TSLA as big as AAPL?

Just wondering what you monkeys think about Elon Musk's nutty call that by 2025 Tesla will have a $700 billion market cap comparable to Apple's current situation. I think that Musk is a genius, but he should probably tone down statements such as this on earnings calls, or talking to investors altogether. He's way too optimistic about the potential for his company.

I would put the likelihood of Tesla becoming the next GM or Ford as about 1-2%, which is basically what he's saying they will accomplish. Jim Cramer's been harping on the failed earnings call this morning as well. I hate to say it, but I partially agree with Cramer's thoughts pertaining to the call. I personally think that Musk should stay on as CEO, but should defer the majority of investor/analyst engagement to the CFO and try to conduct an earnings call that mirrors normal companies.

In my opinion, the only way that TSLA becomes as big as he thinks it will is for gas prices to climb, the US to continue to push better emissions requirements, nat gas/other fuels to remain non-existent in the auto world, and for all of the items discussed in the article below to remain true (10% profit margins, 50% yearly sales growth in perpetuity, etc.). Basically, the perfect storm of variables. Possible? Yes. Likely? About as likely as Bruce Jenner winning a gold in decathlon next year in Brazil.

http://money.cnn.com/2015/02/12/investing/tesla-ap...

Comments (39)

Feb 12, 2015

bought some at $138 just for fun, sold 1/2 when it was 2x, now just playing with house money and letting it ride! While I doubt it will have a market cap of Apple, I do think ultimately the company will ultimately be successful and grow into its valuation...

gas at $2/gallon doesnt help though.

Feb 12, 2015
WallStreetOasis.com:

bought some at $138 just for fun, sold 1/2 when it was 2x, now just playing with house money and letting it ride! While I doubt it will have a market cap of Apple, I do think ultimately the company will ultimately be successful and grow into its valuation...

gas at $2/gallon doesnt help though.

I definitely agree that it will be a successful company. I think shorting it would be foolish, but I don't think that $700B market cap is achievable for them. I'd like to know what he has planned for SpaceX. Supposedly, Musk said that he would never take it public... interesting to see if he ever would.

Feb 12, 2015

maybe it could hit $700bn in 2025-30 if electric takes over as the dominant technology...a few things to make that happen:

1. Gas prices reverse and we see prices closer to $5/gallon

2. The product is so superior (like Model S) but they are able to price it at $35k (Model 3)

3. Continue to improve the range with the same price...ie drive down battery cost (gigafactory will help, but 30% is assuming a lot)...

They've already succeeded in so many ways where people said they would fail, I think it would also be foolish to bet against them.

Sure, if growth is slower than expected or there are more hiccups in production, the stock could drop 50-70% from here, but I think long term if they deliver on the Model 3 something even close to the Model S, the demand will be there to get to 500,000 cars sold/yr...at that point, I think you can see a $150-200bn+ market cap company.

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Feb 12, 2015

Any of you guys listen to the conference call?

Feb 12, 2015

Any of you guys listen to the conference call?

Feb 12, 2015

Jim Cramer: Can't Take Tesla CEO Elon Musk Seriously Anymore

http://www.thestreet.com/video/13045068/jim-cramer...

Jim, it's time to retire.

Feb 13, 2015
companion:

Jim Cramer: Can't Take Tesla CEO Elon Musk Seriously Anymore

http://www.thestreet.com/video/13045068/jim-cramer...

Jim, it's time to retire.

I can't stand Cramer. He's a fucking joke.

Feb 15, 2015
wareagle4230:
companion:

Jim Cramer: Can't Take Tesla CEO Elon Musk Seriously Anymore

http://www.thestreet.com/video/13045068/jim-cramer...

Jim, it's time to retire.

I can't stand Cramer. He's a fucking joke.

In my old job he was referred to as a sheep hearder. I prefer 'Minister of Propaganda' hahaha

Feb 13, 2015

Seems like a long-shot to me. Regardless, it's a "sexy" stock, but it's overvalued. Buying a stock assuming that it will eventually grow into its valuation is just asking to get burnt (or shocked, rather).

"As they say in poker, 'If you've been in the game 30 minutes and you don't know who the patsy is, you're the patsy.'" - Warren Buffett (1987)

Feb 13, 2015
SouthernSage:

Seems like a long-shot to me. Regardless, it's a "sexy" stock, but it's overvalued. Buying a stock assuming that it will eventually grow into its valuation is just asking to get burnt (or shocked, rather).

