What Would It Take for Tesla to Reach Apples' Market Cap in 2025?

[SteveG3]

In Wednesday's earnings call, Elon suggested the scenario of Tesla growing to a market cap similar to where Apple's is today ($700 billion). His description implied revenues of about $350 billion per year in 2025. Elon explained that he envisions all this with little to no further capital raises.

We don't know whether Elon really sees this as an achievable target or strictly something like a motivational target for the team at Tesla (and perhaps to shift perception at the other automakers and the public as a whole about the transition to EVs). Though this does tell me "hell bent" isn't merely Elon's MO to get to Model 3... sprinting is just what Elon seems to do.

What would it take though if $350 billion in revenues in 2025 were a real target?

I've been doing a bit of mental math the past few days, and thinking about the auto plants and Gigafactories needed to be built, Elon is certainly right in terms of "staggering" amounts of spending being required. Perhaps equally staggering would be overseeing the execution of building these plants and staffing them with trained employees. Both of these points are particularly daunting given that the current automotive target Tesla has discussed publicly is 500K vehicles in 2020, or roughly $35 billion in revenues (there would also be some stationary storage revenue in 2020).

As I've thought about the costs involved and the pace of increasing cash flow from growing operations over time to pay those costs, it's seemed like Elon would need to "invent some new chess pieces" for this $350 billion goal to be possible without plenty of dilution from capital raises (paraphrasing an Elon quote I put at the end of this post).

Even if the $350 billion in 2025 revenues is not a real goal, I think it could be fun and worthwhile to think about what this would take. (fwiw, personally, for over a year I've been thinking along the lines of about $75 billion in revenues in 2025. I'm taking Elon's comments as exciting, but $350 billion is not even a best case scenario I'd use in making decisions re TSLA... well, not yet .

So, what would it take?

What mix of vehicle vs. stationary storage revenue?
How many auto plants, GFs?
What cost for these plants?
What timeline for production increases for corresponding positive operating cash flow growth to make this happen?
What kind of benchmarks in terms of market adoption of Tesla's products, revenues, margins etc., would it take for traditional sources of financing (banks, bonds...) to be willing to loan Tesla $5 billion, $10, $15 billion, or more?

Finally, what new chess pieces might be invented? Could Elon possibly create some sort of financial instrument to tap his personal wealth tied up in Tesla, Solar City, SpaceX holdings to loan Tesla billions to feed the growth engine? Is it possible the likes of a Larry Page would loan Tesla billions (Page has said he's had the thought that if he were hit by a bus probably the best place he could leave his wealth would be at Elon Musk's disposal). Would the large utilities possibly have billion dollar loans available to push forward grid storage?

Here's that quote about chess pieces...

"Business is like a multidimensional probabilistic chessboard. The rules aren't set, and the same moves don't always make you win. A lot of people can be really good in a set-piece battle; my biggest differentiating skill is I can invent new pieces."

 

[flankspeed8]

What would it take IMO? A perfect storm of unending demand for high end EV's as well as flawless execution of everything that has been promised with no excuses for delays, missed goals or other events. It would help if other EV manufacturers remain stagnant in their r&d and decide not to play in the transition of vehicle electrification.

 

[SteveG3]

flank, thanks for your thoughts. to me it's about how does Tesla generate that massive amount of capital from operations to pay all the capex for those plants... or is there some "chess piece invention" in the works to bring in a big chunk of those massive funds?

Demand is no guarantee... but if they progress from what the Model 3 is expected to be in 2017 (competitive with the BMW 3 series), to what that could evolve into over another eight years of improvement, I don't think demand is a large concern.

As to competition... unless the other automakers start building Gigafactories by the dozens real soon, rather than competition, the other automakers will simply be collaborators in transitioning from ICE to EVs. The auto market will be about 100 million vehicles per year in 2020, so it would cost $1 trillion in battery plants to fully switch from ICE to EVs. I think at least 25% of the market would have to switch to EVs by 2020 before it would start diminishing Tesla's sales. There's no sign of any other company going for one GF, let alone $250 billion's worth of them (50 GFs).

 

[Krugerrand]

To me it's about how does Tesla generate that massive amount of capital from operations to pay all the capex for those plants... or is there some "chess piece invention" in the works to bring in a big chunk of those massive funds?

