Electric vehicle (EV) manufacturer Tesla(NASDAQ: TSLA) saw its stock price plunge after announcing its fourth-quarter results on Jan. 24. The share price drop was triggered by the company stating, "In 2024, our vehicle volume growth rate may be notably lower than the growth rate achieved in 2023." Since then, Tesla shares have only declined further as the EV market experiences a slowdown.
But Tesla isn't just an automaker. One of the factors making the company an attractive long-term investment is that Tesla addresses all aspects of vehicle ownership, from the car sale to maintenance and repairs. This scope also encompasses refueling at Tesla's expansive Supercharger network, which acts like gas stations for EVs. This is a revenue source for the company.
But is it enough to buoy Tesla's struggling stock? Let's take a look at the Supercharger network to help answer that question.
Details of Tesla's charging network
One of the early challenges to EV adoption was the ability to refuel, especially when driving long distances, such as on a road trip. The term "range anxiety" was born to describe an EV driver's fear of the car running out of battery power before arriving at a place to charge.
To combat range anxiety, Tesla invested in a network of stations to quickly recharge its EVs. The company's Supercharger network contributed to my decision to buy Tesla's Model S automobile.
At first, these stations were dotted along routes between cities to help drivers get to their destinations. The company had only 90 Supercharger stations when I purchased my Model S in early 2014.
Gradually, Tesla expanded the number of its Superchargers, and now boasts nearly 6,000 around the world. About a third of those are in the U.S. In 2024 alone, Tesla's Supercharger network grew 27% year over year.
Tesla owners pay to refuel at Superchargers. This income is combined with other automotive-related revenue, such as repairs, into a "services and other" segment that excludes vehicle sales. Because of this, investors don't have visibility into exactly how much Superchargers contribute to Tesla's revenue.
Tesla's charging advantage
The services and other segment's sales grew by a whopping 37% in 2023 compared to 2022. In total, this segment contributed $8.3 billion to Tesla's $96.8 billion in 2023 revenue.
The income from Superchargers is about to get bigger. As other automakers increase EV production, many are turning to Tesla to solve the range anxiety issue.
Most major auto manufacturers, including Ford Motor Company, General Motors, and Toyota, are adopting Tesla's charging standard. Unlike gas-powered cars, EVs are built to plug into only certain types of chargers, similar to the way you can't use your laptop's power cable to charge your mobile phone.
Because of this, the switching cost is high, which means Tesla locks in years of vehicle charging fees from these other EVs. The auto brands that adopted Tesla's charging standard can begin using Superchargers this year.
Will Tesla's chargers help its stock?
Although the company's charging network will get a revenue boost from its use by non-Tesla vehicles, these sales will take time to ramp up. Even then, charging fees represented only a portion of 2023's $8.3 billion generated from Tesla's services and other segment.
Given these factors, this year's Supercharger income is unlikely to grow enough to make a meaningful impact on Tesla's top line. Hence, these charging fees probably will do little to move the needle on the company's share price in 2024.
That said, over the long run, the situation looks favorable for Tesla. In addition to major automakers coalescing around Tesla's charging standard, the company plans to release new vehicles, with production starting in 2025.
Not only will these new autos provide a boost to Tesla's car sales and Supercharger income, they are expected to cost less to manufacture. The company upgraded its factories for its next generation of cars. Consequently, Tesla anticipates about a 50% reduction in the cost of goods sold per vehicle.
This will help Tesla improve its free cash flow (FCF). The firm is currently generating solid FCF with $2.1 billion in Q4, up from the prior year's $1.4 billion.
That's not all. Tesla's balance sheet is impressive. It exited Q4 with total assets of $106.6 billion, compared to total liabilities of $43 billion. Cash, cash equivalents, and investments alone were $29.1 billion.
Moreover, Wall Street analysts believe Tesla stock can rise higher, with a median share price target of $213.
All of these factors combine to make Tesla a compelling stock to own. Its revenue from a growing Supercharger network only adds icing on the cake.
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Robert Izquierdo has positions in Ford Motor Company and Tesla. The Motley Fool has positions in and recommends Tesla. The Motley Fool recommends General Motors and recommends the following options: long January 2025 $25 calls on General Motors. The Motley Fool has a disclosure policy.
