While Tesla (TSLA 3.23%) has been compared to legacy automakers for years, many people thought the company would never catch up to them. Just two years ago, in the first quarter of 2020, Tesla produced a mere $5.1 billion in automotive revenue, far behind General Motors' (GM 0.06%) $32.7 billion and Ford Motor Company's (F -2.79%) $34.3 billion. In Q1 2022, Tesla began closing the gap and generated $16.9 billion in automotive sales versus GM's $36 billion and Ford's $34.5 billion.

Even though Tesla is still about 50% behind Ford and GM's revenue, if it can maintain its rapid automotive sales growth, it may be able to catch up to them. But is this doable by 2025? Or will it take Tesla much longer to catch two of its main U.S. competitors?

Tesla Model 3 driving away.

Image source: Tesla.

How quickly can Tesla catch Ford and GM?

During Q1, Tesla grew its automotive sales by 87% year over year. By comparison, Ford's sales declined 5%, while GM's rose about 11%. It's unlikely Ford will continue losing sales and GM to grow at this rate. Aside from a few noteworthy exceptions, both companies' quarterly revenue has been consistent at between $30 billion and $40 billion a year for the past decade.

For the purpose of this comparison (and accounting for the cyclicity of each company), let's use $35 billion in automotive sales as a benchmark for designating when Tesla can catch up to these two stalwarts of the automotive industry. Using this total, Tesla would need to grow its automotive sales at a rate of 27.5% over the next three years to catch up.

During Tesla's Q1 conference call, CEO Elon Musk indicated he is confident the company can maintain 50% annual growth in vehicle production for the foreseeable future. Using that rate, Tesla will pass Ford and GM by 2024.

While it's pretty easy to understand how Tesla will pass Ford and GM in sales (after all, Teslas tend to be priced much higher on average than Ford and GM cars), Musk's next goal would be incredible if accomplished. Tesla aspires to produce 20 million units per year. For context, 2018 saw the most vehicles produced globally by all manufactured combined, with the U.S. creating 11.3 million and the entire world making 96.9 million.  

Should Tesla accomplish the 20 million units goal and control one-fifth of the world's automobile supply, Tesla will become one of the greatest success stories of all time. However, this is a tall task to become the world's top auto producer.

Tesla's new factories will make it possible

Currently, Tesla has three factories operating with a combined capacity of 1.05 million vehicles. It also has two factories in the "early ramp" stage, which will double Tesla's current vehicle production capacity.

By doubling its capacity, Tesla will pass Ford and GM in sales pretty easily by 2025. But what about its ambitious goal of 20 million vehicles per year?

Rendering of the Berlin Gigafactory.

An artist rendering of Tesla's Berlin Gigafactory. Image source: Tesla.

Tesla's factories have a consistent capacity of about half a million vehicles per facility. By that logic, Tesla will need 40 facilities to meet its goal of 20 million vehicles per year. Right now, Tesla has four other plants in development, which would increase its capacity to 4 million electric vehicles (EVs) per year. The Cybertruck, Tesla Semi, Roadster, and an unreleased product will be made in those facilities, according to Tesla.

This capacity is still a long way from 20 million units, but Tesla will need to open factories quickly to meet its goal of 50% growth for the foreseeable future.

Should you buy Tesla stock?

A sticking point for many investors is Tesla's valuation. At just under $900 billion in market cap, Tesla is larger than the next 13 automakers combined. It also has a price-to-earnings (P/E) ratio of 117, although this has substantially shrunk as Tesla is becoming more profitable.

As Tesla's operating margin has improved over the past few quarters, its bottom line will decrease its P/E ratio because its earnings are growing.

TSLA Operating Margin (Quarterly) Chart

TSLA Operating Margin (Quarterly) data by YCharts

With Tesla's stock price down around 35% from its all-time high, now might be the time for investors to get into the company. It's primed to pass top U.S. automakers in sales in a few years, and its growing profits will soon decrease its valuation.

Like it or not, Tesla has become one of the top automakers in the world. With EVs likely here to stay, Tesla is one of the best ways to invest in this space.