Intellectual property, superior operational progress and a number of product launches in the pipeline means Tesla's share price has only gone "some way" towards recognising the company's growth potential, according to several senior investment professionals, despite the fact it became the world’s most valuable car firm earlier this month.
This comes less than two days after Tesla reported a net profit for the fourth consecutive quarter of $104m compared to a $408m loss last year, causing its share price to jump by 5% shortly after the announcement. It also reported a free cash flow of $418m in Q2 and a total revenue of $6bn, which was about $1bn higher than consensus estimates.
The electric vehicle company, whose market cap now stands at $295.2bn, saw its $900 share price halve between the start of the mid-February market sell-off to the 20 March.
While markets generally rebounded after this point, Tesla's share price rocketed to $1,592.30, meaning that year-to-date its valuation has more than tripled from January's price of $430.
Since Tesla's IPO in July 2010, its share price is increased more than 82-fold.
But despite the fact the electric vehicle company has continued to rally, several investment professionals believe it still boasts significant growth potential and remains a valuable portfolio holding.
For example, Tesla is currently a top ten holding across six of Baillie Gifford's open-ended funds, with the EV company accounting for a respective 8% and 9.5% in the firm's American and Positive Change portfolios.
James Budden, director of marketing and distribution at Baillie Gifford, said Tesla remains a "remarkable business", and that in five years' time, Tesla's revenue could include a significant proportion of global new car sales, revenues from charging networks, domestic energy production and storage, and other potential static energy production and storage facilities.
"The share price rises this year have clearly been significant and they go some way to recognising Tesla's growing prospects of becoming a significant vehicle producer in the coming years," Budden explained.
"But we think that the valuation still underappreciates the value of Tesla's vehicles, its pipeline of new models and its developing energy storage and distribution network."
Felix Wintle, manager of the VT Tyndall North American fund, agreed with Budden that we are "likely much nearer the beginning of the Tesla story than the end".
"My view is that this level of growth can continue as the company continues to relieve the bottlenecks in its production ramp," he said. "It announced a new Gigafactory to be built in Austin, Texas for the expected domestic demand of the new models. Its big factories in China and Germany will start producing next year."
Rather than becoming a consensus trade, the manager believes it is a momentum trade given that some larger institutional investors will struggle with its valuation and feel they cannot own it.
"[The share price] has been pushed higher by retail investors rather than institutions because it is a big trade in the most liquid stock in the market," he added.
Konstantin Sidorov, CEO and founder of the London Technology Club, has maintained his weighting to Tesla over the last eight months because he "really believes in the company and its mission".
"Tesla is the future of green mobility and lead in the development of electric cars and other sustainable products," he explained. "Its stock is consistently strong because Elon Musk can fulfil his promises. If he delivers 500,000 cars this year, and I think he has a high chance of achieving this goal despite Covid-19, Tesla's stock will only grow further.
"It could be consensus trade. However, this is not an issue if you are going to generate profit with a stock."