Tesla (TSLA) shares are up 247% over the past year. However, over the past six months, stock prices have been mostly sideways. After correcting from an all-time high of $ 900, TSLA shares appear to be in a consolidation zone.
Among very upbeat commentators, Katie Wood believes Tesla stock could hit the $ 3,000 mark by fiscal 2025. It can seem difficult to talk about the long-term perspective of stock prices. At the same time, given the tailwind in the industry and several factors specific to the company, it is highly likely that Tesla stock will continue its uptrend.
The global electric vehicle industry is projected to grow by an average of 29% over the next ten years. Even if Tesla’s growth is in line with the industry average, the company has the potential for revenue and cash flow growth. (See Tesla Stock Analysis at TipRanks)
Plus, as an industry leader, it’s highly likely that Tesla’s growth will exceed the industry average. As such, the long-term bullish outlook for Tesla stock remains unchanged.
Production presence as a growth trigger
One factor that is likely to help Tesla improve EBITDA margins and free cash flows is its global manufacturing presence.
In the United States, the company is building another manufacturing facility in Texas in addition to its Fremont plant. Production and delivery at the Texas plant will begin this year. In addition, Tesla’s Shanghai Gigafactory is already operational, delivering a gradual increase in production volumes in the quarter. The company’s gigafactory in Europe plans to begin production and supply at the end of 2021.
With multi-site production, the cost of logistics is likely to decrease. In addition, as production grows, the operating leverage will increase the EBITDA margin.
Tesla is also planning to enter India. It should come as no surprise if the company opens another manufacturing facility in India. The country is still in the early stages of EV adoption and is likely to become another major market for Tesla over the next decade.
Strong numbers and strong products
TSLA shares are becoming more and more attractive financially. For the first quarter of 2021, the company reported cash and cash equivalents of $ 17.1 billion. In addition, the company’s free cash flow for the quarter was $ 293 million. This means an annualized free cash flow of $ 1.2 billion. With strong growth and the potential to increase its EBITDA margin, the company is well positioned to increase its free cash flows.
The key point is that Tesla is unlikely to see any dilution in the coming years. In addition, the company can lower the leverage. With high financial flexibility, product mix and investment in innovation are likely to be sustainable.
In terms of product line, it is likely that Cybertruck will open for commercial shipments late this year or early next year. In addition, Elon Musk expects limited production of Model Y to be released this year, with production increased in FY2022.
The launch of these models will ensure a stable supply of vehicles. At the same time, the Roadster and Tesla Semi are in development. So, thanks to its impressive product line, Tesla’s cash flow is likely to increase in the coming years.
Investing in innovation can also deliver results and ensure that Tesla stays ahead of trends. In particular, the company’s autopilot and full autonomous driving features are likely to be game-changing.
Wall Street view
According to the TipRanks analyst consensus rating, TSLA shares have a Hold status with Buy, 7 and 6 ratings assigned over the past three months.
In terms of target prices, the average price target for a Tesla analyst is $ 639.81 per share, which implies about 5.2% upside potential from current levels.
If the adoption of electric vehicles continues to grow globally, there will be ample room for Tesla to grow. With several production facilities, the company is able to meet the growing demand.
Plus, Tesla is about more than brand promotion. New markets such as India will continue to support high vehicle shipments.
Overall, TSLA shares look attractive at current levels with a medium to long term investment horizon.
Disclosure: As of the date of publication, Faisal Humayun did not have (directly or indirectly) any positions in the securities referred to in this article.
Disclaimer: The information contained in this document is for informational purposes only. Nothing in this article should be taken as a call to buy or sell securities.