I'm asking this here because I'm by no means an expert on Tesla or stock picking. My only relevant skill is "order-of-magnitude perspective", a general ability to notice when a quantity seems to be out of whack by an order of magnitude.
Right now I'd guess there's a ballpark 50% chance that Tesla's market cap surpasses $1T by end of 2027, and 30% chance it surpasses $2T. Therefore my expected value for the stock price in 2027 is about $1T, or a 30%/yr return if purchased at today's $150B market cap.
Here's why I think Tesla is a clear pick to be one of the top 5 most valuable companies in the world within 10 years:
- Their 5+ year lead in market-proven designs of electric cars, and of the factories that make those cars is, by itself, a really exciting thing to bet on
- Their 5+ year lead in autonomous driving is, by itself, a really exciting thing to bet on
- Their 5+ year lead in battery technology and manufacturing is, by itself, a really exciting thing to bet on. Even if they were to exit the car industry, they could earn $100B+/yr revenue making batteries for countless applications
- Model 3 is the most popular electric vehicle in the world by far, and there's still plenty of room for quality improvement and price lowering.
- Tesla is already profitable, yet are still many ways they can increase their gross margins, the most obvious of which is simply scaling up and optimizing everything further (they're the youngest major car company and have done this the least)
And here's why I think other investors are currently undervaluing it:
- Most consumers still haven't considered buying a Tesla and are unaware of its key benefits such as safety, race-car-like acceleration, and rapidly increasing semi-autonomous driving capabilities. Even though Tesla stock is currently worth 2-3x more than the rest of the US car industry combined, it's still very much *not* a household name today (for neither consumers nor investors), compared to where it's about to be in 5 years or less.
- Model 3 is still just an early version of what Tesla is capable of. Their Cybertruck, semi truck, and future sedans are going to be even bigger hits in the market.
- Tesla is probably only a few months away from meeting the profitability requirements to be listed on the S&P, at which point a bunch of funds will automatically buy in and its stock will jump
- This is just a guess, but I bet many investors don't realize how doomed the other car companies are right now. By 2025 at the latest, any Internal Combustion Engine car will not be competitive with any Tesla car on any dimension. Most/all other companies in the $4T/yr car industry have had engines as their core competency, and all the effort invested there now has zero long-term value. They are all investing somewhat in electric vehicles, but none at the "bet the company" level that was and is needed, due to the Innovator's Dilemma.
Finally, on a meta level, I get the sense that Tesla has a disjunction of many ways to win, many ways to turn into a positive black swan. Uncapped upside, similar to Bitcoin before its last few price surges (and plausibly still now). Normally investors get excited by a small fraction of the kind of signals that Tesla is showing. For example, I roughly doubled my money investing in Match Group because I was confident that usage of dating apps and spending on dating apps was going to increase significantly, and Match Group owns the most popular apps with the largest network effect. But that's nothing. The whole dating industry is a few $B. That's 1,000x smaller than the auto industry (not to mention batteries). Match Group also does not have 5+ year leads in any major technology sector. I'm sensing that Tesla is more obviously a great stock pick than what a good stock pick typically looks like.