Will Tesla Be a Trillion-Dollar Stock by 2025?

Tesla has unquestionably been one of the most profitable investments in recent times. The company's stock has experienced an astounding growth of 1,000% over the past five years and a staggering 3,600% over the past decade. Moreover, in the first six months of 2023 alone, it has already increased by 114%. As a prominent manufacturer of luxurious electric vehicles, Tesla has undeniably demonstrated its ability to greatly enhance the value of any individual's investment portfolio.

By June 30, Tesla was worth $826 billion, which made it one of the most valuable companies globally. Now, let's explore the likelihood of this leading automotive stock reaching a valuation of $1 trillion by 2025, a milestone it already reached in late 2021. Can we consider a 21% increase feasible? Let's delve into the realm of possibilities.

In spite of challenging factors on a large scale, Tesla remains on a fast track of expansion. The company experienced a 24% growth in revenue, reaching $23.3 billion in the initial three months of 2023, compared to the same period last year. Although the pace of growth has slightly reduced compared to previous quarters, it is still a promising development. Tesla managed to surpass the predictions made by financial experts with this impressive revenue figure.

In the span of ninety days, the automotive business focused on electric vehicles manufactured and delivered a total of 441,000 units, exceeding a remarkable 35% increase when compared to the initial quarter of 2022.

Despite experiencing tremendous growth in recent years, there are still plenty of reasons for investors to be enthusiastic about the future. It is projected that electric vehicles (EVs) made up less than 10% of total car sales in the United States in 2022. This indicates that there is still a significant potential for growth as the industry continues to move towards electrification. In terms of benefiting from this trend, Tesla is in a prime position since it dominated the market domestically, generating 48% of its overall revenue in the first quarter of 2023.

Tesla has made the decision to decrease the prices of its vehicles on numerous occasions in the past year, which may come as a letdown to certain shareholders. Elon Musk explains that this strategy is deliberate in order to increase sales and expand the company's market presence. Additionally, as Tesla continuously improves its manufacturing capabilities and becomes more cost-effective, it is able to reduce the expenses associated with producing each unit. These savings are then passed on to consumers.

There may be some doubters who question these pricing measures. However, Musk sees them as integral to Tesla's ultimate goal of achieving complete autonomous driving. He believes that if self-driving technology proves successful, the significance of a single Tesla vehicle will surpass its initial cost, making it more valuable to the company. Therefore, the focus is on expanding the number of Tesla cars present globally.

Even though Tesla possesses positive attributes in terms of its dominant market position and impressive sales growth, there is another crucial factor that investors must consider for potential stock returns: the company's valuation.

Despite the P/E ratio of 77 being below its usual average, the absolute value of Tesla's stock still appears to be high. Although Tesla is experiencing substantial growth, it is likely that this growth will slow down over time as its market potential decreases and competition intensifies. It is questionable whether Tesla's stock should be valued at almost four times Ford's P/E ratio and almost 13 times GM's P/E ratio. I am uncertain about this.

It is possible to argue that, considering Tesla's previous performance, a 21% increase in just 24 months appears highly likely. In fact, if Tesla's stock continues to rise at the average annualized rate of 10% seen in the S&P 500, it will reach a valuation of one trillion dollars by 2025. However, it is doubtful that a fast-growing company like Tesla would only achieve results comparable to the broader index's long-term pace. Therefore, it is very probable that the stock could experience even greater growth.

Let me make it clear, I have absolutely no idea about the future value of Tesla's or any other stock. No matter how intelligent someone may appear, I highly doubt anyone truly knows. Judging from the conversation we just had, if I was forced to make an estimation, I'd predict that the company's market capitalization will reach one trillion dollars by 2025.

Neil Patel does not hold any positions in the stocks that were mentioned. The Motley Fool, on the other hand, holds positions in Tesla and recommends it. Additionally, they also recommend General Motors and suggest considering long January 2025 $25 calls on General Motors as an option. The Motley Fool maintains a disclosure policy.