“We’re going to spend staggering amounts of money,” Tesla CEO Elon Musk declared last week on an earnings call. Not many CEOs would speak with as much candor about how they plan to use their shareholders’ capital. But then again not many CEOs are as bold as Elon Musk.
This comment came during an eventful earnings call during which Musk a) claimed that in a decade’s time, Tesla could be worth as much as the most highly valued company in the world, Apple, is today; and b) revealed that the company is designing a battery to power your home. And it seems to have taken even some of the company’s biggest supporters on Wall Street by surprise.
Morgan Stanley analyst Adam Jonas has previously described Tesla as the world’s most important automaker. He was one of the first people to argue that the company’s batteries could end up being more disruptive than its cars, and said the company could be making up to $2 billion a year in additional revenue by the end of the decade from grid storage.
Following last week’s earnings call, Jonas told clients that Musk’s aggressive spending plans were “at great philosophical odds” with his forecasts for Tesla. He said he was beginning to question “whether investor appetite can keep up with Tesla’s growth journey.”
A week later, and Jonas seems to have regained his confidence in Tesla. “Who would you rather give $1.5 billion to invest in 2015: Elon Musk or your average auto company?” he asks in a note published this morning.
That $1.5 billion, Tesla’s capital spending forecast for this year, will be about a quarter of Ford’s, he writes, even though Ford has about 40 times the revenue and will probably sell 200 times as many cars. This sounds risky, but in fairness, Tesla is still in hyper-growth mode, while Ford is a 111-year-old company.
In any case, Jonas says he is comfortable with Tesla’s spending plans because he is convinced the company is best-placed to fundamentally disrupt the auto sector with its innovative vehicles. If the Model X SUV is released on time in the US this summer and is received well, he even thinks Tesla’s stock price could be back at record highs by the end of the year.
Which could be important; Tesla shares have been under a bit of pressure lately. The company is still losing money, after all. And its aggressive investment plans raise the possibility that it will burn through all its cash and need to raise more funds from investors. If it manages to fatten shareholders’ wallets in the meantime, they will be happier to stump up more cash if the company calls upon them again.