Tesla Inc (NASDAQ: TSLA) shares are now up 171% in 2023, making it a painful year for the bears.
Despite all the commotion surrounding the electric vehicle (EV) makers’ price slashing earlier in the year, the Elon Musk-led company has become one of the best-performing stocks in the S&P 500 Index (SP: .INX) of 2023.
While short sellers have clung to margin pressure, shares have overcome the pessimism thanks to major achievements. These include better-than-expected delivery numbers, the adoption of Tesla’s charger network by automotive incumbents, and the successful completion of the first, much-awaited Cybertruck.
Now perched at US$293.34, what could be the next catalyst to energise Tesla shares?
Working its way down the demand curve
As production has grown, Tesla has expanded its Gigafactories to meet demand. In 2019 the EV company set up manufacturing in Shanghai, China. Likewise, Berlin, Germany, became home to a completed factory last year.
According to The Times of India, India could be next in line for a Gigafactory. In an article published last week, the news outlet alluded to plans for a high-volume production facility on their home soil.
The publication said Elon Musk had been discussing with the Indian government about potentially producing a low-cost, locally-made EV in the country. If true, it could mark the next step in Musk’s master plan to bring EVs to the masses.
One of the most fundamental principles in economics is the demand curve. This curve depicts the relationship between the quantity of a product demanded depending on the price. As you’d expect, a greater appetite for a product is realised as the price falls, as shown below.
The widespread adoption of EVs depends heavily on comparable (if not superior) electric options at every price point. Though, the costs associated with batteries have meant most automakers cannot profitably provide EVs even in more premium price brackets.
According to sources, the new Indian-made Tesla variant could come at a starting price of US$24,000 — 40% less than the cheapest current Model 3.
If achieved, Tesla would be sliding further down the curve, potentially unlocking millions more customers.
Sources believe the facility would target production of 500,000 units per year.
Already priced into Tesla shares?
It all sounds promising for the future of Tesla. Although, one must always consider whether that rosy future is already baked into the share price. At a price-to-earnings (P/E) ratio of approximately 86, there’s possibly an argument to be made that it is.
However, the potential forward earnings are important to consider. Remember, Tesla has grown its earnings per share (EPS) at roughly 40% per annum during the last five years. Next year it’s expected to be around 37%.
If Tesla could grow EPS at a compounded rate of 25% over the next six years, earnings would almost quadruple. Assuming the Tesla share price remains unchanged, the earnings multiple would compress from 86 to 23.
Tesla is slated to release its second-quarter results tonight.
