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Tesla (TSLA) stock has created immense wealth for investors and funds who believed in its story, and almost more importantly, in Elon Musk – the company’s mercurial CEO, who also owns several other companies like SpaceX, The Boring Company, X (formerly Twitter), and Neuralink.
Specifically, Tesla went public in 2010, pricing the IPO at $17. It has since undergone two stock splits - in relatively quick succession, between 2020 and 2022 - and its split-adjusted IPO price comes to around $1.13 per share. At its current levels of around $260, the stock has since delivered some of the most impressive post-IPO returns ever.
At the same time, the stock has left a massive hole in the pockets of short sellers, who bet against the Tesla story only to end up losing billions of dollars. Still, short sellers cannot get over their obsession with the company, which they find grossly overvalued. In fact, Tesla is often among the most shorted stocks, and it was the most shorted large-cap U.S. stock for three consecutive months until August.
TSLA Is the Industry Leader in Electric Cars - So Far
Tesla's market cap surpassed $1.2 trillion in November 2021, and while it has since come down to around $828 billion – it is still almost triple the value of Toyota Motors (TM), and more than the combined market caps of the top five automakers.
Tesla has had a relatively smooth ride in the electric vehicle (EV) industry, and the company has pretty much set the agenda – including with its price war, which pressured other carmakers to lower EV prices.
While Tesla has been the industry leader in EVs for quite some time, China-based BYD (BYDDY) is threatening to snatch the title, after having already surpassed Tesla in terms of total shipments – roughly half of which are plug-in hybrids (PHEVs).
While it can be tricky to predict Tesla’s short-term forecast - as it tends to be quite volatile, and the price action is often guided by sentiments and emotions rather than the fundamentals - in this article, we’ll look at the stock’s long-term forecast and analyze whether it can reach $500 by 2025.
Tesla Stock Long-Term Forecast
Tesla’s long-term forecast will largely depend on the following:
- The trajectory of its deliveries
- The progression in its margins, which have plummeted amid the price cuts
- Autonomous driving and the software side of the business
Tesla is targeting a long-term delivery CAGR of 50%, and expects its production capacity to hit 20 million by 2030. Meanwhile, growing the deliveries at that pace might get tough for Tesla, and it will need new models - including the Cybertruck, and the long-talked-about low-cost platform, to spur its sales.
By Musk’s admission, Tesla’s valuation in the long term will depend on its autonomous driving technology. Musk has countered the margin erosion due to price cuts, having said that Tesla can sell cars without making any profits and later make up the difference by selling autonomous technology. The company is also open to licensing its autonomous driving technology to other automakers.
In reality, though, Tesla’s full driving (FSD) is not yet as “fully autonomous” as the name suggests. For the last several years, including in 2023, Musk has promised full autonomy “by the end of the year” - but the FSD remains far from fully autonomous.
That said, under Musk’s leadership Tesla has delivered on several milestones, and is on track to deliver 1.8 million cars in 2023. Only a few years back, not many believed that Tesla could enter the league of major automakers. Still, to its credit, Tesla has proved critics wrong - and even valuation guru Ashwath Damodaran admitted that he erred in valuing Tesla. However, the “dean of valuation” still believes Tesla stock is worth less than its current value.
Can Tesla Stock Reach $500 by 2025?
To reach $500 by 2025, Tesla needs to just about double from these price levels. Given the kind of returns that it has delivered in the past – including the 743% rise in 2020 – the price level does not seem unreasonably astronomical, and could be achieved if Tesla delivers on the 50% shipment growth and FSD.
As for Tesla bulls, the $500 price target might actually be a low bar. 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.
And last month, Morgan Stanley analyst Adam Jonas, a long-standing Tesla stock bull in the sell-side analyst community, created quite a furor when he said that the company’s Dojo supercomputer could add $600 billion to Tesla’s market cap.
What Is Musk’s View on Tesla’s Valuation?
Elon Musk has had shifting views on Tesla’s valuation over time. In 2020, he famously (or infamously) tweeted that “Tesla's stock price is too high imo,” while last year he said that the company’s market cap can surpass the combined market cap of Apple (AAPL) and Saudi Aramco.
For context, the combined market cap of Apple and Aramco is currently at around $5 trillion - and even if Tesla stock rises by less than a third of what Musk is predicting, it would hit that magical level of $500.
All said, while I won't be surprised if Tesla stock rises to $500 by 2025, investors should watch out for several risks in the meantime, like rising competition and margin erosion.
On the date of publication, Mohit Oberoi had a position in: AAPL . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
