At Tesla’s Investor Autonomy Day last week, Elon Musk laid out the automaker’s plan when it comes to self-driving, but now the CEO attaches a valuation prediction to it as the company attempts to raise over $2 billion.
Following the announcement, Citigroup and Goldman Sachs, two of the underwriters of Tesla’s new capital raise, held a call for investors with some Tesla executives, including CEO Elon Musk.
According to people on the call (via CNBC), Musk focused on Tesla’s self-driving effort – going as far as saying that all of Tesla’s current businesses, electric vehicles, energy storage, and solar, are just a backstop of value.
He reiterated many things that he already said last week during Tesla’s Autonomy day, but he also added that he sees Tesla achieving a $500 billion market capitalization thanks to its self-driving technology:
Musk confidently told investors on the call that autonomous driving will transform Tesla into a company with a $500 billion market cap, these people said. Its current market cap stands around $42 billion. He also said that existing Teslas will increase in value as self-driving capabilities are added via software, and will be worth up to $250,000 within three years.
It would represent a more than 10x increase over Tesla’s current market capitalization of about $42 billion.
The CEO reportedly refused to answer some questions relating to Tesla’s current business efforts in order to focus on autonomy:
“But he also tried to drive the conversation back to autonomy, calling it the fundamental driver of value for Tesla, and urged investors to stop nit-picking over vehicle margins.”
Musk plans to himself participate in the capital raise by buying an additional $10 million worth of Tesla shares.
Here’s the thing: if Elon is right about Tesla’s self-driving strategy, then he is also right about the valuation.
If Tesla can indeed turn virtually all the vehicle it produced since October 2016 (after some computer retrofits) into self-driving cars/robotaxis with a software update at some point next year, the company would indeed create hundreds of billions in value overnight.
Of course, it’s not as simple as that. The rollout will most likely be gradual as regulatory approval will happen based on jurisdiction, but you get the point.
As I previously stated, I agree with Tesla’s approach to autonomy and therefore, I think Tesla can get there.
But Tesla’s current business of selling vehicles to customers at a decent gross margin remains extremely important.
The problem is that Tesla needs to get there and Elon has been historically inaccurate when it comes to the timeline of self-driving.
What the first quarter showed is that Tesla can really be at risk with just a few months of issues. In other words, Tesla needs to survive while delivering as many vehicles as possible until its self-driving technology works
$2 billion more in the bank should help and give them something like a year of buffer.
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