I think *some* of the new chess pieces are: battery storage business, some sort of partnershipS related to that battery storage business (already mention of *talks* with utility companies) AND also another one related to the car portion of the business (perhaps the SuperCharger Network, but maybe something more).

They've got something big cooking (not that they aren't already on the big burner - but something even bigger - remember this is the man who's planning on colonizing Mars) for him to make that Apple valuation comment.

 

[SteveG3]

I think *some* of the new chess pieces are: battery storage business, some sort of partnershipS related to that battery storage business (already mention of *talks* with utility companies) AND also another one related to the car portion of the business (perhaps the SuperCharger Network, but maybe something more).

They've got something big cooking (not that they aren't already on the big burner - but something even bigger - remember this is the man who's planning on colonizing Mars) for him to make that Apple valuation comment.

Krugerrand, I like that notion of multiple chess pieces.

As to utilities, here's the excerpt from Wednesday's call I think you were referring to:

"Elon Musk - Chairman, Product Architect and Chief Executive OfficerYes, we are getting a lot of RFPs already.
JB Straubel - Chief Technical OfficerI don’t want to go into super minor detail on this but you are correct. Of course there’s a lot of interest and a lot of utilities are working in this space. And we are talking to almost all of them. It’s early stage of stuff and a lot of these projects are very far out -- since the near procurement cycle for utilities is so long. But this is a business that certainly is gaining an increasing amount of our attention."

(note: this is Seeking Alpha's transcript and they may or may not have correct attribution to Elon or JB, but SA transcripts generally seem to reflect correctly what was said http://seekingalpha.com/article/290...kj6:3898c927eee5a302a6e0e09518af074c&uprof=45).

On this utility point I've been thinking if:

- 1 Gigafactory produces 50 GWh/year (from Tesla's GF announcement PDF)
- late in the decade Tesla can sell battery packs for $200/kWh and make 10% net margins on these (10% being the profit margin Elon discussed in the Apple analogy)
- $200/kWh is an attractive price point for utilities
- there are individual larger utilities with a desire for 250 GWh or more of batteries

It seems to me Tesla would have the ingredients for some very compelling potential deals to provide lots of capital to accelerate their growth.

Here's one scenario with those ingredients that comes to mind:

Assume a large state like California has a desire for 250+ GWh of batteries for grid storage. Selling full annual production of one GF, 50 GWh of batteries, at $200/kWh and 10% net margins, would mean that the one GF would produce $10 billion in revenues and $1 billion in profits. At $5 billion to build a GF, it would take 5 years of $1 billion profits from operating the factory at capacity to pay for the factory.

So, if California, for example, had leadership that very much wanted to use grid storage for their utilities, there could be some sort of deal where the state loans Tesla the $5 billion, knowing a) they themselves want to buy at least 5 years worth of batteries, so they are confident Tesla has production effectively sold out from this GF for the next 5 whose profits are sufficient for Tesla to repay California the loan, b) it meets CA's environmental and economic objectives for their utilities in a way no existing battery supply could, c) they would have the factory or construction project as collateral for the loan, d) they would have a GF in their own state employing 6K plus workers directly in an emerging industry and stimulating the economy (something we just saw several states eagerly competing to secure). If something like this worked in California, it could be cloned in other states.

I don't know if the bullet pointed items are all correct, and I don't know how plausible it is for states and/or utilities to enter into such kinds of deals with Tesla. It does seem though that their could be win-win deals for Tesla to access large amounts of funds.

 

[yobigd20]

Gigafactory. Home and grid storage solutions. Aka Tesla evolves to more than just a car maker.

 

[BerTX]

Apple will fall in that same time period. Tesla and Apple will meet somewhere in the middle, one on the way up, and one on the way down.

 

[Krugerrand]

It's all quite possible, SteveG3, and so much more. I'm reminded of the new satellite business that SpaceX is getting into and how that's going to not only fund Mars, but also is 'part of Mars' - as in will allow Mars to communicate with Earth and vice versa. What if those satellites also connect to Tesla cars? I'm not sure when I was expecting energy storage to come online, but I know I wasn't thinking this year or next and yet, here it comes and here comes Solar City, who's already involved in the SuperCharger Network (and remember they just bought a solar panel manufacturer). We've got engineers from SpaceX and Tesla working to solve each other's problems. Then we've got talk of a 'secret weapon' to stimulate demand AND address the dealerships.

