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
Don’t count Elon Musk among investors who believe Tesla is overvalued, even with shares nearly 700% over the past year and the company valued at 213 times the projected profits for 2021, according to FactSet.
On Wednesday, in the fourth-quarter vehicle maker’s profit call, Tesla’s chief executive said there is a “roadmap to potentially justify” its market capitalization, which has exceeded $ 800 billion, which which makes it the fifth most valuable American company. Musk is now the richest person in the world, with a net worth in excess of $ 200 billion.
Musk’s valuation math is as follows: Suppose the company will soon reach $ 50 billion to $ 60 billion in annual car sales (the company generated $ 9.31 million in auto revenue in the fourth quarter and said that vehicle deliveries would increase by an average of 50% annually). As Tesla’s automatic driving technology continues to improve, these vehicles will become autonomous robotaxis, allowing use to go from 12 hours a week to 60 hours a week. Tesla could charge additional fees for these robotic axles, which would allow the company to generate much more revenue per car. Basically, it would be like bringing the software economy to the manufacturing-intensive vehicle business.
Musk also announced that Tesla’s full autonomous driving package will be available as a subscription starting in the first quarter, instead of a one-time $ 10,000 supplement, allowing Tesla to start adding recurring revenue as it works to improve its automatic driving. technology.
Even if use only doubles, a $ 1 trillion valuation may make sense, according to Musk.
“If you were earning cars worth $ 50 billion, it would be like having 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 a 20-fold multiple of the 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 valuation of the company. In a May 1 tweet, he said “the price of Tesla shares is too high,” a comment that dropped shares by 10%. Since then, the company’s market cap has risen more than 450%.
Investors may already be bragging that Tesla cars will end up becoming revenue-generating robot taxis. But the company is not yet ready to have those capabilities and Musk has a history of over-promising in terms of technological innovation.
For example, when Tesla began debating automatic driving technology in 2016, Musk said the company would complete a hands-free trip to the United States in late 2017. The company has not yet completed that mission.
Tesla’s full autonomous driving features currently include Smart Summon, which allows the driver to call their Tesla to jump from a parking spot to where they are, and navigate the autopilot, which they can drive. the car from a ramped freeway 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 misled consumers about the capabilities of its autopilot systems and banned the company from including “full potential for autonomous driving” and “Autopilot included” in the their advertising materials.
Although Tesla has lost many of its own projections on automatic driving technology, Musk continues to insist it will come. “I don’t really see any obstacles here,” he told a call analyst who asked about the company’s progress.
Shares of Tesla fell 5.5% in the extended trading period on Wednesday after the company reported gains that did not take analysts ’estimates into account, although earnings were better than expected.
I’LL SEE: Tesla loses profits
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