What the future holds for trillion-dollar Tesla

26th October 2021 13:03

The rise and rise of Elon Musk’s Tesla remains one of the biggest stories in financial markets, and it could have much further to run, argue these industry experts.

The trillion-dollar landmark for Tesla (NASDAQ:TSLA) is more than just about the wealth of Elon Musk, or the army of retail investors with exposure through shares or Scottish Mortgage (LSE:SMT) Investment Trust.

Confidence across the electric vehicle, battery and charging infrastructure sector has also been given a major lift by Tesla reaching the milestone on the back of a 100,000-vehicle order from rental giant Hertz.

Having experienced a period of share price consolidation earlier this year, many stocks beyond just Tesla have shown in recent weeks they are picking up their pace. This momentum has accelerated as ChargePoint (NYSE:CHPT) rose 8% yesterday and Blink Charging (NASDAQ:BLNK) rallied 4% after the Hertz contract highlighted the need for the rapid expansion in charging networks.

Tesla's Shanghai rival NIO (NYSE:NIO), which is also backed by FTSE 100-listed Scottish Mortgage, rose 6%, while another US-listed Chinese stock XPeng (NYSE:XPEV) surged 11%.

Some of these improved performances were forecast last week by our own correspondent John Burford when he picked five stocks for the second wave of the electric vehicle boom.

Sentiment has been further boosted by reports that semiconductor shortages are easing for China's electric vehicle makers following vaccine progress in Malaysia. UBS said today this added to its confidence in certain Chinese car manufacturers and battery supply chain stocks.

Tesla's recent third-quarter results showed it had weathered the storm around chip shortages, with an operating margin of 14.6% much better than medium-term guidance.

Remarkably for a company that two years ago became Wall Street's first-ever $100 billion car maker, its shares managed to add more than $100 billion in one day after being boosted by the Hertz deal and Morgan Stanley upgrading its price target from $900 to $1,200.

The bank, which has been one of Tesla's biggest long-term supporters, also noted that Tesla's valuation increased by an amount roughly equal to twice the market cap of US rival Ford (NYSE:F).

They wrote: “The Tesla you see today reflects a very differently resourced, pre-Covid Tesla. The Tesla we believe will emerge over the next 12 to 18 months will reflect a different type of Tesla in terms of its financial strength and ability to bet on itself in an even more ambitious way.”

The Hertz contract highlights the future opportunities in fleet management after the rental firm ordered 10,000 Tesla Model 3 vehicles by the end of 2022.

With the current order, electric vehicles will comprise more than 20% of the Hertz global fleet and is expected to be supported by fast charging in approximately 65 markets by the end of next year and more than 100 markets by the end of 2023.

Tesla recently posted a new delivery record in Q3 with 241,300 cars shipped, representing a 20% sequential increase and meaning it should comfortably surpass a 50% volume growth target for more than 800,000 units this year, in spite of the industry-wide chip shortage.

Morgan Stanley now thinks there's potential to reach 8.1 million cars by 2030, which compares with a previous forecast for 5.2 million units. That would set a high bar for rivals attempting to catch up ahead of petrol and diesel bans in some countries from that date.

Volkswagen (XETRA:VOW) recently announced it delivered 122,100 battery electric vehicles to customers from July to September, an increase of 109% on the previous quarter. Ahead of its flotation on Nasdaq Stockholm, Volvo (OMX:VOLV B) also reported the number of fully electric cars and plug-in hybrid electric vehicles it sold in the year to the end of June had increased to 171,456.

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