What I'm getting at is that there's significant synergy going on between companies and within the companies that's off the chart. We've had a recent change in 'the talk' coming out of Tesla; no profit until 2020, millions of cars by 2025, staggering amounts of cash about to be spent with little dilution to shareholders, Apple evaluation in 10 years... I can't yet wrap my brain around the whole picture because it's just so darn big. Who thinks on a scale of this size? I mean, really. I still make a list for three items before I go to the grocery store so I don't forget anything.

I remember the first time the words 'battery factory' came out of Elon's mouth, and they went pretty much unnoticed. My reaction was: "**** **** *** ***** ** ***** * ******* ******!" The second time it was named Gigafactory, and the third time he mentioned it, it was to announce Tesla was building one. That took just a few months. My reaction now is as above with a hundred more exclamation points on the end. Yeah, *it's* big, whatever *it* is.

 

[kenliles]

Apple will fall in that same time period. Tesla and Apple will meet somewhere in the middle, one on the way up, and one on the way down.

Agree except, both on the way up (albeit one more than the other). The reason, quality of management in both is orders of magnitude above so many others

 

[jhm]

How did Mr. Musk become a billionaire so young? He's an extreme serial and parallel entrepreneur. To get to just $1B in 20 years, you could start with a networth of $300,000 and grow business 50% annually. Musk knows what it takes to grow annually at 50% because that is basically what he's done for the past 20 years. So when Musk talks about 50% annual growth, I think that very much expresses his personal outlook and experience. It's pretty close to his personal growth rate.

It's also pretty important that Musk believes that Tesla has the potential to grow at 50% or better for the next decade. Otherwise, he would move on to other opportunities. Clearly, SpaceX competes for his time and attention. How fast is that growing? If he could grow it much faster than Tesla, why would he waste his time on Tesla. Hyperloop is moving forward, but I do not think it is high on Musk's list. Perhaps he knows that it just does not have the growth potential of Tesla or SpaceX. I think as long as Tesla has the potential to grow by 50%, Musk will be happy to lead the way.

 

[kenliles]

How did Mr. Musk become a billionaire so young? He's an extreme serial and parallel entrepreneur. To get to just $1B in 20 years, you could start with a networth of $300,000 and grow business 50% annually. Musk knows what it takes to grow annually at 50% because that is basically what he's done for the past 20 years. So when Musk talks about 50% annual growth, I think that very much expresses his personal outlook and experience. It's pretty close to his personal growth rate.

It's also pretty important that Musk believes that Tesla has the potential to grow at 50% or better for the next decade. Otherwise, he would move on to other opportunities. Clearly, SpaceX competes for his time and attention. How fast is that growing? If he could grow it much faster than Tesla, why would he waste his time on Tesla. Hyperloop is moving forward, but I do not think it is high on Musk's list. Perhaps he knows that it just does not have the growth potential of Tesla or SpaceX. I think as long as Tesla has the potential to grow by 50%, Musk will be happy to lead the way.

Well said imho

 

[Krugerrand]

Hyperloop is moving forward, but I do not think it is high on Musk's list. Perhaps he knows that it just does not have the growth potential of Tesla or SpaceX.

Hyperloop is going forward fast enough that he's building a test track for it. :wink: And I just read that a hyperloop company is going public this year. Didn't dig into it to see if it was just someone talking or if it's for real.

 

[SteveG3]

I remember the first time the words 'battery factory' came out of Elon's mouth, and they went pretty much unnoticed. My reaction was: "**** **** *** ***** ** ***** * ******* ******!" The second time it was named Gigafactory, and the third time he mentioned it, it was to announce Tesla was building one. That took just a few months. My reaction now is as above with a hundred more exclamation points on the end. Yeah, *it's* big, whatever *it* is.

I agree. That's what I was trying to get at when I wrote that it dawned on me that going at breakneck speed was not just the necessity of getting Tesla going as a start up through the Roadster and Model S to being out of danger of bankruptcy, breakneck speed is what Elon does and will continue to do. While his determination and pace is at a top level even in Silicon Valley, it is absurdly out of scale with the professional management that had the skill set, decision making style, and temperament to rise through the corporate ranks at the existing automakers.

Sounds like you noticed the same pattern I have. Elon mentions something casually and if you are paying attention you see the next area he is moving into and will make a regular talking point. In Detroit he said millions of cars/year in 2025, and this week the Apple comment re 2025. The FUDsters are having their fun mocking it now, but the new talking point seems to be, we will not merely be more than a niche car company, but 2025 we will be a global giant beyond even the world's biggest car companies (which he actually first hinted at in June at the annual meeting).