It works every once in a blue moon to try and buy a stock like this, but you are absolutely right. Just pipe dreams thinking that a company will grow into it's perceived value. I'm agreeable that a security should eventually approach it's intrinsic value, but history has shown us that funky valuations based on sales growth with crappy margins (TSLA) or any of the late 90's website "click" valuations never pay off.

Feb 13, 2015

I agree that a security, in the long-run, should approach it's intrinsic value. My stance is just generally that it is overvalued, so approaching it's intrinsic value would entail that it decreases substantially. Also, as Keynes says, "in the long-run, we're all dead..." Wouldn't waste capital on a growth stock and a pipe dream, no matter how exciting or eccentric the story and its CEO is. Maybe that's just me though.

Also, like @thebrofessor said, reducing costs of switching is Tesla's greatest enemy, and as someone who has worked in oil/gas, I can say confidently that it's not going anywhere anytime soon. Even if Tesla was able to generate far superior value to its competitors, electric or gasoline, our infrastructure will take YEARS to truly support an electric car society. Not to say it won't happen EVENTUALLY (though I'm skeptical), but I wouldn't bank on it anytime soon.

"As they say in poker, 'If you've been in the game 30 minutes and you don't know who the patsy is, you're the patsy.'" - Warren Buffett (1987)

Feb 15, 2015
SouthernSage:

Seems like a long-shot to me. Regardless, it's a "sexy" stock, but it's overvalued. Buying a stock assuming that it will eventually grow into its valuation is just asking to get burnt (or shocked, rather).

I think there's too much money in financial markets lately, does anyone else see this?

Feb 13, 2015

My issue with TSLA is not the expectations on production and sales (which, granted, are pretty lofty). The main problem is that people seem to be operating under the assumption that TSLA is going to be a monopoly player in the electric car market. Except that every single large automaker is starting to get into that business now. Competition is great for consumers, but typically isn't that great for profit margins.

Feb 13, 2015

I'll reiterate a lot of what DF said but I don't buy it.

not only is he talking about astronomical growth, but he clearly doesn't understand multiples.

most auto stocks trade at a PS ratio of 8x, nearly 9x. Toyota, the largest player, trades at about 0.8x.

assuming for the moment that he keeps his PS ratio at 8x, he would need to grow his revenue from 2bn to 87.5bn. I don't think he keeps his multiple at those levels, by the way.

Elon Musk is smarter than I am, richer than I will ever be, and may know something I don't, so I don't think he actually believes that his company will get to Apple's market cap. I think that he's arrogant (most entrepreneurs are), proud, and optimistic about the future of his company. if Tesla continues to catch on, it will be a big company and make a lot of people rich.

do I think it can be done? absolutely, people's buying habits change all the time. people may not care about the roar of an engine, and he may be able to engineer a product that's only marginally more expensive up front, reducing switching costs (his biggest enemy right now), and create various versions of it (SUVs, crossovers, light trucks, etc.) expanding his possible market share.

will he execute? maybe, no one can answer that but the consumer. it may become a great company, but it won't be a 700bn stock.

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Feb 13, 2015

I don't think he cares as much what other people or the market thinks and in previous interviews mentioned when he thought the stock was overvalued. So I don't think it has anything to do with being arrogant and everything to do with being strategic. My guess is that with the huge capital investment plans, he's thinking TSLA may need to access the capital markets again, so now he's talking his book to be able to do it successfully...

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Feb 13, 2015

Considering the market maturity for electric cars, Tesla should either go on a Porsche- like route or a Toyota-like route. A strategy that combines both ends of the products distracts the focus of the company and slows down the pace of moving forward.

Feb 14, 2015

I still have a theory that Apple will start making cars sooner or later.. Then Tesla will be SOL.

"As they say in poker, 'If you've been in the game 30 minutes and you don't know who the patsy is, you're the patsy.'" - Warren Buffett (1987)

Feb 14, 2015

AAPL could just offer Tesla $50 billion to buy them outright... Not smart in my opinion, but it would be an interesting acquisition.

Feb 15, 2015
wareagle4230:

AAPL could just offer Tesla $50 billion to buy them outright... Not smart in my opinion, but it would be an interesting acquisition.

