Nazir's website

On Tesla's market cap

Jan 12, 2025

Tesla’s market valuation is around $1.2 trillion. I got curious, based on some high-level fundamental estimates, how realistic that figure is given the company’s ambitions. Tesla’s main current business is cars, but the company also has three other potentially large lines that analysts often factor in: the energy business, a ridesharing service (eventually based on autonomous vehicles), and robots.

Cars

There are about 1.6 billion cars in the world. Roughly 80–90 million new cars are sold every year.

Annual sales of some manufacturers:

Tesla currently ranks roughly 11th–14th among the largest automakers by output. Its closest competitor in EVs is BYD, which sells more than 4 million cars a year (including roughly as many EVs as Tesla), yet its valuation is around $100 billion. (Yes, BYD has a lower margin per car, but let’s set that aside for now.) For comparison, Toyota’s market cap is around $300 billion.

I don’t believe that in the long run any automaker can maintain a radically different margin from its competitors, since the market is highly competitive. So it seems reasonable to assume that Tesla will eventually converge to the margins of other mass-market manufacturers. If Tesla became the largest manufacturer, like Toyota, selling roughly 10 million cars a year (about 10–12% market share), then at today’s prices its automotive business could be valued at around $300 billion, by analogy with Toyota.

Energy business

This is the hardest part of Tesla’s business to value, because entering the energy market effectively means competing with a huge swath of industries. I’ll use a very simple analogy: ExxonMobil. Exxon has an Upstream segment (oil and gas exploration and production) and a Downstream segment (refining, distribution and retail sale of fuel, including gas stations). Downstream is more relevant for us, since Tesla doesn’t yet produce a meaningful amount of energy on a global scale (solar is still small) but does distribute energy products (charging, batteries, etc.).

I admit this is a crude comparison, just for a high-level sanity check. According to public data, the Downstream segment brings Exxon about 30% of the company’s total revenue. Exxon’s total market cap is about $470 billion, so the Downstream share could be valued at roughly $150 billion. Let’s assume Tesla’s energy business can eventually reach the same scale and replace oil with electricity. Then, at today’s prices, Tesla’s energy line could be worth about $150 billion.

Ridesharing

This one is simpler. Uber’s market cap is about $150 billion. Suppose Tesla, with its autonomous cars, could “kill Uber” and take over that market entirely. That could add another $150 billion to Tesla’s market cap.

Robots

This is the most interesting part. In theory, the long-term price of a humanoid robot could be comparable to the cost of a small car (given the materials cost), say around $20,000. If so, there’s no fundamental reason why people would buy more robots than cars (provided the robots’ functionality is sufficient). That suggests we can take the current car fleet (1.6 billion vehicles) as a reference point.

Look at how personal computers reached 80% penetration in ~30 years. For robots the process may go slower, since they’re more expensive than computers. But if we assume mass adoption takes 30 years, with an annual replacement rate of 10%, then during the active adoption period that’s about 100 million new robots a year. If Tesla can take a large 30% share of the market, i.e. about 30 million units a year, that would exceed Toyota’s current annual car sales. Toyota’s market cap is about $300 billion for 10 million cars sold, so by analogy Tesla’s robotics business could support a valuation of $900 billion.

Summary

That adds up to about $1.5 trillion. Given the already fairly optimistic assumptions, and assuming 100% success in reaching such ambitious goals, that sum justifies Tesla’s current valuation of $1.2 trillion. But this is an extremely optimistic scenario. More realistically, the final figure should be at least two to three times lower.

What fundamental factors might I be missing?

Originally posted in Russian on my telegram. This is a translation.

← all posts