I’ve been looking at analyst forecasts for what the Tesla (NASDAQ:TSLA) share price might do in 2024. The most bullish I could find was from Morgan Stanley, which offered a target price of $380.
That’s 50% higher than where the stock trades as I write this and – unsurprisingly – that makes it the bank’s top pick for next year. But is that a realistic expectation for Tesla shareholders?
$380? Really?!
At first sight, the Morgan Stanley price target seems unlikely. The analyst consensus is for Tesla to achieve $3.07 in earnings per share next year, so $380 implies a price-to-earnings (P/E) ratio of 124.
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That’s certainly high, but there are a couple of things worth noting, here. The first is that a P/E ratio probably isn’t a great metric to value Tesla shares with.
The stock currently trades at a P/E ratio of 85 after earnings in Q3 come in lower than forecast as a result of price cuts weighing on revenues. Investors mostly seem to have decided they don’t care.
What matters is two things. The first is the scope of the company’s potential and the second is the likelihood of the business achieving that potential.
That’s why the Tesla share price has done so well in 2023 despite a decline in earnings per share. Investors believe that the company’s prospects are better than they were 12 months ago.
Not your average car company
Morgan Stanley is fully subscribed to the view that Tesla is much more than a car company. According to the bank, the car business accounts for around $86 of its target.
Interestingly, that doesn’t imply that the company has a huge edge when it comes to manufacturing cars. At $86 per share, a market cap of $269bn is implied, which is only slightly higher than Toyota ($244bn).
The rest comes from other ventures shareholders will be familiar with – battery technology, licensing, driverless vehicle systems, and so on. Tesla has a clear edge, and the only question is what that’s worth.
Morgan Stanley thinks the answer is $927bn, or $296 per share. This is based on an earnings forecast of $17 per share by 2030 – if that happens, $380 next year won’t look like much.
What about 2024?
All of this is to do with Tesla’s long-term prospects, which I think look decent. In terms of the price for 2024, there are a number of short-term issues to consider.
These include industrial action in Northern Europe, a change in tax credits in the US, and difficulties at Elon Musk’s other venture, X. Exactly what these will mean for the share price is tough to predict.
If I were looking to buy Tesla shares, though, I wouldn’t be doing so with a view to the price hitting a certain level in 2024. I’d be looking at the company’s potential 10 or 20 years down the line.
Morgan Stanley is bullish, but analysts on average have a price target close to the current level. I’ll see whether 2024 brings a buying opportunity at a slightly more attractive level.
