Tesla heads towards trillion-dollar valuation as Big Auto stalls on EVs

Published by

Giles Parkinson

July 30, 2020 12:34 pm

Source: Unsplash/Andreas Dress

The stock market is making another major re-appraisal of the potential worth of electric car maker and energy storage developer Tesla, as it dawns on them that this company can no longer be considered just a flash in the pan. Tesla, they now admit, is going to be a very, very big company.

Overnight, in major news, Morgan Stanley’s Adam Jonas, one of the most respected auto analysts in the market, dramatically lifted both his price target and his bull case valuation for Tesla – just weeks after an earlier upgrade.

Jonas thinks Tesla stock is currently over-priced by the market.

The market has the stock at around $US1,500 a share and Jonas’ fair value is now $US1,050 a share (up from $US740). But apart from risks – most potently the breakdown in China-US relations, and delays to autonomous driving – he also sees massive upside, so his bull case valuation is lifted from $US2020 a share to $US2500.

That puts a potential market value of Tesla of more than $US500 billion, or $A700 billion. And there’s no reason why it wouldn’t go further towards $A1 trillion. That’s more than every other car maker in the world combined. And the reason is simple: Jonas says it is now clear that the legacy auto makers – despite their big talk and promises – are dragging their heels on EVs.

By 2030, Jonas now reckons, Tesla will be producing three million cars a year and pulling in revenues of more than $US170 billion. And the rest of the industry will be struggling to catch up.

“One year ago, we believed the legacy OEMs (car makers) would have had a far more advanced strategic position to pressure Tesla market share,” Jonas and his fellow analysts write.

“However; Tesla has had, in our opinion, much more freedom to expand than we initially thought, with legacy OEM EV timelines 1 to 2 years further out than our initial expectations.”

In short, Big Auto has seen the future, made some nice speeches, assigned some capital, done some pretty marketing, and then looked the other way.

And while they stumble over the rollout of their EV models – nearly all of them petrol and diesel lookalikes, and various forms of hybrids – Tesla is moving forward with radically different ideas that speak to a very different future – think Cybertruck, the Tesla Semi, the Roadster, and even a multi-purpose van.

Morgan Stanley also points to the recent discussion of a Tesla compact vehicle, an opportunity to fill the market void – created by its rivals incompetence – for a smaller, cheaper car.

Morgan Stanley expects a price point of around $US30,000 and a 2025 launch date for the compact Tesla, and sales of more than half a million by 2030.

The catalyst for this review appears to have been the recent earnings release, which revealed Tesla’s first annual profit, the first time it made a profit in four consecutive quarters, and its relatively high volumes, despite the impact of Covid-19. And its plans for new giga-factories.

“Our forecasts give Tesla credit for nearly an additional three full factories of production, which we see as reasonable given the company’s demonstrated strategy of rapid capacity expansion (three factories currently under construction/pre-construction),” Jonas writes.

“On the 2Q call, Elon Musk reiterated the company’s desire to prioritize growth over profitability, which makes sense to us, given the company’s current advantages in attracting talent and capital, the inherently competitive nature of the auto industry, and increasingly visible encroachment from new players.”

Interestingly, Jonas ascribes an added value of just $US38 billion from Tesla Energy – its battery storage and solar business – to bridge gap between his price target and the bull case.

Last week, Musk said he reckons Tesla Energy will be worth as much as the car side of the business. If Musk is right, you can throw another $A700 billion onto the bull case valuation. Even if he’s only half right, that still makes a trillion dollar company.

Giles Parkinson

Giles Parkinson is founder and editor of The Driven, and also edits and founded the Renew Economy and One Step Off The Grid web sites. He has been a journalist for nearly 40 years, is a former business and deputy editor of the Australian Financial Review, and owns a Tesla Model 3.