The price of Tesla (NASDAQ: TSLA) stock has been dropping in pre-market trading as stock futures signal a negative day on Wall Street over oil’s declines, which saw the futures contracts of West Texas Intermediate (WTI) Crude drop below zero.
Earlier this year, Tesla’s stock hit an all-time high above $9000 before the coronavirus-induced market crash took a toll on its price, bringing it down to $360 before it started recovering. Ahead of the opening bell, TSLA now dropped 2.2% to $729.9, while S&P 500 futures are down 1.6%.
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Despite the pre-market drop and sub-zero oil prices, analysts are seemingly still bullish on the electric vehicle giant. Luke Lango, a markets analyst for InvestorPlace, argued the carmaker’s stock could hit $2,000 in the future as the electric vehicle market grows.
Why TSLA Could Hit $2,000
In his analysis, Lango pointed to several specific reasons he is bullish on Tesla and on how he got to the $2,000 price target. These reasons include a global boom in the electric vehicle (EV) market over the next decade, Tesla being a leader in said market, and having unparalleled advantages.
In his piece, Lango pointed out that from 2014 to 2019 global EV unit deliveries rose more than 600% as consumer interest and government support for EVs kept on growing. Despite the growth, electric vehicles account for 3.5% of the total annual passenger car sales. With rising consumer interest, government support, and technological improvements the number cold rise 10% or 20% over the next year.
Tesla, moreover, is leading the EV market, with a 16.2% market share in 2019. Its market share has been growing thanks to its affordable Model 3, its sales push in China – which accounts for one-third of all passenger car sales in the world – and its superior technology.
Taking the market boom into account, Tesla maintaining a 15% market share, and evolving technology to reduce the carmaker’s costs and improve its margins, the analyst hit a $2,000 price target for TSLA. If its sales prices drop to $40,000 and its revenues rise to $150 billion, its earnings per share could hit $120 by 2030.
Based on a 16-times forward earnings multiple — the average medium-term forward multiple in the stock market — $120 in 2030 earnings per share implies a fair 2029 price target for TSLA stock of nearly $2,000.
Tesla Stock Could be High-Risk, High-Reward
Other analysts have argued that Tesla’s stock could be a high-risk, high-reward bet as the company’s cars are still rather expensive. Its lower-priced Model 3 still costs $35,000 before tax incentives, which is still steep for many, especially during the current global crisis.
Moreover, the firm is dealing with increasing competition in the electric vehicle space, as Nissan and Chevrolet upgrade their Bolt and Leaf models to increase their ranges and lower prices, taking on Tesla’s market share. As Mercedes-Benz, Volkswagen, BMW, and even Porsche start making quality EVs, it’ll be harder to stand out in the space.
Its technological superiority may be challenged by Apple and Google entering the transportation industry. Finally, Tesla has admitted in a 2015 10-K filing it is “highly dependent on the services of Elon Musk,” while noting the CEO “does not devote his full time and attention to Tesla.”
Musk is a well-known entrepreneur who was once the CEO of PayPal, and is now serving as CTO of Space Exploration Technologies (SpaceX) and Chairman of SolarCity, which installs expensive solar equipment.
Featured image by David von Diemar on Unsplash.