I think Apple should. Given the marketing genius has left for good (Jobs), my honest guess is that they should pour their resources into becoming a technology conglomerate. If they haven't found a way to use $100BB to create new products, they're not going to....far better they take their technical expertise and push in new directions. Their cultural track record indicates that otherwise, in five years they will be in serious trouble.

This after I slam TSLA in the post above, but there's plenty of other companies they could acquire (see: Samsung)

Feb 15, 2015

Double post deleted

Feb 14, 2015

The car manufacturers are all catching up. By the time gas prices are high again, you'll be able to buy an electric car at your Ford dealer at half the price. It will also have a five year warranty from a trusted brand, a dealership to service it within towtruck range, and a mechanic who can service it within push range.

What is TSLA's moat? ...Or is it F and GM who have the moat?

Feb 14, 2015
IlliniProgrammer:

The car manufacturers are all catching up. By the time gas prices are high again, you'll be able to buy an electric car at your Ford dealer at half the price. It will also have a five year warranty from a trusted brand, a dealership to service it within towtruck range, and a mechanic who can service it within push range.

What is TSLA's moat? ...Or is it F and GM who have the moat?

I don't think anyone has a serious moat in the auto industry at this time. That said, the argument that Ford electric cars will destroy Tesla reminds me of when Einhorn argued a few years ago that Taco Bell's new Cantina Bell menu was going to destroy Chipotle. People trust Chipotle to not serve them shit, and in contrast most people who eat at Chipotle or are thinking of starting to eat at Chipotle have a very negative perception of Taco Bell, because Taco Bell has served shit for years. It's the same thing here with Ford and GM vs Tesla; in the minds of much of the public, Ford and GM are tainted brands that have built crappy cars for decades, whereas Tesla is seen as an innovative, trusted brand that would only come out with a high quality vehicle.

The end result in the Chipotle vs Taco Bell situation was that the fundamentals didn't even matter, maybe the Cantina Bell menu is better than what Chipotle serves, but I don't know and neither do most other people because they would never step foot inside a Taco Bell to find out. If I had to bet, I'd bet that the Tesla vs Ford/GM war turns out in the same fashion. GM in particular is building some very good cars these days. Cadillac has a lineup that is basically new designs across the board, and they are very competitive with the German competition. But the public perception has lagged significantly, and it's going to be a real uphill battle there. For the electric cars, I think the public perception battle w/ Tesla will be even more difficult.

Of course that doesn't mean that the valuation is justified, or that Tesla will find mass appeal anytime soon. But they are targeting a pre-incentive price of $35K for the Model 3, which after incentives would make it cheaper than the planned price of the Bolt. I foresee most people interested in electric cars as being likely to go with Tesla over GM if the two are in the same price range.

The best thing for anyone to do with TSLA is to grab a chair, some popcorn, and watch from the sidelines. The shorts are idiots and have gotten what they deserve so far (sorry, but true), and anyone long at ~$30B is a gambler. The range of possibilities on this one is gigantic.

Feb 15, 2015
IlliniProgrammer:

The car manufacturers are all catching up. By the time gas prices are high again, you'll be able to buy an electric car at your Ford dealer at half the price. It will also have a five year warranty from a trusted brand, a dealership to service it within towtruck range, and a mechanic who can service it within push range.

What is TSLA's moat? ...Or is it F and GM who have the moat?

Tesla is to electric cars what Ferrari is. I don't guess they will ever go away, just that another company will hit the mass market. I just can't see how they will be worth three quarters of a trillion dollars in ten tears, and I don't buy into the cult around Musk that doesn't seem to need hard data justifying this.

Feb 14, 2015

Honestly I just don't see your average middle class contractor who drives an F150 switching to a nifty electric car from a newfangled firm. I do see him switching to an electric F150. And when the life expectancy of the average car is now in the range of 15-20 years, TSLA has some stiff competition on reliability, no matter what you think of Ford and GM. TBH I think we're getting to the point where the half life will be driven more by accidents than wear and tear.

When TSLA can build a car that runs as well as a Ford Focus (IE it does not run out of batteries in the middle of I95 and then result in an angry press release from the CEO when you write about it), TSLA will be a car company that sells as well as BMW, Toyota, or Ford.

I don't think anyone is going to get a monopoly on electric cars. Especially not with gas below $2 for the foreseeable future. I could see a role for TSLA like Delphi supplying batteries and parts.

