Tesla’s (NASDAQ: TSLA) CEO Elon Musk defended his company’s massive valuation during the car maker’s fourth-quarter earnings call yesterday. The tech tycoon said that there is a “roadmap to potentially justify” the market cap of $819 billion, even with Tesla shares up almost 700% in the past year and the company valued at 213 times projected 2021 earnings.
Shares were down as much as 6% in premarket trading this morning after Tesla’s earnings report received mixed reviews from shareholders. The company missed analysts’ estimates on Q4 earnings but still managed to notch another profitable quarter. The EV maker revealed adjusted earnings per share (EPS) of $0.80 versus $1.03 expected, while revenue came in at $10.74 billion versus $10.4 billion expected. The much-requested new version of the popular Model S sedan was also revealed on the call. Notably, Tesla nearly doubled its cash-flow positivity year-over-year (YoY) to $2.79 billion.
On the call, Musk ran through some key figures. Tesla generated $9.31 billion in automotive revenue in Q4 and said that EV deliveries would increase an average of 50% over the next year. The company also hopes to reach $50 billion to $60 billion in annual car sales and as Tesla’s self-driving technology is enhanced, those vehicles will soon become self-driving robotaxis. This would push average usage to go from 12 hours a week to 60 hours. Therefore, the auto manufacturer could also charge additional fees for those robotaxis, allowing it to generate more revenue per car.
Musk made a bold statement by claiming that even if usage were to only double, a $1 trillion valuation would still make sense. Musk explained:
“If you made $50 billion worth of cars, it would be like having $50 billion of incremental profit, basically because it’s just software.”
Based on the above formula, a multiple of 20 times earnings could potentially result in a $1 trillion market capitalization.
In the earnings report, Tesla also announced that its Full Self-Driving package will be available on a subscription basis rather than a one-off $10,000 addition announced earlier this quarter. This will give the company some much needed recurring revenue to allow it to keep working on the new technology.
At the moment, Tesla’s self-driving addition includes Smart Summon, which allows the driver to instruct the car to roll out from its parking spot to where the owner is standing, whilst Navigate on autopilot features can move the Tesla from a highway on-ramp to an off-ramp and can switch lanes. However, despite its name, the package is not fully self-driving as it still requires a driver to keep their hands on the wheel and has to remain attentive while driving.
Are robotaxis on the way?
Tesla may be too early in promising that its cars will eventually turn into robotaxis as the manufacturer isn’t even close to completing these capabilities. If we go back to 2016, the CEO promised that Tesla would complete a hands-free trip across the U.S. by 2017 — a task which still hasn’t been accomplished. After a mixed earnings report, the world’s largest electric vehicle maker might just have to find another way to justify its high valuation.
A MyWallSt subscription gives you access to over 100 market-beating stock picks and the research to back them up. Our analyst team post daily insights, subscriber-only podcasts and the headlines that move the market. Get your free access now!
MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.
Financial Writer at MyWallSt
Nicole's favorite stock is Etsy because she loves its original and handmade items. She believes people are going to stop buying mass-produced items and start purchasing ‘one of a kind’ fashions and furnishings. In a world of sameness, Etsy has the advantage.