The price growth of Tesla stock has been eye-watering since 2020. The global shift toward renewable sources of energy is now well under way and electric vehicle (EV) maker, Tesla is in a good position to accelerate its growth in the coming years.
This phenomenal growth was exemplified in October 2021, when its shares rose to yet another new high after announcing its third quarter results. Just two days later it broke through the symbolic $1trn mark on the back of a massive order from Hertz, the car rental firm. Under this deal Hertz will rent 50,000 Teslas to Uber drivers by 2023. Tesla’s revenues exceeded analyst estimates, posting $13.76bn (£10bn, €11.9bn) up 57% on the same period last year. After the news from Hertz, the Tesla share price rose to $1,045.
Tesla's share price suffered an unusal fall of nearly 5% after Musk issued a Twitter poll on 6 November on whether he should sell 10% of his Tesla stock. It is thought he was musing on how he might meet a potential "billionaire's tax" on "unrealised gains." A majority of his followers (58% of 3.5 million) said he should. He said he would abide by the result. He added: "I do not take a cash salary or bonus from anywhere. I only have stock, thus the only way for me to pay taxes personally is to sell stock."
While most of the social media chatter around Tesla is driven by Musk's attempts at humourous tweets from his "porcelain throne", this last week he was more occupied with mundane business matters like shipping costs. It was reported by CNBC (27 November) that he had emailed staff urging them to reduce delivery costs rather than rushing out orders to hit end of quarter targets. As for many companies, the disruption to global supply and logistics networks caused by the pandemic has played havoc with Tesla's schedules.
The journey has not been easy for Tesla, but the company led by Elon Musk has managed to ramp up top-line results at a fast pace in the past few years, while the number of vehicles delivered every year grows. Then came the news of that order for 100,000 electric vehicles from Hertz which pushed the shares up a further 14% tipping Tesla into the elite trillion dollar league with the likes of Amazon, Alphabet, Apple and Microsoft. Its current price of $1,081.92 gives it a market capitalisation of $1.09 trillion placing it sixth on the list of the world's biggest corporations according to CompaniesMarketCap.
Tesla’s long-term goal is to launch an electric-powered vehicle that’s affordable for middle-class households and individuals.
Its current valuation roughly exceeds that of its top five competitors combined.
Are these the best days for the US-based electric vehicle manufacturer or is the company poised to keep growing?
In the following article, we take a look at Tesla’s price action and fundamentals to outline a possible Tesla long-term forecast for the next five years.
Tesla stock analysis: Technical outlook
An analysis of Tesla’s weekly chart shows that the price action has gone parabolic since the pandemic began. The stock has posted much pronounced higher highs since then, while its uptrend remains intact despite many dips during this 21-month period.
Notably, momentum for Tesla stock had declined sharply after the $900 peak it reached in late January this year, as reflected by the Moving Average Convergence Divergence but since July it has moved back into the positive. However, the oscillator has not moved to negative territory since its 2020 uptrend started, while it recently made a cross above the signal line that was accompanied by steadily higher positive histogram readings.
That said, trading volumes for Tesla had been going down as shown by the 20-day average, reinforcing the view that most of the retail trading activity that took place back in 2020 during the health crisis may have already started to fade. This could lead to a less volatile price action moving forward although interest was piqued by the Hertz announcement in October 2021.
It’s important to note that even though the current pattern is pointing to the continuation of the stock’s uptrend, the weekly Relative Strength Index is displaying a bearish divergence that indicates a steady decline in Tesla’s positive momentum.
From a technical standpoint, a plausible TSLA stock price forecast for the next 12 to 24 months may see the stock retest its all-time high but staying below that threshold, as its valuation is heavily stretched despite the business’s industry-disruptive nature.
Revenues at Tesla have been soaring in the past five years, moving from $7bn back in 2016 to $31.5bn by the end of last year as a higher number of vehicles delivered and the launch of its less expensive Model 3 in 2017 propelled top-line results.
During that same period, gross profit margins have been steadily increasing as they moved from around 18% to 21% last year. The completion of more Tesla gigafactories and a potential reduction in the price of key raw materials are some of the factors that contribute to shaping the company’s top-line future profit margins.
Earnings before interest, taxes, depreciation and amortisation (EBITDA) margins have been steadily increasing, landing at 13.6% last year. Finally, Tesla swung to net profitability last year for the first time in its history amid the sale of millions of dollars in carbon credits.
