The market estimates that by 2030 it will only sell half of its goal, 20 million cars per year
Before Tesla was valued as a chimera; it is now valued as a car company. The market capitalization of the electric vehicle leader has fallen from $1 trillion at the end of 2021 to half. That suggests investors are not focused on whether boss Elon Musk can create self-driving taxis and humanoid robots, but on how many cars he can put on the road.
Tesla shares, once worth almost as much as those of its 10 closest competitors combined, have plunged 55% this year. As of early 2022, the decline appeared to be going at roughly the same pace as its American counterparts General Motors and Ford Motor. Of late, however, Tesla is underperforming its much older and less electric rivals.
That makes some sense. Tesla’s valuation has always seemed hard to square with its core business, car supply. And as central banks have been raising interest rates, investors have lost their taste for big, futuristic schemes. Alphabet (Google) shares, for example, have fallen 34% so far this year, twice as much as the S&P 500 index.
So what does the market tell you about Musk’s company? Suppose the median selling price of a Tesla car falls from $55,000 today to $45,000 by the end of the decade, as competition intensifies and cheaper models are introduced. If Musk achieves his goal of 20 million cars a year by then, and Tesla’s operating margin remains around 15%, he would make about $125 billion in pre-tax profit.
Let’s put it at the same multiple of 13 times what Ford is trading, and discount it at a rate of 10% per year to account for the time value of money: Tesla’s stock would be worth about twice what it was on Wednesday. In other words, the market is saying that Musk will deliver only half the cars it expects, and that any other project, like robotaxis or android butlers, is worthless.
That vision of the future Tesla is still a great success in most respects.
Musk’s company delivered fewer than a million cars last year. And supplying 10 million would almost match the sales figures of the current world leader, Toyota Motor, in 2019, a year before the pandemic plunged its production. With those numbers, Musk would really climb to the top of the industry. But for a businessman with such grand ideas, it seems like a step backwards.