- - - Updated - - -

Apple will fall in that same time period. Tesla and Apple will meet somewhere in the middle, one on the way up, and one on the way down.

funny, but, yeah, good chance you are right about that.

 

[Krugerrand]

Sounds like you noticed the same pattern I have. Elon mentions something casually and if you are paying attention you see the next area he is moving into and will make a regular talking point. In Detroit he said millions of cars/year in 2025, and this week the Apple comment re 2025. The FUDsters are having their fun mocking it now, but the new talking point seems to be, we will not merely be more than a niche car company, but 2025 we will be a global giant beyond even the world's biggest car companies (which he actually first hinted at in June at the annual meeting).

Oh, yes! There's a definite pattern and the direction can change. I think he's given up trying to *encourage* the OEMs to build EVs; I think he's now planning to *force* them to build EVs or die. There might be one other option: *join*, but I think that's on a very limited time offer.

 

[SteveG3]

Yup, Krugerrand I think they've basically pissed him off into far more ambitious action. I was on a walk today thinking that instead of being annoyed at all the media smirking at Musk this week and completely twisting what he says (Cramer saying some particularly outrageous gibberish), this stuff probably just fuels Elon's focus. A bit like in the '90s someone talking gibberish to Michael Jordan on the court.

 

[Krugerrand]

Yup, Krugerrand I think they've basically pissed him off into far more ambitious action. I was on a walk today thinking that instead of being annoyed at all the media smirking at Musk this week and completely twisting what he says (Cramer saying some particularly outrageous gibberish), this stuff probably just fuels Elon's focus. A bit like in the '90s someone talking gibberish to Michael Jordan on the court.

One really does have to be careful who you ridicule and use as fodder. While it will cause some to retreat, others will flip you the bird and make you eat your words. Elon is definitely a make you eat your words kind of person.

I also think *they* better watch what they announce and how, specifically I'm referring to GM and the Bolt. I think GM just unwittingly solidified the direction of the Model 3, which up until now appeared to be undecided, and put the poker you know where. GM might regret playing the *we're going to beat you to market game*, rather than just quietly going about business and producing the best long range EV they can muster and releasing it when it was good and ready. I'm not convinced that GM can deliver on their spec promises let alone produce a vehicle on par with Model 3. What I do know is that if GM doesn't, the Bolt is obsolete before it gets to the end of the production line.

 

[flankspeed8]

Gigafactory. Home and grid storage solutions. Aka Tesla evolves to more than just a car maker.

Where does Solar City fit in this? What would stop them from launching a competing product and bundling it with their PV systems. This has always been something that I found strange. Musk is Chairman of Solar City also and I know the GF controls the batteries but SCTY controls the PV cells. Why has that company ceded this innovative product to Telsa when it seems that it fits in better with Solar City. Especially since it sounds like they are launching this before GF is online which means the batteries are coming from Panasonic or Samsung anyway. I am guessing their shareholders would live in on some of this action.

 

[Krugerrand]

Where does Solar City fit in this? What would stop them from launching a competing product and bundling it with their PV systems. This has always been something that I found strange. Musk is Chairman of Solar City also and I know the GF controls the batteries but SCTY controls the PV cells. Why has that company ceded this innovative product to Telsa when it seems that it fits in better with Solar City. Especially since it sounds like they are launching this before GF is online which means the batteries are coming from Panasonic or Samsung anyway. I am guessing their shareholders would live in on some of this action.

Solar City is run by Elon Musk's cousins. Elon Musk financed them. Solar City and Tesla will work as a team, not as opponents. That 'family' has the same vision.

 

[flankspeed8]

Solar City is run by Elon Musk's cousins. Elon Musk financed them. Solar City and Tesla will work as a team, not as opponents.

Elon is the Chairman of the Board
SolarCity Executive Management Team | SolarCity

 

[Krugerrand]

Elon is the Chairman of the Board
SolarCity Executive Management Team | SolarCity

Yes, that's public knowledge. What's your point? It's also public knowledge he spends very little time there. Paraphrased, he has said, "I show up now and again when I'm supposed to."

There is no competition between the two companies. They will work as a team, each providing a piece of the puzzle, and move forward to the common goal.