Tesla bulls hope the company's valuation can get back into the 13-figure club.
It's a monumental accomplishment for a business to get to a $1 trillion valuation. This exclusive group only consists of seven companies today. Except for one, all of these operate in the technology sector.
Tesla (TSLA 0.21%), the popular electric vehicle (EV) maker, once sported more than a $1 trillion market cap in early 2022. But thanks to a massive share price decline, the business is worth $520 billion today.
Can this EV stock reclaim its former glory and get back into the trillion-dollar club by 2030?
Press the accelerator
After years of impressive growth, Tesla has hit the brakes. Revenue dipped 9% in the latest quarter (the first quarter of 2024, which ended March 31) to $21.3 billion, while net income tanked 55% to $1.1 billion. Demand for EVs has been disappointing, especially given the higher-interest-rate environment. Moreover, ongoing price cuts are crushing Tesla's margins.
Therefore, it's not a shock to say that Tesla needs to figure out how to get back to posting consistent volume, revenue, and earnings growth to boost its market cap by 2030. This might prove to be difficult. Competition is fierce, which means that things won't be easy for Tesla going forward, particularly when compared to the past.
Focusing on launching new models will be key to expanding the addressable market and raising revenue potential. After it deals with recall issues, Tesla will need the Cybertruck to be a huge hit. Pickup trucks are among the most popular vehicle models in the U.S., which is encouraging.
On the latest earnings call, founder and CEO Elon Musk mentioned the launch of "more affordable models" in 2025. What was once an exclusive car company is now trying to tap into the mass market. However, if this plan works out well, Tesla's revenue should head higher over time.
I also believe that if Tesla can make good on its promises, namely introducing full self-driving (FSD) capabilities, then getting to a trillion-dollar valuation will be no problem at all. The issue, though, is that Musk has over-promised and under-delivered in this regard. But if Tesla is able to release an Uber-like ride-hailing service with its own autonomous vehicle fleet, there will be a lot for the market to get excited about.
Looking at potential scenarios
For Tesla's market cap to expand just less than twofold over the next six or so years, it would need to climb at an annualized pace of 11.5%. To be clear, it's not a stretch to believe the business can reach a $1 trillion market cap by 2030. The company has done significantly better historically, as its market cap has soared 11-fold between April 2019 and today.
It also helps that the stock has gotten crushed. Its current price-to-earnings ratio of 42.4 is down substantially from a 738 multiple just three years ago. This adds potential upside should the business get back on solid footing sooner rather than later.
However, I still think the valuation is stretched. It prices in a lot of optimism about Tesla's future, particularly around the business being able reach its goal of introducing FSD technology and being able to successfully monetize it. No one knows when or if this will happen.
This perspective makes me believe that the trillion-dollar outcome might never become a reality, at least not by 2030. A lot of things need to go right for Tesla over the next few years.
I wouldn't be surprised if Tesla's market cap hit $1 trillion by 2030. On the other hand, I won't be surprised if it doesn't reach this target. For investors who are looking to buy the stock on the dip, the heightened uncertainty about what this company will look like in the future might discourage them from adding Tesla to their portfolio.
Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla and Uber Technologies. The Motley Fool has a disclosure policy.
