There's no two ways about it: Last year was a challenging one for investors, marked by high inflation, rising interest rates, and the worst stock market decline in more than a decade. It appears the tide has turned, however, with each of the major indexes rising more than 20% from their recent lows, signaling the start of the next bull market (at least by one definition).
The evolving landscape has investors looking for high-quality stocks that can ride the bull market higher as the economic recovery plays out. In fact, many analysts are particularly optimistic regarding the prospects for Tesla (TSLA 4.19%), the world's leading electric vehicle (EV) maker. In fact, if Wall Street is right, this stock is set to soar 684% by 2027. Let's look at the catalysts that could drive it higher.
A runaway train
Tesla's business has been gaining momentum for years. While the macroeconomic challenges of the past year weighed on the company's sales, evidence that the EV maker continues to gain steam is everywhere.
The Model Y -- Tesla's most popular model -- became the best-selling car in the world in the first quarter of 2023, the first time an EV had achieved that distinction, according to automotive industry publication Motor1. The report cited data from 152 markets worldwide, saying Model Y sold 267,200 units, up 69% year over year and beating out perennial favorites like the Toyota Corolla and RAV4.
Tesla now has another catalyst that could boost future sales. In early June, it was announced that the full line of its Model 3 and Model Y vehicles are now eligible for the entire $7,500 federal EV tax credit, in addition to numerous state and local credits. In at least 10 U.S. states, this puts the price of these vehicles in the range of $26,00 to $30,000, making the cost comparable to rival cars with internal combustion engines (ICEs). This price parity will no doubt increase demand.
Finally, over the past month or so, there's been a groundswell of other EV makers moving to adopt Tesla's North American Charging Standard (NACS) charging port and join its Supercharger network. In late May, Ford was the first to announce the decision, quickly followed by General Motors. Others saw the writing on the wall and joined the movement, including Rivian, Volvo, and Polestar Automotive (so far). Each and every company cited Tesla's large and growing network and the reliability of its chargers as influencing their decision. This trend makes Tesla's connector the de facto industry standard, representing an opportunity to generate billions of dollars in additional revenue.
Each of these developments is significant in its own right, but when viewed together, they provide compelling evidence of Tesla's increasing dominance of the EV market.
Wall Street remains (mostly) bullish on Tesla
As with so many technology stocks, Tesla spent much of last year in a slump, the result of an ailing economy, even as the company continued to generate otherwise impressive growth.
While it continues to be a battleground stock, much of Wall Street remains firmly behind Tesla. Of the 23 analysts that cover it, 16 have a buy or strong buy rating and only one recommends selling. To be clear, the fact the stock has more than doubled so far in 2023 has taken some analysts by surprise, causing them to reduce their short-term price targets and issue a hold rating, with most citing valuation concerns.
One of the more bullish takes comes courtesy of Jennifer Liang of KGI Securities, who recently upgraded Tesla to outperform (buy) with a Street-high price target of $335. The analyst posits that the company's significant spending to build out its EV assembly and battery manufacturing facilities will "bear fruit in 2023."
Wedbush analyst Dan Ives is similarly bullish with an outperform rating and $300 price target. He cites Tesla's Supercharger network, battery production capabilities, and self-driving potential as creating an ecosystem that's "unmatched," while noting the likelihood of expanding margins as the company scales its production capacity. Ives also called the recent Supercharger deals an "AWS moment" for Tesla, of course referring to Amazon Web Services (AWS). Amazon initially developed AWS for internal use, before it evolved to become the worldwide leader in cloud infrastructure services and the company's most lucrative segment. Given the recent developments regarding Tesla's charging network, the comparison is fitting.
However, Ark Investment Management CEO Cathie Wood is looking much further down the road, suggesting that Tesla stock will soar 668%, hitting $2,000 by 2027. Ark's bull case is even more mind-boggling, indicating the stock could climb to $2,500, surging as much as 880% -- even after doubling in price so far this year.
While some might view this as a pie-in-the-sky estimate, consider this: Over the past five years alone, Telsa stock has gained more than 1,000%, and it is up more than 3,500% over the past decade. That makes Ark's call for a 900% gain seem much more plausible.
I'd be remiss if I didn't address the elephant in the room: Tesla's valuation. The shares are currently selling for 73 times forward earnings and 8 times forward sales, which have both soared higher as Tesla's stock doubled year to date. While the sticker price might be enough to scare away value investors and short-term traders, I'd argue it's not a wholly unreasonable valuation for an industry leader with clear catalysts, strong and growing momentum, and a long road ahead.
Now seems like a great time to buy Tesla stock -- before what could prove to be spectacular gains to come.