A few weeks ago, it seemed everyone was calling for the demise of Tesla (TSLA) stock.
CEO Elon Musk was dumping billions’ worth of shares. The company was cutting prices on all its cars. Delivery growth was significantly slowing into the end of 2022. Political issues were plaguing the brand.
It seemed like everything was going wrong for Tesla all at once. As a result, pretty much everyone was saying to sell Tesla stock.
Four weeks ago, in these very issues, we told investors to buy Tesla stock because it was oversold and undervalued.
Since then, the stock has popped 40% in a month, including a big post-earnings pop on Wednesday.
Time to collect profits? Nope.
Last night, Tesla showed us that both itself and the entire EV industry are due for a blockbuster 2023. Meanwhile, the stock market is acting like it wants to push into a new bull market.
Put those two together, and we think the stage is set for Tesla stock to keep rallying and for certain smaller EV stocks to absolutely soar this year.
As Goes Tesla Stock, So Goes EV Stocks
It really all goes back to Tesla’s earnings, which were delivered last night.
The report itself wasn’t great. Delivery growth continued to slow last quarter. Average automobile sales price slipped. Gross margins contracted. Operating margins dropped sequentially. Free cash flow production crashed.
Honestly, the numbers were pretty bad.
But the conference call was great.
In that call, Elon Musk and company essentially said that the worst of Tesla’s growth struggles are behind it and that the company’s growth profile should meaningfully re-accelerate in 2023 and ‘24.
The first big thing management said is that the recent round of price cuts is working to stimulate demand. According to Musk, the company is seeing a record number of orders so far in January 2023, with demand outnumbering production by 2-to-1.
Over the past few weeks, thanks to weaker-than-expected delivery numbers and price cuts, investors were starting to worry that Tesla had demand issues. That clearly isn’t the case. Demand for Tesla cars has never been more robust.
Of course, that’s very bullish for Tesla stock.
Management said that even with all these price cuts, profit margins will remain strong. Management specifically said on the conference call that it is their expectation that Tesla’s automotive gross margins will exceed consensus expectations in 2023. This is made possible thanks to falling input costs and economies of scale offsetting lower ASPs.
In other words, Tesla is sprinting into 2023 with better demand than ever, along with relatively stable profit margins. That’s a winning combination.
Lastly – and most importantly – management said that, barring any force majeure events, Tesla will likely significantly exceed its vehicle production target for 2023. The company’s official target is to produce 1.8 million cars this year, which would represent growth of around 35%. But according to Musk:
“If it’s a smooth year, without some big supply chain interruption or massive problem, we have the potential to do 2 million cars this year.”
At 2 million deliveries, Tesla would grow delivery volumes by more than 45% this year. The company grew deliveries by just 31% in the fourth quarter of 2022. Therefore, Musk and company are basically saying that Tesla’s volume growth trajectory – the main driver of the business – has a very realistic opportunity to significantly accelerate in 2023.
That, too, is very bullish for Tesla stock.
Overall, then, it actually looks like that – despite all the negative press surrounding Tesla over the past few weeks – the EV titan is setting up for a record year in 2023.
That’s why Tesla stock is up more than 40% over the past month. It’s also why the stock will keep rallying.
But this is more than just a Tesla story. As goes Tesla, so goes the entire EV industry.
We aren’t just seeing demand for Tesla cars soar in early 2023. It’s happening everywhere. Global search interest in “electric vehicles” has spiked in January after being dormant for the second half of 2022.
Following Tesla management’s commentary from last night, we expect 2023 to be a banner year for the EV industry.
The Final Word
But you can’t just go around and buy any old EV stock these days. Despite the industry boom, most EV stocks will go to zero in the long run. That’s just how new industries work. Lots of players at the start. Very few winners at the end.
You need to buy those winners.
And we’ve found what we think could be the biggest winner of them all.
The stock we’re talking about is a super-tiny, almost entirely unheard-of EV parts supplier. It’s developing game-changing technology that we think could become standard on most electric vehicles by the end of the decade.
If that happens, this tiny stock could soar. Not 100% or 200%. But more than 40X.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.