Elon Musk made another one of his predictions.
On Wednesday evening’s earnings call, the Tesla CEO claimed that his company, a maker of niche luxury cars, would someday be worth more than Apple and Saudi Aramco. Combined. Together, those companies are worth approximately $5 trillion. Tesla’s market value is $650 billion – down 7% after the company walked back a projection of 50% growth this year.
Although Musk’s statements imply that Tesla shares are an incredible value, given his claim that the company will someday be worth over five times what it is now, he is poised this month to sell a substantial number of the approximately 155 million shares he holds.
Why? To buy Twitter, of course. At $54.20 a share, he is “obviously overpaying” for Twitter, Musk said on the earnings call. Because it will also have “tremendous potential,” he argues.
But investors should beware: Despite his sometimes deserved reputation for bringing the future closer to reality, Musk also has a penchant for overpromising and underdelivering.
Musk said his cars would drive themselves, and they do not. Musk said the Tesla Model 3 would cost a mere $35,000, and it does not. Musk said that, using robots, he could turn the company’s original factory in Fremont, California, into a fully-automated “alien dreadnought” populated by nothing but artificial intelligence, a world in which all of those pesky humans who want to be paid and treated fairly (California has sued Tesla alleging hundreds of complaints from Tesla workers about racism in the factory) have been replaced. Musk later apparently came off this idea, saying “robots are very bad at picking up fluff.”
The point is, Elon Musk promises a lot of stuff. Most of it hasn’t happened.
Investors, however, continue to bet big on Tesla. That’s because the company’s share performance isn’t based off of where Tesla is now, it’s based off of where it is going – or where Musk convinces investors it is going: Tesla’s cars will drive themselves. They won’t just be personal transportation vehicles as we know them, but mobile money streams themselves, each car hiring itself out when its owner doesn’t want to be driven by it. Their full potential value – over $100,000 each, as Musk puts it – will finally be unlocked.
So surpassing the value of Apple and Saudi Aramco is certainly not out of the realm of human possibility. After all, we’ve seen things much unlikelier come to fruition in the financial markets.
By toeing the line between promising and promoting Musk has succeeded in making the two nearly indistinguishable. Regulators have had some things to say about that, of course
But investors should look closely at what Tesla is, right now. It could provide a better predictor of where Tesla is going than the statements from the CEO with deeply vested interests.
Its second quarter profits were 47% higher than GM’s (GM reports third quarter earnings next week), yet Tesla is worth more than 13 times as much as its century-old competitor. Which, by the way, has a real $30,000 electric vehicle for sale.
Tesla will add vehicles to its lineup, Musk claims. It’ll make a pickup truck. A sports car. An ATV. A full lineup of stuff that is promised, but that no one has ever seen being driven by a customer ever.
But Tesla makes four cars now. A full-size SUV, which competes with other full-size offerings from Mercedes, Porsche, Volkswagen, Audi, BMW, General Motors, Toyota, and many others. A full-size sedan, which competes with similar.
And a smaller SUV and a smaller sedan, which do the same. And, if we’re being charitable, let’s say Tesla makes the Semi, too, even though it has not delivered any.
So what we’ve got is a car company that makes four cars and a truck. Mercedes, by contrast, offers at least 40 different models globally, by my count. Sure, Mercedes does not quite offer as many purely electric cars as Tesla, but it’s already got two this year with more on the horizon. Much more than four cars and a truck, at least, and it has the demonstrated history of doing so.
That does not exactly add up to a company that beats Apple and literally Saudi Arabia’s state-owned oil company.
Tesla may do amazing things. You just need to wait.
Correction: An earlier version of this story misstated the combined value of Apple and Saudi Aramco. It is approximately $5 trillion.