Last week, we told you how well you could have done with at $10,000 investment in Apple stock. Now, we’re going to tell you the NEXT stock that has potential to be an even bigger home run.
Playing around with the math for this blog post has been fun. In fact, I learned something almost eerie when comparing Apple’s stock – and its company, leadership, and business model – to the outfit that I think is going to be The Next Apple. Here’s that nugget:
Apple’s current market capitalization, of $719 Billion, is 24-and-a-half times the market capitalization of The Next Apple. Meaning this: if you invested $10,000 today in The Next Apple and, in ten years, it becomes the size Apple is now…you will have done about as well with The Next Apple than you would have ten years ago with Apple.
Still with me? As you’ll see in our calculations below – and I was able to get through college without one math class, so bear that in mind – we’re possibly going to fall short of that goal. Not by too much. But, if you’re able to buy a stock now that grows by an order of magnitude over the next ten years…would you do it?
I think I know the answer. Without further ado…
The Next Apple is Tesla.
Think back to when Apple ceased to become just a computer company. They did a lot of cool stuff and made a lot of cool computers, but, frankly, when they launched the iPhone, they created a brand new category. Then they did it again with the launch of the iPad. (Now it’s the Apple Watch but I’m not as convinced…time will tell.)
They went from computer company to behemoth. Tesla could do the same – and I believe they WILL do the same, because of a couple Apple-esque moves. Here goes:
Tesla’s Powerwall Launch > Apple’s iPhone Launch
I have GOT to be kidding, right? Tesla’s Powerwall is greater than the iPhone?
Well, give it time.
I spent some time in the electric industry – and one of the selling points we used to use when trying to convince stakeholders to modernize the grid is the “Edison” example. Not Tesla vs. Edison, but Edison vs. Bell. It goes like this: if Alexander Graham Bell were to somehow time travel to 2015, he’d look at a mobile phone and say “what the heck IS that?” When told he built the thing that was a precursor to it, he’d still be a little flabbergasted. Conversely, were Thomas Edison to time travel to 2015, you’d have to walk him over to your neighborhood’s electric poles and say “you built the thing that’s the precursor to this” and he’d say “looks pretty much the same.”
The Powerwall’s genius is in a couple of different categories. It’s a battery (but better than other batteries, if you believe Elon Musk), it’s easily connected to solar panels (because the Sun won’t burn out for millions of years, that’s sustainable energy), and it can allow you to get off the grid.
(I can’t help but find this to be a Left- and Right-solution, in that the Left Wing in America, you know, the tree huggers – well, they can fall in love with the sustainability nature of the Powerwall, and the Right Wing in America, you know, the “get off the grid” tea partiers – well, they can fall in love with the ability to keep the Government out of their energy.)
If you watch the video of Musk’s launch of the Powerwall, you’ll hear him talk about how some countries have leapfrogged landlines and gone straight from no phones to mobile phones. He said the Powerwall could do the same thing for under-developed utility markets – and I have no doubt that is attainable. In fact, the IEA suggests that one-fifth of the world’s population is without access to electricity. In the Powerwall, millions may have an affordable solution to leapfrogging – from no electricity to an off-the-grid, solar/battery solution.
But Not ENTIRELY at the Expense of the Current System…
Here’s where, IMHO, the brilliance of Tesla’s Powerwall really stands out: he didn’t completely go around the utilities that power the US, he offered to work with them.
The Powerwall is, in Musk’s opinion, “infinitely scalable,” so it can be sold to electric utilities right now – as a backup system? Or as their utility’s main power generation and storage facility? Gee, either seem to be doable, according to Musk.
If you hearken back to Apple’s iTunes library – which predates the iPhone – Steve Jobs didn’t force his iTunes solution down the throats of the record companies: he built it as a potential adjunct to the current system, or an eventual replacement, or something in between. I think that turned out pretty well for Apple – and I can’t help but think that guided at least a little of Tesla’s thinking.
Oh Yeah, the CAR!
