Is Elon Musk Too Optimistic about Electric Vehicles?



Electric vehicles

Tesla expects electric vehicle sales to grow considerably in the coming years. Here’s an excerpt from Elon Musk during the company’s 4Q14 earnings conference call, “And if you take this year’s revenue, around $6 billion or thereabout, and if we’re able to maintain a 50% growth rate for 10 years and achieve 10% profitability number and have a 20 P/E, our market cap would be basically the same as Apple’s is today.”

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Too optimistic?

Elon Musk’s statement sounds overly optimistic—even if you are a Tesla (TSLA) fan. There are assumptions and forecasts as far as ten years out. The 50% revenue growth would basically mean vehicle sales growing at more than 70–80% per year over the next ten years. Please remember that Tesla will be launching Model-3 in the next couple of years. Model-3 will be priced around half the Model-S that Tesla currently sells.

Therefore, forecasting revenues to increase more than 50% year-over-year for the next ten years would be too optimistic. True, Tesla’s revenues have been growing at a fast pace, as can be seen in the chart above, but the growth rate is low. Once Tesla’s sales volumes reach critical mass in coming years, achieving supernormal growth rates might become a daunting task.

It has already faced roadblocks in China (FXI), as we’ve noted previously.


Several other automakers are working to add electric vehicles to their portfolio. General Motors’ Bolt is a case in point. As discussed previously, General Motors (GM) would launch Bolt around the same time as Tesla releases Model-3. Both cars would have similar price points and driving ranges.

Other automakers including Ford (F) and Fiat Chrysler (FCAU) would also not sit on the sidelines if electric vehicles started gaining more traction in the marketplace.

Meanwhile, not all automakers are enthusiastic about electric vehicles. We’ll discuss this in the next part of the series.


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