Tesla (NASDAQ:TSLA) stock is down about 14% so far this year, as of the close on May 25. But it continues to defy the shorts who believe it is deeply overvalued. The electric vehicle stock still has a massive $559 billion valuation.
Compare that to Ford Motor Co (NYSE:F) or General Motors (NYSE:GM), with their $53.2 billion and $82.3 billion market caps, respectively. Tesla is 10.5 times Ford and 6.7 times GM, in terms of market valuation.
This astounds most traditional automotive analysts. They never saw this happening. It puts them on the defensive. But Tesla’s valuation is not that outlandish. Let’s look at it.
TSLA Stock Valuation
The truth is you have to look at the long-term future for Tesla as well as its competitors. For example, analysts foresee earnings will reach $11.49 per share in 2025 and $19.23 by 2026, five years from now.
The latter represents a growth rate of 758% over the $2.24 per share Tesla made in 2020 and 320% over the $4.58 EPS rate forecast for 2021.
By contrast, Ford’s EPS is expected to be $2.33 in 2025, according to analysts polled by Seeking Alpha. That is 126% over the $1.03 EPS rate forecast for 2021. So Tesla will have 2.5 times the growth rate of earnings compared to Ford over the next five years: 320% vs. 126%.
This disparity grows even larger versus General Motors. For example, analysts forecast $5.38 EPS this year and $5.76 in 2025. That is a 7% growth rate over the next four-plus years.
So you can see that the earnings growth rate differentials are one major reason why the three companies have so wide a discrepancy in valuation. And keep in mind, that these are the forecast growth rates for each company.
Tesla Disrupting The Future
But the truth is that it is more than just about the numbers. Tesla is changing the future. If the world is moving to electric vehicles (EVs) over the next twenty years, Tesla has a major head start.
Yes, Ford recently came out with a new F-150 electric truck — The Lightning. But Ford did not say how many of them it expects to produce or whether they will move to all-electric trucks any time in the near future. EVs still represent only about 2% of new car sales in the U.S. This is a long way from other countries. One of the main reasons is that they cost so much.
Ford’s electric truck is priced at a $40K base level up to $90K fully loaded. Although this is roughly similar to Tesla’s Cybertruck right now, analysts expect that Tesla will be able to reduce its EV price models in the future. It is not clear that this will happen with Ford or GM anytime soon.
Where This Leaves TSLA Stock
Clearly, TSLA stock is not as cheap as it used to be. But you can’t look back in the market. If you are interested in EV stocks, you have to seriously consider Tesla due to its market dominance and expected growth rates.
Analysts have slowly warmed up to TSLA stock. Right now, the average of 32 analysts surveyed by Yahoo! Finance is $661.13, or about 10% higher than time of writing (May 25). The same is roughly true with TipRanks.com. The average price target with 25 analysts in their survey is $645.88, or 4.1% higher than today.
Given its higher expected growth rates, its head start and its disruptive EV platform, Tesla provably deserves its super-high valuation compared to its peers. Analysts expect to see a price that is at least 10% higher than today. I suspect that it will move much higher than that over the next year.
On the date of publication, Mark R. Hake did not hold a long or short position in any of the securities in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.