Tesla (TSLA) has crashed a gruesome 40% since peaking in November. If you bought in at $1243, you’ve probably either dumped your shares or resigned yourself to a long period of rebuilding before making any money.
And Wall Street is somewhere in the middle. Even after today’s high-profile “buy” recommendation from UBS, the consensus is that TSLA is worth about $1000 right now . . . 20% below the peak but still a healthy 36% up from here.
Granted, a few of my fellow analysts did the math and can’t admit that Elon Musk’s electric car dream is worth more than $250 per share on paper. People who find their arguments convincing shouldn’t buy this particular stock.
But for every $250 target, there’s someone telling clients TSLA is headed back beyond $1200, even in a world where rising interest rates make COVID-era valuations feel like a fading dream. They aren’t asleep at the wheel. Like the UBS analysts, they’ve done the math.
It’s all about looking past the day-to-day headlines toward the world a few years from now. Electric cars are probably going to become a lot more compelling after this year’s oil shock and TSLA has leapfrogged old-school manufacturers to become a global leader in that space.
The company probably isn’t going away. While Elon Musk could steal a lot of its momentum if he wandered off to pursue other projects, TSLA itself is now a massive machine, too big for one person to really interfere with one way or another.
Every day new cars come off the assembly line strengthens its overall ecosystem . . . more charging stations, more auxiliary services, more compelling arguments that EV have their place in what was once exclusively a hydrocarbon world.
So the odds are good that TSLA will be a bigger player in 2024 or 2025 than it is today. And the longer the Russian oil shock drags on, the faster EV takes global share from the hydrocarbon establishment. That’s not rocket science. Gas at $5 a gallon here and $8 in other countries will swing the scales back here at ground level.
Do you see a different role for TSLA in the world of 2024 or 2025? If so, let me know. Otherwise, we agree on the general trajectory . . . but might argue on the specifics when it comes to growth rates, profit margins and what this company is actually worth.
That’s why we favor Wall Street consensus instead of following one firm or another. Crowds are usually pretty accurate gauges of what’s going on in the world. Lone wolves can be extremely right or extremely wrong. And the crowd says TSLA goes up from here.
Of course, the stock ended up going down today, but that’s part of that day-to-day noise I was talking about. Deep math is out of favor right now. The market swings on wild moods: fear and relief.
You need to give those moods a little more time to stack. Wall Street actually thinks it might be a choppy year at best for TSLA. The big money is looking at seeing bets placed today pay out in two or three years.
Admittedly, we’ll all be thrilled if TSLA soars beyond $1000 tomorrow. That’s a bonus. But the math usually needs a little more time to work.
Say TSLA manages to double its global share of the overall vehicle market between now and 2025. Elon says he won’t need more than two years to make that happen.
Wall Street’s calculations are a little more conservative. Either way, it’s not so hard to imagine when you’re only looking at grabbing an extra percentage point of the world’s transportation in the next three years . . . and the key thing is profitability.
At that scale, TSLA is on track to generate $28 per share annually. If the stock trades at $1000 two years from now, that’s a 35X forward multiple, which isn’t exactly bubble territory.
It’s high compared to mature stocks like Coca-Cola (KO) and McDonalds (MCD), don’t get me wrong. But the implied growth rate means TSLA isn’t going to stop at a mere 2-3% of the global car market.
Maybe it takes two years for the stock to regain that level. Maybe it even takes until 2025. Is it worth the patience?
Remember, the S&P 500 generally gives buy-and-hold investors about 8-11% in a typical year. Compound that expectation and you might make 33% simply from owning the index funds throughout that period. Not bad.
Buying TSLA here close to $700 and hanging on for that $1000 payday will earn you a compound 12% annualized profit if the process takes a full three years.
For many investors, the extra point isn’t worth the headache and uncertainty. We aren’t in TSLA right now for just that reason.
We know the stock goes up. We just don’t want to wait quite so long for results.