TESLA : Fundamental Analysis | long from support | LONG Tesla recently held its annual meeting in Texas, where shareholders voted in favor of a 3-to-1 stock split. The split itself has not yet been set, but it will be Tesla's second stock split in the last two years, and many investors consider it a favorable development.
To be clear, the split has no effect on the market value of the company, the intrinsic value of the stock, or important fundamentals such as profitability. The split simply makes the stock more affordable by lowering its price. But the price reduction is only necessary after a significant increase in the stock's value, which implies strong execution from a business perspective.
The upcoming stock split may have been the highlight for some investors, but the most important part of the shareholder meeting was CEO Musk's comments. He first talked about Tesla's profitability, noting that the company has achieved industry-leading operating margins over the past year. This success is due to a relentless pursuit of efficiency through design and manufacturing automation, as well as innovations such as one-piece molding and low-cost battery cells. And Tesla intends to become even more efficient in the future.
The recently opened Gigafactory in Berlin will cut logistics costs by localizing the company's European operations, which means fewer cars will have to be shipped to Europe from plants in the United States and China. Next year, Tesla also plans to get serious about introducing battery cells like the 4680, a technology that will cut battery production costs in half. This is especially impressive because, according to Cairn Energy Research Advisors, Tesla already pays less to produce batteries than any other automaker, and batteries are the most expensive part of an electric car.
Looking ahead, Musk says Tesla could reach a production level of 2 million cars by the end of this year, and he confirmed a goal of 20 million cars by the end of the decade. To achieve this, Tesla plans to build 10 to 12 gigafactories over time, and the location of the next factory could be announced later this year.
Financially, Tesla is operating at full capacity. Strong demand and unmatched efficiency have delivered truly impressive growth over the past year. Twelve-month revenue was up 60% over the previous year to $67.2 billion, and free cash flow was up 165% to $6.9 billion. But these numbers are only a fraction of what the company could become.
During a shareholder event, Musk noted that Tesla is as much a software company as it is a hardware company, reiterating his belief that full self-driving software (FSD) will eventually become the most important source of profitability for the auto business.
In this regard, Tesla has a significant advantage in FSD technology. Its cars have been equipped with autopilot hardware for years, allowing the company to collect more than 35 million miles (and more) of autonomous driving data. That's more than any other automaker, and high-quality data is the cornerstone of artificial intelligence.
With this in mind, Tesla plans to begin mass production of robotaxis in 2024, and in time the company plans to launch an autonomous passenger delivery service. This could dramatically change the nature of the business. Robotaxis is likely to generate huge amounts of recurring revenue at very high margins. Analysts at investment bank UBS, for example, believe the robotaxi market will be worth at least $2 trillion by 2030, and Ark Invest analysts predict that autonomous ride-hailing platforms could generate $2 trillion in revenue by 2030.
There's another piece of the puzzle: an autonomous humanoid robot code-named Optimus. Musk believes that Optimus will eventually be worth more than the car business and that its success will eventually make Tesla the most expensive company in the world.
Tesla stock currently trades at 15.1 times sales, which is an unbelievably high valuation for a car company. But over the course of a decade, Tesla may look more like a software company, which would make its current valuation quite reasonable. With that in mind, patient investors should consider buying a few shares of this growing company right now.
