Eli Lilly (LLY 0.80%) is the most valuable healthcare company in the world, with a market cap in excess of $550 billion. It's also a growing business and one that can become even more valuable in the future. While there is a sizable gap in value between it and electric vehicle (EV) maker Tesla (TSLA +0.14%), whose market cap is around $700 billion, it has been shrinking. Could Eli Lilly be worth more than Tesla by the end of the decade?
Eli Lilly could be the first healthcare company to hit $1 trillion
This year has been a phenomenal one for Eli Lilly already. The stock is up around 60% as excitement around its diabetes drug, Mounjaro, and also its potential as a weight-loss drug has investors incredibly bullish on its prospects. This is the type of product that can be transformative and game-changing for a business. Some analysts believe it can generate up to $100 billion in revenue at its peak.
NYSE: LLY
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The big reason for the hype: Mounjaro may be even better than Ozempic and Wegovy at helping people lose weight. Consumers and investors are likely familiar with those two names as they have been popular on social media, with people showing off how much weight they have lost. But with Mounjaro showing in trials that it can help people lose as much as 26% of their body weight, that dwarfs the 15% that patients can expect to lose using Wegovy, which is Novo Nordisk's treatment for weight loss (Ozempic is approved for diabetes, but patients have achieved comparable weight loss with it as well). The Food and Drug Administration (FDA) hasn't approved Mounjaro to treat weight loss yet, but that could happen later this year or early 2024.
There are other growth catalysts for Eli Lilly, such as its Alzheimer's treatment, donanemab, which may soon obtain approval as well. But the real opportunity that could help Eli Lilly's valuation skyrocket by the end of the decade is in weight loss. And it does look as though the healthcare company is aggressively pursuing that opportunity; earlier this year, it announced plans to acquire Versanis for $1.9 billion. The company makes obesity drugs and will help to expand Eli Lilly's pipeline.
Last year, Eli Lilly reported $28.5 billion in annual revenue, with net income totaling $6.2 billion. If the FDA approves Mounjaro for weight loss (and there's no reason to expect that won't happen), the company's top and bottom lines could look much bigger by 2030.
Can Tesla keep up?
Tesla is a leading company in the EV market, and while its valuation is higher than Eli Lilly's right now, it may not be easy to keep up with the healthcare company's growth prospects. The EV market is arguably more competitive than the weight-loss market is. Tesla has been lowering its prices to stay competitive, and that has chipped into its gross margins.
In its most recent quarterly results, for the period ending Sept. 30, Tesla's gross margin of 17.9% was down significantly from the 25.1% it achieved a year earlier. That's an important metric as it means less of the company's revenue is remaining after cost of goods sold to cover its operating expenses. As a result of worsening margins, the company's net income was under $1.9 billion and down 44% year over year. Free cash flow of $848 million was even more disappointing, as it fell by 74%.
NASDAQ: TSLA
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The growth is what captivates many investors, however. By 2030, EVs may account for two-thirds of all auto sales in the world. Currently, that ratio is less than 1 in 5. But there is also the issue of more potential competitors entering the space. Tesla may potentially have to compete with EV makers from other countries, which can put added pressure on its margins. There are a growing number of EV makers in China. Vinfast, a Vietnamese EV maker, went public earlier this year. While not all EV makers will be successful, Tesla could face much more competition than Eli Lilly will.
There's little doubt that Tesla will continue to grow, but whether it will be able to keep up with Eli Lilly is the big question mark.
Will Eli Lilly be more valuable by 2030?
Overall, I'm inclined to believe that Eli Lilly will one day surpass Tesla in valuation, and that could come well before 2030. It's more likely to be a leader in the weight-loss market by the end of the decade than Tesla will be a clear leader in the EV market. Both companies may be great investments, but Eli Lilly looks more of a sure thing today.
