Tesla CEO Elon Musk
On Tuesday, I mentioned that Tesla (TSLA) was headed toward a buying opportunity. This is due in part to the stock’s falling price, but also due to the way the company is perceived.
How should Tesla be perceived? Tesla is, first and foremost, an AI and robotics company.
FSD is an AI-driven robotic system. Basically, FSD enables a car to behave like a robot.
Tesla’s Cybercab is a robot that is also a car. Optimus is a robot that looks like, well, a robot.
Tesla currently sells zero Optimus robots, and zero Cybercabs. Similar products haven’t been available to the public in the past, so there are no available comparisons or reference points.
This makes it impossible to use traditional metrics to determine the future value of the company. Cybercab is expected to hit the market by 2027, with Optimus following by the end of that year.
Synergy on Steroids
Musk has the ability to exploit synergies that exist between his companies in ways that create value for shareholders. Not all of these synergies show up on Tesla’s balance sheet.
For example, Tesla is integrating Starlink, owned by SpaceX, into its vehicles. Meanwhile, SpaceX uses Tesla batteries, and xAI is integrating Grok AI into Optimus robots.
How do you place a valuation on this level of synergy?
The Last 10 Years
Tesla acquired Solar City in 2016. If you held 1,000 shares of Solar City at the time of the acquisition, you received 110 shares of Tesla.
Since the acquisition’s closing date, shares of Tesla have gained 2,680%. $25,000 invested in Solar City in 2016 is now worth about $670,000.
The Next 10 Years
Tesla’s current market capitalization is $1.09 trillion. Musk will collect a $1 trillion bonus if Tesla attains a market cap of $8.5 trillion within the next 10 years.
In order for that to happen, Tesla’s market capitalization must expand by about 740%. Assuming that the number of shares remains constant, Tesla would have to climb from its current $346 to over $2,500 per share within the next 10 years.
A skilled, motivated CEO with skin in the game? I wouldn’t bet against him.
Using an Edge
As with Solar City, a variety of M&A transactions are possible that could potentially benefit shareholders.
Last year, Musk’s AI company, called xAI, acquired Musk’s social media company, called X, for $33 billion. Since neither was publicly traded, many aren’t aware this transaction occurred.
Musk’s EV company acquired a solar panel company. His AI company acquired his social media company. If Musk sees an edge, he’ll use it, often to the benefit of shareholders.
Money to Burn
Just a few years ago, Tesla was a money-burning machine. The company went through five CFOs in 15 years. Detractors used the symbol $TSLAQ on social media, a prediction that Tesla would eventually need to file for bankruptcy protection.
If those detractors shorted Tesla, I hope for their sake they covered.
While past performance isn’t indicative of future results, I’d rather bet on Musk than against him. I remain long Tesla, with no intention to sell.
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At the time of publication, Ponsi was long TSLA.
