Spotlight: Will Tesla Make You Rich?

Yet another year has gone by where Tesla has absolutely crushed the market. Despite each year starting out with naysayers predicting doom for Musk’s car manufacturer, the performance again has been market-beating.

In fact, Tesla has outperformed the general stock market by about 6x this year, a jaw-dropping result considering all the bearish prognostications at the start of the year following a dismal 2022.

There are many reasons why Tesla has galloped ahead of its auto rivals but we glimpse behind the curtain to reveal a few key attributes that are not widely known.

Key Points

• Tesla has significantly outperformed the general stock market, beating the market with a return approximately six times higher than the average.
• Tesla is not just an auto manufacturer but is also a software giant with advanced AI systems, including its full-self driving technology, setting it apart from competitors.
• The car manufacturer’s innovative approach includes unique auto insurance policies based on real-time data, and ventures into energy storage and solar solutions.
• Despite a high P/E ratio suggesting overvaluation, Tesla’s profitability and diverse growth options present potential for future growth. 

Under The Tesla Hood

While the ordinary Joe or Jane on the street thinks of Tesla as an auto manufacturer, the reality is its a software giant too that has among the most advanced AI systems in the world. If you were impressed by ChatGPT, Tesla’s full-self driving artificial intelligence would really cause your jaw to drop. It isn’t a large language model but rather an intelligent computing system that must analyze the real world in real time. Indeed it’s so far advanced that it’s left other auto makers in the dust.

So too does Tesla incorporate revenue streams that legacy manufacturers hadn’t imagined hithero. Where regular auto insurance policies are based on age and driving records, Tesla has identified a way to set rates using real-time data.

The diversity of revenue streams has extended to energy storage and solar solutions too, specifically a big potential revenue drivers for the future is Powerwall.

When you put all the ingredients together into a pie, Tesla has created a product-market fit so successful that it has rapidly gone global and become a massive commercial success. One example of that is, in a fraction of the time Ford has existed, Tesla has accumulated a similar cash pile but Ford is about 8x more indebted than Musk’s firm.

Is Tesla a Buy?

Tesla’s P/E ratio presently 7-8x higher than the industry average and suggests the company is trading at a real premium to fair value. In reality, though, Tesla has better margins and profitability than its peers, and it’s got lots of optionality among other divisions to grow its top line faster.

Valuation analyses are mixed. It’s considered a couple of percent overvalued by analysts, while a discounted cash flow analysis places its value closer to $220 per share, implying almost 8% downside

Analysts see upside, albeit modest, and in the single digit percentage range. That being the case it’s probably best for investors to be patient and wait for TSLA share price to dip before getting too greedy.