Hey, I’m Steven and this is Solving The Money Problem.
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On Tesla’s recent Q4 2019 earnings call, Elon Musk reiterated his confidence that Tesla
can maintain a growth rate of over 50% per annum.
For anyone who’s ever looked at the effects of compounding growth over time, this should
blow your mind.
I’m not here to debate whether or not it’s possible--you guys can do that in the comments
below.
I’m simply going to look at what happens IF Tesla pull this off.
How will Tesla’s business look throughout the 2020s, with an average annual growth rate
of more than 50%?
How many vehicles does that equate to?
How much revenue?
How many Gigafactories?
How much storage deployment?
How much solar?
This is not going to be a perfect analysis.
It’s a back of the napkin look at some ballpark scenarios that we as Tesla investors, fanboys,
haters--or whoever else is here--can consider and ask ourselves “What if?”.
At a really basic level, if Tesla increases its revenue, it’s stock price will increase.
I know that statement just triggered a bunch of you finance nerds so calm down.
Before explaining how that’s not always true, may I remind you, I just said “ballpark”
and “back of the napkin”.
We’re going on a big-picture, conceptual journey here ok, relax.
Don’t miss the forest for the trees.
Now that’s out of the way, let’s see what the future may hold for Tesla if this 50%
growth rate is maintained.
History
Since its inception,Tesla has grown revenue at WELL above 50% annually--well above 100%
actually but if we take the last 6 years, the average is 54%.
If we take the last 3 it’s 55%.
Maintaining a 50% rate of revenue growth becomes exponentially more difficult over time.
It’s easy when the numbers are small.
The bigger they get, the harder things become.
$10 million to $15 million is typically easier than $10 billion to $15 billion.
Yet Tesla seems to be doing what it needs to to keep this up.
To do so, Tesla must continually evolve.
They have to do things differently.
Better.
Manufacturing processes must improve.
The products must improve.
New efficiencies must be found.
Whole new ways of doing things need to be invented.
And this is what we see.
One look at Tesla's patents, or evolving gigafactory designs, or newly announced product lines
or lower capex spending per unit of capacity--all point to Tesla’s willingness to adapt and
evolve while continuing to scale.
Tesla’s track record is good.
This matters.
Vehicles
In 2019 Tesla delivered 367,200 vehicles.
About 0.4% of the global auto market.
There’s definitely room to grow.
If a 50% growth rate is maintained throughout the 2020s, Tesla will deliver 550,800 vehicles
in 2020, 826,200 in 2021 and 1,239,300 in 2022.
Fast forward to 2029 and Tesla will deliver 21,174,602 vehicles.
That would be about 23% of the global market.
This is a stretch but Tesla has maintained around an 18% global market share of EVs thus
far.
Even 18% of a 90 million strong global market is more than 16 million vehicles annually.
However, car ownership has probably peaked.
Transport on demand is here to stay.
Robotaxis will totally nullify the need to own a vehicle.
Tesla probably won’t sell over 20 million vehicles in 2029 but they don’t need to.
They have other products.
Solar
The giant fusion reactor in the sky known as the sun emits enough energy in 1 hour to
power the earth’s needs for a year.
Almost everything on earth is already solar powered.
If you know your science, you’ll understand this.
If not, your homework for today is to learn about photosynthesis and the food chain.
Solar technology is following a declining cost curve meaning over time, solar becomes
cheaper and more efficient.
Harnessing the power of the sun is a no-brainer.
We don’t have to do anything to generate the power, we just need to capture it.
It’s a free lunch--well, until the sun becomes a red giant, boils the oceans and destroys
all life on earth.
But we don’t have to worry about that for a while.
In the mean time, solar panels and solarglass roofs will become ubiquitous as they continue
to fall in cost and improve in efficiency.
The economics assure this.
Tesla solar took a back seat during the Model 3 production ramp but it’s now back in full
swing.
Solar is destined to become the primary source of energy on earth.
Tesla will have no problems scaling here.
Storage
The way today’s power grids work is really stupid.
I mean, it’s cool that we have energy on tap but to continue the analogy, it’s basically
like having every tap in your house running at full speed 24/7, wasting water, just so
the moment you need some H20, it’s already there.
In today’s energy networks, electricity is effectively generated on demand.
This is why we have peak rates.
If lots of people are using power at the same time, more power plants need to be online
to cater to demand.
That’s when peaker plants kick in.
This is SO dumb.
Instead of pissing away unimaginable amounts of money paying peak energy rates because
everyone is using their air conditioner at the same time.
Energy can be generated ahead of time, stored in batteries and used when it’s required.
This greatly reduces waste and costs.
Plus, if you have solar, your stored energy is free and if you have a surplus, you can
sell it.
It’s actually a money printer.
The payback period for rooftop solar and home batteries is still many years away but this
is falling rapidly.
The payback period for large scale battery storage in grids, however, is almost immediate.
