A Tesla dealership
David Paul Morris/Bloomberg
Tesla
investor Gary Black tweeted out some interesting math Friday. He laid out his case for Tesla’s market capitalization to climb to a whopping $4 trillion. It currently stands at about $900 billion.
Electric-vehicle penetration world-wide will be 60% by 2030, Black estimates. Tesla (ticker: TSLA) will have 20% EV share. With global light-vehicle sales at 85 million units, Tesla would be delivering about 10 million vehicles a year by the end of the decade, according to Black.
Black, who runs the
Future Fund Active ETF
(FFND), projects that those deliveries, along with service sales related to the existing fleet of Tesla vehicles, would earn the company $140 billion, or about $100 a share. (He projects about 1.4 billion Tesla shares outstanding by the end of the decade, up from roughly1 billion today.)
He puts a 30 price-to-earnings multiple to earnings of $100 a share, yielding a $3,000 price target. With 1.4 billion shares outstanding, that means Tesla’s market capitalization would be north of $4 trillion.
It sounds simple, but there are a lot of ifs. EV penetration eight or nine years from now is difficult to predict, although the auto industry seems to believe 40% or 50% of all new vehicles sold by then could be all-electric.
“One thing we know for sure: $7-a-gallon gasoline prices will significantly accelerate EV adoption,” Black tells Barron’s. He was referencing a picture of gasoline prices posted in California recently. Regular octane gasoline was $6.65 (and nine-tenths) per gallon. Premium octane gasoline was about $7.26 a gallon.
U.S. benchmark oil prices are at about $114 a barrel, up 6.1% Friday, and up almost 25% for the week.
Tesla’s profitability and market share can also be debated. So can the 30 P/E multiple. Traditional auto makers trade at single-digit PE multiples, but they grow slower than the overall economy. Black believes Tesla will be still be growing at above-market rates in 2030.
It’s a bullish outlook, but also somewhat conservative. A $3,000 stock in 2030 means that the stock will return roughly 17% a year on average for the next eight years, but over the last eight years Tesla stock has returned about 42% a year on average.
Black’s near-term price target for Tesla stock is $1,600. That would be the highest on Wall Street, if Black was publishing brokerage research. New Street Research analyst Pierre Ferragu holds the current crown, with a $1,580 price target on Tesla stock. There are a lot of Tesla bears to consider as well. The average of the bottom three price targets is about $215 a share.
If Tesla stock were to hit Black’s price target in six to 12 months, and he is right about all the rest, Tesla investors would earn roughly 10% a year on average between 2023 and 2030. Whether that’s an attractive enough of a return for Tesla shares is something else bull and bears can debate.
Tesla stock is at $842,45, up about 0.4% in late trading Friday. The
S&P 500
and
Dow Jones Industrial Average
are down 1.3% and 1.2%, respectively.
Write to Al Root at allen.root@dowjones.com
