Tesla May Have a Path to a $4 Trillion Market Value. Here’s Why
Mar 05, 2022
Gary Black, a Tesla investor, tweeted some fascinating calculations on Friday. He argued that Tesla's market value should soar to a stunning $4 trillion. It is presently valued at around $900 billion.
According to Black, global electric car penetration will reach 60% by 2030. Tesla (TSLA) will have a 20% market share in electric vehicles. With worldwide light-vehicle sales reaching 85 million units, Black estimates that Tesla will deliver around 10 million vehicles per year by the end of the decade.
Gary, who manages the Future Fund Active ETF (FFND), those deliveries, together with service sales for the company's existing fleet of Tesla vehicles, would generate $140 billion, or approximately $100 per share. By the end of the decade, he estimates that there will be around 1.4 billion Tesla shares outstanding, up from approximately 1 billion currently.
He assigns a 30 price-to-earnings ratio on $100 per share earnings, implying a $3,000 price objective. Tesla's market value would be north of $4 trillion with 1.4 billion shares outstanding. It appears straightforward, yet there are several ifs. It's tough to forecast EV penetration eight or nine years from now, but the auto industry appears to expect that 40% or 50% of all new vehicles sold by then may be all-electric.
"One thing is certain: gasoline costs at $7 per gallon will dramatically drive EV adoption," Black tells Barron's. He was referring to a recent image of fuel prices in California. Gasoline with a regular octane rating costs $6.65 (and nine-tenths) per gallon. The price of premium octane gasoline was around $7.26 per gallon.
US benchmark crude oil prices are over $114 a barrel, up 6.1 percent on Friday and about 25% for the week.
Profitability and market share for Tesla are also debatable. Likewise, the 30 P/E multiple can be used. Traditional automakers trade on PE multiples in the single digits, but they expand slower than the general economy. Black predicts that Tesla will continue to expand faster than the market in 2030.
This is a bullish forecast, but one that is also relatively conservative. A $3,000 stock in 2030 implies that the stock will return around 17% per year on average for the following eight years, whereas Tesla stock has returned almost 42% per year on average over the past eight years. According to Black, Tesla stock is expected to trade at $1,600 in the near term. If Black was releasing brokerage research, that would be the highest on Wall Street. The current leader is New Street Research analyst Pierre Ferragu, who has a $1,580 price objective on Tesla shares. There are also several Tesla bears to consider. The average of the three lowest price projections is around $215 per share.
If Tesla stock reaches Black's price prediction in six to twelve months and he is correct about everything else, Tesla investors would gain an average of 10% each year between 2023 and 2030. Whether it is an attractive enough return for Tesla stock is another point of contention between bulls and bears.
Tesla stock is currently trading at $842,45, up around 0.4 percent in late Friday trade. The S&P 500 and Dow Jones Industrial Average are down 1.3% and 1.2%, respectively.