5 Trillion Reasons To Be Bullish On Tesla

In the latest EV sector report, the EV kingpin, Tesla Inc. (NASDAQ:TSLA), has cemented its credentials as one of the few electric vehicle manufacturers ready to challenge the ICE hegemony.

According to a report by the Korea Automotive Technology Institute (KAII), global EV sales have exceeded 3 million units in the first three quarters of 2021, a run rate that puts it on course to break 4 million units a year for the first time ever.

BloombergNEF is even more optimistic and expects global sales of electric passenger vehicles this year to clock in at 5.6 million units, good for an impressive 8% of new vehicle sales.

Wedbush Securities forecasts that Tesla alone could grab up to 50% of the $5-trillion EV market in the coming years, with the rest of the manufacturers fighting over the remaining scraps.

With that in mind, Wedbush analyst Daniel Ives maintains his "Outperform" rating, raising his price target on Tesla from $1,100 to $1,400 per share. But Ives "bull case" is $1,800.

While Tesla has been busy trying to corner the Chinese market--quite successfully--Wedbush estimates that from 2022 onwards, China will be worth $400 per share for Tesla.

On a company basis, Tesla remains the most popular model after moving 625,624 units in the third quarter, 51% more than second-placed China's SAIC Motor, which sold 413,037 units; Volkswagen 287,852 units; and China's BYD Corp. (NYSE:BYD) with 189,751 units.

Tesla has definitely established a strong head start on the competition in the EV market that ICE incumbents as well as newer pure-play EV upstarts will have a hard time catching up to.

Keep an Eye on China

Tesla stock rallied further Monday after Musk tweeted about the launch of the Model S Plaid in China for mid-2022.

"Model S Plaid is sickkkk!!!!" Musk has tweeted."

The $131,100 Model S Plaid features 1,020 horsepower, a 17-inch touchscreen, a steering yoke and has an estimated EPA-rated range of up to 390 miles.

China is the world's largest car market, and it's the key here, with Ives calling it the "linchpin to the overall bull thesis on Tesla".

For Q3, Tesla's China sales were almost half the volume of its U.S. sales … and climbing.

Tesla reported $3.11 billion in EV sales in China for Q3--a figure that represents 48.5% of its $6.41 billion in U.S. sales for the same time period. It's also more than a 41% increase over China sales a year ago.

In January 2020, Tesla delivered its first locally manufactured EVs in China. This year, Tesla started delivering its second model to the Chinese straight from its gigafactory in Shanghai. The Model 3 and Model Y are now the top three EVs in terms of sales in China.

And now it's offering loans in China to spur more sales. Tesla's financial products even include some with zero down payments.

Profitability and Catalysts for 2022

For every quarter of 2021 so far, Tesla has managed to increase its profit margin, largely because of reduced costs and higher sales.

That momentum is expected to continue next year, with intensifying production, demand that is clearly on track to increase and new factories coming on line.

If we see any improvement in supply chains for raw materials next year, Tesla will benefit further.

On Monday, Tesla filed for approval for the first phase of its planned "Gigafactory Texas" in Austin to produce the Model Y.

Tesla will invest $1 billion in the Texas gigafactory, and construction is expected to be completed by the end of this year already. The complex would contain five separate facilities.

It's also building "Gigafactory Berlin" in Germany, which has met with some delays in the environmental approval process.

Even without these catalysts, Tesla is blowing everyone else away.

In terms of volume, the Financial Times suggests that VW is the only carmaker that stands a chance of overtaking Tesla's volume by 2024.

While all other major automakers are on track to significantly scale up their EV offerings, Bernstein, IHS and EV-Volumes.com say they won't come close to Tesla.

Is Apple Really a Threat to Tesla?

The threat to Tesla from giant smartphone maker Apple Inc. (NASDAQ:AAPL), which has reportedly stepped up its efforts to create an autonomous car thanks to a recent chip breakthrough, is impressive but still in the fairly distant future.

Apple has set a goal to produce a fully self-driving car by 2025 though it's yet to announce a production partner anytime soon for the self-driving car project.

Nothing has delivered us a more impressive wealth generation story in the past couple of years like Tesla. It's certainly with that in mind that Apple--which has gone back and forth over the Apple Car--appears to have turned things up a notch in the autonomous-driving arena.

Morgan Stanley analyst Adam Jona thinks the interest in Apple entering the electric shared-autonomy space in transportation has been accelerated by the soaring valuation of Tesla and other EV stocks in a validation of the wealth creation potential.

However, Jonas and team do not think Apple will bring a car to the market in the traditional sense.

"We believe a car without steering wheel or pedals must be a 'shared service' and not an 'owned car,' To be clear, we do not believe consumers will own title to a fully autonomous car... but will engage in the service as a subscription or transport utility."

Jonas and team also think Apple's autonomous car story will play out slowly.

Likewise, Morgan Stanley doesn't view Apple's potential entry into the autonomous-mobility market as a major threat to Tesla.

For now, we think nothing holds a candle to Tesla in the EV space.

By Charles Kennedy for Oilprice.com