Jim Cramer: Goldman’s Tesla Motors Note Is ‘Hilarious’
On Tuesday, Goldman Sachs analyst Patrick Archambault laid out an interesting series of valuations for Tesla Motors (NASDAQ:TSLA). In a research note, Archambault put a $200 price target on shares, arguing that by itself, Tesla’s automobile business is worth $180 per share and the storage business is worth another $20. However, he laid out a series of hypothetical scenarios valuing the company as if it had the magic mojo of a historic business leader.
It’s no secret that leadership can make or break a business. Think General Electric (NYSE:GE) after Jack Welch stepped down, Microsoft (NASDAQ:MSFT) after Bill Gates stepped down, or Apple (NASDAQ:AAPL) after Steve Jobs died. Each company enjoyed a tenure under an iconic leader that either built the business from the ground up or took the business to a new level. These are people who feature prominently in stories about the company’s success and in analyses of its valuation. Someone like Jobs was a force of nature unto himself, for better or for worse.
What Archambault did was imagine a Tesla that will be able to accomplish what Apple did under Steve Jobs. What if Tesla vehicle sales growth mimics that of the iPhone? What if Tesla takes an enormous share of the premium electric vehicle market at the same time that the electric vehicle market explodes?
Archambault makes some assumptions — 3.06 million Tesla vehicle sales in 2025, 2.7 percent of the global market — and puts a price target of $336 on the stock if CEO Elon Musk can do for Tesla what Jobs did for Apple.
In an alternative scenario, Archambault evaluates what Tesla could look like in 2025 if Musk instead does for Tesla what Henry Ford did for Ford Motors (NYSE:F). This scenario assumes that Tesla digs into the mass market and produces a more affordable vehicle at higher volume. “As this is the highest of the volume forecasts,”Archambault wrote in his report, “it is not surprisingly the scenario with the highest [present value] for Tesla shares of $478.” Revenue in 2025, according to his model, is implied at $172.5 billion.
A third scenario uses the Maytag repairman as inspiration. This scenario allows Tesla approximately 55 percent of the total electric vehicle market but assumes a weaker overall electric vehicle market. Revenue in 2025 in this scenario is projected at just $99.9 billion. This compares against baseline 2025 revenue estimates of about $50.5 billion.
Speaking on CNBC’s ”Squawk Box” on Tuesday, Jim Cramer referred to these valuations as “hilarious” — not dismissively, but because “Tesla is the new Apple,” at least in the eyes of the market. The valuation of Tesla’s stock is inflated by the idea that the company will disrupt the market and come to define the gold standard in electric vehicles. If the company can maintain this position throughout the expected expansion of the electric vehicle market, then why not assume that Tesla will increase revenue by ten times between 2013 and 2016, as Morgan Stanley analyst Adam Jonas argued in a note at the beginning of March?
Jonas also argues that Tesla will increase revenues by nearly thirty times by 2020 and by around sixty times by 2028, so why not use a fifteen-year time horizon and slap a $320 price target, representing possible upside of about 36 percent over the current share price?
Tesla stock is already up 60 percent this year to date and more than 580 percent year over year, making it one of those rocket ship investments that nobody seems to know what to do with anymore. The mean analyst consensus for the stock is $229 per share, below where it traded on March 18. Remember that for all the scenarios, Archambault’s baseline price target is $200.
A lot can happen in fifteen years, and Tesla occupies a market niche that will evolve rapidly and likely unpredictably in that time. There’s also the business of the Gigafactory, which could be an enormous catalyst for Tesla in and of itself.