TheInvestmentAddict Series Post #1 Can Tesla shares reach $5,000 per current share in the next 10-15y?

Abstract

The research question of this first piece is - Can Tesla shares reach $5,000 by 2033-2038 (or in 10-15y)? I use Microsoft as an example of a company which adopted a new technology - the Internet and became a leader in multiple technologies. I also look at the best period of its stock during 1994-2003 as an example period of where Tesla might be headed from 2023 to say 2030-2033. I formulate hypotheses to see if Microsoft's performance based on Internet technology can serve as a proxy for Tesla's performance based on dominance of the Electric Vehicles (EV) and other industries (which are yet to become clear). I lastly formulate hypotheses to be able to test whether using the growth and stock splits of a leading company - MSFT has any predictive power about another company's future price - Tesla, and its prospective future stock splits. I also present an EV market overview and its forecasted growth to suggest that while MSFT is not even a remotely similar company to Tesla, it is actually a very similar stock - a growth, tech, large cap stock to be specific.

Tesla in 2013-2021 vs Microsoft in 1987-1994 &Tesla 2023-2032 vs Microsoft 1994-2003

Tesla ($TSLA) stock was one of the worst stocks during 2017-2018 only going sideways and many people who had the stock sold it when it doubled from $150-200 to $300-400 by 2019-2020. This was one of the worst mistakes as the stock had a rally that boosted it from about $150 in 2018 to about $6000 on IPO share by 2021. As a result of each stock becoming too expensive, the stock was split 15 times, which means as of today, each IPO share is -50% from the top of 2021 at $6,000 to about $3,000  today (15 shares adjusted for stock splits x $200 per share, on 24.02.2023). 

If we look at Microsoft ($MSFT), we can see that during 1987-1994 it had 5 stock splits which split the original MSFT IPO share value from 1 share into about 18 stocks. My suggestion is that buying $TSLA today is kind of similar to buying $MSFT in 1994 (as it had 2 splits which result into each original share being 15 shares today). In the next 10 years from 1994 to 2004, each MSFT stock had 5 subsequent stock splits each x 2 shares a split. This means, one needs to own 288 shares of Microsoft at about $250 today, or $73,152 to own one IPO MSFT share. This is shown by Figure 1 below.

Figure 1. Microsoft historic stock splits 1987-2003.

To have 10-20 more stock splits over the next 10 years, Tesla IPO price would have to reach a similar price of about $70,000 per IPO share as well. The current value of each IPO Tesla share is about $3,000. Growth to about $70,000 would represent about a 24x return on a 10y basis, averaging 2.4x (or 240% rate or return) per year for the period (obviously this refers to the nominal return, not adjusted for inflation).

Many are likely to criticize this approach of thinking by suggesting that Tesla and Microsoft are both technology companies, but are completely different from each other. However, as stocks, they both belong to the same umbrella of growth stocks. Therefore, the simple message of this piece can be interpreted as, I would rather buy Tesla stocks over MSFT stocks because in the next 10 years Tesla shares are likely to grow faster due to Tesla becoming a technology leader on multiple technologies and catch-up on the growth that Microsoft had (as it became a dominant player during 1995-2005 using computers and Internet as the infrastructure of growth). This does not mean that Microsoft stock is not a good stock to own, but given that one has to pay 71k per share to buy an original IPO share of Microsoft, buying a $3,000 share of Tesla or 15 Tesla shares at $200 is much more doable for the average investors. Also the fact that Tesla has been split only 15 times for the 288 times of Microsoft should also clarify why each Tesla individual stock should outgrow each Microsoft stock. In simple words, Microsoft has already grown to a level whereby each stock has been split 288 times. For Tesla to reach this level this would be about 25-26x as of current price levels.

Also, it is likely that Tesla stock itself is not allowed to grow from $117 (it's 2023 low) to $5,000 as this would make it too expensive again. I imagine that once it reaches over $1200-1600 (or 10-15x from the 2023 lows), it will be split at least 4-5 more times over the next 10-15y and stock splits will continue as long as the company continues to grow in the next 20y. Overall, its growth potential is higher than that of MSFT from its current position of development. In 2018, Tesla was like Microsoft during 1987, trying to be an innovator delivering business by changing an existing paradigm (from physical business to digital). In a way, Tesla seems to be in a similar spot where during 2010-2020 they were trying to convince people about the value of Electric Vehicles (EVs). During 2020-2021, it had phenomenal growth, however electric cars barely represent 5% of all the world's cars (so 95% have not adopted EVs yet). Therefore, this phenomenal growth is likely to extend for at least another 10 years, despite the presence of numerous competitors such as Li Auto, Xpeng and Nio.

Market overview

To make this as simple as possible I use the following graph since 2019-2020 to show the actual potential of the EV market size, see Figure 2.1 below. 

