Tesla (TSLA) wants to scale up production to 20 million annual cars in eight years – up from roughly 1 million in 2021 – a feat analysts say will be challenging to achieve but not impossible.
“It’s really ambitious but hard to judge if they will get there,” says Edward Sanchez, a senior automotive analyst at Strategy Analytics consultancy. “They will soon have four plants online globally with 500,000 of capacity each to reach 2 million units a year. But they would have to massively expand their manufacturing footprint to reach their goal.”
Tesla is about to inaugurate a new plant in Austin, Texas and in Berlin, Germany to add to factories in Fremont, California and Shanghai, China. But the fast-growing electric vehicle (EV) maker has yet to announce new factory expansions.
“There is speculation they could open a plant in India or maybe Russia,” says Sanchez. Still, even with that, bolstering output to 20 million cars from possibly 2 million near term is quite a stretch, he notes, adding that 5 to 6 million cars by 2030 is more feasible. The global supply chain squeeze is unlikely to significantly impact Tesla’s goals, Sanchez says, adding that it will continue to beat legacy rivals in this regard.
“Tesla’s electronic architecture is fundamentally different so they don’t need the same chips as others. They operate under a domain architecture software, centralizing computer functions through a ‘single brain’ controlling different parts of the car while rivals use multiple computers needing specific chips. Tesla vehicles are more software defined whereas legacy makers are more hardware dependent.”
Tesla is leading the race for greater motor efficiency by reducing friction and maximizing power density and capacity. It is doing this by implementing new battery technology (such as the 4680 battery pack) and diversifying its supplier mix to keep legacy players such as Ford (F) or GM behind.
“Tesla goes to different partners with a design in mind and asks, ‘can you do this? The legacy players just go to suppliers and ask, ‘what do you have?’” notes Sanchez.
Introducing new and exciting vehicles in coming years could help Tesla achieve its eight-year production target, analysts say.
“They are doing really well with their Model 3 and Model Y in Europe but those are fairly large cars for that market. They could launch a VW Golf-like model to tailor to consumer preferences towards smaller cars in Europe or grow in China,” adds Sanchez. Tesla could also roll out a Ford Ranger-type truck for global consumers that would go beyond its Cybertruck, which is too big for many markets. This vehicle could sell well in Europe or Southeast Asia, he noted.
Garrett Nelson, automotive analyst at CFRA, agrees Tesla’s 2030 goal is a tall order but the firm could get there. “They have a huge cost of capital advantage that other automakers don’t,” he says, adding that the ability to issue capital at low rates will enable Tesla to fund future expansion. “But they are going to have to really get moving beyond Texas and Germany factories.”
Nelson expects controversial CEO Elon Musk will announce new factory plans by year-end with Asia a possible destination. “They want to have a [manufacturing] hub in all the major markets and possibly a second plant in Southeast Asia in addition to India. The population growth in Southeast Asia, like Thailand, Vietnam and Indonesia is huge.”
Despite long delays, Musk could surprise the market by bringing the Cybertruck to dealers by Christmas as Tesla has a history of under-promising and over-delivering. Issuing new models will be pivotal to meeting the 20-million goal.
“Competition is their biggest challenge. They have a major advantage when it comes to battery tech and costs but others are really narrowing the gap coming out with vehicles with a similar battery range.” But a breakthrough in Full Self Driving (FSD) could be a bigger game changer. “They are getting close to Level 5 which is a robotaxi with no driver. If they succeed in getting that done, everyone will want a Tesla and that could really be a key driver for the 20 million target,” notes Nelson.
Nelson sees Level 5 coming in the middle of this decade as Musk has often delayed targets for when the service will be ready. Despite this, he has a $1,600 bullish and $1,300 base target for Tesla, which he says could be achieved in coming months, as long as tech rebounds when the macroeconomic picture and (if) the Russia-Ukraine standoff stabilizes.
Investor Matthew Tuttle agrees that could happen but notes Tesla will have to break above the $1,000 level before moving higher. “The stock has gotten wide and loose and has been trading all over the place since mid-November. It really has to form some base and have a comeback stage to reach new highs, Tuttle notes.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.