While many companies around the world have struggled to survive during the unprecedented year that 2020 was, Tesla (TSLA) has been busy making history. In less than 12 months, the EV maker celebrated several milestones, with its stock skyrocketing above $2,000 per share, undergoing a five-to-one split, and being accepted into the S&P 500 Index.
In May 2019, Elon Musk said the company’s market cap would eventually soar to $500bn. Back then, this figure stood at under $45bn, with analysts remaining sceptical on the business’ future. Today, Tesla’s market value is $594bn, overcoming even Musk’s boldest estimates.
Such a stellar performance has left many wondering what might come next for the stock. At the peak of the company's popularity, what are Tesla shares: a buy or sell? Should you invest in Tesla and ride the wave of hype, or stay sideways and wait for bulls to run out of breath?
In this article, we take a look at all the factors that will determine the direction of the share price and review Wall Street’s Tesla stock price prediction for 2021 and beyond.
Tesla stock performance in 2020: beating the most daring forecasts
The stock started this year trading around $430 per share. In March, it plunged to $361 as the Covid-19 pandemic triggered a steep, broader market sell-off. However, unlike many other stocks, Tesla did not need much time to recover. After its price crashed on March 18, the company’s shares were already changing hands at $427.64 on March 19, gaining strong upside momentum.
According to the Tesla stock analysis, the share price reached $1,795 on July 13, representing a hike of over 300 per cent from the start of 2020. The price then retraced to $1,500, but shortly after surged higher, driven by the company’s outstanding Q2 financial report. On July 23, the stock opened the trading day at $1,678.95 per share. At this point, the company had a market cap of almost $300bn, making it the world’s most valuable car manufacturer.
The following stock split was warmly welcomed by the market, with shares gaining 13 per cent right after the news on the upcoming event was reported. On August 31, the five-for-one stock split went into effect, lowering Tesla’s sky-high share price of $2,230 to $446 and making the stock more accessible for new investors.
After taking a dive to $330 per share in early September, the stock has mainly been in the uptrend ever since, trading around $625 per share on December 10 and giving the company a market cap of more than $594bn. A few days earlier, on December 7, its market value hit $608bn for the first time.
At its current valuation, what should you do with Tesla stock – buy or sell? To answer this question, let’s take a took at what will likely drive the share price going forward.
Tesla (TSLA) stock forecast: the latest developments to consider
On October 21, the company reported its financial results for Q3 2020. As expected by Tesla’s supporters, the business surpassed analysts’ expectations and reported its fifth consecutive quarter of profitability.
While Wall Street was predicting revenue of around $8.2bn and earnings per share of $0.55, the EV carmaker reported $8.77bn in revenue and a non-GAAP gain of $0.76 per share. Moreover, in the third quarter, Tesla generated $1.395bn of free cash flow.
Earlier, Tesla reported that it delivered 139,300 vehicles during the quarter, a 44 per cent growth year-over-year and another record for the business. In 2020, the company aims for a total of 500,000 deliveries.
This year, Tesla has moved forward with expanding its manufacturing capabilities, as Musk plans to build 20 million EVs per year over the next decade. The company's third manufacturing factory near Berlin, where the Model Y will be produced, is now under construction and is expected to be completed in March 2021. The fourth plant will be built near Austin, Texas, and will become Tesla’s largest manufacturing facility. It will produce Cybertruck, Semi, Model 3 and Model Y.
In November, S&P Dow Jones Indices announced that Tesla would be included in the S&P 500 Index. After proving its ability to make profits for four quarters straight, the EV pioneer is set to join the other 499 iconic US companies on December 21, 2020.
The index committee said:
With Tesla’s current valuation, it will be one of the largest companies in the index.
Given Tesla's market value, the index will need to make a major purchase of the company's shares. Moreover, there are nearly $5.4tr in funds indexed to the S&P 500, including the SPDR S&P 500 ETF (SPY) and the Vanguard S&P 500 ETF (VOO). These funds will need to buy millions of Tesla’s shares for billions of dollars, subsequently increasing demand for the stock.
However, while Tesla bulls bet on the prolonged appreciation for the stock driven by the funds, others believe any price hike from indexation will be short-lived.
So, are you asking yourself: should I invest in Tesla shares? Over the past few weeks, many analysts have revised their Tesla stock predictions for 2021. Let’s check out what some of them look like.
Tesla stock prediction for 2021 and beyond: the sky's the limit
Is now the right time to invest in Tesla shares? Wall Street has split in two in their answers to this question.
In November, Morgan Stanley analyst Adam Jonas upgraded his rating from hold to buy, boosting the price target from $360 to $540. Jonas’ most bullish scenario for the stock is $1,068 per share, while the bear case is $250.
In the bull case, Jonas sees Tesla delivering 8 million vehicles per year by 2030. In a research note, Jonas said that the company is more than just a car producer: “To only value Tesla on car sales alone ignores the multiple businesses embedded within the company.”
Goldman Sachs has also upgraded the stock from Neutral to Buy, raising its 12-month price target from $455 to $780.
Dan Ives, an analyst at Wedbush Securities, is also feeling optimistic about Tesla, raising his price target for the stock from $500 to $560. His bull case, which considers a “steeper demand adoption curve over the next 18 to 24 months”, places the share price at $1,000.
In a research note to clients, Ives said: “Overall, we are seeing a major inflexion of EV demand globally with our expectations that EV vehicles ramp from 3 per cent of total auto sales today to 10 per cent by 2025.” He added that Tesla was likely to achieve its goal of one million deliveries by 2023 or even sooner.
Credit Suisse analyst Dan Levy rated Tesla shares a hold and set a $400 price target. Levy's most-bullish case assumes 2.8 million vehicles sold in 2025, with the company’s stock trading up to $1,100. In his most bearish scenario, the sales stand at one million vehicles in 2025, with the share price plunging to $39.
On the other hand, Ryan Brinkman, an analyst at J.P. Morgan, has taken the most bearish stance on the stock. After it was announced that Tesla would be added to the S&P 500, Brinkman said: “We recommend investors not weight Tesla shares in their portfolio in equal proportion to the S&P because Tesla shares are in our view and, by virtually every conventional metric, not only overvalued, but dramatically so.”
Brinkman explained that Tesla's surging share price might not be driven by the company's actual performance but by "speculative fervour". The analyst increased his price target from $80 to $90, keeping the underweight rating.
It is important to mention that almost every analyst report on Tesla comes with a number of risk factors. Wedbush’s Ives, for example, noted:
As per the technical view, Wallet Investor’s Tesla share price forecast sees the stock starting 2021 trading at $618.85 per share, gradually appreciating throughout the year and ending December at $742.78 per share.
The website’s long-term Tesla share forecast puts the stock at $990.87 per share by the end of 2023 and at $1253.54 per share by the end of 2025.
The bottom line: to invest, or not to invest?
In 2020, Tesla’s wild stock rally has attracted a lot of investor attention, with the share price now trading nearly 640 per cent higher year-to-date. And while some analysts remained sceptical about its rapidly growing valuation, investors who took the risk earlier this year have enjoyed hefty profits.
However, it is important to remember that past performance gives no guarantee of future success. Today, the market is more unpredictable than ever, making it hard to provide some certain long-term Tesla share price prediction.
While the company grows at a rapid pace, many still argue that its stock is overvalued and might be forming a bubble. For that, when taking any investment decision, we recommend you do as much research as possible, taking into consideration the latest technical analysis, market trends and expert opinion.
What is your stance on the company’s future? Will Tesla stock go up or down?
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