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While Tesla (TSLA) is arguably among the most (if not the most) polarizing stock of all time, it has undoubtedly been a wealth creator for those who believed in the Tesla story. The company listed publicly in 2010, pricing the IPO at $17. Since then, Tesla has undergone two stock splits, and its split-adjusted IPO price comes to around $1.13 per share. At its current levels of around $235, the stock has since delivered some of the most impressive post-IPO returns ever.
Tesla stock has risen more than 900% in the last five years, even as shares of the legacy Detroit automakers have sagged. Ford (F) trades at just around $10. It has been 67 years since Ford went public, and the shares have risen at a CAGR of under 4%. Even if we account for dividends, the returns would trail what the S&P 500 Index ($SPX) has delivered over these years.
Tesla Became the Most Valued Automaker in 2020
In 2020 - even as the global automotive industry was reeling under the impact of the COVID-19 pandemic - Tesla became the world’s most valuable carmaker, and eventually rose 740% on the year. It was another stellar year for Tesla in 2021, as the company rose another 50% and became the first automaker ever to command a market cap above $1 trillion. The company’s market cap peaked at around $1.2 trillion that year – ahead of the combined market caps of all leading automakers.
Tesla is currently the world’s largest electric vehicle (EV) seller, and leads the U.S. market with over half of the market share. But can the company maintain its lead over the long term? Here’s the 2030 forecast for Tesla stock.
Musk Targets a 2030 Production Capacity of 20 Million Cars
Tesla’s CEO Elon Musk does not shy away from making flamboyant claims, and last year predicted that the company’s production capacity would hit 20 million by 2030. For context, that’s roughly equal to the combined annual sales of Toyota Motors (TM) and Volkswagen (VWAGY) – the world’s two biggest automakers. Also, it would require Tesla to capture around a fifth of the global automotive market.
I believe Tesla’s annual deliveries might not surpass 20 million by 2023 - and during the Q3 2023 earnings call, even Musk indicated that the company’s deliveries might not rise at the CAGR of 50% that it was once targeting.
Tesla Stock 2030 Forecast: Can It Reach $1,500?
Meanwhile, even as Tesla might not be able to sell 20 million cars annually by 2030, its long-term forecast looks bullish. Ron Baron expects the stock to hit $1,500 by 2030, while Cathie Wood - who’s arguably the biggest Tesla bull - has set a base case 2027 target price of $2,000 on Tesla. Even her bear case target price is $1,400, while the bull case target price is $2,500.
What Catalyst Could Drive the Next Leg Higher in Tesla Shares?
Tesla’s mammoth valuation is not solely due to its EV business, and by Musk’s own admission, the company’s valuation is tied to its autonomous driving business – a view shared by many analysts and fund managers who are bullish on Tesla.
However, over the last several years (including in 2023), Musk has promised full autonomy for Tesla vehicles - but the company’s autonomous driving technology is still not L4, even as it terms the technology “full self-driving (FSD)," much to the displeasure of U.S. regulators. For Tesla to sustain its valuation, the company will need to deliver on full autonomy and other software initiatives.
Also, the contribution from the Energy business will need to rise substantially, as the core automotive business might not be able to sustain the growth rates we’ve seen over the last few years.
Musk believes that Tesla’s Energy business might one day become bigger than the Automotive business. However, he clarified during the Q1 2023 earnings call that forecast implied Energy being bigger in terms of the “total gigawatt hours deployed,” even as Automotive revenues might be possibly higher.
TSLA Needs to Strike a Balance Between Margins and Delivery Growth
Tesla also needs to strike a balance between margins and delivery growth. To grow its deliveries, the company might need to launch more mass-market models. as well as focus on emerging markets where the margins tend to be lower than in the U.S. - which is currently its biggest market. It has also had to slash vehicle prices multiple times to spur sales - leading to an industry-wide price war.
Over the last few quarters, Tesla has prioritized delivery growth, which has led to margin erosion, and its operating margins tumbled below 8% in Q3 2023. To justify its valuation – which Musk believes can one day surpass the combined market cap of Apple (AAPL) and Saudi Aramco – Tesla needs to show markets that it can continue to increase its deliveries at a high pace while maintaining strong double-digit operating margins.
That said, betting against Tesla and Musk has been a kamikaze mission for most investors, and bears have lost billions over the last few years by shorting Tesla shares. As the EV race heats up and weaker players either consolidate or exit the market, Tesla has the financial strength, a strong product proposition, and an aspirational brand (even if somewhat tarnished due to Musk’s recent actions) to withstand the current EV industry slump and emerge stronger over the next couple of years.
Looking forward to 2030, Tesla might emerge as one of the biggest automotive companies globally, even as it looks set to lose the crown of largest EV seller to China's BYD (BYDDY) soon. However, whether the company remains the world's most valuable automaker by then might largely depend on the progress of its autonomous driving technology.
On the date of publication, Mohit Oberoi had a position in: F , AAPL . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
