Actions of Tesla (TSLA) 1.11%) they have lost 26% of their value so far this year. Partly due to broader settlement linked to hostility macroeconomic conditions and company-related issues, such as supply chain restrictions and factory closures, which have halted production in recent quarters. the electric vehicle (EV) leader eclipsed a market capitalization north of $1 trillion at the end of 2021, but now has a market value of around $842 billion.
However, as long-term investors, we should be less concerned with short-term noise and more focused on the long-term trajectory of a business. That said, with the global electric vehicle market poised to expand at a compound annual growth rate (CAGR) of 18.2% through 2030, according to Allied Market Research, Tesla appears to be in a strong position to capitalize on the upward trend.
Let’s examine where the EV giant stands today and discuss its potential path to a $2 trillion market value by 2025.
A second quarter update
Tesla reported second-quarter earnings after the market closed on July 20, and while the growth wasn’t exactly ideal, it was in line with what analysts had expected. The electric vehicle leader increased revenue 41.6% year-over-year to $16.9 billion, ending in line with Wall Street estimates, and adjusted earnings per share rose 56.6% to $2.27. dollars, comfortably beating forecasts by 27%.
Production and deliveries increased 25.3% and 26.5%, respectively, year over year, but both fell 15.3% and 17.9% from the previous quarter.
The drop in production and deliveries compared to the first quarter was attributed to the COVID-related shutdown at its Shanghai factory and ongoing supply chain bottlenecks, which have continued to hurt the global economy for quite some time.
But despite the existing problems, which I see as short-term problems anyway, Wall Street analysts project that the electric vehicle magnate will increase profits and profits by 57.4% and 74.2%, respectively, throughout the fiscal year. Those are impressive growth rates for a company facing a number of headwinds right now and, in my opinion, investors should be optimistic about what Tesla can achieve once the economy clears up.
Tesla’s journey to $2 trillion
According to data from S&P Market Intelligence, analysts expect the electric vehicle darling to generate $164 billion in total sales by 2025, indicating a five-year CAGR of 25.4% over revenue for the year. past. Assuming a EBITDA margin of 25%, which translates into an annual EBITDA of $41 billion, the company would have a company value of $2.3 trillion by 2025 with an enterprise value to EBITDA multiple of 55.6, which is where Tesla is listed today. That represents a 175% increase over its current enterprise value of approximately $829 billion.
At an enterprise value to EBITDA multiple of 151.3, which is Tesla’s five-year average, the company’s enterprise value would reach $6.2 trillion, assuming it generates $41 billion EBITDA for fiscal year 2025. It’s not entirely realistic that the electric vehicle company would trade at such a high multiple several years from now given that its growth will likely slow.
A more conservative multiple of 25, which is still a premium for the S&P 500The average of 17.1 would give an estimated business value of $1 trillion. This is only 23.7% higher than its value at the moment. Although Tesla stock has historically commanded premium multiples, it’s hard to say where the stock will trade many years from now. That said, its recent liquidation, combined with the company’s strong positioning in a fast-growing market, should draw the attention of prudent investors today.
Should investors buy Tesla right now?
It’s impossible to know for sure if or when Tesla will surpass a $2 trillion market value, but given its superior positioning in a massive secular growth industry, I’m confident the company will eventually reach that point. In my opinion, his new pullback has provided investors with a good window of opportunity to buy the stock, especially considering that his business continues to expand at a rapid pace.
Certainly, the stock could sink further in the coming trading sessions, but let’s bet on the long-term future of the company rather than trying to time the market. At existing levels, I think Tesla is a firm buy for patient investors.