Musk needs to prove he can pay dividends just as well as he makes cars
Tesla’s Q3 revenues are up 56% y-o-y, exceeding $21 billion, as the company reported on Wednesday. Customers were not scarred by rising prices, since the electric-vehicle leader delivered 42% more cars.
The figures can remain positive only if promises of iPhone-like industry dominance come true. This year, Tesla’s shares drop 45% but if plans go well shares could be worth $249, just above Wednesday’s closing price of $222.
Elon Musk says he can deliver even more cars, at the rate of 50% annually until hitting 20 million in 2030. Tesla has a 17% operating margin that beats rivals Ford Motor and General Motors, whose EVs are less profitable still.
It can be said that Musk`s cars resemble Apple`s iPhone. He can make the same claim as the Cupertino-based company when speaking about industry dominance.
Tesla accounts for an overwhelming majority of EV industry profits. But to come close to its 2030 goal, the carmaker needs that revenue per car comes in at around $45,000 while operating margins at its core operations hold at 15%.
Put the resulting operating income on Ford’s multiple, discount it back at a rate of 10%, and the company’s shares should be worth $249, according to Reuters.
Now comes the big IF. There’s a gap in the number of delivered cars, which is 6% lower than it made this quarter. Shipping woes can be blamed, but the fact remains: it is the widest gap ever in absolute terms.
Again, there is a resemblance with Apple which also faced shrinking profits and growth in 2023. Investors like David Einhorn and Carl Icahn demanded it use its cash pile to buy back sagging shares, and that bet paid off.
With its stock price declining, it would make sense for Tesla to do the same now.
Except that Musk has $21 billion in cash and marketable securities, which is less than six times the money Apple started with in 2013.
Capital expenditures are also different, which for Tesla would equal about 34% this year, against 6% at Apple.
Paying dividends could be harder than making cars, which Musk proved he can.