a very rich valuation for a carmaker.

Investors must decide whether Tesla is a carmaker that dabbles in AI, or an AI company that makes cars. Those who find the second description more accurate should consider buying a few shares of this growth stock today. If Tesla does indeed disrupt the mobility industry with robotaxis, its revenue (and margins) could grow quickly and the current valuation multiple could fall in a hurry.