Tesla (NASDAQ:TSLA) stock is on a magical run so far this year, by far outperforming major indices and other auto stocks. If Tesla stock keeps this up, Elon Musk’s company will soon become the most valuable automotive company in the world.
That’s an amazing achievement when just a few months ago, investors were wondering if Musk would manage to maintain control of his company at all, or if Tesla would ever be able to turn a consistent profit.
But all that’s in the past. Now the only thing we’re wondering is when Tesla will permanently surpass Toyota (NYSE:TM) to be the globe’s most valuable automaker, and if an even bigger stock price for Tesla is in the cards.
Tesla’s Ride to a Massive Valuation
It didn’t happen overnight for Tesla. Musk’s company, which aims to make electric vehicles accessible to the mass market, was founded in 2003 and staggered along for more than a decade with a market cap of less than $40 billion.
Finally, the company started seeing some life in mid-2019 when it managed to beat expectations for second-quarter earnings. TSLA stock roared from less than $190 in May 2019 to top $900 in February.
Even in October 2019 Tesla still had a market cap of less than $60 billion while Toyota was pushing a capitalization of nearly $200 billion.
But while Toyota has managed to slide a bit, now showing a market cap of $180 billion, Tesla’s cap has shot through the roof, soaring from about $81 billion at the beginning of the year to just north of $175 billion now.
Not even the novel coronavirus can put a damper on Tesla stock. While the company took a hit in February along with the rest of the industry, TSLA stock has more than recovered from those lows and is now sitting at record highs.
The stock is up 123% so far in 2020, and by an amazing 400% since its May trough.
Meanwhile, Toyota is looking at a 9% loss year to date; General Motors (NYSE:GM) tumbled 23% and poor Ford (NYSE:F) is down 30% so far this year.
At this rate, it’s only a matter of weeks – if not days – before Tesla permanently passes Toyota for the title of most valuable auto company in the world.
What Makes Tesla Different?
It surely helped that the auto industry saw a sharp uptick in sales in April, but that doesn’t explain why TSLA is doing so well compared to the rest of the industry.
To do that, you need to remember that Tesla isn’t just an automotive company. It’s a clean energy and tech company, too.
Investorplace’s Luke Lango recently outlined his bullish argument for Tesla stock, making the case that it could be headed to $2,000 per share because it’s the unquestioned leader of the global EV market.
“Tesla has superior technology to everyone else, with better batteries that support farther driving distances, and a self-driving feature. Tesla also has superior production capabilities; within the foreseeable future, the company will have huge EV production facilities in North America, Asia, and Europe. And, arguably above all else, Tesla has the best brand in the auto sector. Importantly, Tesla is the coolest automobile maker in the world.”
You can’t ignore the cool factor with Tesla, and you can’t ignore the fact that it has a leg up on EV production while the more “traditional” automotive companies are struggling to keep up.
And don’t forget – Tesla is run by a genius that has managed to turn his company around even though he gets in trouble with the Security and Exchange Commission or puts his foot in his mouth too often.
I haven’t been a fan of Musk for a long time and I think he’s spread too thin by also operating SpaceX, but you can’t argue with the results he’s generating as Tesla’s CEO.
The Outlook for Tesla Stock
While Lango is bullish on Tesla, it’s important to note that not every analyst is a fan. In fact, short sellers have made an industry out of shorting TSLA stock in the last few years – and most of them have lost big while doing it.
On Friday, both Goldman Sachs and Morgan Stanley downgraded Tesla stock, saying that its risks may have been overlooked by investors.
Goldman analysts said they maintained a positive long-term view, but downgraded the stock to “neutral,” saying it was trading above the company’s 12-month price target of $950.
Morgan Stanley downgraded the stock from neutral to its equivalent of “sell,” and cut the price target from $680 to $660. They noted trade risks between Washington and Beijing, near-term demand concerns and the company’s capital burn.
I have more of a bullish view, although I’m not suggesting that Lango’s $2,000 stock price will happen any time soon. I do like the fact that Tesla is increasing its international footprint by launching Model Y sales in Canada for the first time.
And I appreciate that Musk is telling Tesla employees to go “all out” at ramping up Tesla Semi production after a competitor, Nikola (NASDAQ:NKLA) went public. Competition always makes a company better and Musk is showing the killer instinct that I like as an investor.
The Bottom Line for Tesla Stock
Tesla is one of those companies that will always have some drama and volatility. That’s what you’re getting when you team up with Elon Musk, and as an investor you have to be prepared for big moves, big ideas and big risks.
After a few years of doubt, I’ve become a believer in Tesla stock and in Musk’s vision. The ride may be bumpy at times and sometimes you’re going to roll your eyes when Musk does something ridiculous, but Tesla is a strong buy in my book for long-term investors.
Patrick Sanders is a freelance writer and editor in Maryland, and from 2015 to 2019 was head of the investment advice section at U.S. News & World Report. Follow him on Twitter at @1patricksanders. As of this writing, he did not hold a position in any of the aforementioned securities.