Is Tesla a millionaire maker?

It’s easy to zoom out on price charts of successful stocks and see how they have created life-changing wealth for those who have held them over the years. Take away tesla (TSLA -2.81%) for example. Since its IPO in 2010, its stock price has returned 12,000%.

It’s a great result, but there have been bumps and bruises along the way, including nearly going bankrupt as the company ramped up Model 3 production five years ago.

Today the stock price is down more than 50% from its high. The company is torn between recent success and preparations to drive future growth, something CEO Elon Musk acknowledged during the company’s fourth-quarter earnings call.

So can Tesla stock still make millionaires out of long-term investors? That certainly could be the case, and the company’s recent missteps could be the reason.

The market is only interested in the short term.

If there’s one tip every long-term investor should know, it’s that the stock market, also known as Wall Street, only cares about the short term. Stocks live and die by the quarter because if professional money managers don’t do their job quickly, they lose customers. In the short term, Tesla’s business has slowed in recent quarters.

Not only are consumers struggling with record levels of household debt and high interest rates, but Tesla has also seen its revenue growth slow as it aggressively cuts vehicle prices and reduces profit margins and free cash flow. Is Musk’s price cut wrong? Probably not. Lower prices have weakened Tesla’s competition, and considering that a single-digit percentage of its vehicles are electric, it could still take a lot of market share.

TSLA Revenue (Quarterly YoY Growth) data from YCharts

To be clear, Tesla’s finances have taken a hit. Stock prices did not fall for no reason. But with over 1.8 million vehicles delivered in 2023, has Tesla reached its peak? The answer is probably no. Consumers indicated that price and range were the biggest obstacles to switching to electric vehicles. Tesla is best positioned to address these concerns with its extensive charging network (which its competitors are signing up to use), and as battery technology improves, range is likely to improve across the wider EV sector.

Take a look at Tesla’s next growth wave.

Tesla has achieved tremendous growth over the past five years with the Model 3 and Model Y. Tesla’s next growth should come from new products that could potentially attract new customers to the brand.

For example, the recently launched Cybertruck, still in the early stages of production, brings Tesla into the passenger pickup segment, the bread and butter of established American automakers. Musk also hinted at a new low-cost vehicle in development during the company’s fourth-quarter earnings call.

Meanwhile, artificial intelligence (AI) remains at the core of Tesla. Fully autonomous driving (FSD) development continues, and Tesla is developing a humanoid robot that will hit the market in late 2010.

Finally, Tesla remains heavily invested in its energy business. In 2023, energy storage projects deployed 14.7 gigawatt hours, more than double the number in 2022. Investors should think about Tesla over the long term. Warren Buffett said the following about his general investment philosophy: “Nobody buys a farm to see whether it’s going to rain next year. They buy it because they think it’s a good investment over 10 or 20 years.”

This mindset is reserved for individual long-term investors, and it’s an investing superpower.

Adversity can benefit investors

Expectations can be powerful things. While analysts once believed Tesla’s profits could grow at triple-digit rates, they now expect annual growth of just 15%. Pessimism is weighing on the stock and is lowering Tesla’s future P/E, even as analysts have lowered their earnings estimates.

TSLA PE Ratio (Forward) Data from YCharts

As I said above, Tesla’s profits and growth have suffered a setback, so I understand why the stock is down. But should investors avoid stocks because it’s raining, or should they own them because they could be a much bigger business in 10 years? Tesla’s next phase of growth could result in billions of dollars in free cash flow, all of which will generate returns on investments.

Only time will tell how everything plays out, but ignoring Tesla’s long-term growth and investment potential seems pretty short-sighted.