Elon Musk, founder of SpaceX and CEO of Tesla Inc., arrives at the Axel Springer Award ceremony in Berlin, Germany, on Tuesday, December 1, 2020.
Johannessen-Koppitz | Bloomberg | Getty Images
Do not count Elon Musk among investors who think Tesla is overvalued, even though shares have risen by almost 700% last year and the company valued at 213 times the projected profit for 2021, according to FactSet.
In the automaker’s fourth quarter earnings conference call on Wednesday, Tesla’s CEO said there is a “roadmap to potentially justify” its market capitalization, which has exceeded $ 800 billion, making it the fifth most valuable company in the USA. Musk is now the richest person in the world, with a net worth of more than $ 200 billion.
Musk’s valuation math goes like this: Suppose the company soon reaches $ 50 billion to $ 60 billion in annual auto sales (the company generated $ 9.31 billion in automotive revenue in the fourth quarter and said deliveries of vehicles would increase by an average of 50% per year going forward). As Tesla’s autonomous driving technology continues to improve, these vehicles will become autonomous robot axles, allowing use to go from 12 hours a week to 60 hours a week. Tesla could charge additional fees for these robots, allowing the company to generate much more revenue per car. Basically, it would be like bringing the software economy to the manufacturing-intensive automotive sector.
Musk also announced that Tesla’s Full Self Driving package will be available by subscription starting in the first quarter, instead of a single $ 10,000 add-on, which will allow Tesla to start adding recurring revenue while working to improve its self-driving technology .
Even if the use only doubles, a $ 1 trillion valuation may make sense, according to Musk.
“If you made $ 50 billion in cars, it would be like having $ 50 billion in incremental profit, basically because it’s just software,” said Musk in the introductory part of the conference call. Based on this formula, Musk says that a multiple of 20 times profits would lead to $ 1 trillion in market capitalization – “and the company is still in high growth mode”.
Less than nine months ago, Musk had a very different perspective on the company’s valuation. In a tweet on May 1, he said that “Tesla’s stock price is too high”, a comment that caused the stock to fall 10%. Since then, the company’s market capitalization has increased by more than 450%.
Investors may already assume that Tesla cars will eventually turn into revenue-generating robots. But the company is not yet close to having these capabilities, and Musk has a history of over-promising technological innovation.
For example, when Tesla started discussing autonomous driving technology in 2016, Musk said the company would complete a hands-free tour of the U.S. in late 2017. The company has not yet completed that mission.
Currently, Tesla’s Full Self Driving features include Smart Summon, which allows a driver to call his Tesla to roll from a parking spot to where they are, and Navigate on autopilot, which can drive the car from an access ramp. -climb road, making necessary lane changes along the way.
But despite its name, the Full Self Driving package still requires drivers to keep their hands on the wheel and stay alert at all times. A Munich court ruled last year that Tesla misled consumers about the capabilities of its automated steering systems and banned the company from including “full autonomous driving potential” and “inclusive autopilot” in its advertising materials.
Although Tesla has lost many of its own projections for autonomous driving technology, Musk continues to insist that it is coming. “I really don’t see any obstacles here,” he told a telephone analyst who asked about the company’s progress.
Tesla’s shares fell 5.5% in trading extended on Wednesday after the company reported earnings that were not estimated by analysts, even with better-than-expected revenue.
TO SEE: Tesla loses earnings
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