About Tesla price target of 67 USD that was broached a few weeks ago, there should be some debate primarily motivated by Gordon Johnson of GLJ research. 67 dollars will be about 8% of today’s price. So we are looking at a decline of almost 92% of today’s price. Leave alone the projected decline. Is it worth the share price of 885 dollars today?
The real question is
Are companies valued on the growth rate of existing businesses or the probability of new businesses being added? It is one thing you can’t trust Musk whether he will act in the best interest of his stock holders. His satellite business is not part of Tesla.
But let’s assume away from that Trust issue. The EV business has TTM revs of 60B. Projected growth is about 90%. Next year revenue 110B. EPS of 16 for a PE of 53. Solar business is 2B – mostly run as a charity so it makes a loss. The revenue growth in the solar business is not that exciting – it appears this is a highly competitive low margin business. Most customers will buy from Solar City a division of Tesla given the Tesla brand name only if it is price competitive.
However, Tesla has other financial services including insurance. Musk is an extra smart finance guy. Think PayPal! Starting from nothing, Musk sold PayPal to eBay for billions and today is a multibillion dollar fintech.
Now the big invisible elephant in the room is Tesla phone – a satellite phone. Not sure how real this is and how Musk will monetize this. Apple iPhone revenue is 191B last year. Verizon and Ma Bell wireless revenue is approximately 150B last year. In one swoop Tesla may eat both businesses slowly if the Satellite phone is successful.
If it takes a 25% share to start, then we are talking 85B a year. Really bad news for Verizon and T and even Apple. Beware Warren Bufett!
Tesla will have revenues close to half Trillion in the next five years if the T Phone launches in 2023. Tesla price to sales will be just 2. But not sure about EPS as he may just subsidize the phone heavily.
Given the cult following for Tesla cars this ecosystem will begin to dominate just like the Apple Model. I know there are too many assumptions including the Musk trust factor.
But you have to recognize the possibility of hidden businesses that are in the oven but not fully launched yet. Shareholders today are paying a premium for this bag full of surprises.
