Andrew Willis: Tesla (TSLA) recently announced quarterly results that were an all-time company record. Revenues were up 74 per cent year-over-year… sales up 13 per cent quarter-over-quarter… and it wasn’t good enough for the price.

We think Tesla has a chance to be the dominant electric vehicle firm, someday, but not today. It’s still too expensive. Sector strategist David Whiston thinks the stock continues to trade on the chance that Tesla becomes massively larger over time. But how far ahead are investors looking?

Tesla will have growing pains and recessions to fight through—along with increasingly intense competition from legacy automakers with potentially lower-cost products.

Even though the current situation sees the company trading about twice our fair value estimates, we still think the company’s making some great moves—like its capital allocation practices. The company can now easily pay off over US$17 billion in debt thanks to cash on hand at the end of March.

Elon Musk says that Tesla could sell 20 million vehicles yearly by the late 2020s—up from the 800,000 we expect for 2021, which will make it twice the size of Toyota and Volkswagen today. We think that’s tough to achieve.

But if we are wrong about our sales estimates, all else remaining constant, it would change our fair value estimate for the company to over $1500 US dollars a share.

For Morningstar, I’m Andrew Willis.