Elon Musk explains how self-driving robot taxis justify the Tesla rating

Don’t count Elon Musk among the investors who think Tesla is overvalued, even with a share of nearly 700% last year and valuing the company at 213 times its projected earnings for 2021, according to FactSet.

In the automaker’s earnings call on Wednesday, Tesla’s CEO said there is a “roadmap to potentially justify its market cap,” which exceeds $ 800 billion, making it the fifth most valuable US company. Musk is now the world’s richest person, with a net worth in excess of $ 200 billion.

Musk’s valuation calculation goes like this: Suppose the company quickly hit $ 50 billion to $ 60 billion in annual car sales (the company generated $ 9.31 billion in fourth-quarter auto revenue and said vehicle deliveries were the future would increase by an average of 50% per year). As Tesla’s self-driving technology continues to improve, those vehicles will become self-driving robotic taxis, allowing usage to go from 12 hours per week to 60 hours per week. Tesla could charge additional costs for those robot taxis, allowing the company to generate much more revenue per car. In short, it would be like bringing software economics to the production-intensive automotive business.

Musk also announced that Tesla’s Full Self Driving package will be available on a subscription basis starting in Q1, rather than as a one-time $ 10,000 add-on, allowing Tesla to generate recurring revenue as it works to improve its self-driving car. technology.

Even if usage only doubles, a $ 1 trillion valuation might make sense, Musk said.

“If you made $ 50 billion in cars, it would be like you made $ 50 billion in extra profit because it’s just software,” Musk said in the introductory part of the call. Based on that formula, Musk says that multiples of 20 times earnings would lead to $ 1 trillion in market cap – “and the company is still in a fast-growing mode.”

Less than nine months ago, Musk had a very different view of the company’s valuation. In a tweet on May 1, he said “Tesla stock price is too high,” a comment that caused the stock to drop by 10%. Since then, the company’s market capitalization has risen by more than 450%.

Investors may already assume that Tesla’s cars will eventually become revenue-generating robot taxis. But the company isn’t close to those capabilities yet, and Musk has a history of being promising when it comes to technological innovation.

For example, when Tesla began discussing self-driving technology in 2016, Musk said the company would take a hands-free trip across the US in late 2017. The company has yet to complete that mission.

Currently, Tesla’s Full Self Driving features include Smart Summon, which allows a driver to call their Tesla to roll out from a parking lot to where they are standing, and Navigate on Autopilot, which can control the car from a driveway to a highway. disaster, make the necessary lane changes en route.

But despite its name, the Full Self Driving package still requires drivers to keep their hands on the wheel and stay alert at all times. A Munich court ruled last year that Tesla was misleading consumers about the capabilities of its automated driving systems and banned the company from including “full potential for autonomous driving” and “Autopilot inclusive” in its promotional material.

While Tesla has missed many of its own projections for self-driving technology, Musk insists it is coming. “I really don’t see any obstacles here,” he said to an analyst on the call asking about the company’s progress.

Tesla shares fell 5.5% on Wednesday during long-term trading after the company reported gains that missed analyst estimates, even though sales were better than expected.

WATCH: Tesla loses earnings

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