Shares of Tesla (NASDAQ:TSLA) have been on fire ever since mid-March amid optimism that the electric vehicle (EV) maker’s non-cyclical, strong growth will resume once the novel coronavirus pandemic is under control.
From its March lows, TSLA stock is up more than 150%.
This red-hot rally will persist in the near-term and over the next several years. There are five main reasons for my bullishness:
- Global EV demand is surging and will remain robust for the next decade.
- Tesla’s share of the surging global EV market has expanded despite heightened competition. The firm’s strategic, technological, production, and branding advantages leave it poised to remain the leader of the sector.
- The Model Y is ahead of schedule. Additional new vehicle launches will only strengthen Tesla’s market positioning.
- A recent boost in online car shopping will make Tesla’s direct-to-consumer (DTC) sales model more effective.
- Given the company’s long-term growth outlook, TSLA stock looks well-positioned to climb to $2,000 in the future.
Surging Global EV Demand
Even the coronavirus pandemic has not stopped the non-cyclical growth of the EV market.
New research from Cairn Energy predicts that the number of EVs sold globally will rise by 36% in 2020 to over 3 million. That would be an impressive feat in the midst of a global pandemic which all but killed the global auto market in early 2020.
But EV sales have been surging for several years. Globally, EV unit sales have risen by more than 2,000% since 2013, with EVs’ share of total auto sales rising from 0.1% to 3.5%, over that stretch.
This non-cyclical growth will live on for at least the next ten years. Increasing consumer demand for products and services which are socially and environmentally positive, along with ample government incentives, an expanding charging network infrastructure, and lower prices will enable the annual double-digit-percentage growth of global EV sales to continue for a long time.
By the end of the decade, I believe that 20 million electric cars will be sold annually, accounting for about 30% of all cars sold.
Tesla Is the Leader of the Sector
Tesla is the unparalleled leader of the global EV market.
The company’s first-mover advantage was supposed to erode as more and more auto makers shifted into the EV space. But, as Tesla’s competition has increased over the past few years, its market share has only risen. Back in 2017, Tesla accounted for about 8% of the EV market in terms of unit sales. Today its market share is up to 16%.
That market share expansion in the face of heightened competition shows how big Tesla’s advantages are in the EV space.
Tesla has superior technology to everyone else, with better batteries that support farther driving distances, and a self-driving feature. Tesla also has superior production capabilities; within the foreseeable future, the company will have huge EV production facilities in North America, Asia, and Europe.
And, arguably above all else, Tesla has the best brand in the auto sector. Importantly, Tesla is the coolest automobile maker in the world.
Its technology, production, and brand advantages will help the company remain the leader of the EV sector for the foreseeable future.
Tesla’s New Vehicles Can Boost Its Market Share
Tesla has developed a winning strategy which should help it expand its market share over the next few years.
That strategy is simple: focus on one new vehicle launch at a time, turn that new vehicle into a dominant brand, and then repeat the process with a whole new vehicle that taps into an entirely different part of the market.
First, Tesla launched the Model S. That car became the leading premium “sports car” EV. Then Tesla launched the Model X, which turned into the leading premium EV for rich families. Then Tesla launched the Model 3, which became the top mid-priced EV in the market and is now a particularly popular choice for young professionals.
Next up, is the Model Y. The electric crossover will help Tesla tap into more families who are looking for a bigger EV but can’t afford the ultra-expensive Model X. After that will come the Cybertruck, which will help Tesla tap into the truck market for the first time ever.
If the Model Y and Cybertruck do what the Model S, the Model X and the Model 3 did, then Tesla will, by the early 2020s, have a top-selling crossover and a top-selling pickup truck in its portfolio.
Inevitably, if that scenario materializes, Tesla’s market share could actually go up over the next few years.
Online Car Shopping Is Booming
The novel coronavirus pandemic pushed everything online. That includes auto shopping, as online auto shopping has recently surged to record levels.
That’s great news for Tesla. Unlike other auto brands, Tesla employs a DTC, online-focused sales model.
So if online auto sales become more common across America, Tesla is more poised to benefit from that trend than its competitors.
Other auto brands will play “catch-up” if online auto sales become more mainstream. But once Tesla has a lead, the company tends to maintain and even extend that lead, regardless of what the rest of the auto market does.
Can Tesla Stock Reach $2,000?
My estimates continue to support the idea that TSLA stock will roar to $2,000 over the next decade.
My model assumes:
- The global EV market will boom to over 20 million annual deliveries by 2030.
- Tesla will maintain a roughly 15% share of the EV market, translating to over 3 million annual deliveries.
- Its average auto sales prices will drop to roughly $40,000 and its total revenue will rise to over $150 billion.
- Its auto gross margins will rise towards 25% and its operating spending rate will drop to around 7%.
- Its earnings per share will reach roughly $120 by 2030.
Based on a forward price-earnings multiple of 17 — the average medium-term forward multiple in the stock market — 2030 earnings per share of $120 implies a fair 2029 price target for TSLA stock of just over $2,000.
The Bottom Line on TSLA Stock
Tesla’s stock will be a long-term winner.
Sure, the stock has soared over the past year. And its valuation is slightly high, based on its near-term outlook. But those aren’t good reasons to sell the stock.
Tesla is the unparalleled leader of a booming market. It also has huge advantages, an opportunity to extend its leadership position, and rapidly ramping profits. As a result, it’s clear that Tesla is a long-term winner, and that TSLA stock is the type of stock investors should buy and hold for the long haul.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and is currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been rated one of the world’s top stock pickers 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 own a position in any of the aforementioned securities.