Figure 2.1. Global Electric EV sales per year (2015-2040) to reach 60 million per year

The purpose of this graph is to show that as of 2020-2023, we are at about 5-10 million EVs per year. Simple extrapolation suggests that the EV market has about 5-10x growth 2040. There is even a more optimistic view that by 2040, we could reach about 65 million EV car sales (or 54% EV sales of all 120 million car sales) by 2040 (see Figure 2.2 below)

Figure 2.2. EV sales expected to be 54 million cars of 100 million total (ICE = internal combustion engine) by 2040 (or 54%)

It does not matter which one is accurate. What matters is that even at 5-10 mil EV sales per year today, to about 50 million there is about 10x-5x, to about 65 million there is about 12-6x room to grow (as an industry). 

Note, this will not be the point where EVs are now dominant. No in 2040, we will barely be according to these at about 43-54% of all cars being electric (i.e. only half way there). Therefore, if we are to logically extrapolate this (and add to the fact that for instance the EU will ban all ICE cars by 2030-2050, this might happen faster). Another logical extrapolation is that after 2040, this growth might start slowing down because consumers have a choice between EVs and EVTOLs (EVTOL is an electric vertical take-off and landing aircraft) or a mix of the two. Below I have added 2 pictures to show an EVTOL and a potential EV/EVTOL hybrid by XPENG (a Tesla competitor). Note, if you are worried that these are coming too fast, we are now at Picture 1, which can fly for 30 minutes. We are at least 5-10 years away in my opinion from Picture 2's concept becoming a reality. Also, Tesla might make a superior EVTOL (which I hear they have a contract to deliver the first one by 2030-2035 to UAE, Dubai).

Picture 1. EVTOL 2023

Picture 2. CONCEPT - EVTOL 2024/2025 (hybrid EV/EVTOL)

Until here, the key takeaway is 1) we are in 2023, and even EV sales are barely 3-5% of all car sales, i.e. there is about a 17y anticipated growth for EVs before EVTOLS might start taking some of the market. However, by then, the EV market's size is still anticipated to at least grow about 5-12x for the next 12 years.

The final key takeaway is that as of 2015 to 2022, Tesla is still the leading player in the US (see Figure 3) and globally (see Figure 4) with 13.84% market share of the global EV market

Figure 3. About 350,000 of about 900,000 Tesla vehicles sold globally is sold in the US

Figure 4. Global plug-in electric vehicle market share in 2021, by main producer

In a nutshell, these 3 Figures show to us that Tesla is the leading player in a market which is expected to grow 10-20x in the next 40 years. Therefore it seems logical that if the car company grows at pace of the industry (not faster or slower), it can grow by 20x for 40 years. It also makes sense, that if it continues to be the leader for at least some of the time, there might be a reason to actually believe that Tesla shares can 20-25x for 10-15 years. This simplistic piece of evidence, ideally shows that 1) based on the history of a company which grew dominant and 2) Tesla which is now the dominant EV company + the future growth of EV markets by 2040, the question whether Tesla will reach $5,000 by 2033-2035 is not a very logical one. The preliminary research findings suggest that Tesla's core business - its EV cars is expected itself to grow by at least 5-12x by 2040. Therefore, this suggests that the price of Tesla stock may simply grow 5-12x from $117 to about $600-$1400 based on the company's EV growth alone. 

To reach a 20-25x multiple in 10-15 years, this would suggest that the company needs to achieve dominance in at least 1-2 more industries (say in AI-robots like Optimus, to become the norm of robots building robots or some of its existing energy-related propositions like Tesla's PowerWall or Tesla's solar roof panels). In other words, just like Microsoft had mostly Windows as a product from 1987 to 2000s, after 2000 it started having a combination of software solutions (on top of Windows) and some hardware products, it even added a competing game to Sony's Playstation - the Xbox. It also had total product failures such as the competitor to Apple's Ipod (was it called Zoom ?, who remembers it now). The key thing is during 1994-2003, Microsoft was yet to dominate more than one market, as it was only the dominant player in the operating systems software on personal and office computers (via its Windows product, which we use to this day). If we are to believe that Tesla is yet to become such a company, then doubling the growth of 12x from EV sales alone would bring us to about 24x growth. 

This may in reality an over expectation or under expectation depending in what markets and technologies Tesla becomes and remains dominant. It will be an under expectation if suddenly Tesla were to become a technological follower in the EV space, replaced by say Li Auto and Xpeng  (or another company). These Chinese competitors may also come up with better alternatives of EVs, Robots and energy solutions, which is also not impossible (as NIO has a totally different business model and superior batteries already). However, even if Tesla were to be replaced in say the Chinese or European markets as the dominant company, it is still likely to at least remain the dominant company in the US where at least 1/3 of this total car sales happen anyway. This was to show a counter argument against Tesla's potential 24x growth and counter-argument to the counter argument. 

