Over the past decade, Tesla’s (NASDAQ:TSLA) stock has emerged as one of the biggest success stories in the stock market, creating multimillionaires left, right, and center. However, the company’s stock performance has been subject to significant fluctuations over the last year.

Over the past 12 months, the stock has dropped by 43%, highlighting the turbulent journey of growth stocks since last year. However, 2023 is proving to be very lucrative for TSLA stock bulls. There has been a surge of almost 72% in the stock this year, showing no signs of slowing down.

The shift in sentiment towards Tesla can be attributed to two reasons. Firstly, the broader macroeconomic environment has shown signs of improvement. Secondly, Tesla’s competitive performance has bolstered its financials, with sales and earnings improving. The only thing that might keep investors away at this point might be valuation.

No wonder TSLA stock unites all types of investors in its praise. It is truly a revolutionary enterprise in every sense of the word.

Performing Under Pressure

Tesla lowered prices on its slower-selling Model S and Model X vehicles this year, initially raising analysts’ concerns about declining demand. However, the price cuts have been well-received by consumers. This is evidenced by the delivery of almost 423,000 vehicles from January to March, up from 405,000 in the previous quarter of 2022. This growth in sales adds to an already impressive financial performance.

In 2022’s fourth quarter, Tesla’s revenue increased by roughly 37% year over year, reaching $24.3 billion. This resulted in an annual sales increase of 51%, amounting to $81.5 billion, and net income more than doubled to reach $12.6 billion.

Despite facing macroeconomic headwinds, Tesla continued to show solid momentum in vehicle deliveries during the first quarter of 2023. The company produced approximately 440,800 EVs, exceeding the midpoint analyst estimate of 430,000 vehicles.

Furthermore, vehicle deliveries increased by 36% in the first quarter, totaling 422,875. Although this represents a significant deceleration from the prior-year quarter’s roughly 68% year-over-year growth, the company’s overall direction appears positive. The decline is less concerning in light of current macroeconomic pressures.

Although Tesla implemented significant price cuts this year, it still enjoys considerable scale and brand strength advantages, providing it with pricing power in the auto market. This edge has enabled it to generate relatively strong margins that put pressure on the competition.

By introducing price cuts this year, the automaker has created challenges for rivals looking to enter its market while still retaining the opportunity to sell additional services to customers who purchase vehicles at lower prices.

Nothing, not even Elon Musk’s other exploits, is slowing down TSLA stock. It continues to perform in a challenging market.

Diversifying the Revenue Mix

As the data shows, Tesla is expanding and diversifying its revenue mix beyond its core automotive business. The company’s Energy Generation and Storage segment, including solar panels and battery storage products, is a notable example. In addition to the impressive growth in this segment’s sales in the fourth quarter, its gross-profit margin improvement highlights its potential to become a much larger contributor to Tesla’s overall profitability.

Furthermore, Tesla’s Services and Other segment, which includes charging business, repairs, and merchandise, represents another area of diversification. While this segment has a relatively low gross margin, it has multiple opportunities to boost profitability. For instance, advancements in autonomous vehicle technology could enable the company to enter the robotaxi market or generate significant licensing revenue, driving further growth for the Services and Other segment.

In addition to these segments, Tesla is also exploring new growth areas. For instance, the company has made significant investments in autonomous driving technology and continues to develop its Full Self-Driving capabilities. Tesla recently launched a new insurance product that could contribute to the Services and Other segment’s growth.

By expanding into new segments and developing its existing businesses, Tesla positions itself for long-term success and sustained growth. While the company is still primarily known as an electric vehicle manufacturer, its diversification efforts demonstrate a commitment to becoming a multi-faceted, innovative technology company.

Valuation Remains an Issue

Despite experiencing a significant decline from its peak, Tesla’s valuation remains heavily reliant on its potential for growth. The company’s superior products and early leadership in the electric vehicle (EV) market have positioned it as a dominant player. Nevertheless, the automotive industry remains fiercely competitive, and the risk of potential commodification in the EV space persists.

Tesla currently boasts a market capitalization of approximately $583 billion, placing it among the largest automakers worldwide. Its valuation of approximately 51 times this year’s expected earnings reflects impressive sales growth and profit margins. However, increasing competition and industry changes introduce uncertainty regarding Tesla’s prospects.

Despite these challenges, Tesla remains committed to innovation and expansion. Its focus on developing new technologies, such as autonomous driving and renewable energy, will provide a competitive advantage. Moreover, Tesla’s pioneering role in the EV industry could be a valuable asset as the market grows.

According to McKinsey, autonomous driving has the potential to generate $300 billion to $400 billion in revenue by 2035, highlighting the importance of investing in this technology. Companies must prioritize innovation and adapt to evolving industry dynamics to remain a leader in the rapidly changing passenger car market.

In conclusion, Tesla’s future success hinges on its ability to maintain its competitive edge amidst increasing competition and industry changes. While challenges remain, Tesla’s innovation and early leadership in the EV market may help it sustain its impressive growth trajectory and remain a major player in the global automotive industry.

Is TSLA Stock a Buy?

In conclusion, Tesla’s success and prospects depend on its ability to navigate a highly competitive environment. The company’s valuation remains highly dependent on growth. So far, its impressive sales growth and profit margins justify its premium valuation compared to other automakers. However, increasing competition and the potential commodification of EVs create uncertainties for Tesla’s prospects.

Despite these challenges, Tesla continues to innovate and expand. Its reputation as a pioneer in the EV industry and its early mover advantage may prove advantageous as the market expands. The potential revenue generated by autonomous driving is significant, providing Tesla with new growth opportunities.

Therefore, while the road ahead may be challenging, Tesla’s innovative spirit and early-mover advantage will help it maintain its impressive growth trajectory. The stock remains a buy on dips, with substantial upside potential.

Done with the analysis? If you want to continue exploring EV stocks, here is a great article to do so.

On the publication date, Faizan Farooque did not hold (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.