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Tesla‘s (TSLA 4.92%) electric vehicle business leads the industry and is coming off a fantastic year of growth in deliveries to customers with more production capacity than ever before.
Nonetheless, Tesla stock has collapsed 67% from its all-time high amid the broader sell-off in the technology sector, not to mention concerns about increased competition in the electric vehicle space and weakening demand as consumers grapple with difficult economic conditions.
But Tesla is a long-term story, and true to that philosophy, the company isn’t holding back on its expansion plans just because its stock is down. A recent report from Bloomberg suggests the company could soon strike a deal to build one million cars per year in Indonesia.
The news was corroborated by a key Indonesian minister, though it is yet to be officially confirmed. Here’s why Tesla stock is a buy either way.
Image source: Tesla.
2022 was a blockbuster year for Tesla when it comes to increasing production. It opened two brand-new gigafactories: one in Austin, Texas, and the other in Berlin, doubling its potential manufacturing capacity to two million cars annually as soon as this year. The two new facilities added to Tesla’s existing plants in California and Shanghai.
Neither Austin nor Berlin was operating at full capacity in 2022, but they still helped Tesla deliver a total 1.31 million cars for the year, which was a 40% jump compared with 2021.
But investors know the company has no intention of stopping there. In fact, CEO Elon Musk has outlined a vision to build 20 million cars per year by 2030, which would require 10 to 12 additional gigafactories. With only seven years between now and then, Tesla would have to build at least one and a half new facilities a year to meet the goal.
Rumors have swirled since mid-2022 that the carmaker could plant its next flag in Mexico, which is a popular destination for auto manufacturers given its cheap labor costs. But according to a report from Bloomberg, it appears an Indonesian gigafactory might be on the cards first.
The report suggests Tesla could build one million cars per year in the Asian nation, which already supplies nickel — a key battery metal — to the company. Indonesia’s abundance of natural resources makes it an obvious destination for electric vehicle makers, which is why global brand Hyundai Motor opened a facility there last year.
The revenue Tesla generates as the leader in electric vehicle sales remains its bread and butter. But the company has diversified into a range of different businesses over the years.
Related to its cars, Tesla has developed its own fully autonomous self-driving software, which it sells as an optional extra. That, for example, is a key differentiator compared with other electric vehicle makers that outsource the technology to companies like Nvidia.
Then, there’s Tesla’s renewable energy division, which sells solar panels and battery storage for residential and commercial purposes. The company’s deployed solar systems have generated a total of 25 terawatt-hours (as of March 2022), which is more energy than every Tesla vehicle on the road has consumed, plus the energy its factories have consumed, since 2012.
But there’s one segment to watch that could be one of Tesla’s biggest financial opportunities ever: robotics. The company unveiled its Optimus humanoid robot at its artificial intelligence day late last year, which could have applications across the manufacturing spectrum to replace low-skilled labor, in addition to household use cases. Musk revealed plans to sell millions of units after its launch in 2027, and with a price tag of $20,000, it could be worth billions of dollars to the company.
Tesla stock has historically traded at a valuation that puzzled even the most seasoned investors, measured on a price-to-earnings and a price-to-sales basis. But given the 67% decline in its stock price from its Nov. 2021 high, it’s now trading at more palatable levels.
The company is expected to deliver $4.02 in earnings per share for full-year 2022, placing its stock at a P/E ratio of 33.2. For context, it traded well over 100 during 2020 and 2021.
But the stock is even more attractive based on analysts’ 2023 earnings estimates, because its forward P/E is 30.9. The caveat is that Tesla recently slashed prices on many of its electric vehicles to boost sales in this weakening economy, and to give it an edge against competitors. That will likely eat into its profit margin and bring its earnings power down in the short term.
But since Tesla became a publicly-traded company in 2012, it has obliterated the return of the broader stock market over the long term. With a new gigafactory potentially around the corner and several more in the cards in coming years, it’s hard to envision anything but growth for the company in the foreseeable future. So investors might want to take advantage of the discount in Tesla stock by buying now and holding for the long run.
Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Tesla. The Motley Fool has a disclosure policy.
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