1 Magnificent EV Stock Down More Than 50% to Buy and Hold Forever

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Things might look bleak for the world’s most valuable auto company, but it should shine in years to come.

Let’s cut to the chase: The best electric-vehicle (EV) stock out there today is Tesla (TSLA 3.29%). This may come as a bit of a surprise, given the recent turmoil at the company. With deeper exploration, however, it will become abundantly clear why Tesla remains the ideal EV option for investors with a long-enough time horizon and an appetite for growth.

Why Tesla stock is taking a hit

Tesla has found itself in a challenging stretch recently, and its stock has borne the brunt. Today, its shares are changing hands for roughly $170. Over the last few weeks, it has regained some of its losses, but at one point, it had fallen nearly 75% from its all-time high.

Reasons for this lack of performance are varied but boil down to three main things. First, demand for EVs has cooled in 2024 and is expected to experience only moderate growth as higher interest rates dissuade potential buyers. In light of this, Q1 2024 was the first time Tesla posted a decline in deliveries over a yearly basis.

Second, this stall in demand forced Tesla to take on new cost-cutting measures. This was primarily done in the form of price cuts on its vehicles, as well as a mass layoff of more than 10,000 employees in late April. These layoffs carried into May and are expected to persist in the coming months, something Wall Street hasn’t liked.

Third, a recent report from Reuters claimed that Tesla would be pausing the development of its sub-$25,000 vehicle. Since that’s viewed as one of the primary ways for Tesla to remain competitive, a delay or potential abandonment is understandably disappointing to investors.

Add it all up, and it’s been the perfect storm for Tesla shares to fall for the greater part of the last year.

Why it’s worth buying and holding forever

For the first time in quite a while, Tesla is in a challenging stretch, one that might be testing the will of investors. From a pure investing strategy standpoint, this is often when there’s the most to gain. As Warren Buffet said, “Be fearful when others are greedy, and be greedy when others are fearful.”

Obviously, this is easier said than done as it goes against human nature. And just because a stock is getting negative press doesn’t make it a buy. But for Tesla, I would argue that it does. The reason are twofold.

First, there’s been the hit to EV demand. Yet, this period of high interest rates will eventually give way to more favorable conditions for consumers. Plus, Tesla isn’t the only EV maker struggling. Several competitors are having to shutter operations or scale back production.

Then there’s Tesla’s robust financial strength, a testament to its industry-leading profitability. This should help it weather the current storm better than other automakers. It’s also the reason why Tesla has been able to pursue the construction of factories in new markets with high potential, such as India and Thailand, along with a factory in Mexico that’s already under construction

Now let’s look at the long term. It should go without saying, but Tesla isn’t just an EV maker. That’s why its stock is five times more expensive than the world’s second-most-valuable automaker Toyota, as reflected in their price-to-earnings (P/E) ratios.

TSLA PE Ratio data by YCharts.

From just a vehicle production perspective, Tesla doesn’t look like a buy. While the bulk of its revenue today comes from EVs, the future plan is to build a revenue model that’s driven by several artificial-intelligence (AI) powered products. The most notable is autonomous driving. In light of the Reuters article claiming that the sub-$25,000 vehicle had been abandoned, CEO Elon Musk followed up with an announcement that Tesla would be unveiling its robotaxi in August.

While still in its early stages, a fleet of self-driving vehicles that can transport riders is expected to rake in a whopping $440 billion by some estimates, thanks to its transformative potential and low costs to maintain. There’s also the potential for Tesla to license its self-driving software to other auto manufacturers, something Musk mentioned was already in the beginning stages of discussion on the last earnings call.

Then there’s Optimus, Tesla’s humanoid robot. Quantifying the revenue benefit of a robot is difficult, but rest assured it will likely be transformative. Optimus is currently being used in Tesla factories to automate simple and repetitive tasks, and Musk believes Optimus shipments will begin by the end of next year.

The goal is for it to one day take on more challenging aspects involved with EV manufacturing and also to help businesses throughout the world in various industries that rely on humans to do repetitive or dangerous tasks. Quantifying its potential, analysts from Morgan Stanley expect Optimus to disrupt nearly 30% of the global labor market, or roughly a $30 trillion opportunity.

These endeavors may sound like nothing more than wishful thinking, but there’s evidence that Tesla is on the right track to fulfilling its AI future. Powering these technologies is Tesla’s supercomputer, Dojo. Since the beginning of 2024, Dojo’s computing capabilities have doubled. The thinking goes that the more powerful Dojo becomes, the more likely Tesla will achieve full autonomy for its vehicles and build a more capable Optimus.

A necessary disclaimer

For the risk-averse investor, an investment in Tesla might not be the best. But for those seeking a high-growth opportunity, few other companies hold as much potential. While Tesla will likely continue to grow its EV operations and benefit from increasing worldwide EV adoption, an investment in Tesla is essentially an endorsement and bet that the company will succeed in developing the technologies of the future.

Although Musk is known for overly optimistic timelines, which has led to a lambasting by headlines, the track record of success is difficult to contend with at the end of the day. What was once an unprofitable business has transformed into one of the most successful and profitable auto manufacturers in the world. If the company takes a similar path it took in the EV industry, then the fulfillment of its AI-powered future appears to be a matter of “when” and not “if.”