NEW YORK (TheStreet) -- Tesla Motors (TSLA) CEO Elon Musk has been compared to former Apple (AAPL) CEO Steve Jobs in the press quite a bit, but this is the first time I can recall the comparison is coming from Wall Street.
In a research note to clients, Goldman Sachs analyst Patrick Archambault, who put a new $200 price target on shares, compares Musk, who's co-founded Tesla, PayPal, and SpaceX, to the legendary co-founder of Apple, as it relates to the Model S being like the iPhone. "Given the much longer 20-year product life cycle of a car relative to the three-year life cycle of a smartphone, we adjust the adoption patterns in our analysis to reflect this," Archambault said in the note. "By extrapolating the change in smartphone penetration rates within handsets and growth in iPhone sales relative to smartphones from 2003 through 2011, we are able to derive volume forecasts for both electric vehicles and Tesla units."
Archambault noted that while long-range electric vehicles will only have 4% of total global auto sales by 2025, Tesla will own 65.5% of that market, which equates to 2.7% of the light vehicle market, which would be good enough for 3.1 million units. That would imply a present value of $442 per share, nearly double what Tesla's shares are currently trading at. Archambault's forecast is similar to Morgan Stanley's Adam Jonas, who believes that Tesla will own 0.9% of the global car market by 2025. Jonas has a $320 price target on shares.
In Tesla's fourth-quarter, the company delivered 6,892 Model S units around the globe, and expects to deliver 35,000 vehicles in 2014, a far cry from 3.1 million vehicles.
As the smartphone market really began to take off in 2003, relative to overall handset sales, Archambault is using a 2017-2025 time frame for electric cars as a percentage of the overall market. He thinks that electric cars are as revolutionary as smartphones were in 2003, with Tesla and its aforementioned Model S being the leader. The major difference however, is that cars have a much longer life frame than phones do, with smartphones averaging around three years in life, with cars potentially being multiples of that.
The iPhone was introduced in 2007 at Apple's WWDC conference in June, and since then has revolutionized the smartphone market, despite smartphones having been around well before that, with BlackBerry BBRY being the predominant name. In Archambault's case, he thinks both electric vehicles and Tesla take off at the same time, as Tesla dominates the electric vehicle market against other original equipment manufacturers (OEMs).
If the Model S and Tesla have an "iPhone-like" effect on the electric vehicle market, Tesla's earnings in the out years could be way beyond what anyone is thinking now. Archambault puts Tesla's 2025 earnings at $78 per share, with 33% variable margins and EBIT (earnings before interest and taxes) margins at 15.5% in 2025, up from less than 5% last year. Though $78 per share is a far cry from where Tesla was in 2013, it's not impossible, it's just going to be very costly to get there. The analyst estimates Tesla needs to raise another $6 billion in capital by the end of 2018 to help build plants, including the much-talked about Gigafactory, which Tesla has said will allow it to reach production unit rates of 500,000 cars per year by 2020.
If that is indeed the case and Tesla gets to $78 per share in earnings by 2025, growing revenue at a 41% CAGR (compound annual growth rate) off 2013, then the company is worth significantly more than what it's trading at now, at $442 per share. Archambault uses future values from 2019 to 2025, but uses a 20% discount rate because that's when Tesla conceivably begins to see the huge upside in volume.
Getting to 3.1 million units from just over 20,000 is an enormous task, even if by that time, Tesla will have launched the Model X, and the third-generation car, dubbed the Model E, which Musk has said he wants to cost between $30,000 and $40,000. That 3.1 million number would put Tesla ninth in OEM sales in 2025, making it bigger than BMW and Daimler, according to IHS. If that is indeed the case (and it's a big if), Tesla's market cap could conceivably be $61 billion today, making it far bigger than General Motors (GM) or Ford (F), and could be worth as much as $293 billion by 2025, "on a future value basis using the average future values and shares outstanding from 2019E to 2025E. On a present value basis, Tesla's market cap would be in the thick of the global autos, slightly above Ford and GM. However, on a future value basis, this would put Tesla well above today's cap for the autos, but below the giants like Apple, ExxonMobil, and Microsoft."
--Written by Chris Ciaccia in New York
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