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Philip van Doorn

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Dec. 4, 2021, 9:27 a.m. EST

Tesla’s stock is still cheap, says manager of new ETF who made Musk’s EV company its No. 1 holding

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By Philip van Doorn

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Those estimates point to a 56% compound annual growth rate (CAGR) for industry BEV sales, with a 55% CAGR for Tesla’s sales. Black also estimates a 59% CAGR for Tesla’s earnings per share through 2025.

Black’s estimate for Tesla’s market share is higher than EV-Volumes’ numbers for the first half of 2021 indicate because of supply constraints.

“You will wait six months now if you order a new Tesla. When the new factories come online, they can gain more share,” he said.

These Twitter postings include data backing Black’s estimates:

Going further, Black estimates Tesla will earn $12 a share in 2022, which is well ahead of the consensus EPS estimate of $8.43. More controversy, but this underlines his investment thesis. He expects EPS to keep growing to $40 in 2025. Based on the closing price of $1,145 on Nov. 30, that would make for a P/E of 28.6 — not very high for such a rapidly growing company.

The expectation of continued rapid growth for Tesla explains not only Black’s enthusiasm for the stock but that of other money managers.

Deeper long-term thesis

Stepping back from the numbers, Black listed what he called four “ingredients” for electric vehicles: battery range, performance, technology and safety.

While the competition is catching up on battery range, he said that for performance and technology, Tesla is still ahead of the competition. He added that Tesla has, by far, the highest number of fast-charging stations available, and that drivers of competing EVs can buy low-cost adapters to use Tesla’s stations and possibly feel envious of Tesla owners while waiting.

For safety, he said Tesla’s track record is good, and cited General Motors Co.’s /zigman2/quotes/205226835/composite GM +2.19% recall of Chevrolet Bolts for battery fire risk, and GM’s instructions to customers on how to limit that risk.

Finally, Black addressed concerns that increasing competition in the EV space would hurt Tesla’s market share or make it less profitable.

Black cited Amazon as an example, citing skeptical investors years ago who had expected traditional competitors to take back market share from Amazon as they built-out their on online sales capabilities. We all know this didn’t happen.

One thing we can all be sure of is that the world will continue to change rapidly for all vehicle manufacturers as buying habits change and governments continue to push for a rapid transition to EVs.

Black cited the Chinese government’s cooperation with Tesla, which opened its factory in Shanghai in 2019, as a long-term boon not only for Tesla, but for China’s entire EV market.

“You throw a catfish in with all the competitors to keep them aggressive,” he said, referring to this New York Times article .

A new catalyst for Tesla and its competitors in the U.S. market might be just around the corner. President Biden’s “Build Back Better” spending package, if passed by Congress, is likely to lift the 200,000-vehicle limit on $7,500 per-vehicle tax credits for EVs. Tesla and GM have exceeded that limit.

Black expects the two new factories to double Tesla’s production capacity. Near term, the completion of Tesla CEO Elon Musk’s sale of 10% of his Tesla shares may relieve pressure on the share price. Black also expects bond-ratings agencies to raise Tesla’s credit rating to investment-grade because of its strong cash flow and relatively low level of debt.

/zigman2/quotes/205226835/composite
US : U.S.: NYSE
$ 35.98
+0.77 +2.19%
Volume: 15.39M
May 25, 2022 4:00p
P/E Ratio
5.97
Dividend Yield
0.00%
Market Cap
$51.34 billion
Rev. per Employee
$831,267
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