Tesla was one of the hottest stocks of 2020, soaring an incredible 743%.
Even more impressive is that while the S&P 500 is off to a very solid start in 2021, rising 1.8% in its first week, Tesla has continued to soar.
In its first week in 2021 Tesla soared a remarkable 25%, making co-Founder and CEO Elon Musk (who owns 21% of the company) the richest person in the world.
(Source: Bloomberg)
There is no question that Tesla has made a lot of people rich in the past year. But here are the three things you need to know to maximize the chances of getting rich owning Tesla, and avoiding potentially catastrophic losses that are coming for many short-term speculators.
Fact 1: Analysts Expect Tesla To Become The Greatest Car Company On Earth
(Source: FactSet Research Terminal)
By 2026 analysts expect Tesla's sales to hit $149 billion making it one of the largest automakers on earth. For context, here are the 2026 consensus sales for some of its largest peers today.
- Toyota: $296 billion
- Volkswagen: $280 billion
- Honda: $148 billion
Tesla has the potential to become the 3rd largest car company on earth in the next five years.
But more impressively, it has the potential to become a relatively wide-moat company as well, something that is almost unheard of in this no-moat industry.
- Tesla's returns on equity are expected to rise from 11.5% in 2021 to over 19.5% in 2026
- 2.4% is the median ROE for automakers over the last 12 months
(Source: FactSet Research Terminal)
In 2026 analysts expect Tesla to generate $19.4 billion in free cash flow.
- 13% FCF margins
- a level of profitability that's almost unheard of in this industry
(Source: FactSet Research Terminal)
More impressively, for a company that's always been junk bond rated, and came close to bankruptcy twice, by 2025 Tesla is expected to have almost $17 billion in net cash on its balance sheet.
This brings me to an even more important fact for any investor willing to hitch their future to Elon Musks'.
Fact 2: Tesla's Safety & Quality Are Improving RapidlyBalance Sheet Safety| Rating | Dividend Kings Safety Score (61 Safety Metric Model) | Approximate Dividend Cut Risk (Average Recession) | Approximate Dividend Cut Risk In This Recession |
| 1 (unsafe) | 0% to 20% | over 4% | 16+% |
| 2 (below average) | 21% to 40% | over 2% | 8% to 15% |
| 3 (average) | 41% to 60% | 2% | 4% to 8% |
| 4 (above-average) | 61% to 80% | 1% | 2% to 4% |
| 5 (very safe) | 81% to 100% | 0.5% | 1% to 2% |
| TSLA | 58% | NA | NA |
- Tesla's net debt/EBITDA is now 0.1
- thanks to raising $5 billion from a secondary offering
- forward consensus debt/EBITDA is 2.0 vs 2.5 or less safe for automakers
- S&P has a positive outlook on TSLA
- as do I
- debt metrics are improving fast and Tesla's balance sheet safety should improve over time
| Company | DK Long-Term Dependability Score | Interpretation | Points |
| S&P 500/Industry Average | 58% | Average Dependability | 2 |
| Non-Dependable Companies | 31% or below | Poor Dependability | 1 |
| Relatively Dependable Companies | 32% to 69% | Below to Above-Average Dependability | 2 |
| Very Dependable Companies | 71% to 80% | Very Dependable | 3 |
| Exceptionally Dependable Companies | 81% or higher | Exceptional Dependability | 4 |
| TSLA | 63% | Slightly Above-Average | 2 |
| TSLA | Final Score | Rating |
| Safety | 58% | 3 |
| Business Model | 30% | 2 |
| Dependability | 63% | 2 |
| Total | 57% | 7 (Average) - Speculative |
- within a year Tesla's balance sheet safety will rise to 63%
- balance sheet safety 4/5 above-average
- overall quality 8/12 above-average - speculative
- I'll re-evaluation Tesla's safety and quality in a few months
- it may end up on the Dividend Kings 500 Master List in 2021
However, while there is no question that Tesla has the POTENTIAL to become the greatest automaker on earth, and possibly the Amazon of its industry, there is one final fact that's the most important.
In part two of this series, I'll explain how to determine the right time and price to pay for Tesla, to maximize the chances of getting rich, and avoid losing your shirt when the company's coming correction wipes out a lot of foolish speculators.
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TSLA shares were trading at $843.81 per share on Wednesday morning, down $5.63 (-0.66%). Year-to-date, TSLA has gained 19.58%, versus a 1.55% rise in the benchmark S&P 500 index during the same period.
About the Author: Adam Galas
Adam has spent years as a writer for The Motley Fool, Simply Safe Dividends, Seeking Alpha, and Dividend Sensei. His goal is to help people learn how to harness the power of dividend growth investing. Learn more about Adam’s background, along with links to his most recent articles.
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