With the story du jour of electric car wunderkind Tesla so far only just that, a story (inasmuch as the gorgeous Fisker Karma was also just that at least until the day it transformed into a bankruptcy filing), if one that has cost shorts dearly including their shirts, slowly the company's fundamentals are coming into view. And just as importantly, the question of how it all clicks together.
To assist with that, Reuters Breakingviews has compiled an interactive forecast that models how many cars luxury (for now) car maker would needs to sell (hopefully not all at the EBT-ineligible $100K price point) in order to grow into Elon Musk's target market cap of $43 billion, or roughly where GM is right now. The answer: a base-case assuming a 15x P/E multiple in 2022, a 12% pretax margin, and a 25%/25%/50% split between the Model S ($100K), Model X ($75K) and the still to be disclosed "Bluestar" lower-priced car ($40K) , results in a mindblowing 537,815 cars that will have to be sold in 2022, implying a 35.5% annualized sales growth from the 35,000 cars projected to be sold in 2013 (even if today's numbers did not quite validate this runrate), a cumulative total over the next decade of just under 2,000,000 Teslas.
Idiotic? Ridiculous? Absolutely. But crazier things have happened.
Where it gets really fun is if the priced to perfection model does not quite work out as expected, and instead of the "base case" we get a world in which the premium electric car buyers shift their attention to someone with a newer, better, cooler proposal (couldn't possibly happen, right Apple?), in which the market reprices the growth in the story, and in which margins tumble. For the sake of simplicity, let's assume a 10x PE multiple in 2022, a 5% pre-tax margin, and all sales dominated by the lower end car model.
In that case Reuters would need a far bigger chart, because in that case Tesla would not to sell not less than a gargantuan 3,085,714 cars in 2012 to "grow" into its projected market cap, a 64.5% sales CAGR! It also means that over the next decade, Tesla will have to sell a cumulatve 7.8 million electric cars.
Oh, and just to keep it simple, we won't dwell to much on how many tens of billions Tesla would have to invest to develop a recharging station infrastructure that can support between 2 million and 8 million cars sold over the next decade. That's a bedtime horror story best left for another time.