Tuesday's Market Minute: The Bullish Case For Tesla Into 2024

Plastered across every major financial news outlet last Friday into Monday was "Markets close out best week since 2023." But notably absent from the rally was a name who has been a dominant player all year long, and that's Tesla.

With this company comes one of the most passionate cases of bulls versus bears. When Tesla (TSLA) shares are on a winning streak, it seems like very little can slow the momentum (think first 7 months of 2023). But when shares weaken, the strength to the downside is abrupt. Through Monday's close, shares have pulled back about 27% from 52-week highs. And zoom out to see shares down 47% from the all-time high of $414.50.

The bearish case from the beginning has been that the company's valuation is far too rich for that of any auto player. The recent selling was also fueled by an unusual pessimistic Elon Musk on the company's third quarter earnings call.

But the bullish case refutes this. Tesla's North American Charging Standard (NACS) continues to rebuke the idea that the company is a purely an automaker. In May of this year, Ford (F) kicked off a trend when it announced its EV drivers will gain access to about 12,000 Tesla chargers through an adapter, and its next generation of EVs will be integrated with Tesla's NACS in 2025. Quickly following Ford were General Motors (GM), Rivian (RIVN), Honda (HMC), Mercedes, Hyundai, Kia, Toyota (TM) and Subaru.

Most recently, Lucid (LCID) just reached a deal that will give its owners access to the network of superchargers. This was a relatively surprising move, given that Lucid was one of the last few holdouts, with its CEO highlighting that the NACS did not provide the adequate voltage for their long-range EVs. But now, Lucid will incorporate Tesla's charging port into its EVs in 2025.

The NACS do not begin to scratch the surface of the EV ecosystem Tesla has been building from the ground up. Musk highlighted the potential for Tesla's robotaxi and and full-self driving (FSD) capabilities several times this year. He has noted the upside, describing a revenue split that could create 50/50 (even 70/30) in favor of the car's owner. This would be transformative to Tesla's business model, with each car potentially earning a margin of 70% or more over time. For Wall Street analysts – who have been transfixed on margin growth (or lack thereof) – this would be remarkable from the current model of manufacturing a vehicle and then selling it with a gross profit margin of 25%.