Thanks to a killer 2014, this week Apple became the first U.S. company to be worth over $700 billion. Could a company that makes electric cars ever be worth that much? Well, yes, according to comments made by Tesla CEO Elon Musk during the company’s earnings call Wednesday night.
Musk said that Tesla is investing a “staggering” amount of money into its capital expenditures ($1.5 billion in 2015), including manufacturing, expanding its own branded stores, installing charging stations, designing the Model 3, finishing engineering and tooling of the Model X, and building the massive battery factory. But that amount of capex spending could turn Tesla into a company worth $700 billion in a decade, said Musk, noting that his comments were his personal opinion and not company predictions.
So here’s his, admittedly back of the envelope math: take Tesla’s annual revenue of 2015, which he says will be $6 billion or so. If Tesla maintains a 50 percent growth rate for ten years, with a 10 percent profitability number, and a P/E (price to earnings) ratio of 20, Tesla’s market cap would be about $700 billion in 2025. Or essentially the valuation that Apple reached — the first for any company in the U.S — this week.
It’s possible. But it’s also very optimistic. Musk said the calculation was based on “certain assumptions,” which he said he’d “bet” would occur, but couldn’t state for sure as truth. It’s not unusual for Musk to be wildly optimistic when it comes to timelines, but he has tended to be directionally accurate. He says that type of growth could also be done without significant dilution to the company.
Still, there are still a lot of uncertainties in Tesla’s future. Musk has also said in the past that Tesla won’t be profitable on a non-GAAP annual basis until 2020, and Tesla still needs to get its much-delayed Model X to customers, get the Model 3 designed and ready to sell, and get the battery factory built on time and budget.
What do you think? Can Tesla reach the Apple $700 billion market value in a decade?