Summary
- Tesla is one of the most compelling companies in the market.
- It is no surprise that enthusiasm accompanies the iconoclastic auto maker.
- Fundamentals eventually demand their due, and it is difficult to recall so much value being assigned to a company solely on the basis of ambiguous promise.
- In the battle over Tesla, little room exists for consensus. Disagreements flair into condemnation, and quickly devolves into character assassination.
For bears, pointing out the promise of Tesla (TSLA) can provoke an unreasonable bout of Musk mudslinging. For bulls, Tesla’s shocking earnings ratios necessitates equivocation: “But they are not just a car maker!”—even though automotive related sales currently make up 94% of revenues (the remaining 6% is associated with Tesla’s solar roof division—which has yet to demonstrate the ability to escape compressed margins).
The valuation divide is stupendous. J.P. Morgan (JPM) raised their price target to$90 a share (seemingly obtuse to the current $600 share price). Gene Munster (a VC notable) recently made an argument for $2,500. Goldman Sachs (GS) was more moderate at $780 (which was still a stunning increase over their previous target of $455). It is unusual to see major banks differ by a factor of 8x on share prices for S&P 500-bound companies.
The Goldman Sachs Bull Argument
The market has spoken time and time again: Tesla is not to be valued at normal automotive earnings multiples. The market is an extremely broad and well researched environment—but not without faults. Either the market is telling us something, or it is reflecting a frothy optimism destined to one day burst. There is, perhaps, something to the argument that modern EV manufacturers are due to transition from the slow (and highly cyclical) growth of traditional vehicle sales into the more lucrative business of subscription packages. Think of the pivot that Apple (OTC:APPL) made from a manufacturer of devices and operating systems, to a catchall subscription provider of wide flung services. Amazon made the pivot from a bookseller to online retail giant (and cloud services provider). Perhaps Tesla can do the same.
There are two ways to see the Tesla Bull argument: the promise and excitement that a carbon neutral future engenders; and hope based on the massive successes of Amazon and Apple in leveraging high margin businesses into ancillary revenue streams.
As the world’s first vertically integrated sustainable energy company, our mission is to accelerate the world’s transition to sustainable energy. –Tesla 10K amended
In the electrified ether-world, houses will be powered via solar roofs pumping electrons into battery packs—transportation made green by an EV plugged into every garage. It will be a zero-emissions wonderland. Tesla, in this world, will become the behemoth of renewable energy on a global scale.
It is a bit pie-in-the-sky as a business model, but renewable energy is undoubtedly on a growth trajectory. Tesla, driven by the incomparable Elon Musk, has condensed all of the hopes of the ecological crowd into a ticker symbol. The broad market is speaking: it is dying for a renewables revolution.
