Why Tesla Could Be a $10 Trillion Company in 20 Years

With a market cap that's already topped $1 trillion, Tesla (TSLA -1.92%) has shown remarkable success in the electric vehicle industry -- and it's showing promise in related renewable energy spaces. In this episode of "The Rank" on Motley Fool Live, recorded on April 11, Fool.com contributors Matt Frankel, Brian Withers, and Jason Hall discuss the chances for the automaker to become the Amazon of energy.

Matt Frankel: In short, I think there's a lot of stocks from the list that could be 10-baggers over the next 20 years. I don't think Tesla is one of them. It's more of a valuation problem to me, and as Jason mentioned, their margins are fantastic right now for an automaker. That's going to change when literally every automaker in the world is making tens of thousands of electric cars, which is expected to happen within the next year or two. These are going to be the two most transformative years, I think, for the electronic, maybe electric vehicle market with all -- GM's ramping up production, Volvo, all the other big manufacturers. That 15% margin is going to be really hard to maintain. One with all that competition, and two, as Tesla pivots to even lower-cost cars. Which part of the big bull case to keep those sales numbers growing 50% year over year, they're going to have to eventually tap into the $25,000 to $30,000 car market. You're not going to get those 15% margins at that level is my opinion. I like Tesla. I think it's a fantastic product. I think Elon Musk has done more to transform the car as anybody since Henry Ford.

Jason Hall: Yeah, I agree a hundred percent.

Frankel: But I just don't see it being a multibagger from here at a trillion-dollar valuation.

Brian Withers: Coming into today, I totally would have agreed with you guys. Actually, going under the covers to, this was a really hard set of stocks to rank. Yes, Tesla's price-to-sales ratio is 24. It will not stay that forever. It's absolutely going to come down. I was surprised at a couple of things. One, revenue growth is accelerating, 65% revenue growth this past quarter versus last Q4 was 46. I always thought Tesla was mired in debt. Well, they have about 18 billion in cash and only about 5.4 billion in debt. So their cash and debt ratios actually improved significantly. Look at operating cash flow, almost $12 billion over the last 12 months. Decent operating income, which you said, and part of why not only the financials I think are pretty solid. I think the optionality for this company is potentially more than we're giving it credit for. I think over time, Tesla is going to become a tech company, more than just a car company. As we're voting over the next 20 years, I'm comfortable to say that that could happen more in 20 years than more in five or a decade.

Hall: Last point on that, I agree with essentially everything you said, Brian. With the caveat that paying a trillion for that optionality when that debt payoff came on 26% share dilution over the past five years, I think that's important to remember. too, is that your per-share chances are harder today than they were five years ago with Tesla. I love the business, I do, and I'm concerned about increasing distraction with Elon Musk. We can just rank Elon's tweets. We can do an Elon Musk tweets version of "The Rank" at some point.

Frankel: Brian hit the nail on the head when it comes to the bull case for Tesla.

Hall: Absolutely, a hundred percent.

Frankel: In 20 years, if they are the Amazon of energy and are providing the solar panels for like half of American homes. If everyone has a Tesla vehicle in their garage, if everyone has the battery pack that can run your house, if everyone's using their charging network to power their cars regardless of what brand they are. There's a case to be made that this could be a $10 trillion company in 20 years.