Why Elon Musk thinks Tesla will be worth as much as Apple in a decade

12 Comments

Credit: Tesla

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.

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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?

12 Comments

Eric

I think it’s important to understand that TSLA is not a car company, albeit a very successful maker of an amazing vehicle. It’s a tech company. A very disruptive one at that. Electricity and storage of energy is what Tesla is about – cool ways to transport us it simply a byproduct. If the man who started PayPal, chairs Solar City, who elicits the envy of CEO Jeff Immelt of GE “I wish I would’ve thought of SolarCity”, says 700B in a decade – I’m inclined to believe it.

Lynn Thomas

The only reason He is saying this right now is because of the bliw back that he got a few months ago when he said he thought the stock was overvalued.

Finance dude

The shares outstanding of Tesla are growing at almost 10% per annum with all the stock and employee options/shares they issue. At that rate even if the share price stays the same it won’t take too long for them to reach Apple’s market cap.

Lynn Thomas

So it is reasonable to expect that Tesla will be worth the combined market caps of Ford, GM, Honda, Toyota, VW, Diamler, Nissan, Mitsubishi, Suzuki, Peugeot, Renault, and Tata. Because Tesla has a patent on the electric car, and none of the auto manufacturers can make one. /s

Duncan

That’s where Tesla is the polar opposite to Apple. Yes, they have patents, but Elon Musk opened them up for anyone to use (the idea being that it encourages uptake in the EV market). I still think the $700b prediction is achieevable though.

Lynn Thomas

They give away their tech because all their patents are just a format. There is no substance to their patents, and they have more to gain if everyone adopts their format.

exhibit44

Musk is not manically focused like Jobs, but he is a genius and knows his products. Of course Tesla is a luxury product, but so is the iPhone. If Musk can find a way to integrate his product into the consumer’s life as well as Jobs did, the boy has a bright future. Examples are inserting Tesla into car share, custom short leases, computing-while-driving, and home power. And Frankly I expect Apple to eventually buy or merge with Tesla.

Justin Case

I think you meant “maniacally”.
And I think Apple will compete with Tesla, rather than buy them.

exhibit44

My spell check is fine with it. More of a spoken than written word.

Honestly, everyone likes smart phones, but a lot of the interest is not utility but diversion, novelty or doing tasks we’re impatient with. Transportation needs are less variable.

Nicholas Paredes

I sold my TSLA before it hit $200. Ford sells many more cars with far less than the market cap of Apple. I believe in Tesla, but am investing. I recognize that magic gets plenty of companies a higher stock price than they deserve. It also works the other way with companies like Apple. Even Icahn can’t get anybody to listen. AAPL is undervalued.

Snuggles

I would like the drugs he is on.

JPMorgan downgraded Tsla today. They’re faced with strong competition and with gas prices being low, that might cause serious trouble. Personally I’d be happy with them selling 300k by 2020.

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