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This sell-off doesn’t make much sense.
Tesla’s earnings were amazing. The demand drivers underlying the company’s growth narrative are more powerful than they’ve ever been. The growth roadmap for this company over the next few years is as promising as it’s ever been. And, considering that Tesla is the leading disruptor of the very enormous auto and energy markets, TSLA stock still isn’t overvalued today.
So don’t stress the recent sell-off in TSLA stock. Instead, take advantage of it.
Tesla Earnings Were Strong
The numbers speak for themselves here.
Tesla car deliveries soared 44% year-over-year to a record-high, because EV demand globally is surging and Tesla continues to make and sell the best EVs in the market. Volume of solar energy deployed rose 33% year-over-year, also to a record-high level, because clean energy demand is surging globally. Energy storage solution volume rose 59% year-over-year, also to a record-high, because a surge in clean energy needs to be accompanied by an equally big surge in storage solutions for that clean energy.
Automotive revenues rose 39% year-over-year. Total revenues rose 39%. Automotive gross margins expanded 483 basis points. Total gross margins expanded 462 basis points. Operating profits rose 210%. Free cash flow rose 276%.
And everything will keep surging, because the long-term growth roadmap for Tesla has never looked so promising.
The Growth Roadmap is Promising
In 2021, Tesla’s Shanghai factory will hit full production capability, and Tesla will proceed to sell a lot of cars in the booming Chinese EV market. Concurrently, the company will continue to ramp production of the Model Y, and the company should sell a lot of those cars in North America in 2021. On the energy side, a “Blue Wave” in Washington — which looks increasingly likely — could position the U.S. for a huge solar and energy storage boom next year.
Moving onto 2022, you have the Cybertruck and Semitruck launches in late 2021, and Berlin factory production ramp. Thus, by 2022, the Cybertruck will be widely available, the Semitruck will start deliveries, and the Berlin factory will be fully operational. Those three huge catalysts will help Tesla tap into the enormous global trucking market, and accelerate growth in the currently underpenetrated European EV market.
Then, in 2023, Tesla is promising us a $25,000 electric car. I don’t really need to explain why a Tesla EV at a $25,000 price point would be a game-changer for the world. It also looks like Tesla’s self-driving tech will be more fully fleshed out by 2023, and if so, hype surrounding this new tech will drum up even more demand, especially if Tesla sells that tech in its $25,000 car (thereby delivering self-driving to the masses).
Overall, then, the Tesla growth narrative should accelerate meaningfully over the next few years. Revenues will ramp. Margins will improve. Profits will soar. And the TSLA stock price will keep moving higher.
Big Upside Potential for Tesla Stock
As I’ve said before, between its auto and energy businesses, Tesla is a trillion dollar company in the making.
The math here is simple.
By 2035, I see revenues measuring somewhere around $400 billion, with $180 billion coming from auto (on the assumption that Tesla continues to dominate a global EV market that increasingly disrupts the legacy auto market), $187.5 billion coming from energy (on the assumption that Tesla leverages its leading solar and battery storage technology to become the world’s largest solar panel and battery storage provider), and the rest coming from related services.
Gross margins should hover above 25%, while the opex rate should fall with scale towards the high single-digit range, implying a company-wide operating margin of ~20%.
That implies operating profits of $80 billion. After taking out interest and taxes, that could easily flow into $65 billion in net profits.
The market’s historically average forward price-to-earnings ratio is 17. Based on that multiple, Tesla will be worth more than a trillion dollars by the 2030s.
Bottom Line on TSLA Stock
It’s that simple.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.