Feb 14, 2015
IlliniProgrammer:

Honestly I just don't see your average middle class contractor who drives an F150 switching to a nifty electric car from a newfangled firm. I do see him switching to an electric F150. And when the life expectancy of the average car is now in the range of 15-20 years, TSLA has some stiff competition on reliability, no matter what you think of Ford and GM. TBH I think we're getting to the point where the half life will be driven more by accidents than wear and tear.

When TSLA can build a car that runs as well as a Ford Focus (IE it does not run out of batteries in the middle of I95 and then result in an angry press release from the CEO when you write about it), TSLA will be a car company that sells as well as BMW, Toyota, or Ford.

I don't think anyone is going to get a monopoly on electric cars. Especially not with gas below $2 for the foreseeable future. I could see a role for TSLA like Delphi supplying batteries and parts.

I think you have identified the market where I think the likes of Ford and GM have the greatest probability of success. In the auto space, truck buyers are among the most brand loyal, and there is a clear preference for the domestics. There is also from my understanding some legitimate engineering hurdles to be passed in order to get an electric vehicle to handle the workload and off-road capabilities required of a full-size pickup. Reliability and durability will be of much greater importance than in the car market. Thus, you may see electric vehicles take a while to penetrate the pickup market. Musk has talked about a truck being in the plans, but I could certainly see Tesla deciding down the road that this is a segment of the market in which they will not have a competitive advantage.

Tesla doesn't have to compete in all markets in order to be successful. If they can get people to buy a Model 3 for $27.5K after incentives over a Chevy Bolt for $30K after incentives, and they can get people to choose a Model S over a BMW, then they will sell a lot of cars and with proper execution will make a lot of money.

The financial issue is of course that buying the stock today means you are already pricing in a very good outcome. You win only if Tesla blows it out of the water and manages to capture a significant chunk of the market. You fail if Tesla becomes Audi. This needs to be a $45-50B company in 5 years and probably a $75-80B company in 10 years to justify the current valuation given the significant execution risk. That's pricing in a ~11-12% rate of return, which I think many would argue is actually too low given the uncertainty.

The earnings call talk boggles my mind though. Musk has previously been very forthcoming in talking about the stock price getting ahead of itself. Now he goes the opposite direction into crazy land. The $700B figure is significantly more than the market caps of GM, fiat, Ford, Toyota, Honda, Daimler, Audi, BMW combined.

Feb 15, 2015

We disagree less than I originally thought, then.

My original response to Musk's call for a $700B valuation was "For that money I could buy the existing auto industry"

I think Jim Cramer's comment was that SNL should parody Elon Musk's analyst call. Between saying that they were going to spend staggering amounts of money without giving a number, the $700B valuation, and a lot of other funny responses, I heard it was interesting.

http://www.usatoday.com/story/money/cars/2015/02/1...

There's obviously a very wide distribution on the outcome for Tesla and that requires a discount. $25B for a 50/50 shot at perhaps becoming a Ford isn't unreasonable, especially if that outcome is positively correlated with the price of oil and economic activity.

Feb 15, 2015

My honest impression of Musk is that he's like Thomas Edison: a decent scientist, not a true genius like Tesla, who happens to be a very clever marketer who needs to constantly be the center of attention, and he's taking credit for Eberhard's and Tarpenning's work. In a cruel twist of fate, it almost reminds me of how the real Tesla's invention was strong armed away from him by JP Morgan a century ago.

And so what. There's plenty of jerks, creeps, and needy "adult children" in business. Right?

An old Chinese saying is that the fish rots from the head down, meaning that whatever personal problems an executive has will often become ingrained, institutionalized cultural problems organization wide. In this case, a company is being run by someone who wants to be as famous as someone else, namely, Steve Jobs. The electric car isn't a new technology, this company is just currently being run by someone who came to the table with a lot of their own money and is building a toy for people like himself. The REAL money isn't in selling luxury goods, it's selling to the masses, and so far Tesla doesn't seem interested in that. Or, to be more correct, they seem interested in talking about it but not doing it.

Now that other companies are aggressively moving into the space, it's highly possible that another company will come and beat Tesla to the big market. And like user named Dick Fuld said above, selling Toyota numbers of cars at Porche prices is pure fiction, so the company can't reach $700BB with its current business model. I love the concept of electric cars, but so far I see Tesla's stock price projections as so much smoke and mirrors when weighed against their actual sales numbers, realized, potential, or otherwise.

