It wasn't all that long ago that Tesla (TSLA -3.40%) had a trillion-dollar valuation. As recently as April, it was part of a tiny but exclusive club of companies that had broken through the threshold. Today that club has just three members: Apple, Microsoft, and Alphabet.

Since then, Tesla's stock has fallen hard, losing nearly 60% of its value, and some are actively rooting for it to fail.

Electric car being charged.

Image source: Tesla.

While Tesla has its fans who seemingly wear rose-colored glasses about any of its flaws, the critics don green eyeshades tinted a few shades too dark that blind them to the EV maker's enduring potential.

Somewhere between those extremes lies the truth about Tesla, so let's see if there is any hope the premier EV stock can be a $1 trillion company again.

First off the line

There's no doubt Elon Musk and Tesla brought electric vehicles into the mainstream. While there were other EVs before Tesla (they've actually existed for almost 200 years), it was the Roadster that changed the auto industry due to the range of its battery, speed, acceleration, and price that made it comparable to gas-powered cars.

That first-mover status boosted Tesla to the forefront of the electric car industry, a place it remains in with a 64% market share, as of the end of the third quarter. While that's down from the 75% it held back in the first quarter, it's also a natural consequence of so many competitors entering the market. 

The Model Y and Model 3 have sold a combined 347,000 vehicles so far this year, far ahead of Ford's No. 2 Mustang Mach-E at 28,000. In fact, Tesla owns four of the top six slots (General Motors' Chevy Bolt is fourth with 22,000 vehicles sold).

However, Bank of America recently issued a report indicating its analysts expect both Ford and GM to surpass Tesla's market share, which is forecast to fall to just 11% in North America by 2025. 

Tesla is currently the big fish in a small pond. In just a few years time, however, EVs will equal 10% of the entire auto market and the two big automakers' EVs are cheaper than Tesla's and appeal to a different car buyer.

Built on a shaky foundation 

Despite the expected growth in demand for EVs, Tesla and other manufacturers have a number of hurdles they're going to need to surmount that could make achieving their goals feasible.

First, demand is propped up by tax credits, and should they go away; sales could falter. The so-called Inflation Reduction Act passed in August created a new array of incentives for the next few years, but it may not be fiscally responsible to keep them going indefinitely.

Second, the electric grid will be severely stressed from all the electric cars plugging in to charge and will need to be overhauled. That may not be feasible or cheap to accomplish as it will result in large costs for generating, transmitting, and storing power. Even as California was announcing a ban on fossil fuel-powered vehicles by 2035 this past summer, it was also asking EV owners not to charge their cars to help conserve energy.

Third, EV makers face soaring costs for finite resources, particularly for the batteries needed to power their vehicles. Lithium, for example, a key component of EV batteries, currently costs around $80,000 a tonne, or 1,000% more than it did two years ago. 

EVs also require substantial amounts of graphite, cobalt, rare earth metals, and nickel, and the total global production of these metals cannot match demand for them.

Smiling person charging their car.

Image source: Getty Images.

A long road ahead

While there is a search happening for alternatives to using different materials to power EVs and to upgrading and overhauling the electric grid, car manufacturers may face difficulty in seeing the growth they forecast.

Tesla itself is having a tough time selling cars in China. Although sales in November were up 90% year over year, it was a result of cutting prices and providing greater incentives to buyers. The 100,000 vehicles sold was also half of what Chinese rival BYD sold. Competition in Europe will be fierce, too.

Musk has also been selling Tesla stock, selling 19.5 million shares in November and another 20 million or so in December, likely to help finance his acquisition of Twitter. 

Over the long haul, though, Tesla doesn't seem like it's going to run off the road and still has plenty of opportunity for growth. Yet it would require a near tripling in value for its stock to hit a $1 trillion valuation. It seems plausible, but investors may need the patience to wait for a number of years for that to happen.