Tesla (NASDAQ:TSLA), the world’s leading EV maker, is also a pioneer in battery technology. The automaker has been able to amass a large, loyal customer base and a strong brand image that sets it apart from its competitors. Tesla delivered over 1.3 million EVs in 2022, up 40% year-over-year, and the automaker looks on track to break another record this year. This makes TSLA stock one to watch in the future.
Electric vehicles (EVs) have become more popular in 2023, thanks to steep price cuts and improved technology, and in tandem, the market has also become much more competitive.
However, TSLA stock has several advantages that make its stock attractive to investors. Here are three reasons why Tesla’s stock will rise in the coming months.
Consumer preferences are tilting toward EVs
Tesla stock is primed for future growth as consumer preferences increasingly favor EVs over other types of vehicles. One factor driving consumer preferences is improved pricing. I have written before in various articles that lithium prices have fallen significantly compared to where they were in 2022.
The fall of lithium prices has been a result of relatively dampened demand in China coupled with oversupply that has built up in the market. Because lithium is a key input price in manufacturing an electric vehicle, as prices for this rare earth mineral decline, so will the average EV price. Nonetheless, as lithium batteries have become ubiquitous, the technology and energy density have also improved. This makes TSLA stock one of those companies to watch.
Moreover, Tesla has a loyal fan base and a strong brand image, which help it attract and retain customers. In 2023, Tesla’s quarterly earnings have come in above analysts’ estimates, and the price-cut strategy the automaker began to pursue in the beginning year has increased quarterly deliveries while also placing pressure on gross margins. All of that to say, demand for Tesla’s vehicles remains steady and can improve over time.
Tesla’s largest competitor, BYD, may be in regulatory crosshairs in the E.U.
Tesla’s stock could receive a massive upswing if its Chinese competitors get too entangled in regulatory matters. The U.S. currently faces steep competition from China’s EV makers, especially from BYD (OTCMKTS:BYDDY), which overtook Tesla as the largest EV maker globally in 2022. However, the ambitious BYD is under investigation in Europe for taking subsidies from China’s government. While the EV maker has continued with its expansion efforts in Europe and Latin America, the investigation could damage its reputation and market share in the region, and give an opportunity for Western EV makers, including Tesla, to gain more customers.
Tesla has a strong foothold in Europe, where it sells more EVs than any other competitors in the market. Tesla also targets 1 million EVs in annual production at its Gigafactory in Berlin as the factory ramps up, which will ultimately reduce its shipping costs and increase its local appeal.
Tesla’s shares have approached an attractive entry point
My final reason why Tesla’s shares will move upward in the coming months is due to the way the stock has traded in recent months. In particular, Tesla’s stock has perhaps reached a good entry point after a broader tech sell-off has hit the market since August. The stock dropped by 10.3% since its $293.34/share high in mid-July. The slump in pricing is likely due to a combination of factors, such as including market volatility, concerns about inflation, especially as it relates to car insurance, and doubts about the EV maker’s pricing strategy.
Despite these short-term obstacles, Tesla still has a number of long-term prospects going for it that public equities investors cannot ignore. Furthermore, while Tesla’s stock is trading at 39.7x forward EBITDA, which is only slightly above the 5-YR average, investors might be able to buy in at a relatively attractive multiple as stocks move upward from their September low.
On the date of publication, Tyrik Torres did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
