“Yes, you read that correctly.” Not many stock market updates contain lines like that, but then again, not many companies are Tesla (NASDAQ: TSLA).
That quote refers to a pay package that, providing certain conditions are met, would make Elon Musk a trillionaire. Not bad work, if you can get it.
Those conditions are demanding, however, including selling 20m Tesla vehicles, 1m robotaxis, 1m robots, and increasing the value of Tesla stock to $8.5trn inside a decade. The market cap of around $1trn at the announcement of the deal would mean handing a 750% return to shareholders.
While those targets might seem implausible, this isn’t Musk’s first rodeo. He smashed the last round of targets, pocketing a cool $56bn in the process. The markets liked the news too, with the share price up 3.64% on the day. The big question for me though: is there a cat in hell’s chance of any of this happening?
Challenge
The scale of the challenge here is immense, and that might be understating it. Tesla already has a stretched valuation. It trades at over 200 times earnings and over 100 times forward earnings. Compare the forward figure to other Magnificent 7 luminaries like Nvidia at 40 or Alphabet at 24.
For the Austin-based firm to meet the $8.5trn market cap would require an outrageous amount of earnings growth. Doing a spot of back-of-the-envelope maths, last year’s earnings of $8bn would need to grow to something like $200bn should the valuation lower to near the levels of those other huge tech firms. Tesla is already a trillion-dollar firm and yet it’s aiming to multiply profits twentyfold or more!
Some hope?
Hope may yet spring eternal, however. Grounds for optimism may rely on Musk’s track record. When he’s not getting involved in controversial political stuff, he has a habit of doing special things with companies.
Tesla’s domination of the electric vehicles market was spectacular before Chinese firms started catching up. SpaceX has similar domination in its field. Around 90% of payload being sent to space is delivered by Musk’s space firm. That’s not 90% for the US, it’s 90% for the entire world.
With Tesla having its finger in pies like robotics, electric vehicles, self-driving technology, and increasingly artificial intelligence through xAI, there are plenty of areas for the firm to dominate world-changing technology over the next decade.
It’s for these reasons that I believe the stock is worth considering and why I own the shares myself. The caveat being that I wouldn’t like too much exposure to these speculative growth stocks with eye-watering valuations. In the event of a stock market crash or correction, these types of stocks have a long way to fall. In Tesla’s case though, I think it’s worth it. The stock may even hit that outrageous $8.5trn target.
