Summary: Tesla, one of the "Magnificent Seven" group of technology stocks, has consistently delivered strong returns for long-term investors, with a stock gain of 62.5% in 2024. However, despite its impressive track record, Tesla faces significant challenges, including fierce competition from China-based EV giant BYD and the impact of recently passed tax laws that eliminate federal tax credits for electric vehicles and solar energy systems.
The Rise of Tesla: A Stock Worth Watching
Tesla has been a long-time favorite among investors due to its innovative approach to the automotive industry. With its focus on electric vehicles, clean energy solutions, and autonomous driving technology, Tesla has disrupted traditional automakers and transformed the transportation landscape. As one of the "Magnificent Seven" stocks, which also includes Amazon, Alphabet (Google), Microsoft, Facebook, Apple, and Netflix, Tesla's stock performance is closely monitored by investors and analysts alike.
Cathie Wood's Bet on Tesla Pays Off
Cathie Wood, CEO of Ark Invest, has been a vocal supporter of Tesla, with her company owning over 2.1 million shares as of July 2. The Ark Innovation ETF, which invests in companies at the forefront of "disruptive innovation," has seen significant returns, with a nearly 60% gain over the past year through June 30. However, Wood's enthusiasm for Tesla may be tested by the company's recent struggles, including lower EV prices and increased competition from BYD.
Challenges Ahead: Lower EV Prices and Increased Competition
Tesla's automotive business produces most of its revenue, but the segment saw a 6% decline in 2024 due to lower EV prices. The energy generation and storage segment was a bright spot, with a 67% increase in revenue to $10.1 billion, but it made up only about 10% of Tesla's total revenue. Additionally, the recently passed tax law eliminates federal tax credits for electric vehicles and solar energy systems, making those products more expensive for consumers.
A Falling Out: Musk and Trump
The stock price growth last year may have been influenced by Elon Musk's relationship with Donald Trump, both during the campaign and his presidency. However, with the two having had a falling out, it's difficult to analyze Tesla's long-term prospects based on personal relationships with politicians. The stock has lost 21.9% this year through July 2, badly lagging the S&P 500, which has gained 6.8%.
Investing in New Technologies and Products
Management has been investing in new technologies and products, such as the fully autonomous Cybercab, scheduled to go into production next year. The robotaxi service Tesla intends to build is also a potentially large market, but it's one fraught with challenges. The race to autonomous driving has seen numerous false starts from other companies.
Conclusion
Despite its impressive track record and innovative approach, Tesla faces significant challenges ahead, including fierce competition from BYD and the impact of recently passed tax laws. While Cathie Wood's enthusiasm for Tesla may be tested by these struggles, investors should remain cautious given the company's high valuation and uncertain future prospects.
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