For years, Tesla Motors Inc (NASDAQ:TSLA) has run on what amounts to the hype around charismatic founder Elon Musk and a cult following of drivers who see the cars as symbols of the future. But as the company’s autopilot systems evolve and a key competitor hits a wall, the road to mass electric transport — the finish line for TSLA stock holders — looks clearer than ever.
All of the buzz surrounding TSLA right now revolves around the mass-market Model 3 sedan, which should retail for around $35,000 when deliveries kick off late next year.
This will be the ultimate test of Musk’s master plan for growing the company beyond niche success and justifying its lofty valuation on Wall Street.
A year from now, investors should have a much better sense of how fast TSLA can grab market share from old-school manufacturers like General Motors (NYSE:GM), Toyota Motor Corp (ADR) (NYSE:TM) and Ford Motor Company (NYSE:F). If it happens even half as quickly as Musk is aiming for, the company’s modest revenue targets will go through the roof.
That’s not including any input from the looming SolarCity acquisition, increased sales in the existing luxury segment or any models Musk currently has on the drawing board, like the SUV currently known only as “Model Y.” The analysts are busy watching the road to Model 3, so acceleration elsewhere in the company isn’t really factored into the share price yet. If anything, expectations around TSLA may actually be cycling too low.
That’s a bold statement in a world where TSLA stock already trades at more than half the market capitalization of more sedate competitors like GM, despite operating at a loss and as yet generating barely 3% of the annual sales. But if Model 3 ramps up the way Musk expects, we’re going to see these shares break through all existing barriers.
TSLA’s latest tests of the “Enhanced Autopilot” system indicate that self-driving cars could start crowding into public highways by 2020, which gives TSLA fans another long game to play once Model 3 hits the market.
And with executives at would-be competitor Faraday Future bailing out, it looks like the Model Y has a better shot than ever at hitting the road first and claiming the electric SUV category for itself. When that day finally comes, TSLA investors will be in for a very profitable ride.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.