Tesla (NASDAQ:TSLA) shares have soared by more than 75% since 28 September 2020. That was the day that Elon Musk said on Twitter (now X) that he hoped to be producing 20m vehicles a year, by 2030.
But the company’s most recent production figures suggest there’s a long way to go.
In 2023, Tesla is expecting to sell 1.8m vehicles, giving it a 20% share of global electric vehicle (EV) sales.
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According to ABI Research, sales of EVs will grow to 45m by 2030. Deliveries of 20m would give Tesla 44% of the market. But with every mainstream automotive manufacturer now also producing electric models, I think it’s unlikely that it will see its market share increase.
Even if it were to maintain its current 20%, it would ‘only’ be making 9m vehicles annually.
In September 2023, billionaire investment manager Ron Baron said the company would be worth $4trn by 2033.
When asked whether this was possible, Musk responded on X by saying: “We do need to knock the ball out of the park several times to achieve this value, but I think we can“.
If Tesla were to be valued at $4trn, each of its shares would be worth $1,275. If realised, a £10,000 investment made today would grow to £53,410 by 2033.
Is this possible?
Earnings
Let’s start by looking at profitability.
For the four quarters to 30 September 2023, Tesla reported net income of $10.76bn, and delivered 1,729,352 cars. With a current market cap of $748bn, the company’s stock is trading at nearly 70 times earnings ($6,222 per vehicle sold).
Now that’s expensive. But for as long as I can remember, it’s shares have never been cheap. At the start of 2021, its price-to-earnings ratio was in four figures!
All things being equal, to achieve Baron’s $4trn valuation, the company would have to increase its annual earnings to nearly $59bn, and sell around 9.5m cars.
Supply-side issues
And then there’s the problem of capacity.
Tesla is currently building its sixth factory, in Mexico. The first cars are expected to roll off the production line in either 2026 or 2027.
If completion is delayed until 2027, the facility, Gigafactory 6, will have taken four years to construct at a cost of $10bn.
Annual output is expected to be 1m cars.
Tesla will therefore need another seven similar plants to produce enough vehicles to reach a $4trn valuation. Work on some of these plants therefore needs to start very soon.
Fine margins
And this assumes current margins can be maintained.
But due to increased competition, inflation, and two rounds of price cuts, margins have been falling over the past two years.
| Period | Deliveries | Automotive gross profit per vehicle ($) |
| Q3 2021 | 201,250 | 26,698 |
| Q3 2022 | 343,830 | 15,158 |
| Q3 2023 | 435,059 | 8,431 |
Baron’s valuation is partly based on his belief that the company will be selling cars for $25,000 — its current average is $47,511.
The profit per vehicle is therefore likely to fall further, meaning it’s going to have to sell more than 9m cars.
And build more factories.
Summing up
I therefore remain sceptical that Tesla will be valued at $4trn by 2033.
But I have no doubt it will be worth a lot more than it is today.
With the move to net zero, it’s clearly operating in the right sector. And it’s at the forefront of automotive technology. I’m sure this will help it maintain its position as the most valuable car company in the world.
