Tesla has delivered a record number of electric vehicles, but that’s not the best reason to buy the stock.

tesla (TSLA -0.22%) 2023 is shaping up to be a record year for electric vehicle (EV) production, deliveries, and revenue. However, the stock is still trading 39% below its all-time high.

In the fourth quarter (ending December 31), Tesla lost its position as the world’s largest electric vehicle company in terms of sales, being overtaken by Chinese companies. BYD. Moreover, Tesla’s chances of meeting CEO Elon Musk’s ambitious growth goals over the next few years appear to be diminishing.

If that happens, Tesla stock may be too expensive right now, despite trading below all-time highs. But the company is developing other technologies that could ultimately fuel growth, which could be a better reason for investors to buy the stock.

Image source: Tesla.

Tesla continues to wage a fierce price war in 2023

Economic conditions have become difficult across the world over the past 18 months. The U.S. Federal Reserve raised interest rates at the fastest rate in history from March 2022 to August 2023 to combat excessive inflation. Consumers have tightened their belts to better cope with the high cost of living, which has put pressure on demand for big-ticket items like cars.

Tesla started its business last year with the expectation of selling 1.8 million cars. As 2023 progresses, not only does the company face economic headwinds, but it also faces increased competition from other EV manufacturers such as BYD, as well as traditional automakers such as: ford motor company and general motors. As a result, Tesla has reduced vehicle prices by an average of 20% in the 12 months through August 2023 to continue meeting its sales targets.

The move lowered Tesla’s gross profit margin, which has always been among the highest in the industry. Margins in the third quarter of 2023 fell to 17.9% from 25.1% in the same period last year. On the positive side, price cuts have helped curb some competitive threats. Both Ford and General Motors have postponed or canceled their multibillion-dollar EV spending plans for 2023.

Ford currently loses $36,000 on every EV it produces, and competing on price with Tesla will increase those losses in the short term. However, both Ford and General Motors (GM) cited a decline in overall demand for electric vehicles as the reason for their withdrawal from the industry, which could be a warning sign for Tesla.

Tesla delivered a record number of cars in 2023.

The good news is: Tesla delivered a record 1,808,581 cars to customers in 2023. This is a sign that plans to stimulate demand have been successful. This figure slightly exceeds the company’s forecast of 1.8 million people and represents a 38% growth compared to 2022.

However, Elon Musk wants to increase production by 50% per year in the near future. He believes the company could operate 12 gigafactories by 2030 (up from five currently), with annual production capacity reaching 20 million EVs. However, with deliveries increasing by less than 50%, it is highly unlikely that Tesla will achieve Musk’s goal within the next seven years.

Delivery growth may slow further in 2024. Tesla is expected to deliver 2.2 million vehicles this year, according to early estimates from Wall Street. This represents only a 21% increase compared to 2023 performance. Musk is expected to provide a formal outlook in the company’s fourth-quarter earnings report, due out later this month.

To make matters worse, the aforementioned price cuts will bring Tesla’s official 2023 earnings per share down 22% to $3.15. This gives the stock a price-to-earnings (P/E) ratio of 77.8, which is more than double its P/E ratio of 30.1. Nasdaq-100 Technology index.

Wall Street believes Tesla’s earnings will return to growth this year, potentially reaching $3.80. However, unless Tesla’s stock price declines sharply from here, the P/E ratio will rise to 64.7 by the end of 2024.

Self-driving technology could be Tesla’s future.

Tesla stock may be expensive today by traditional metrics, but that doesn’t mean investors shouldn’t buy Tesla stock. See, this company is a leading developer of fully autonomous self-driving software that could be a game-changer for the economy. Once software is developed, it can be sold an unlimited number of times, resulting in high gross profit margins.

The software will be sold to Tesla owners on a subscription basis, but Musk is considering licensing it to other automakers as well. Additionally, he wants to build a self-driving ride-hailing network. UberHowever, without human drivers) this could be another high-margin revenue stream.

Finally, Tesla plans to launch a purpose-built autonomous robotaxi vehicle, which could arrive as early as this year.

Cathie Wood’s Ark Investment Management believes autonomous technology could push Tesla’s stock price to $2,000 by 2027, an 816% increase from where it currently trades. Considering that Tesla’s self-driving software is still in beta testing with no official release date, this level of growth is very ambitious, but it’s likely where the company is headed in the long term.

Buying Tesla stock today is probably the wrong move for short-term investors, but those with a 10-year horizon or more could end up doing pretty well.