It was in October 2021 that Tesla’s (NASDAQ:TSLA) stock market capitalization touched $1 trillion. A big correction last year has resulted in the company’s valuation shrinking to $585 billion. I strongly believe that this deep correction is a good opportunity to accumulate TSLA stock.
In the coming years, the stock is likely to deliver multi-bagger returns if we look at Tesla stock from a fundamental perspective. Once sentiment turns bullish for EV stocks and the broader markets, there are strong reasons Tesla stock should be worth more than $1,000 per share.
Of course, I don’t expect this target to be achieved in the next 12-24 months. However, I would bet on five-fold returns for TSLA stock from current levels over the next five years. Some of the major fundamental factors driving this view include positive industry tailwinds, Tesla’s aggressive growth plans, and improved cash flow visibility.
Competition has intensified in the EV sector, and that’s a headwind. However, the massive size of the EV market provides enough room for multiple major players to see big-time growth.
Let’s discuss three reasons for Tesla stock worth to be $1,000 in the coming years.
Underpenetrated Market Provides Ample Headroom for Growth
As of Q4 2022, Tesla commanded a global market share of 12% in the passenger electric vehicle segment. Tesla’s market share has declined with intensifying competition. However, the company will remain among the market leaders, with focus on innovation-driven growth.
The key point to note is that electric vehicle sales are predicted to come in at 14 million for 2023. Global EV sales will represent 18% of total car sales. The International Energy Agency estimates that global electric car sales will total 350 million by 2030. EVs would represent more than 60% of vehicles sold.
The bottom line is that even with 12% market share, Tesla has multi-fold growth on the horizon. As market sentiment turns bullish, TSLA stock has a bright future ahead.
Aggressive Growth Plans
In terms of growth plans, there are two important strategies Tesla is implementing.
First, Tesla has an attractive line-up of models, which will boost deliveries growth. The company’s line-up includes of new models include the Cybertruck, Roadster, and Semi. Of course, the Tesla Semi does not fall under the passenger vehicle category. However, the truck will certainly expand the total addressable market for the company.
The second growth strategy is the construction of various gigafactories in multiple geographies. Elon Musk has set an ambitious target of selling 20 million electric vehicles annually by 2030. If this target is to be achieved, Tesla must construct multiple factories over the next five years.
Recent reports indicate that Tesla is interested in pursuing India as a new factory location. Earlier this year, it was reported that Tesla is nearing a deal to build a factory in Indonesia, with a potential capacity of one million units. Further penetration in Asia and Southeast Asia is likely to be a key growth driver for the company.
Overall, Tesla’s ambitious target for 2030 implies robust growth visibility. TSLA stock is likely to surge as new gigafactory locations are announced and constructed.
Robust Free Cash Flow Potential
Ultimately, businesses are valued based on their potential to generate operating and free cash flows. For a long time, Tesla had a problem with cash burn. Thus, skeptics largely believed that this business was one that was unlikely to generate healthy cash flows, ever.
However, that dynamic has changed as Tesla’s operating leverage has improved. In 2021, Tesla reported an operating cash flow of $11.5 billion. Last year, the company’s operating cash flow further swelled to $14.7 billion. I expect cash flows to increase in the coming years, and that’s likely to have a direct impact on Tesla’s valuation.
It’s also worth mentioning that Tesla reported cash and short-term investments of $22.1 billion as of December 2022. Strong operating cash flow and a robust cash buffer allows Tesla to make aggressive investments, without the need to dilute existing shareholders. Given the production and sales targets set by the company for 2030, Tesla will be a cash flow machine.
Concluding Views
After a big correction in 2022, TSLA stock has already surged 70% year-to-date in 2023. Considering the fundamental factors that should propel Tesla stock over the long-term, I believe that the stock is likely to remain in an uptrend.
Mass production of new models in the pipeline and the finalization of new gigafactory locations will be key catalysts for investors to watch. Overall, I can say with some conviction that Tesla stock will be worth $1,000 within the next five years.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
