Over the last 2 decades, few stocks have been as exciting and controversial as Tesla. The company aims to change the world fundamentally by disrupting one of the essential industries.
Not only did it make a lot of money for its investors, Tesla made Elon Musk into one of the most powerful CEOs in the world. However, market participants are rightfully skeptical about how high Tesla stock can go.
Read on to find about the current stock position and the market sentiment for the company.
TSLA Stock Market Position
Tesla just reported its production and delivery numbers for Q3 2020. The company produced 237,000 vehicles while it delivered 241,000. These numbers bring it close to the annual production volume of 1 million units. Meanwhile, domestic brands like Ford produce over 4 million vehicles per year, and the international leader Volkswagen Group makes 9.3 million.
At a market cap of $788 billion and the price of almost $800, Tesla is trading at 20x price to sales, which is exceptionally high for an automotive company regardless of the future.
While investing in the EV industry is thematic (the market will grow significantly), potential Tesla investors will have to trim their expectations as the market cap increases. Currently, it is the 7th largest company in the S&P 500 market index.
TSLA Stock Price Forecast
The current market sentiment is predominantly bullish. Here is the recommendation rating among the 42 analysts:
- Buy: 17
- Outperform: 1
- Hold: 13
- Underperform: 3
- Sell: 8
You can see the visual presentation from 36 analysts offering 12-month price forecasts for Tesla in the chart below.
Tesla stock forecast; source: CNN Business
The median estimate is $776, with the high estimate of $1,591 and the low estimate of $67. These are highly different outlooks, representing a gain of 100% and a loss of 91.5% from the current level.
Chaim Siegel’s Bull Case for TSLA Stock
Chaim Siegel is the founder and head of the U.S. equity research firm Elazar Advisors. His expertise is in equity research and fixed income. Before founding Elazar Advisors in 2004, Siegel worked as an analyst at Morgan Stanley and under Steve Cohen at SAC Capital.
Siegel made his bullish case by estimating the potential revenue for Tesla to be around $55 billion, much higher than the consensus estimates of $49.35 billion.
His earning per share (EPS) model predicts at least $22 for 2022, giving the price target of almost $1,600 using the price/earnings multiplier of 65 — not unreasonable for a growth stock but optimistic for an automotive company.
Toni Sacconaghi’s Bear Case For TSLA Stock
Toni Saccohaghi is a senior research analyst at AB Bernstein. Before this position, he worked as a consultant at McKinsey & Company.
Saccohaghi has a Tesla price target of $300, indicating a downside potential of 62%. For researching, he uses methods like discounted cash flow and price-to-free cash flow multiples. His current EPS projection for 2022 is at $6.59.
Unsurprisingly, he is concerned about the company’s valuation, referencing that it implies huge volume and industry-leading profitability in the future, which is historically unprecedented. He also pointed out that price competitiveness doesn’t go along with the margin profit improvements, which brings us back to the automotive industry’s profitability concerns.
TSLA Stock Price History
After a huge rally in 2020, Tesla has been in a range for most of this year, likely waiting for some catalyst news like it was with the inclusion in the S&P 500 Index.
The stock currently stands above both of the most popular moving averages, 50-day and 200-day.
TSLA stock chart; source: BenzingaPro
From the technical standpoint, the chart looks somewhat optimistic and it is starting to resemble a bullish flag pattern.
In that case, the technical upper price target would equal the distance from the base to the pole of the flag — 450. Added to the resistance of 900, it would give you a $1,350 upper price target.
For more information, you can read Benzinga’s guide to bullish flag patterns.
Where to Buy Tesla Stock
With the phone calls and broker agents in the rear-view mirror, nowadays, you can buy stocks online simply through web platforms or even phone apps. In the list below, you can find our recommended brokers for buying TSLA stock.
How Long Will it Take for TSLA Stock to Reach $1,000?
Tesla is a relatively volatile stock. Over the last 5 years, its average monthly Beta has been 1.89. This means that it moves 89% more than the average market.
Meanwhile, over the past year, its weekly volatility has been stable at 4%. As the stock currently trades close to $800, a beyond the $1,000 level equals 25% on the upside.
In an orderly fashion that takes at least 6 weeks, you have to remember that breakouts are seldom orderly. They usually happen in short bursts, followed by long periods of sideways movement.
For Tesla, the next significant catalyst is the earnings report on October 20, after market close.
Optimism in Moderation
Over the last year, very few companies could match Tesla’s growth. Although the company took years to achieve profitability while producing a fraction of the market, it grew to become the most valuable automotive brand globally.
Yet, at the market valuation of $800 billion, investors need to be realistic and look for reasonable returns. This doesn’t mean that the stock cannot double (like some analysts predict), but that implies big earnings surprises and hundreds of billions of dollars in new investments.
Frequently Asked Questions
Is Tesla stock a good investment?
Although the company remains the leader in the EV market, major car manufacturers like Toyota Motor Corporation or Volkswagen AG are entering the market. Higher competition regularly diminishes the profit margins and slows the growth.
Over the last 5 years, Tesla turned out to be a fantastic investment with a return of over 1,500%.
It is hard to expect similar returns over the next few years since it now has a market cap of $777 billion and remains just 10% from the all-time high.
Do Tesla cars hold their value?
This highly depends on the model. For example, Tesla Model 3 has been nothing but stellar, with the average 3-year-old car retaining 77% of its value. As a comparison, an average vehicle retains just 62% of its value after 3 years.
Meanwhile, Tesla Model S retains 58% of its value after 3 years and just 41% after 5 years which is disappointing as it is a much more expensive vehicle.