Tesla (TSLA) stock has surged by 247% in the last year. However, in the past six months, the stock has been largely sideways. After a correction from all-time highs of $900, TSLA stock seems to be in a zone of consolidation.
Among the very optimistic commentators, Cathie Wood believes that Tesla stock can touch $3,000 by FY2025. It might seem difficult to talk about the long-term stock price outlook. At the same time, considering the industry tailwinds and several company specific factors, it seems very likely that Tesla stock will remain in an uptrend.
The global electric vehicle industry is forecasted to grow at a CAGR of 29% over the next ten years. Even if Tesla’s growth is in line with the industry average, the company is positioned for strong upside in revenue and cash flows. (See Tesla stock analysis on TipRanks)
Further, being an industry leader, it’s very likely that Tesla’s growth will exceed the industry average. Therefore, the long-term bullish case for Tesla stock still seems to be intact.
Manufacturing Presence as a Trigger for Growth
One factor that’s likely to help Tesla in boosting EBITDA margin and free cash flows is global manufacturing presence.
In the United States, the company is building another manufacturing unit in Texas, in addition to its Fremont plant. The Texas facility is on track to commence production and delivery later this year. Additionally, Tesla’s Shanghai Gigafactory is already operational, creating a gradual increase in quarterly production output. The company’s Gigafactory in Europe is on track for production and deliveries in late 2021.
With manufacturing in multiple locations, logistics cost is likely to decline. Further, as production ramps up, operating leverage will boost EBITDA margin.
Tesla also plans entry into India. It will not be surprising if the company sets up another manufacturing facility in India. The country is still at an early stage of electric vehicle adoption and is likely to be another big market for Tesla over the next decade.
Strong Numbers and Strong Products
TSLA stock is increasingly attractive from a financial perspective. For Q1 2021, the company reported cash and equivalents of $17.1 billion. In addition, the company’s free cash flow for the quarter was $293 million. This implies an annualized free cash flow of $1.2 billion. With strong growth and the possibility of EBITDA margin improvement, the company is well positioned to increase free cash flows.
The key point is that Tesla is unlikely to see any dilution in the coming years. Furthermore, the company is positioned to de-leverage. With strong financial flexibility, the product line-up and investment in innovation are likely to be robust.
In terms of the product pipeline, it’s likely that Cybertruck will open for commercial delivery later this year or early next year. Further, Elon Musk expects limited production of Model Y this year and production ramp-up in FY2022.
The launch of these models will ensure that vehicle deliveries remain strong. At the same time, Roadster and Tesla Semi are in the pipeline. Therefore, with an exciting product line-up, Tesla’s cash flows are likely to accelerate in the coming years.
Investment in innovation is also likely to yield results and ensure that Tesla remains ahead of the curve. In particular, the company’s autopilot and full self-driving features are likely to be delivery volume game-changers.
Wall Street’s Take
According to TipRanks’ analyst consensus rating, TSLA stock comes in as a Hold with 10 Buy, 7 Hold and 6 Sell ratings assigned in the last three months.
As for price targets, the average Tesla analyst price target is $639.81 per share, implying around 5.2% upside potential from current levels.
If electric vehicle adoption continues to increase globally, Tesla has ample headroom for growth. With multiple manufacturing facilities, the company has the capacity to cater to incremental demand.
Further, Tesla is a case of brand-pull more than brand-push. New markets like India will continue to support strong vehicle delivery.
Overall, TSLA stock looks attractive at current levels with a medium to long-term investment horizon.
Disclosure: On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.