Tesla Inc. (TSLA) has transcended the traditional boundaries of a car company in the eyes of many investors, according to Gary Black, Managing Partner of The Future Fund. This shift in perception is driven by Tesla’s impressive growth potential and the company’s foray into innovative areas like electric vehicles and autonomous driving.
Black highlights Tesla’s exceptionally high price-to-earnings (P/E) ratio, which currently sits at 84x for fiscal year 2025, compared to just 5-6x for established automakers. He explains that this premium valuation reflects Tesla’s anticipated 25-30% earnings per share (EPS) growth in the coming years. While traditional P/E ratios often focus on a company’s current business, Tesla’s valuation is fueled by its expected future growth trajectory.
Black believes that Wall Street’s perception of Tesla will continue to evolve as the company expands its operations beyond its core automotive business. He predicts that once Tesla’s automotive profits account for less than 50% of its overall earnings, it will no longer be solely compared to traditional car companies. Notably, Tesla’s automotive business currently generates 80% of its profits.
Tesla’s stock has recently gained momentum, with shares rising nearly 21% in the last five days, fueled by positive third-quarter earnings results and optimistic forecasts for the future. Tesla’s Q3 earnings per share of 72 cents surpassed analysts’ expectations of 58 cents, and CEO Elon Musk has expressed confidence in future growth, projecting 20-30% vehicle sales growth in 2024.
Black’s optimism about Tesla’s future is evident in his recent price target increase for the company. He has raised his 6-12 month price target from $270 to $300, citing improved earnings projections and positive market signals. His adjusted EPS estimates now stand at $2.40 for fiscal year 2024 and $3.60 for fiscal year 2025, slightly above Wall Street consensus.
Despite its current valuation, Tesla’s continued focus on technological advancement and expansion into new markets suggests that its high growth potential will continue to attract investors. As Tesla’s future unfolds, its ability to capitalize on the rapidly evolving automotive landscape will determine whether it can justify its premium valuation and maintain its position as a leading innovator in the industry.
