Tesla shareholders approved a 3-for-1 stock split: is the stock a buy?

Tesla (TSLA) 0.78%) recently hosted its annual meeting in Texas, where shareholders voted for a 3-for-1 stock split. The split itself has yet to be scheduled, but it will be Tesla’s second stock split in just over two years, and many investors see it as a bullish sign.

To be clear, splitting a stock has no impact on a company’s market capitalization, the intrinsic value of a stock, or important fundamentals like profitability. Splits simply make a stock more accessible by lowering the share price. But lowering the price is only necessary after significant stock price appreciation, which implies sound execution from a trading perspective.

With that in mind, is it time to buy Tesla stock?

Tesla shareholders meeting details

The pending stock split may have been the headline for some investors, but the most important part of the shareholder meeting was the commentary provided by CEO Elon Musk. He first touted Tesla’s profitability, noting that the company had achieved a leading position in the industry. Operating margin During the past year. That success comes from relentless pursuit of efficiency through factory design and automation, and innovations such as one-piece casting and low cost battery cells. And Tesla is ready to be even more efficient in the future.

The recently opened Gigafactory Berlin will reduce logistics costs by localizing the company’s European operations, meaning fewer cars will need to be shipped to Europe from factories in the US and China. Tesla also plans to implement 4680-style battery cells in earnest next year, a technology that will cut battery production costs in half. That’s especially impressive because Tesla already pays less to produce battery packs than any other automaker, according to Cairn Energy Research Advisors, and battery packs are the most expensive part of an electric car.

Looking ahead, Musk says that Tesla could reach a production rate of 2 million vehicles by the end of this year, reiterating the goal of 20 million vehicles by the end of the decade. For that to happen, Tesla plans to build 10 to 12 Gigafactories over time, and the next factory location could be announced later this year.

Tesla has an ambitious roadmap

Financially, Tesla is working flat out. Strong demand and unrivaled efficiency have fueled some truly impressive growth over the last year. Trailing 12-month revenue is up 60% from a year earlier to $67.2 billion and free cash flow soared 165% to $6.9 billion. But those figures represent a small fraction of what the company could be.

During the shareholder event, Musk noted that Tesla is equal parts software company and hardware company, echoing his belief that fully autonomous driving (FSD) software will eventually be the most important source of profitability for the Tesla. automobile business.

In that sense, Tesla has a significant advantage in FSD technology. Its vehicles have been equipped with autopilot hardware for years, allowing the company to capture more than 35 million miles (and counting) of autonomous driving data. That’s more than any other automaker, and high-quality data is the cornerstone of artificial intelligence.

With that in mind, Tesla has a robotaxi slated for volume production in 2024, and the company is finally planning to start an autonomous transportation service. That could drastically change the nature of the business. Robotaxis would likely generate large sums of recurring revenue with very high margins. In fact, analysts UBS investment bank say the robot taxi market will be worth at least $2 trillion by 2030, while analysts at Ark Invest project ride-sharing platforms could generate $2 trillion in revenue. Benefits by 2030.

There is one more piece to the puzzle: the autonomous humanoid robot codenamed Optimus. Musk believes that Optimus will ultimately be worth more than the car business and that his success will eventually make Tesla the most valuable company in the world.

Are Tesla shares a purchase?

Tesla is currently trading at 15.1 times sales, an incredibly rich valuation for a car company. But Tesla may look more like a software company a decade from now, which would make its current valuation quite reasonable. With that in mind, patient investors should consider buying some shares of this growth stock right now.

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