Tesla Growth

June 13, 2018

Recent issue of Graham and Doddsville with fun interviews with Greenwald and Mauboussin…

Quote and link:

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“We wrote about Tesla in 2015 when Elon Musk laid out the path for Tesla to get to a $700 billion market capitalization. That was Apple’s market cap at the time, so it was a very ambitious plan. He said, “we’re going to do six billion in revenues in 2015,” – which they didn’t do – but also added, “we’re going to grow 50% a year for ten years with an eventual net margin of 10% and a P/E multiple of 20x.” If you work out the math, it gets to $700 billion. By the way, if someone gave that problem to me, I would do what you guys would do. I would open an Excel spreadsheet, then figure out how big the auto market is, what percent would be electric, and what percent would be Tesla. And then I’d ask, “does this seem reasonable or not?”

The outside view, the base rate, would say, “has any company with six billion in revenues ever grown 50% a year for 10 years?” The answer is that it’s never been done, not even close. Might it happen? Yeah, it might happen, but it certainly wouldn’t be your base case, and it’s certainly a very low probability. Something like that’s a sobriety check right away.”

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Good investing,Meb Fabertheideafarm.com