The stock market is showing signs of life in 2023 following last year's terrible performance. It's evident from the 9% gains that the Nasdaq Composite index has clocked so far this year, which goes to show that patient and savvy investors willing to take advantage of the drop in the share prices of solid companies could multiply their wealth in the long run.
After all, the stock market is capable of averaging solid returns in the long run despite periods of volatility. This is also evident from the performance of Tesla (TSLA 8.04%) over the past decade. A $10,000 investment in shares of Tesla a decade ago is now worth nearly $800,000, with the stock averaging annual returns of close to 56% despite periods of volatility.
So, if you have $10,000 to spare right now -- which means that your bills are paid, there is no high-interest loan such as a credit card debt, and there are enough savings for a rainy day -- you may consider buying this electric vehicle stock before it heads higher, as it has the potential to replicate its terrific gains over the next decade. Let's look at the reasons why.
Tesla's focus on boosting production could power its long-term revenue growth
Tesla stock is up an impressive 67% so far in 2023, which isn't surprising given that the company released terrific fourth-quarter 2022 results at the beginning of the year. The electric vehicle (EV) specialist ended 2022 with a 47% increase in production to 1.37 million vehicles, while deliveries increased by 40% to 1.31 million units.
Tesla's total revenue for the year came in at $81.4 billion, a 51% increase over 2021. Its adjusted earnings increased by 80% to $4.07 per share in 2022. The company delivered these impressive numbers despite concerns that its growth in a key market such as China was slowing, forcing it to resort to discounts to boost sales. It's also worth noting that Tesla witnessed a year-over-year jump in the average sales price (ASP) last quarter.
The good part is that Tesla is operating in a market that's set to grow at a nice pace for years to come. In the U.S., for instance, 52% of all passenger vehicles sold in 2030 are expected to be electric, according to Bloomberg. That would be a huge jump over last year's EV share of 8%.
A similar pattern is expected to unfold on a global level. The International Energy Agency (IEA) estimates that 60% of all vehicles sold globally by 2030 could be electric, with the number of EVs on the road by the end of the decade hitting 350 million, compared to 16.5 million in 2021.
Tesla is setting itself up to take advantage of this lucrative opportunity by boosting its production capacity. The company sits on an installed annual production capacity of over 1.9 million vehicles as of the end of 2022. That was a big increase over the annual capacity of around 1.1 million units at the end of 2021. And now, Tesla is focused on boosting its production capacity further with the addition of a new assembly plant in Mexico, where the company reportedly plans to invest at least $5 billion.
Meanwhile, Tesla increased its output at the Brandenburg plant in Germany to 4,000 units a week. The company hit this milestone three weeks ahead of schedule, taking the plant's annual production to an estimated 200,000 units. Tesla quadrupled the plant's production since May 2022, and investors can expect the company to continue the production ramp-up since Brandenburg has an annual capacity of 500,000 units.
Moreover, Tesla set an ambitious target of selling 20 million EVs annually by 2030. If the company manages to achieve even half of that target, its sales could explode big time in the long run. Not surprisingly, analysts expect Tesla's top line to increase at an impressive pace in the coming years.
TSLA Revenue Estimates for Current Fiscal Year data by YCharts
Investors can expect terrific long-term upside
The chart above shows that Tesla's top line could hit nearly $159 billion in 2025. That would translate into a compound annual growth rate of nearly 25%. Assuming Tesla could maintain even a 20% annual top-line growth rate over the next decade after accounting for the growing competition in the EV space, its revenue could jump to $504 billion after 10 years.
Tesla stock currently trades at 8.8 times sales, while its five-year average price-to-sales ratio stands at 10.75. Assuming the competition in the EV market intensifies and Tesla's sales multiple drops to 6, its market cap in 2032 based on the revenue estimated above could exceed $3 trillion. That would be more than four times Tesla's current market cap of $650 billion.
Of course, Tesla could clock faster growth and be more valuable after 10 years thanks to its aggressive capacity expansion plans and the secular opportunity it is sitting on. All this makes Tesla a top growth stock to buy right now, as it is trading at a relatively lower sales multiple compared to the five-year average multiple mentioned above.
