Tesla | Fundamental Analysis | MUST READ | LONG SETUP ⚡️

As we know, electric vehicles are cheaper to operate, maintain, and more environmentally friendly. These advantages look even better when combined with tax credits, a tactic that a growing number of governments are employing to reduce carbon emissions. No surprise, the industry is growing rapidly, with EV sales expected to grow to 6.4 million units this year, a 98% increase over the previous year.

Few companies have taken advantage of that trend as Tesla. Over the past three years, the stock has had a 137% annual return, and Tesla briefly crossed the trillion-dollar market value point in October. But current market volatility has driven the stock price down 24%.

So is now a good time to buy Tesla stock? Let's break it down.

CEO Elon Musk has often said that manufacturing efficiency would be one of Tesla's biggest competitive advantages. In the past, traditional automakers may have scoffed at these comments, but the company seems to be keeping that promise. According to management, Tesla reported an industry-leading operating margin of 6.3 percent in 2020, and in the most recent quarter, that figure rose to 14.6 percent despite headwinds from chip shortages.

The driving force behind this benefit is innovation. A few years ago, Tesla launched the 2170 battery pack, which Musk called: "The cell with the highest energy density in the world, and also the cheapest." Tesla pays only $187 per kilowatt-hour (kWh) to make the battery packs, the most expensive part of the EV. That's 10 percent less than the nearest competitor and 24 percent less than the industry average, as per Cairn Energy Research Advisors.

Tesla's innovation potential extends to other areas as well. In 2020, a partnership with SpaceX guided the creation of a new aluminum alloy that let Tesla cast the front and rear body parts of the Model Y as a single piece of metal, increasing production efficiency by not having to weld these parts together.

More broadly, Tesla facilities were created to produce electric cars, but older automakers were building their plants for internal combustion engines, which means they would have to invest billions in retrofitting existing infrastructure. Ford, for example, plans to invest more than $30 billion by 2025 to develop its electric-car business, while General Motors will spend $35 billion over the same period. This should strengthen Tesla's cost advantage.

All in all, through October 2021, Tesla is the world's leading electric car maker, with a 14 percent market share. This is 5.5 percentage points ahead of the next closest brand.

Tesla has extended its production capacity significantly in recent years, thanks in part to improvements at its California plant and the opening of the Gigafactory Shanghai. The latter has also localized its business in China, reducing the transportation costs associated with transporting cars across the ocean.

Together, Tesla's strong competitive position and growing production capacity have led to impressive financial results.

Shortly, Tesla plans to open new plants in Texas and Berlin. This will further increase production capacity and localize the company's European business. In addition, Tesla Semi sales will start next year, and the latest battery cell (4680) will be used in cars. This technology is particularly noteworthy because it will increase range by 54%, reduce manufacturing costs by 56% and reduce capital costs by 69% - in other words, the 4680 battery cell will strengthen Tesla's cost advantage.

In the long term, Tesla believes it will be able to increase production by 50% year-over-year within a few years. Looking ahead, Grand View Research estimates that electric car sales will grow 41.5% per year through 2027. In other words, Tesla believes it will grow faster than the industry, winning back market share.

In addition to his beliefs about manufacturing efficiency, Musk also thinks that people will someday see Tesla as an artificial intelligence and robotics company, not just an automaker. And there is plenty of evidence for this, as Tesla is positioning itself as the frontrunner in the race to create autonomous cars.

According to Nikkei Asia, the 2020 dismantling of the Model 3 showed that its complete autonomous driving equipment (i.e., an in-car supercomputer) was six years ahead of the competition. And in 2021, Tesla unveiled the D1 chip, a semiconductor that would theoretically make the Dojo supercomputer the world's fastest AI learning machine.

In this regard, Musk made the following comment in September 2020: "In about three years, we are confident that we can make a very attractive electric car for $25,000 that will also be fully autonomous. If it happens, Tesla could launch its autonomous travel network, becoming a trailblazer in an industry Ark Invest estimates at $1.2 trillion by 2030.

However, other analysts see even greater opportunities along the way. Morgan Stanley analyst thinks Tesla could launch a flying car business -- that's right, a flying car business -- by 2050, pioneering an industry that could reach $9 trillion.

Tesla currently has a market value of $937 billion, which means it is worth more than the next eight automakers combined. And the company's stock trades at a very high price, 23 times its sales, which puts it on par with many software companies.

Yet it makes a certain amount of sense. Much of Tesla's future depends on its complete self-driving software, which will not only power its own self-driving cars but could also be licensed to other automakers. Of course, Tesla is still a very expensive stock at its current price, even after falling 24%. But given its strong competitive position and enormous market opportunity, risk-averse investors are well-positioned to buy some stock right now.