Tesla (NASDAQ:TSLA) shares have seen astonishing gains over the past few years. Its share price has risen over 1,600% in five years and 40% in the past year alone. It has been quite a transformation for this trillion-dollar electric vehicle and energy company.
But after such a rapid share price gain, is it too late for me to buy Tesla shares today?
To answer that question, I’d need to consider how the business is performing now and what its prospects are for the coming years.
Business update
Tesla recently released an encouraging update for the first quarter of the year. It achieved record profitability and vehicle deliveries. Remarkably, despite ongoing cost pressures it also managed to raise its operating margin to 19.2%. That’s several years earlier than many analysts expected.
It was a challenging quarter, and like many businesses, Tesla was impacted by higher raw materials prices and logistics costs. It was also affected by shutdowns at its Shanghai factory and nearby suppliers due to Covid.
Nonetheless, it was able to offset many of these costs by raising the average selling price of its vehicles and implementing other cost-saving efficiencies.
I’m often impressed by Tesla’s ability to navigate through challenges, and I reckon that is likely due to its entrepreneurial management team led by billionaire Elon Musk.
Looking to the future
Tesla aspires to produce 20m units a year. It’s currently producing 1m units annually. So it’s a long way from its goal, but the business is growing rapidly. On the earnings call, Elon Musk remarked that it’s still “confident of exceeding 50% annual growth for the foreseeable future”. If it has a reasonable chance of achieving these aspirations, then I think Tesla shares could be a bargain.
There are several other sources of future growth that could help it become the world’s most valuable company. It’s working on a new vehicle that’s a dedicated robo-taxi, so it would have no steering wheel or pedals. This autonomous taxi will be designed to achieve the lowest cost per mile, and it could become a massive driver of Tesla’s growth.
In addition, there’s much more to Tesla than electric vehicles and there are ample opportunities for future growth. There’s the Optimus robot program that Musk says could ultimately “be worth more than the car business”. Its business areas also span batteries, solar and insurance.
A bumpy road ahead?
That all being said, aspirations often take longer than planned to become reality. There are many execution risks that could slow down or even dismantle plans. Competition is also rising for electric vehicles with all of the world’s major vehicle manufacturers launching new EVs. But the biggest risk I see to Tesla shares is Elon Musk himself. If this CEO decided to step away from the business, I believe it would have a material negative impact on the share price.
All things considered, I think Tesla will ultimately be a much larger business in the years ahead. And that’s why I don’t think it’s too late for me to buy. I’d still consider adding Tesla shares to my Stocks and Shares ISA.
