Tesla (TSLA +0.69%) is unquestionably a transformative leader in the electric vehicle space, but the company's trillion-dollar valuation makes many investors think twice. In this Fool Live video clip, recorded on Nov. 22, Fool.com contributors Jason Hall, Matt Frankel, and John Rosevear give their takes on whether Tesla could be an interesting investment opportunity now.
Jason Hall: Here's the thing. I think we have to say this first, look at Tesla's growth rates. Look at what Tesla has done over the past decade. There's no other company that's fundamentally changed the automotive industry so quickly, I think ever. I mean, I think that's really since the Model T start rolling off those assembly lines, Tesla has completely affirmatively blown up and disrupted the automotive industry in a massive way. Every other company that we're going to talk about, what they're doing, they're doing because of Tesla.
Elon Musk came in and said, "I'm not going to make a piece of crap, cheap, slow, boring car as cheaply as I can just to get credits," which is what everybody else was doing. They were all hitting their government quota, their government credits in manufacturing the least number of electric vehicles they could for a very long time. The [Toyota] Prius came along and it was the hybrid that set the model. Tesla broke them all and said we're going to make something fast, we're going to make something sexy, we're going to make it expensive, and we're going to make a ton of margin on it, and they've done that.
They've used that to build scale. They can push further and further down market and go broader. That's what they've done. When you think about the valuation of this company and we're going to talk about this a lot as we go through this. I think I don't want to speak Matt and John for you guys directly. But at the end of the day, this is a company that's valued at well over $1 trillion now. It's growing automotive sales of 50%. But the story for Tesla continues to be its profit center is a business that largely doesn't exist today.
The thing that's going to generate high-margins for it continually, that it's going to break the mold of this industry, of this low-margin cyclical industry, that gets very low operating margins, relies on tons of debts and management has to be really good at riding the cycles to have modest profits and on an ongoing basis. Is autonomous vehicles managing fleets. That business really doesn't exist today besides selling a $10,000 software package, that sort of works, but doesn't do everything they say it's going to do, and eventually maybe one day it will. There is a massive amount of hope and future expectations that are baked into Tesla. I know it's recommended in ton of services.
But I think we all agree. John, Matt, I'd love to hear you weigh in. It's a pretty great business. It really is. It's incredibly innovative what they've accomplished. There's a lot of things they may claim they're accomplishing that maybe they haven't, but nonetheless. John?
John Rosevear: My take on Tesla for a while has been, I think if you are very active on Twitter (TWTR +0.00%), you sometimes see me lumped in with the Tesla-Q, it's all going bankruptcy, Elon is a fraud crowd. That has never been my take. My take is that there is a nice, quite profitable, innovative, cool business here, doing somewhere between two million and three million vehicles a year. That is roughly BMW sized.
This is a niche brand. It has a really devoted following. No doubt. When you look at other niche auto brands that have really devoted followings, you see brands like Jeep, you see brands like Porsche, you see brands like Dodge [of Stellantis]. Those are not mass-market, everybody's going to have one brands. Two to three million vehicles a year is a nice, profitable business. My problem with that is that if that's where Tesla matures and plateaus out, that's $100 billion business and it's a $1 trillion stock.
I discount the whole full self-driving thing because the experts, I've talked to think that Tesla is actually a little behind some of the other players there. I think it's going to be a commodity business in the long run anyway. I mean, it's going to be taxis, it's going to be delivery vans, it's going to be things like that. Absent some other new line of business that somebody inside Tesla rather than for instance, in Morgan Stanley (MS 0.31%) analyst dreams up. If you follow Tesla, you know that a lot of these valuations come from Adam Jonas of Morgan Stanley more than Tesla itself.
I don't see how this gets beyond two or three million vehicles a year. Again, that's a give or take $100 billion business. That's been my take on Tesla all along. I think as a company, they're doing most everything that they need to do. As a stock, I think it's bound to come back to earth at some point.
Matt Frankel: John and I are pretty much in agreement on Tesla. He says it a lot better than I do. I love the product. I'm not a fan of it. It's just, I can't wrap my head around where a lot of people think Tesla's going to be in 10-15 years. It's the way I would put it.
