Tesla Motors Inc (NASDAQ:TSLA) continues to capture people’s imagination, and now Goldman Sachs analysts have raised their price target on the automaker’s stock. Their price target went from $180 to $200 a share, which implies a 15% downside because they believe upside from the transformation of the auto industry and the grid storage industry is already baked into the share price.
However, they do consider what would happen if Tesla Motors Inc (NASDAQ:TSLA) is able to disrupt more than just the auto industry. Unlike other analyst reports which illustrate Tesla’s plans for moving into energy storage, they have focused on consumer durables and consumer electronics, in addition to the auto industry.
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Applying past disruptions to Tesla
Analyst Patrick Archambault has set forth five potential paths for Tesla Motors Inc (NASDAQ:TSLA) to take over the next several years. Three of them suggest if CEO Elon Musk becomes more like Apple Inc. (NASDAQ:AAPL)’s Steve Jobs, Ford Motor Company (NYSE:F)’s Henry Ford or the Maytag repairman. All of these three scenarios offer suggestions of industries which Tesla could disrupt. The other two potential paths are his base and downside cases for the automaker, but it’s the disruptive paths which are the most interesting.
Here’s a look at Goldman’s chart summarizing the five potential cases. Each of them represents a path out to 2025.
Of course each of the five scenarios set forth by Archambault offers different growth paths. Their volume projections in comparing Tesla Motors Inc (NASDAQ:TSLA)’s growth to that of Apple Inc. (NASDAQ:AAPL)’s iPhone and consumer durables (like Maytag), bear a similar pattern. They both start off at a faster pace of growth and then slow down after about five years because of competition. However, the comparison with Ford Motor Company (NYSE:F) shows a steady growth pattern and implies the highest net present stock value at around $478 a share.
If Tesla’s Musk is the next Steve Jobs
Basing Tesla Motors Inc (NASDAQ:TSLA)’s growth on that of Steve Jobs’ iPhone, the analyst looks at demand trends. Because cars have a much longer life cycle of about 20 years, compared to the three-year life of a smartphone, they have adjusted the adoption patterns. They estimate volume units for both EVs in general and Tesla units. This model implies that by 2025, long-range EVs will make up more than 4% of global auto sales with Tesla having a 65.5% share of the market.
This model suggests that Tesla Motors Inc (NASDAQ:TSLA) would see its market share peak in 2021. They estimate that in 2015, EV volumes will hit 4.7 million and Tesla volumes would hit 3.1 million, based on the adoption trend for the iPhone. This also suggests that by 2025, Tesla could have earnings per share as high as $78.
This applies a present value for Tesla shares of $442 a share, according to Archambault, who based it on “the average of future values from 2019-2025 discounted back at a 20% cost of equity (15% for slower growth periods).”
Archambault says his first conclusion, which suggests that Elon Musk is the next Steve Jobs,
If Tesla’s Musk is the next Henry Ford
In the second scenario, the analyst compares Tesla Motors Inc (NASDAQ:TSLA)’s growth to that of Ford Motor Company (NYSE:F)’s Model T. They used the U.S. car sales penetration growth as a proxy for the penetration of long-range EVs. This suggests that the EV market grows to 6 million units or 5.4% of global auto sales. Tesla would have more than 55% share of the EV market with 3.3 million vehicles, which implies a 3% share of the global auto industry by 2025.
This is the highest in terms of volumes for Tesla, so their share price estimate under this scenario is $478. They based this valuation on “three-year forward revenue PEG ratios that converge toward 1.5x” and then “use those multiples to value Tesla on each year’s earnings and take the average present value of the company’s shares from 2019E through 2025E.”
In order for Tesla Motors Inc (NASDAQ:TSLA) to achieve this kind of growth, the company would obviously have to introduce an even less expensive Generation IV vehicle (cheaper than the Gen III) by 2020.
If Musk is the next Maytag repairman
The third disruptive scenario set forth by the Goldman Sachs team is transformation in the consumer durables industry, which includes major appliances—thus, the comparison to the Maytag repairman. They borrowed the share progression from that of the Model T because this one would be rather fragmented across multiple products.
In this case, the EV market grows to 3.3 million annual sales or 3% of global auto sales, Tesla Motors Inc (NASDAQ:TSLA) would have a 55% share of the EV market and 1.6% of global light vehicles by 2025. The result would be slower adoption rates than the other two, and thus, a lower present share value of $329, which still suggests substantial upside to the current share price.