Had panic selling not gripped the Nasdaq recently, Tesla’s (NASDAQ:TSLA) incredibly strong quarterly earnings should have sent shares to new highs. Instead, TSLA stock gave up much of its rally on April 20. However, electric vehicle (EV) investors should stay the course by holding their position in Tesla — no matter how the markets behave.
Overall, Tesla’s strong margins despite supply chain issues are a major accomplishment. No other EV firm comes close to managing the supply chain and healthy demand for its vehicles as well as Tesla.
In the first quarter, Tesla posted revenue growth of 81% year-over-year (YOY) to $18.76 billion. Automotive gross margin also soared from 26.5% last year to 32.9%. The company’s strong free cash flow allowed Tesla to increase its capital expenditures, and Tesla’s competitors are only beating it on investments into the business.
For example, General Motors (NYSE:GM) and Ford Motor (NYSE:F) will spend billions to play catch up in the EV space. It will not carve a meaningful market share until 2025 at the earliest. Meanwhile, Tesla raised vehicle prices last month. So, as the early mover in EVs, Tesla has the branding power, technology and expertise to exceed customer needs.
Traditional automotive firms, on the other hand, will struggle. They need to manage their mature gas-powered auto business while investing in EV growth.
On the quarterly conference call, Chief Executive Officer Elon Musk said that its full self-driving needs more people on its beta program. As it collects more data, its neural network will have more data to analyze. Customers benefit from the beta program because they get a new release around every two weeks.
Collectively, Tesla’s rapid innovation in this space will widen its lead over other manufacturers. Markets are already dumping other unproven EV firms. For example, Fisker (NYSE:FSR), Lucid Group (NASDAQ:LCID) and Rivian Automotive (NASDAQ:RIVN) are on a downtrend. They raised plenty of cash by going public, but will need more money to fund their research efforts.
Therefore, Tesla is the only EV automotive manufacturer investors should consider. The high valuations of TSLA stock are not a reason to avoid it, as shares trade at a premium for a reason. Moreover, Tesla’s gross margins are expanding, and the price hike will guarantee profitability for many quarters ahead.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
