Tesla (NASDAQ:TSLA) stock is one of the few this year that hasn’t fallen a great deal. In fact, it is up slightly year-to-date (YTD). It closed at $1,057.26 on April 7, and on Dec. 31, TSLA stock was at $1,056.78. That puts it up 0.45% YTD.
But more importantly, the electric vehicle (EV) manufacturer is producing huge amounts of free cash flow (FCF). And this is even after it just completed two huge gigafactories, one in Austin and the other in Berlin.
For example, it produced more than $5 billion in FCF for all of 2021, even though it spent $6.5 billion on the two plants last year. That was 9.3% of its $53 billion in revenue.
More importantly, during the fourth quarter, it generated $2.77 billion in FCF on $17.7 billion of revenue. That was a significantly higher FCF margin of 15.66% compared to 9.3% in all of 2021.
In other words, even though it was building two plants, Tesla managed to dramatically raise its FCF margin during the year. As the company said in its slide deck:
“There should no longer be doubt about the viability and profitability of electric vehicles. With our deliveries up 87% in 2021, we achieved the highest quarterly operating margin among all volume OEMs.“
Analysts surveyed by Refinitiv (seen on Yahoo! Finance) now forecast the EV maker will hit $84 billion in revenue this year and $108 billion next year.
So, we can use this to estimate its FCF going forward. If its margin averages 16% this year and 20% next year, we can forecast $13.44 billion in FCF this year and $21.6 billion next year.
Next, assuming the market gives TSLA stock a 1% FCF yield, its market value will be $1.344 trillion. That means next year, it could rise to $2.16 trillion.
As of April 7, its market cap is $1.093 billion, and $1.344 trillion is 23% higher than that figure. So this implies TSLA stock could rise 23% by the end of 2022 and 97.6% by the end of 2023.
In other words, expect TSLA stock to hit $1,300 by the end of this year or earlier, then rise to $2,088 by the end of 2023.
On the date of publication, Mark Hake did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