And this is where Tesla will generate the bulk of its revenue -- from its grid-scale
Megapack and supporting software.
The Hornsdale battery project in South Australia is a prime example of the incredibly compelling
economics of using batteries and smart software to provide power.
At a cost of $90 million Australian dollars, it saved energy customers $50 million in its
first year of operation and saved the day more than once, stepping in to stabilise the
grid when it would otherwise have imploded and caused widespread blackouts.
Tesla’s storage business is set to explode as towns, cities, governments, states, utilities
and even entire islands implement storage in their power grids, businesses and homes.
In 2019, Tesla energy, which includes solar and batteries, did $1.531 billion in revenue.
Elon Musk has said he believes energy can grow to be even bigger than their vehicle
business.
If we see 50% growth on energy revenue, by 2025 we’re looking at $17.4 billion and
by 2029, $88.3 billion.
Personally, I think Tesla will be doing well above this number.
Gigafactories
In April, Tesla will host the battery and powertrain investor day to explain how they’ll
achieve annual battery output of multiple terawatt hours.
My suspicion is that the plan involves licencing its tech to other automakers and possibly
partnering to build factories.
Either way, SOMEBODY needs to build a lot of factories.
When fully expanded, I suspect each gigafactory will be capable of producing around 1 million
vehicles per year.
Tesla continues to optimize and find new efficiencies everywhere, like the genius Cybertruck which
will require a tiny factory footprint to manufacture.
We know Tesla’s existing facilities have scope for expansion like Gigafactory Berlin
for which documents suggest planned annual output exceeding 750,000.
Let’s assume future gigafactories will be built with multiple expansion stages in mind
too.
That means that Tesla will need at least 20 gigafactories by 2029, each producing 1 million
vehicles per year.
But that doesn’t really account for storage, or the fact that Tesla may supply batteries
to other automakers.
Taking that into consideration, they’ll probably need well in excess of double that
number of gigafactories.
It’s very hard to know exactly but it will be a LOT.
This is why I think partnerships are in the future of Tesla.
Software and Robotaxis
Tesla’s software revenue will only grow over time as full self driving is achieved
and the in-car infotainment goes to a whole other level.
And then there’s software purchases like the $2,000 acceleration upgrade.
And who knows what else will come.
That point is that software revenue is a small slice of Tesla today, but will be a major
piece tomorrow.
Software is a very high margin business.
And let’s not forget the robotaxis.
When Tesla’s autonomous fleet awakens, they tap into a potentially multi-trillion-dollar
market and look poised to take a huge slice.
This one thing -- robotaxis -- could cause such a dramatic step-shift in annual revenue--and
more importantly, profit margins--that a 50% compounded rate of growth may look embarrassingly
conservative in 2029.
And that brings me to revenue.
This is the main metric to focus on.
This is what we’re really talking about when we’re saying “50% growth”.
In 2019, Tesla did $24.6 billion in revenue.
By 2024, this compounds to $186 billion.
By 2029, $1.4 trillion.
Yes, you heard me right.
$1.4 TRILLION.
With a “t”.
For context, in 2019, Apple did $260 billion in revenue, Amazon did $280 billion and Microsoft
did $126 billion.
Each of these companies is worth more than $1 trillion dollars today, while Tesla is
around $130 billion.
Over time, Tesla’s margins will grow not only due to never ending optimization and
declining battery/computer costs, but much more importantly, as software becomes a larger
piece of the pie.
Again, for reference.
Let’s look at Tesla’s recent revenue history.
If this isn’t exponential growth, I don’t know what is.
By the way, the site I’m using here, which has featured in many of my videos, is HyperCharts.co.
It’s my favourite way to look at the numbers for stocks.
They’ve sponsored today’s video with a great offer.
If you sign up for an account with the link in the description, you’ll get 1 free month
of premium access which allows you to enter your own estimates, get quarterly results
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and plenty more.
So, if Tesla grows at 50% annually, we’re looking at a company doing well over $1 trillion
in revenue by the end of the decade.
Roughly 60 times as much as today.
Do you think Tesla will pull this off?
They haven’t given me any reason to doubt, and their Master Plan outlines a pretty clear
path to make this happen.
The question I want to leave you with is this:
If Tesla does grow revenues by 60 times this decade, and if Tesla’s margins continue
to improve as software becomes a larger piece of their business, what does the company’s
valuation and its stock price look like?
I’m no genius but I have a feeling that Tesla stock may be a worth a little more than
it is today, if they can pull it off.
Do you?
I’m Steven Mark Ryan, this is Solving The Money Problem and I love you all.
Thanks for much for watching.
Let me know your thoughts in the comments below.
Do you think Tesla can maintain a revenue growth rate over 50% for the next decade?
What are their biggest challenges.
How will they reach this scale?
And of course, if you have any ideas for future videos, let me know.
I read ALL your comments.
p.s.
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