Tesla Motors boss Elon Musk thinks the $25 billion electric automaker could be worth $700 billion or more in 10 years' time. But Musk's assumptions for Tesla's future look heroic.
Tesla's 57 per cent revenue growth in the fourth quarter from a year earlier was impressive, and the company thinks it can deliver about 75 per cent more cars this year than last. Yet, Tesla isn't quite hitting its earlier projections. Last summer, Musk anticipated delivering 13,000 Model S cars in the quarter to December, but deliveries fell about 25 per cent short of that. The company also burned $455 million of cash as it prepared for the delayed launch of the Model X.
Musk, though, is eyeing a much bigger picture, saying on a call with investors that Tesla would "spend staggering amounts of money on capex" because the opportunities are so great. Besides cars, the company plans this year to ship battery systems for home electricity storage.
The entrepreneur mused on the notion that Tesla could be worth some 30 times its current market value in a decade, assuming a forecast $6 billion of sales in 2015 can grow 30 per cent annually, the company makes a 10 per cent net margin, and investors attach a valuation multiple of 20 times earnings. Do the math, and it doesn't quite get there. At Musk's already aggressive growth rate, it would take more than 15 years to reach a $700 billion valuation. To do it in a decade, Tesla would have to increase its top line at 50 per cent per year.
Either way, it's a shift in outlook from Musk's comments in 2013 that Tesla's valuation was "more than we deserve." The vision also calls for a consistently astonishing rate of growth.
Apple has shown that it's possible. But there's only room for a tiny number of companies to grow that much faster than the global economy for that long. Rivals catch up, new technologies emerge, big companies grow lethargic, and markets get indigestion. Cisco Systems Chief Executive John Chambers predicted during the dot-com boom that his company could grow 30 to 50 per cent annually over the long run. It has since averaged about seven per cent.
Musk didn't make his billions and redefine markets for online payments, electric cars, space rockets and solar panels by thinking small. But Tesla's problems show that there are some very down-to-earth challenges to overcome along the way.
Tesla's 57 per cent revenue growth in the fourth quarter from a year earlier was impressive, and the company thinks it can deliver about 75 per cent more cars this year than last. Yet, Tesla isn't quite hitting its earlier projections. Last summer, Musk anticipated delivering 13,000 Model S cars in the quarter to December, but deliveries fell about 25 per cent short of that. The company also burned $455 million of cash as it prepared for the delayed launch of the Model X.
Musk, though, is eyeing a much bigger picture, saying on a call with investors that Tesla would "spend staggering amounts of money on capex" because the opportunities are so great. Besides cars, the company plans this year to ship battery systems for home electricity storage.
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Either way, it's a shift in outlook from Musk's comments in 2013 that Tesla's valuation was "more than we deserve." The vision also calls for a consistently astonishing rate of growth.
Apple has shown that it's possible. But there's only room for a tiny number of companies to grow that much faster than the global economy for that long. Rivals catch up, new technologies emerge, big companies grow lethargic, and markets get indigestion. Cisco Systems Chief Executive John Chambers predicted during the dot-com boom that his company could grow 30 to 50 per cent annually over the long run. It has since averaged about seven per cent.
Musk didn't make his billions and redefine markets for online payments, electric cars, space rockets and solar panels by thinking small. But Tesla's problems show that there are some very down-to-earth challenges to overcome along the way.