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Where will Tesla be in five years?

If you clicked on this article, you probably didn't miss the fact that Tesla  shares have performed outstandingly in the last few months: In the last six months, the share price has almost tripled (as of 06.03.2020)!

Much of this rise in the share price was due to the fact that the business model appears to be validated in view of a free cash flow of over one billion dollars in 2019, and that Tesla is making faster progress than expected on important projects. This, of course, stimulates fantasies about what growth the company can achieve in the coming years - which brings us to the topic of this article!

Superior electric cars

Tesla is already building the electric cars with the longest range and the best efficiency. And while other manufacturers are slowly arriving where Tesla was at the launch of the first production model Model S, the Californians are already working hard on the next battery generation, which is expected to be unveiled in April. I think we can assume that the company will be able to maintain its lead over the next five years. The market share in the electric car segment should therefore at least remain constant.

The forecasts for the further development of the electric car market vary widely. An average of 6.5 million electric cars are expected to be sold in 2024, which I consider to be very conservative in view of the imminent breakthroughs in battery technology that will significantly reduce the cost of purchasing an electric car. I therefore expect 20 million electric cars to be sold in 2025.

If Tesla maintains its current market share of 16.7%, this would correspond to around 3.34 million units. With an average vehicle price of 45,000 dollars - considerably less than the current approximately 55,000 dollars - this would correspond to sales of around 150 billion dollars from the automotive business.

Renewable energies

But Tesla is not only an automotive company: With its solar panels, the new Solar Roof and battery storage systems for the home and at the grid level, the company also offers solutions for generating and storing energy.

The Solar Roof alone is a huge growth opportunity: it looks like a normal roof - except that the tiles contain integrated solar cells, making it extremely attractive for homeowners who want to retile their roof. I think Tesla could produce 10,000 solar roofs per week in five years, which would be a good 500,000 per year.

At $30,000 per roof, that would be another 15 billion in annual sales. If we continue to assume that the battery storage business will reach a similar size, we would end up with a total of $30 billion in sales from the energy segment.

Autonomous driving?

The big question mark in Tesla's future is fully autonomous driving. Will the Musk Group manage to create a virtual driver based on artificial intelligence who can control the car fully autonomously in every situation? How long will this take? Can the Californians build a network of autonomous taxis based on this? How quickly can the company scale such a network?

I think we can see the first beginnings of such a network in 2022 or 2023, and the company will probably introduce regional restrictions to prevent the cars from getting into too difficult situations - a snowstorm in a European city center, for example.

If a million Tesla's are part of such a network by 2025, each of them covers 150 kilometers a day, is charged 30 US cents per kilometer, and Californians take a 30% platform share of that, that would be revenues of just under $5 billion in 2025.

The total bill

According to this, Tesla could achieve total sales of 185 billion dollars in 2025. The net margin should then be between 5% and 10%, which would correspond to an annual profit of USD 9.25 to 18.5 billion. Investors should also keep in mind that growth will certainly not stop after 2025 - if we look five more years into the future, much higher profits are possible.

In this context, the current market capitalisation of around 130 billion dollars (as of 06.03.2020) does not seem so exaggerated. Nevertheless, it shows that Wall Street has now recognised the potential of the company.

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