Elon Musk, founder of SpaceX and CEO of Tesla Inc., arrives on Tuesday, December 1, 2020, at the Axel Springer Awards Ceremony in Berlin, Germany.
Johannessen-Koppitz | Bloomberg | Getty Images
Don’t count Elon Musk among investors who believe Tesla is overvalued, even with shares up nearly 700% in the past year and the company valued at 213 times the earnings projected for 2021, according to FactSet.
On Wednesday, in a fourth-quarter earnings call for the automaker, Tesla CEO said there was a “roadmap to potentially justify” its market capitalization, which exceeded $ 800 billion, becoming the fifth largest. most valuable US company. Musk is now the richest person in the world, with a net worth of over $ 200 billion.
Musk’s valuation math goes like this: Suppose the company soon reaches $ 50 billion to $ 60 billion in annual car sales (the company generated $ 9.31 billion in auto revenue in the fourth quarter and said that vehicle deliveries will increase by an average of 50% per year in the future). As Tesla’s automatic driving technology continues to improve, those vehicles will become autonomous robotaxi, allowing use to go from 12 hours a week to 60 hours a week. Tesla could charge additional fees for those robot taxis, allowing the company to generate much more revenue per car. Basically, it would be like bringing the software economy into the automotive-intensive industry.
Musk also announced that Tesla’s Full Self Driving package will be available on a subscription basis beginning with the first quarter, rather than as a one-time supplement of $ 10,000, which will allow Tesla to start adding recurring revenue as it working to improve its self-driving technology.
Even if use only doubles, a $ 1 trillion valuation may make sense, according to Musk.
“If you made $ 50 billion worth of cars, it would be like making an incremental profit of $ 50 billion, basically because it’s just software,” Musk said in the introductory part of the call. Based on this formula, Musk says that a 20-fold multiple gain 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 May 1 tweet, he said that “the price of Tesla shares is too high”, a comment that reduced the shares by 10%. Since then, the company’s market capital has increased by over 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 being too promising when it comes to technological innovation.
For example, when Tesla began discussing automotive technology in 2016, Musk said the company would complete a hands-free trip to the United States by the end of 2017. The company has not yet completed that mission.
Currently, the full features of the Tesla vehicle include Smart Summon, which allows a driver to call his Tesla to move from a parking space to where he is and Navigate on Autopilot, which can drive the car from a highway on the ramp to an off-ramp, making the 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 had misled consumers about the capabilities of its autopilot systems and banned the company from including “the full potential of autonomous driving” and “Autopilot included” in its advertising materials.
While Tesla has missed many of its own projections for autopilot technology, Musk continues to insist it will come. “I really don’t see any obstacles here,” said an analyst who asked about the company’s progress.
Tesla shares fell 5.5% in extended transactions on Wednesday after the company reported gains that did not meet analysts’ estimates, even though earnings were better than expected.
CLOCK: Tesla misses the winnings
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