Since the start of December Tesla (NASDAQ:TSLA) stock is down 15%. The first manufacturer to hit $1 trillion in market capitalization, TSLA stock closed Dec. 15 at $976 a share.
Meanwhile CEO Elon Musk, sitting on that now-$980 billion market cap, has been crowned as Time magazine’s Person of the Year and is acting like a petulant child. He talks openly of quitting, rejects giving rivals the government aid Tesla got. He even got into a spat with liberal Sen. Elizabeth Warren.
Musk is the world’s richest man, worth $255 billion as trading opens this morning. But he’s no longer all-in on Tesla. His SpaceX rocket company is now worth $74 billion.
Investors need to contemplate a Tesla future without Musk.
Do the Numbers on TSLA Stock
Analysts expect Tesla to earn $6.06 a share this year, on revenue of $51.15 billion. That’s due to grow to $8.20 per share and revenue of $71 billion next year. That would be impressive, but it’s still half of General Motors’ (NYSE:GM) expected revenue this year. GM is worth $84 billion.
Tesla’s valuation is unmoored from results because it’s considered a tech company, more like Microsoft (NASDAQ:MSFT) than Ford Motor (NYSE:F). Tesla captures the full life-cycle value of its vehicles, selling direct, selling subscriptions to software, handling maintenance, even selling insurance. Don’t think of a Tesla Model 3 as just a $50,000 purchase, bulls say. Think of it in terms of multiples of that price, earned over many years.
Tesla has also scaled production, unlike most other EV makers. Tesla will make about 1 million cars this year, 73% more than last year. Bullish analysts estimate it will make 1.5 million next year.
Peak Tesla?
The arguments against Tesla stock remain the same as always: Tesla can’t keep it up, other car makers can make cars, yada yada yada. Analysts enjoy poking bears like Gordon Johnson of GLJ Research. But the stock is in a bear market.
(For those interested in a trading take on TSLA stock, read my InvestorPlace colleague Chris Tyler’s piece published this morning.)
There are many theories for this. One is that Musk himself is selling Tesla stock. Another is that being named Person of the Year represents peak Tesla.
Then there are product problems. A French taxi firm stopped using its Tesla sedans after one of its cars was involved in an accident. U.S. regulators are looking into its solar panels. Tesla’s reliance on electronics can cause problems for drivers when the company’s servers crash.
But the best argument against Tesla is the same as the best argument for it. Musk wasn’t Tesla’s founder. He joined it in 2004 after investing in the company, taking over only in 2008.
Shareholders got a hint of a post-Musk future during the company’s October conference call, which Musk didn’t attend. While the group led by CFO Zachary Kirkhorn repeated claims of growing production 50% per year. they remained diplomatic, even about government investigations into Tesla’s autopilot software.
The Bottom Line
If Elon Musk were to leave Tesla, the stock would have to take a short-term hit.
But what would the company be worth in the long term?
At its present rate of growth, it will still be 2025 before Tesla overtakes General Motors in sales. By that time GM will have 30 different electric models. Volkswagen (OTCMKTS:VWAGY) says it will be out-producing Tesla in electrics that year. We haven’t even mentioned China.
How dominant can Tesla be when electric vehicles are commonplace, when they’re no longer pre-ordered, when they’re not bought but sold? When Tesla is “just another” car company, will it still be worth its current sales multiple?
If you don’t think it will, don’t buy the stock.
On the date of publication, Dana Blankenhorn held a long position in MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. Just in time for the holidays he has a collection of COVID-19 stories at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.
