Tesla (NASDAQ:TSLA) didn't quite reach its goal of delivering 500,000 vehicles in 2020, but it might as well have. On Saturday, the electric vehicle pioneer reported that it delivered approximately 180,570 vehicles last quarter, bringing its full-year total to roughly 499,550. That represents a 36% year-over-year increase compared to the 367,656 vehicles Tesla delivered in 2019.

However, many investors tend to ascribe too much importance to Tesla's quarterly and annual delivery results. At this point in the company's growth trajectory, the level of growth in any particular year is irrelevant to determining whether Tesla is a good stock to own.

Another year of impressive growth

A year ago, Tesla projected that it would easily surpass its goal of delivering 500,000 vehicles in 2020. The COVID-19 pandemic complicated matters, though. Tesla was forced to suspend production at its main factory in Fremont, California, for nearly two months this spring due to a local stay-at-home order.

A silver Tesla Model 3 parked on a road, with a green field in the background

Image source: Tesla.

Despite that huge setback, the 500,000-unit goal was still within reach entering the final week of the quarter. It would have taken a herculean effort to get there, and Tesla fell just short. Still, growing deliveries 36% year over year in the face of severe production constraints was an impressive feat.

Tesla needs way more growth to justify its valuation

Perhaps the 500,000-delivery milestone would have been significant from an investment perspective based on Tesla's January 2020 valuation. However, Tesla stock has surged more than 700% over the past year. Based on its recent trading price of $740, the company's fully diluted market cap is roughly $800 billion. By contrast, Tesla likely generated around $31 billion of revenue in 2020.

To justify an $800 billion valuation, Tesla has to grow quickly -- and for a long time. If the electric vehicle maker "only" quadruples its sales over the next decade, the stock is bound to plunge sooner or later. Even if Tesla develops meaningful ancillary profit streams over time (e.g., recurring services revenue, battery sales to other automakers, an autonomous ride-hailing network, etc.), the company would probably need to grow sales to at least 10 million vehicles annually to justify its current valuation. It would also have to sustain margins far better than any other major automaker has ever managed.

In this context, the exact number of Tesla deliveries each year doesn't really matter right now, as long as there is strong growth over time. After all, if Tesla had delivered 600,000 vehicles in 2020, but growth slowed abruptly thereafter, that would have been a much worse outcome than delivering fewer than 500,000 cars but then continuing to grow rapidly in future years. The company must boost output and deliveries so far beyond current levels to be a halfway-decent investment that short-term results don't matter as much to the investment case.

A blue Tesla Model Y, with a city skyline in the background.

Image source: Tesla.

It's a waiting game

Two things are clear. On the one hand, the underlying demand for Tesla vehicles easily exceeds 500,000 units annually. After all, Tesla's Q4 delivery total puts its annual run rate for deliveries at more than 700,000. Tesla also just began local production of the Model Y crossover in China, allowing it to enter a high-volume segment at competitive prices and thereby boosting its sales potential. On the other hand, demand can't be too much higher than the current production rate. If 2 million people were eager to buy Teslas right now, the delivery queue would be a lot longer than it currently is (2-5 weeks for the Model Y, 8-12 weeks for other models in the U.S.).

To meet investors' expectations, Tesla will have to drive demand significantly higher than where it sits today. Growing acceptance of EVs represents one likely tailwind for demand. Tesla can also boost demand by adding vehicles with even greater capabilities to its model lineup. Lastly, as battery costs fall, Tesla should be able to bring cheaper EVs to market, potentially widening the brand's appeal.

There's no reliable way to estimate today how much these factors will increase demand over time. I have no doubt that Tesla will be able to sell millions of cars annually a decade from now. But 3 million annual deliveries is a far cry from 10 million: let alone 20 million (Musk's ambitious goal for 2030).

Tesla's profitability -- reported in its quarterly earnings releases -- provides the best glimpse into its efforts to reduce costs. Even that is far from being a perfect metric to track Tesla's success. It's quite important, though, as reaching more affordable price points (without compromising vehicle quality) will likely be the key to mass-market success for Tesla. By contrast, tracking Tesla's quarterly and annual deliveries may be exciting, but it doesn't provide useful information for determining whether the company is truly worth $800 billion.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.