I'm in the game on this one but I'm highly skeptical about the cult surrounding the company that Musk is trying to create, it looks like a sad copy of the sad cult of Jobs. There is some brilliant work going of for sure, but the heavy emphasis on trying to control perceptions a red flag. Honestly, now that gas prices are lower, I think they're in for serious trouble for a while.

Feb 15, 2015

I don't think gas prices are going to have any noticeable effect on the current Tesla customer, but if low prices persist for years, then I think the demand for an electric vehicle in the $30K range will be negatively affected. People buying a $70-100K vehicle are not doing it to save money on gas. The attraction of Tesla's current lineup is that they are building great cars that people want to drive, and buyers get to feel that they are (a) saving the environment, (b) saving a bit of money on gas, and (c) are participating in a new movement that (may) change the world. Of those, I think (a) and (c) are by far the most important, and (b) is more of an afterthought that is used to mentally excuse the fact that you are spending $70K on a car. Every Tesla customer could save a hell of a lot of money and probably do better by the environment if they drove Illini's rusty honda, so it is of course all about perceptions and image.

I think if Tesla executes on its current vision of the Model 3, they will have a product that is every bit as practical for the masses as any of the incumbents. If they can put together a car that is $27.5K net of incentives and get them out of the door quickly, then I think they will be able to exploit the brand advantage they have over companies like GM and win the head-to-head battle. I don't think Tesla is ever going to be the kind of company building a $15K vehicle, in the same way Apple doesn't try to build a full lineup of MacBooks or iPhones to target every segment of the market. But as Apple shows, you can make a hell of a lot of money targeting the middle of the market and on up.

So in my vision of a perfectly well executed 10 year plan for Tesla, they are selling maybe 2-3M vehicles worldwide within a decade, and maybe are a $75-100B firm depending on margins. Factor in some significant dilution and the current equity are getting a shit deal even in that case.

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Feb 15, 2015
mk1275:

I don't think gas prices are going to have any noticeable effect on the current Tesla customer, but if low prices persist for years, then I think the demand for an electric vehicle in the $30K range will be negatively affected. People buying a $70-100K vehicle are not doing it to save money on gas. The attraction of Tesla's current lineup is that they are building great cars that people want to drive, and buyers get to feel that they are (a) saving the environment, (b) saving a bit of money on gas, and (c) are participating in a new movement that (may) change the world. Of those, I think (a) and (c) are by far the most important, and (b) is more of an afterthought that is used to mentally excuse the fact that you are spending $70K on a car. Every Tesla customer could save a hell of a lot of money and probably do better by the environment if they drove Illini's rusty honda, so it is of course all about perceptions and image.

I think if Tesla executes on its current vision of the Model 3, they will have a product that is every bit as practical for the masses as any of the incumbents. If they can put together a car that is $27.5K net of incentives and get them out of the door quickly, then I think they will be able to exploit the brand advantage they have over companies like GM and win the head-to-head battle. I don't think Tesla is ever going to be the kind of company building a $15K vehicle, in the same way Apple doesn't try to build a full lineup of MacBooks or iPhones to target every segment of the market. But as Apple shows, you can make a hell of a lot of money targeting the middle of the market and on up.

So in my vision of a perfectly well executed 10 year plan for Tesla, they are selling maybe 2-3M vehicles worldwide within a decade, and maybe are a $75-100B firm depending on margins. Factor in some significant dilution and the current equity are getting a shit deal even in that case.

I look at oil prices in the same light as I do gold: the bubble of the last few years is over. Oil producers don't have to worry about alternative energy competition for a while, and the Saudis aren't tightening up anytime soon. So it's cool to see TSLA as a wet works for innovation and they'll likely hold the high end brand wise, but my guess is that within a few years oil producers will be forced to keep energy prices low to stave off alternative energies. This could take a while but logically that's the direction things are going to move.

Also, not sure why I'm posting like 10 times on this thread!?

Feb 15, 2015

Even if Tesla opened its patents, the other car manufacturers won't be able to make as good a car as Tesla.

The secret to Tesla is their organizational capacity. It's one thing to show a prototype at a car show but a whole other to actually mass produce it.

Feb 15, 2015
Feb 15, 2015

Well, it seems my theory has come true much sooner than expected...

"As they say in poker, 'If you've been in the game 30 minutes and you don't know who the patsy is, you're the patsy.'" - Warren Buffett (1987)

Feb 17, 2015
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