Tesla (NASDAQ:TSLA) stock surged to all time highs above $1,200 in early July after the electric vehicle (EV) giant reported second quarter delivery numbers which whizzed past expectations and showed that, despite the Covid-19 pandemic, the company’s secular growth narrative isn’t slowing down at all.
Tesla was supposed to deliver 83,000 cars in the quarter. That was down 6% from the first quarter, and reflected broad (and reasonable) expectations that Tesla’s production and delivery trends slowed amid plant closures in the second quarter.
Instead, Tesla delivered more than 90,000 cars in the quarter, 9% better than expectations and — more importantly — 2% better than the 88,500 cars Tesla delivered in Q1.
In other words, despite a global pandemic and its staple Fremont plant being shut down for much of the quarter, Tesla still managed to grow delivery volumes.
It underscores the broader growth narrative here: thanks to changing demand trends and huge technological, branding and production advantages, Tesla is taking over the global automobile industry — and nothing, not even a pandemic, can stand its in way.
To that end, TSLA stock remains on a glide path to $2,000.
Here’s a deeper look.
Robust Long-Term Growth Fundamentals
Tesla’s long-term growth fundamentals are about as strong as you’d find anywhere in the market.
Here’s the story in a nutshell.
Thanks to various factors — including, but not limited to, the rise of social media and the democratization of information dissemination — consumers today are more socially and environmentally aware than ever before. As a result, they are increasingly buying products and services which are socially and environmentally positive.
Electric vehicles fit into that trend. They are the poster-boy product for “saving the planet”.
As such, consumer demand globally is pivoting from gas-powered cars, to electric cars. Of course, it also helps that governments everywhere are promoting EV adoption with subsidies… and that the plug-in charging infrastructure is only getting bigger… and that EV prices are falling with falling battery prices… and that EV driving performance and range are both only going up with technological advancements.
In other words, every trend in existence implies rising demand for EVs.
Tesla is the runaway leader in this market.
They have the best technology, with industry-leading driving ranges and charging times. They have the most robust production and distribution capabilities, with huge Gigafactories all around the world. And they have the coolest cars.
It doesn’t take a rocket scientist to connect the dots. Tesla will leverage its technology, production, distribution and branding advantages to sustain leadership in the booming EV market over the next several years.
As the company does, Tesla’s revenues and profits will charge higher. So will the TSLA stock price.
Tesla Stock to $2,000?
My numbers suggest that Tesla stock can and will drive to $2,000 in the 2020s.
My model makes some broad assumptions, including:
- Global car sales continue to grow at a ~2% compounded annual growth rate into 2030, thanks to population growth and urbanization.
- The EV penetration rate climbs from 3.5% in 2019, to 30% by 2030, on the back of rising consumer demand, lower selling prices, broader distribution and continued government support.
- Tesla’s market share in the global EV market falls from over 16% in 2019, to ~15% by 2030, as increased competition offsets industry-leading innovation, new car launches and geographic expansion.
- Gross margins climb to and stabilize around 25%.
- Economies of scale kicks in, drives positive operating leverage and the opex rate falls to the high single-digit range.
- Earnings per share rise towards $120 by 2030, from ~$4.50 expected in 2020.
A market-average 17-times forward earnings multiple on $120 in 2030 earnings per share implies a 2029 price target for TSLA stock of over $2,000.
Sure, if you discount that $2,000 price target back by 10% per year, you arrive at a 2020 price target of just $865. That’s well below today’s TSLA stock price.
But, that’s using a 10% discount rate, which may be too high in this zero-rate environment. And growth stocks are notorious for trading above fair value when momentum is on their side and when the macro-backdrop is favorable.
Bottom Line on TSLA Stock
Strong Q2 delivery numbers confirm Tesla as a long-term winner. They also confirm that TSLA stock is on a path towards $2,000.
Having said that, the stock does appear overvalued in the near-term. That doesn’t mean it’s time to sell. This is a name you want to own for the long haul. But it does mean that chasing the rally here is probably unwise.
Let the hype cool down. Let some investors do some profit-taking. The Tesla stock price will probably drop in coming weeks. If it drops back towards the $800 to $900 range, buy that dip.
Else, simply hold what you have, and enjoy the ride.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been recognized as one of the best stock pickers in the world by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he did not hold a position in any of the aforementioned securities.