These carbon credits are granted by multiple states in the US to companies that produce zero-emission vehicles (ZEVs) and, because all Tesla vehicles are electric, the company normally exceeds the minimum number of ZEVs required by these states and sells the remaining credits to automobile manufacturers that do not meet the quota in exchange for a payment.
In 2020, Tesla took in $1.58bn in revenues from the sale of these credits, contributing to the company posting a $721m generally accepted accounting principle (GAAP) net profit for the year. This figure is more than five times higher than the $302m the company received from this source back in 2016 and three times higher than the figure reported in 2019.
Even though some investors have deemed the company’s posting of positive bottom-line results an accounting stunt, the reality is that Tesla is benefitting from a revenue source directly tied to its mission of becoming a leading eco-friendly vehicle manufacturer.
That said, if regulations change and the company is unable to sell these credits, chances are that Tesla will no longer be able to report positive net profits unless its top-line margins increase significantly.
In regards to solvency, Tesla has a small long-term debt of $9.3bn that’s fully covered by the $16.2bn the company reportedly held by the end of the second quarter of 2021.
At its current market capitalisation of $729bn, the company is trading at 14.5 times its forecasted sales for 2021, according to data compiled by Koyfin. Moving forward, analysts are expecting to see sales rise by 35% in 2022 and 25% in 2023.
These multiples reflect how optimistic the market is about the business’s future. To some extent, these metrics resemble those seen by tech stocks during the 2000 dotcom bubble. Back then, companies like Microsoft and Cisco were trading at elevated price-to-sales and price-to-earnings multiples that reflected the market’s optimism.
The results for investors back then were disastrous. Perhaps the fact that Tesla is considered roughly more valuable than the world’s five largest automobile manufacturers combined is something to keep in mind when investing in this stock at the moment, as even a tiny setback that changes the company’s outlook could lead to a severe correction in its valuation.
Key drivers that affect the long-term outlook for Tesla stock
The following are some of the most important drivers that may influence Tesla stock price in five years.
Price and margins: Tesla’s ability to maintain its prices at elevated levels will keep gross margins at a higher level over time. Moreover, the company’s ability to secure lower prices for key raw materials such as nickel, palladium and lithium will also influence its top-line margins, and allow it to ramp up future bottom-line results.
Completion of more gigafactories: To meet growing demand, Tesla will have to continue to expand the number of factories it currently operates. The successful completion of these projects will enable it to keep growing and increase operational efficiency.
Competition: Tesla is not the only electric vehicle manufacturer in the world. Other companies such as China’s Nio (NIO) and traditional automobile manufacturers, like Toyota and Ford, who may manage to successfully launch electric-powered vehicles, could eventually eat up a portion of the pie and cap Tesla’s growth.
Investigations regarding the firm’s auto-pilot feature: Consumers have been drawn to Tesla’s high-tech features, including its partially autonomous auto-pilot system. However, the occurrence of multiple fatal crashes in the United States has led to investigations from regulatory agencies about this system. Any decision that affects the company’s ability to incorporate this feature in its vehicles may result in a drop in price and demand.
Even though these are only some of the variables that could affect Tesla’s share price in the future, they are among the most relevant and investors should keep an eye on any developments related to these factors to modify their directional forecasts for this EV stock accordingly.
Tesla stock price in five years
Even though nobody can foretell with 100% accuracy how a stock will behave in the future, at the time of writing (29 November) an algorithm-based Tesla five-year forecast from Wallet Investor says the price of TSLA could rise from its current price of $1,081.93 to somewhere in the range between $2,767 and $3,395.
Analysts surveyed by TipRanks hesitate in their view of the Tesla stock price in five years, as of 29 November 2021. The stock got a ‘hold’ smart score rating, based on the latest assessment of investor sentiment with 10 analysts for buy, 6 for hold and 7 for sell.
Another algorithm-based service, Gov Capital, shared positive views. According to its data, the stock could end 2022 at $1,429.66, and possibly hit $3,385 in 2026.
These Tesla stock predictions are derived from an analysis of the company’s current price trend. They should not be taken as a recommendation to invest in Tesla stock. We encourage our traders to perform thorough due diligence before making a decision to buy or sell any security, including Tesla stock.
The performance of Tesla stock in the past two years has been strong as the world adopts eco-friendly energy sources. In this environment, Tesla has benefitted as sales of its electric vehicles have kept climbing to new highs.
However, multiple factors could affect this latest uptrend, including a steady rise in the cost of raw materials, the company’s struggles to complete its ambitious gigafactories, and regulatory changes that affect its ability to sell carbon credits to competitors.
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