Summary

Tesla's stock is expected to double by the end of 2023, driven by significant free cash flow generation and revenue growth despite the costs of building new Giga plants.

Abstract

The article discusses Tesla's financial performance, highlighting its ability to generate substantial free cash flow (FCF) despite the investment in new Giga plants in Austin and Berlin. In 2021, Tesla reported over $5 billion in FCF, with a notable increase in the FCF margin to 15.66% in Q4. Analysts predict Tesla's revenue to reach$ 84 billion in 2022 and $108 billion in 2023, with estimated FCF margins of 16% and 20%, respectively. This financial strength suggests a market cap potential of$ 1.344 trillion by the end of 2022 and $2.16 trillion by the end of 2023, implying a stock price target of$ 1,300 by year-end 2022 and up to $2,092 by the end of 2023. The article's author, Mark Hake, provides these projections based on Tesla's historical performance and current financial trajectory, suggesting an average annual return on investment (ROI) of 41.42% over the next two years.

Opinions

Tesla's FCF generation is a strong indicator of its financial health and growth potential, with the company managing to increase its FCF margin significantly despite the costs associated with building new manufacturing plants.
The completion of the two Giga plants is seen as a strategic move that will likely contribute to Tesla's future revenue and earnings growth.
The author believes that Tesla's stock is undervalued relative to its cash generation capabilities and forecasts substantial price appreciation by the end of 2023.
Mark Hake suggests that Tesla's historical stock performance, which includes a 55% increase over the past year, supports the prediction of a continued strong ROI.
The article emphasizes that the predictions are not financial advice, and readers should conduct their own analysis before making investment decisions.
The author discloses a potential conflict of interest by stating that they benefit from readers joining Medium through their referral link.

Tesla

Tesla Stock Is Still Worth Much More

Expect to see it double by the end of 2023

Tesla (TSLA) stock is one of the few this year that hasn’t fallen a great deal. In fact, it was up YTD slightly yesterday.

But more importantly, the electric vehicle EV manufacturer is producing huge amounts of free cash flow (FCF). And this is even after it has just completed two huge Giga plants, one in Austin and the other in Berlin.

For example, it produced over $5 billion in FCF for all of 2021, even though it spent $6.5 billion on the two plants last year. That was 9.3% of its $53 billion in revenue.

More importantly, during Q4 it generated $2.77 billion in FCF on $17.7 billion of revenue. That was a significantly higher FCF margin of 15.66%.

In other words, even though it was building 2 plants, it managed to dramatically raise its FCF margin during the year.

As the company said in its slide deck: “There should no longer be doubt about the viability and profitability of electric vehicles. With our deliveries up 87% in 2021, we achieved the highest quarterly operating margin among all volume OEMs..”

Tesla Stock Is Worth Much More

Analysts now forecast that the EV maker will hit $84 billion in revenue this year and $108 billion next year.

So, if we estimate that its FCF margin will be 16% this year and 20% next year, we can forecast $13.44 billion in FCF this year and $21.6 billion next year.

This is after its two plants are online. Moreover, the company is likely to build out more plants. That could lower its FCF, but also potentially increase its earnings power even further.

Either way, TSLA stock is likely to be significantly higher by the end of 2023 based on this powerful cash generation.

For example, assuming the market gives the stock a 1% FCF yield, the market value will be $1.344 trillion (i.e., $13.55 b in FCF/0.01). Next year, it could rise to $2.16 trillion ($21.6b/0.01).

Today, its market cap is $1.08 trillion. So this implies the stock could rise 24.4% by the end of 2022, and 100% by the end of 2023. The reason is that $1.344 trillion is 24.4% higher than its $1.08 trillion market cap today. The 2023 target market cap of $2.16 trillion is double its $1.08 trillion market value today.

In other words, expect TSLA stock to hit $1,300 by the end of this year (24.4% over its price today of $1,045.76) or earlier, and up to $2,092 by the end of 2023.

This implies an average annual ROI of 41.42% on a compounded basis over each of the next two years. That is a very good ROI for most investors.

This is on par with Tesla’s historical performance. In the last year, it is up over 55%, as the graph above shows. So my prediction that it will rise 41.4% over each of the next 2 years is not completely unreasonable.

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This is not financial advice and you should not rely on my analysis to buy or sell any stock, bond, REIT, crypto, home, or insurance product as I am not undertaking to induce you to buy or sell any securities or financial assets or home products.

I am relying on the “publisher’s exclusion” in the Investment Advisers Act of 1940 to provide this information without any personalized or individualized investment advice.

Mark Hake writes articles on InvestorPlace.com, Barchart.com, Medium.com, and Newsbreak.com on stocks and cryptos.