In recent times, you will struggle to find businesses that performed better for investors than Tesla (TSLA -1.80%). In the past five-year period, this top electric vehicle (EV) stock has skyrocketed 908%.
It hasn't been a smooth ride this year, though. Shares are down 28% in 2024 (as of March 27), as investors appear to be growing pessimistic about the Elon Musk-led enterprise. Maybe this is the right time to buy the dip in the hopes that Tesla can continue being a winner over the long term.
But can the stock rise 456% between now and 2030 to reach $1,000 per share?
Pedal to the metal
In order for Tesla shares to increase at a compound annual rate of roughly 33% over the next six or so years to get to $1,000, I see really one main thing that needs to happen. And that's a reacceleration of growth for the overall business.
Last year, things slowed down in dramatic fashion. Tesla's sales increased by just 19% in 2023, with a disappointing 3% rise in the fourth quarter. For a company that has given investors greater than 50% annual revenue jumps on numerous occasions, this is a new normal to contend with. Higher interest rates are a big headwind when consumers look to purchase new cars.
The good news, though, is that the EV industry is still in the early innings. In 2022, 14% of all passenger vehicles sold worldwide were EVs. There is still a massive runway for these cars to penetrate the market and take share from traditional gas-powered machines.
Given that Tesla commands about 55% of the industry's unit sales in the U.S., it is in a prime position to benefit. If unit sales and revenue figures start to pick up and post growth that is remotely close to levels seen a few years ago, the stock is on its way to rewarding shareholders. Margins will start to expand once again as Tesla benefits from manufacturing efficiencies.
In this bullish scenario, hitting the $1,000 mark seems like a certain outcome.
Pump the brakes
But there are some reasons for investors to temper their expectations a bit. Not only is it bold to think that a stock can rise at an annualized pace of 35% over the next six years, when the company's current market cap is $560 billion, but a few factors add bearishness to the equation.
What if the U.S. economy (and other major economies) remain in a higher-rate environment (above the level in the 2010s) for longer than anticipated? Because monthly payments for consumers are higher, this could pressure sales not just for Tesla, but all automakers.
There's intense competition in the EV space. Tesla deserves credit for spearheading the EV movement and prompting other businesses to follow suit. But consumers have so many choices these days. Competition is partly why Tesla had to cut prices on its models multiples times throughout 2023.
It's reasonable to assume that a company's growth will start to taper off. No business, I don't care how revolutionary its technology is or how disruptive its products are or how visionary its leader is, can grow to the sky. Tesla has already captured the low-hanging fruit. As a result, its gains going forward are likely to be much more muted than in the past.
While shares have fallen, they still remain expensive, in my opinion. Trading at a price-to-earnings ratio of 41.7 implies rosy projections, which might not end up happening, based on what I just outlined.
It's unlikely Tesla's returns going forward will come anywhere near resembling the last five years. So, investors shouldn't expect a $1,000 price per share by the end of the decade.