I didn’t forget to mention that Tesla makes automobiles. Good ones: for the second straight year, Consumer Reports named it Best Overall. Their review was glowing as heck:
“For all of the impressive new vehicles released in 2014, none was able to eclipse the innovation, magnificence, and sheer technological arrogance of the Tesla. That’s why it’s our best overall pick for the second consecutive year. Through the course of their life cycles, cars become obsolete quickly as newer models appear with updated gizmos. But with Tesla’s over-the-air software updates, a Model S that came off the line in 2013 has many of the same new features as one built today. Despite the Tesla’s teething problems at launch, our subscriber reports showed average reliability. The Model S is a technological tour de force, a high-performance electric vehicle with usable real-world range, wrapped in a luxury package.” (Source: Consumer Reports.)
Now…let’s talk about the stock.
Tale of the Tape
Apple (market data from May 6, 2015):
- Market Cap: $719B
- Stock: $125.01/share
- P/E Ratio: 15.37
- Market Cap: $29.23B
- Stock: $230.43/share
- P/E Ratio: N/A
Slice of Auto Sales, Battery Pre-orders as Key Metrics
Here’s why we predict breakthrough success: while Tesla is currently a money-losing company, that’s not that important right now. What is important right now is Total Attainable Market (TAM, also “Total Addressable Market), and where Tesla stands right now compared to where it could stand by having even a fraction of the TAM.
Cars: since its founding in 2008, Tesla has sold 70,000 vehicles. Using VERY SIMPLISTIC MATH: 70 million vehicles are sold worldwide each year. Were Tesla to attain one percent of the market (700,000 vehicles a year), they’d have $49B in revenues per year from the auto line of business (assuming an average price of $70,000 per vehicle). (Again, I am being VERY SIMPLISTIC: just accounting for auto sales, without factoring ancillary businesses attached to autos, and guesstimating $70,000 a vehicle. When Tesla reported earnings yesterday, they reported 10,000 units delivered in Q4 2014, and $1.1B in revenue. I am being highly conservative.) Ten years from now, given the fact that Ford currently sells 60,000 F-Series Trucks per month, do you think Tesla could sell one-tenth of that figure in EVs?
Don’t bet against it. Tesla’s slice of auto sales will only continue to grow.
Batteries: The TAM on the battery side is a much different calculation, and where our iPhone comparison comes in. Before the iPhone, the TAM for mobile phones was…what? Population of the Earth?
38,000 of the Powerwalls have already been spoken for, according to the company, meaning that their “Gigafactory” in Nevada will need to start moving quickly. But if early demand tells us anything, it’s that the TAM for home batteries is likely to be rather high. Let’s use 1 billion units as the TAM for household batteries, and let’s guess that Tesla leads the way but is only able to sell into one-tenth of the TAM in ten years.
That’s $350B in revenues over the course of ten years – for a market that, honestly, doesn’t actually exist right now. And these are VERY SIMPLISTIC calculations. Divide that by ten (smoothing out the revenues, which won’t happen because you would expect the rate to accelerate and look more like a hockey stick) and you’re looking at $35B in revenues from the Battery business per year.
My Projection – Based on Just Two Lines of Business…
$84B in annual revenue ($49B from vehicles, $35B from batteries), at a margin of roughly 25%, means $21B in earnings per year. If the stock trades at somewhere near Apple’s current P/E of 16, this would mean a market capitalization of $336B.
Current market cap for Tesla is just $29.23B, so that means a growth of 11.49 TIMES its current market cap. Or, a share price of $2,648.80.
I haven’t factored in ANYTHING ELSE: say, the expansion of Tesla’s battery business, at a rapid pace, into the utility markets, or the decision to also move into solar in a more significant way than now, or the launch of new modes of transportation – solar-powered trains? Hyperloop? – that could have a similar effect on revenues.
Again, I’m not a math guy – but this is rather compelling, don’t you think? Invest $10,000 right now in Tesla and have $114,900 in ten years? Is it possible?
What do you think?