Tesla (TLSA) CEO Elon Musk has been compared to a lot of people: Steve Jobs, Thomas Edison, and some of the other great inventors of our time, having started or co-founded PayPal, Tesla, and SpaceX. However, according to one analyst, he may be more like Henry Ford.
In a research report on Tuesday, Goldman Sachs (GS) analyst Patrick Archambault compared Musk to not only Jobs, but Ford and the Maytag Repairman as well, noting that Musk, Tesla, and the Model S may be as transformative to the automobile market as Ford's (F) Model T was in the early 20th century.
In the note, where Archambault gives Tesla a $200 price target, he compares Tesla to the Ford Model T, which had its peak from 1910 to 1922. "We use the growth in penetration of US car sales within the US population as a proxy for the growth in penetration of long-range electric vehicles which are considered the new technology here – much like cars were a century ago," the analyst wrote in the note.
Using that and that looking at the Model T's share of the domestic auto-market at the time, Goldman's Archambault believes that the electric vehicle (EV) market could reach 6 million by 2025, with Tesla capturing over 55% of that market, accounting for 3.3 million units sold, and 2% of all global auto sales. That would put Tesla's present value at $478 per share, nearly double what shares are currently trading at, and the highest of the three scenarios (the others comparing Musk to Jobs, and Musk to the Maytag repairman).
The EV estimates are derived from the height of the popularity of the automobile in the U.S., from 1909 to 1917, when it was first introduced. Archambault than overlaps that with estimates for 2017 to 2025, with 2017 being the first year that "Tesla will have to see Ford-like growth with the introduction of the higher volume Gen III."
Tesla is expecting to release the third-gen vehicle in the next few years, which Musk assumes will cost between $30,000 and $40,000. "By 2020 we assume a cheaper Gen IV is introduced to bring Tesla out of the luxury segment into mass market – something that would be necessary if Tesla were to follow Ford’s path," the analyst wrote in the note.
By comparing the Model S and Tesla to the Model T, Archambault arrives at 33% variable margins, and an EBIT margin of 16% in 2025, leading to earnings of $88 per share by 2025, a far cry from where margins and earnings are currently. In order to get there, Tesla would have to raise $10 billion in capital to continue building out its infrastructure, which would make the company cash flow negative for the next eight years.
According to research firm IHS, Tesla's projected 2025 volume of 3.3 million cars would rank it 9th in global automobile manufacturers, putting it ahead of BMW. If the company does indeed hit that target, it not only would be the largest automotive company by market cap, but would be right behind Apple (AAPL) and Exxon (XOM) overall, using future value.