Tesla’s (NASDAQ: TSLA) goal for 2020 was to sell half a million vehicles and although it came up slightly short, it still sold 23% of all electric vehicles (EV) around the world, easily maintaining market dominance. Additionally, the company led the plug-in market (which includes battery electric vehicles, or BEVs, and plug-in hybrids, or PHEVs) at 16%. Charismatic CEO Elon Musk has steered the company to phenomenal gains, seeing its revenue grow over 350% in the last five years and its stock price soar over 555% in the past year. The question on investors’ minds is: Can Tesla become a trillion-dollar company, and if so, when?
Growing competition, overvaluation, and the ‘Technoking’
Tesla is a true automotive industry disruptor. Built from the ground-up to embrace electric vehicle technology, it showed the world that it’s possible to abandon fossil fuels for your car. Now all the big players have plans to release electric vehicles in the coming years. In Europe, Volkswagen is the EV market leader right now, having taken over the top spot from Tesla’s Model 3 with its ID.3 model. Lucid Motors’ upcoming Air electric sedan is expected to have a range of 517 miles, beating Tesla’s Model S range of 402 miles. Additionally, there are EV models available that are cheaper than Tesla, like the Hyundai Ioniq Electric and the Nissan Leaf.
Tesla has a forward PE of 156x, which is significantly higher than the entire automotive industry’s average of 16x, but there are many companies out there with the same issue. With Tesla, however, actuaries have concluded that the company’s chances of reaching investor-expected profits to be at only 45%, which is another point for the bears. Its market capitalization is higher than the 10 largest automakers, who sell more than 90% of all vehicles, combined. And here’s the icing on the cake: Tesla isn’t technically profitable as its profits last year came from the sale of regulatory credits to other automakers, and those are expected to dry up soon as more companies are releasing EVs.
When it comes to leadership, nobody can deny that Elon Musk is eccentric. The blunt-puffing CEO dubbed himself the ‘Technoking’ of Tesla, and his CFO, ‘The Master of Coin.’ Far be it from me to shame celebrities for their naming prowess, but this man runs one of the most valuable companies on the planet and is walking a tightrope between eccentric and weird. How long before he does or Tweets something more controversial to make investors worry?
Lower costs, insurance, and Elon Musk
Tesla has a first-mover advantage in the EV market and has maintained market dominance, boosting productivity every year. Over the next few years, the company is projecting a 50% average annual growth in vehicle deliveries and is building additional factories in Germany and Texas to meet this goal. Tesla embraced the use of cylindrical battery cells in its early years, rather than the rest of the industry that mainly uses pouch and prismatic cells, and this is helping the company save over 30% on batteries.
This boosts profit margins and they’ll go up even further once Tesla starts manufacturing its own batteries and can start production on its highly anticipated Semi. With reservations already coming in from industry leaders like Walmart and Anheuser-Busch, there is little doubt that Tesla’s business-to-business (B2B) endeavors will be very lucrative. The company also plans to start selling its $25,000 Model 2 next year, which will be a huge boost to sales and revenue.
In 2019, Tesla started selling its own insurance in California and will be expanding to Illinois, Washington, and Texas this year. It’s cheaper than the competition and with all the data the company collects on its drivers from its computerized vehicles, it can offer even cheaper policies to safer drivers. This data, which no other company can collect, is what gives Tesla a competitive moat and analysts are projecting revenue of $250 billion from insurance alone by 2030.
Elon Musk might seem like a maniac to some, but I prefer a ‘crazy’ CEO to someone like say, Bill Gates. I see Musk as a modern-day Howard Hughes, a pioneer who jumps from industry to industry and disrupts it. Whether it’s payments, EVs, commercial space flight, or global internet service, this man succeeds. Will Tesla see a trillion-dollar valuation? I have no doubt, but at least not until it can make solid profits.
A MyWallSt subscription gives you access to over 100 market-beating stock picks and the research to back them up. Our analyst team post daily insights, subscriber-only podcasts and the headlines that move the market. Get your free trial now!
MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.
Contributing Writer at MyWallSt
David fell in love with the stock market in 2000 after making $30,000 overnight on Techniclone. His favorite stocks today are Netflix, Google, Amazon, and Apple as they are the market leaders in their sectors and are safe long-term investments.