For me, the key implication as of today is that Tesla will remain a leader for at least another 5-10 years globally and 10-20 years in the US, and because investors will also come to this conclusion that the EV industry itself will grow in the next 17-20 years, they are likely to price this in the next 5-10y (as markets are always forward-looking, i.e. we take decisions today about the future, based on expectations about the future today). Like, shown in this case I take a decision to buy at $150 in anticipation of $5000 in the future (but my buy happens today). I imagine those who bought Tesla in the $117-120 range either have a similar expectation about its prospects (i.e. those who were faster than me with this research). 

I have formulated the following hypotheses to help me test these predictions.

Testable Hypotheses:

Hypothesis is an assumption or an idea proposed for the sake of argument so that it can be tested. It is a precise, testable statement of what the researcher predicts will be outcome of the study.  It is an integral part of the scientific method that forms the basis of scientific experiments. 

Unlike those in an experiment, these are called - directional hypotheses

They specify the expected direction to be followed to determine the relationship between variables and are derived from theory. Furthermore, they imply the researcher’s intellectual commitment to a particular outcome.

Below I have outlined my 6 directional hypotheses based on this piece. I like hypotheses as a tool to outline statements which can be turned into a testable prediction. After all, we all have our hobbies and mine is to write research and test my own hypotheses.

Hypothesis 1: Tesla stock will grow 24x in the next 15 years

Hypothesis 2: Tesla will grow to about $700 by Q1 of 2026

Hypothesis 3: Tesla will grow to $5,000 by 2033

Hypothesis 4: Tesla will grow to $5,000 based on current share value by 2038

Hypothesis 5: Current Tesla shares will be split at least 3:1 by 2030 and as much as another 10 times by 2038 as each individual share becomes too expensive, this will result into more buying into the longer term and the benefit of long-term ownership will be expressed into getting additional shares due to the stock splits.

Hypothesis 6: By 2038, each current Tesla share will be worth about $5,000 (or it's split-adjusted alternative e.g. 10:1 stock splits turning a $5,000 share into 10 of $500).

The purpose of these hypotheses is for me to summarize my opinion in a few statements, test them and write subsequent pieces in which I discuss whether these hypotheses were accepted or rejected, as a requirement of the scientific method to be valid and a continuation of this hobby. 

Practical Implications for my investing decisions

So a simple but effective decision for me would be to buy-and-hold Tesla stock at about $150-$200 to at least $5000 per current share. This would require at least a 5y horizon in the best case, and a 10y horizon if it follows the path of the Microsoft example, my worst case scenario is that it may take 15y.

The key take-away is that one of the ways in which stocks provide a benefit for long-term holders (who do not trade) is stock splits. Each Tesla stock purchased today is likely to be split into another 10-20 shares in the next 10-15y from the current shares, meaning that if I own only 10 Tesla stocks today for $1500-$2,000, I am likely to have at least a 100 Tesla stocks in 10 years, as the original IPO stock continues to grow towards $70,000 and beyond in the next 10-15y such that each IPO Tesla stock is split to 200-300 times similar to Apple or MSFT today (from 15x for Tesla today).

What about before 2032-2035?

Well I also have another piece on Tesla and my mid-term expectations for Q1 2026 to 2030, available here.

Lastly, I also have a piece on why I would buy more Nvidia stocks today if I wanted to buy more Tesla stocks, this is available here. Everyone who knows me, know that I favoured owning Tesla in the past, from 2016 to 2021. However, you can find out why I would buy Nvidia over Tesla now.

If you are curious you can see how my opinion is working out for me by clicking here

Reminder

If this is the first piece that you read on this blog, I strongly advise you to go to the "purpose of the blog" page to understand what this blog is about. You will also understand what the TheInvestmentAddict series is about. You can do this by clicking here. At least scroll down to the middle of the page and read the section termed - "What does this blog include?" for an explanation on each of my blog series and the type of content that is included in each of the series.

P.S. somewhere above I wrote that Tesla is likely to dominate more than 1 technology if it were ever have the chance to grow 24x times. A few days, after I am editing this on 02.03.2023 to only add this YouTube Video which I hope does not taken down - Tesla introducing a new product - The Optimus AI-robot building robots - see here. (As if Elon knew I would post this)

Disclaimer

No one should buy or sell anything because of anything I post inside my blog. This is all that it is, a way for me to track my own thoughts, organize my research and share my unique opinions. Any opinion posted on this blog is just that - an opinion. The purpose of these pieces are to act as a motivational information tool. This is a blog about my life goals and the decisions I use to try to achieve them.

Nothing on this Blog constitutes financial or investment advice, a recommendation that any security/cryptocurrency, portfolio of securities/cryptocurrencies, other investment products, transaction or investment strategy is suitable for any specific person. Every person has unique personal circumstances, financial situation, goals, and risk capacity. No one should use the content of this Blog to make financial decisions.

In short, nothing in this blog is financial advice! Do your own research & Do your own due diligence. If you have investment questions, I highly recommend you seek help from an authorized (regulated) financial planner, which I am not.