In February 2015, it was widely reported that the CEO of Tesla Motors Inc , Elon Musk, had told investors (in a company earnings conference call) that his firm could be worth $700 billion by 2025. Musk’s comments were met with skepticism and even a little outrage. When he made these claims, Tesla’s stock was trading at around $200 – $220 per share (throughout the month of February.) Tesla’s market capitalization currently stands at $31.90 billion.
The California based electric vehicles manufacturer has made very little, if any progress since Musk made the comments. According to an article published on CNN Money, he said that Tesla could have the same value as Apple Inc. , saying “Our market cap would be basically the same as Apple’s is today.”
Despite Weak Market Cap Growth, Tesla Motors Inc Has Made Progress
Although Tesla Motors Inc’s market capitalization (which is calculated by multiplying a firm’s current share price by the number of shares issued) hasn’t increased significantly, the firm has taken important steps to reach its target. For example, they unveiled their new EV (Model 3), targeted at the mass market on the 31/03/2016. Typically, Tesla produces luxury EVs, but the Model 3 has a starting price of just $35,000 & initial deliveries are planned for late 2017.
Within just a couple of months after the launch, nearly 400,000 potential customers had paid a $1,000 reservation fee, giving Tesla access to $400 million. The funds will be invested in their manufacturing infrastructure, increasing their production capabilities. The company is building a lithium-ion Gigafactory in Nevada, which is scheduled to open later this month. 12 “golden tickets” have been given to random Model 3 buyers, inviting them to the Gigafactory’s opening. Furthermore, another factory in China is being built as part of a $9 billion joint venture.
Therefore, Tesla is successfully moving towards the mass market, & is taking necessary action to meet demand, yielding greater revenue.
Elon Musk’s Reasoning for Tesla’s $700 Billion Future Valuation
To reach a market cap of $700 billion by 2025, the firm’s stock needs to rally by around 2,000%. This would be an astonishing achievement, yielding great returns for shareholders. Essentially, the $700 billion valuation was based on a 50% annual increase in sales revenue, & a 10% profit margin, giving the Tesla an annual revenue of $346 billion for 2025, & a profit of $34.6 billion. Typically, firms tend to give themselves a valuation which is around 10 – 15 times their annual profit, but Musk would need a factor of 20 to reach $700 billion.
Tesla Motors Inc Needs High Oil Price
Theoretically speaking, a higher oil price should result in more demand for electric vehicles – potentially, a Tesla. Therefore, a rising oil price would be good for Tesla Motors Inc , & it could prove to be a very important component of Tesla’s future success. Based on economic theory, as the supply of a resource becomes more limited, its price increases. As crude oil is a finite resource, its supply, & thus price should increase over time, potentially aiding the electric automobile industry. A barrel of Brent Crude currently has a price of $49.84, recovering from the lows (around $30 per barrel) earlier this year.
In other related news, it has recently emerged that the driver of a Model S, who was killed in a crash, may have been watching a Harry Potter movie when the incident occurred. The crash took place in May, 2016.