Over the last 12 months, the Tesla (NASDAQ:TSLA) share price has more than doubled. But the stock is still only roughly where it was at the end of 2020.
Nonetheless, Elon Musk is bullish on the firm’s prospects. The CEO has reiterated his stance that Tesla could – if things go well – be worth more in five years than Apple and Saudi Arabian Oil (Aramco) combined.
Targeting $1,580
Now, there are a couple of things that aren’t quite clear about this. One is whether Musk meant Tesla will be worth more than those businesses are worth now, or more than their value in 2029.
On the assumption that the relevant numbers are the current ones, that’s a total value of $4.95trn (Apple is worth $2.83trn, Aramco $2.12trn). Tesla currently has a market cap of $758bn.
In other words, the company is set to be worth around 6.5 times what its shares trade at today. With a current share price of $242, that’s $1,580 per share.
That’s a 45% average increase a year, which is a big ask. But this is in the context of a firm whose share price increased by over 100% in 2023.
A car company?
That kind of growth is a lot to expect from a car company. The industry is notoriously cyclical, competitive, and capital intensive – none of which is conducive to sustained high growth.
According to its CEO though, Tesla isn’t a car business. In a post on X – formerly known as Twitter – Elon Musk stated the firm is “an AI/robotics company that appears to many to be a car company”.
It’s easy to see why investors might get confused. The previous day, the firm had released its quarterly report of the number of cars it assembled and delivered during the last three months of 2023.
The report was reasonably strong, with 485,000 cars delivered, taking the total to 1.8m for the year – in line with previous guidance. But the stock slipped after the announcement.
Challenges
One reason for the decline in the stock was the news that BYD – a Chinese car manufacturer – sold 526,000 electric vehicles during the last three months of 2023. This is significant for Tesla.
Around 20% of Tesla’s sales come from China. And even if the firm is more than a car company – which I believe it is – cars are an important part of the picture.
There are also issues around margins. While the firm met its target for vehicle deliveries in 2023, it did so by cutting prices, which hurt profitability.
Tesla supporters argue that this was a calculated move to increase the company’s market share. It sounds plausible to me, but it makes the results from BYD more of a concern.
Can it keep delivering?
As Musk noted, $1,580 per share by 2029 would require Tesla to execute well on all fronts. But it’s hard to think of another stock that even has a meaningful chance at providing that kind of return.
There’s still a long way to go on robotaxis and humanoid robots, but the company is arguably streets ahead of the competition. Yet the more the stock falls, the more I like it from an investment perspective, even if it undershoots its price target.
