Tesla’s Path to $2 Trillion Market Cap by 2025

shares Tesla (TSLA 1.11%) It has given up 26% of its annual value so far. This is due in part to a widespread sell-off linked to unfriendly macroeconomic conditions and company-related issues such as supply chain restrictions and factory closures, which have halted production in recent quarters. The leading electric vehicle company surpassed its market value north of $1 trillion at the end of 2021, but it now has a market capitalization of about $842 billion.

However, as long-term investors, we should be less concerned about short-term noise and focus more on the long-term trajectory of the company. However, with the global electric vehicle market poised to expand at a compound annual growth rate (CAGR) of 18.2% through 2030, according to Allied Market Research, Tesla appears well positioned to capitalize on the rising trend.

Let’s examine the current state of the electric vehicle and discuss its potential path to a market value of $2 trillion by 2025.

Image source: Getty Images.

2nd Quarter Update

Tesla reported second-quarter earnings after the market closed on July 20, and while the growth wasn’t quite ideal, it was in line with what analysts had been expecting. The electric vehicle leader increased revenue 41.6% year-over-year to $16.9 billion, matching Wall Street estimates, and its adjusted earnings per share rose 56.6% to $2.27, easily beating expectations by 27%.

Production and delivery increased 25.3% and 26.5%, respectively, year-over-year, but both declined 15.3% and 17.9% from the previous quarter.

The decline in production and delivery compared to the first quarter is attributed to the COVID-related shutdown of its Shanghai plant and ongoing bottlenecks in the supply chain, which have continued to hurt the global economy for some time now.

But despite the current problems, which I see as short-term problems anyway, Wall Street analysts expect the electric car tycoon to increase its top and bottom earnings by 57.4% and 74.2%, respectively, for the entire fiscal year. Those are impressive growth rates for a company that is facing a host of headwinds right now, and in my opinion, investors should be optimistic about what Tesla can achieve once the economy recovers.

Tesla’s Journey to $2 Trillion

According to data from S&P Market Intelligence, analysts expect the premiere EV racer to generate $164 billion in total sales by 2025, indicating a five-year compound annual growth rate of 25.4% of last year’s revenue. Assuming an EBITDA margin of 25%, which translates to an annual EBITDA of $41 billion, the company will have an enterprise value of $2.3 trillion by 2025 at an enterprise value multiplier to EBITDA of 55.6, which is where Tesla trades today. That represents a 175% increase from the company’s current value of approximately $829 billion.

At an EBITDA multiplier of 151.3, which is a five-year average for Tesla, the company’s enterprise value would be $6.2 trillion, assuming it generates $41 billion in profits by fiscal year 2025. It’s not entirely realistic that a company EV will trade at such a double-digit high several years from now given that its growth is likely to slow.

A more conservative multiplier of 25, which is still a premium over Standard & Poor’s 500Average of 17.1, that would yield a $1 trillion project valuation. That’s only 23.7% above its value at the moment. Although Tesla’s stock has historically demanded premium multiples, it’s hard to say where the stock will trade many years down the road. However, the recent massive sell-off, combined with the company’s strong position in a rapidly growing market, should capture the attention of cautious investors today.

Should investors buy Tesla now?

It’s impossible to know for sure if or when Tesla will surpass the $2 trillion market value, but given its superior position in a huge secular growth industry, I’m confident the company will eventually get to that point. In my opinion, the new downturn has given investors a good opportunity to grab the stock, especially given that his business continues to grow at a rapid pace.

Sure, the stock could go lower in the upcoming trading sessions, but let’s bet on the company’s long-term future instead of trying to time the market. At current levels, I think Tesla is a buy-in for impatient investors.

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