Morgan Stanley Analyst Is Wrong About Tesla Becoming Larger Than Apple

Morgan Stanley AnalystWill Tesla Be Larger Than Apple?

Regular readers know I am a fan of Tesla Inc (NASDAQ:TSLA). My bona fides are well-established, particularly as they relate to the Tesla stock price today. That said, I cannot support Morgan Stanley (NYSE:MS) analyst Adam Jonas when he says that Tesla’s valuation can dwarf Apple Inc.‘s (NASDAQ:AAPL). It is an outlandish claim.

I am not turning bearish on TSLA stock. I do not think its heroic climb is over, nor do I think it is better or worse than Apple. I just think it is ridiculous to say that Tesla will be bigger than Apple.

Let’s put the numbers in perspective.

Apple sold 50.8 million “iPhones” last quarter, bringing in $52.9 billion of revenue. (Source: “Apple Reports Second Quarter Results,” Apple Inc., May 2, 2017.)

By contrast, Tesla shipped 25,051 vehicles in the same quarter, making only $2.7 billion in revenue. (Source: “Tesla Announces Quarterly Earnings,” Tesla Inc, May 3, 2017.)

So if Tesla were a three-story walk-up building, Apple would be a skyscraper.

But maybe this isn’t fair.

Tesla is not yet at scale, so how can we expect its revenue to compete with an established giant like Apple? We need a way to compare apples to apples.

I would suggest operating margins, but that argument runs into similar problems. Maybe I’d say that Tesla can only move the needle so far, because auto manufacturing is a notoriously hard business in which to make money. There is an easy rebuttal, though:

“Yes, but Tesla is not just a car company. It is an end-to-end energy business with several unexplored side hustles.”

The reason I know that so well is because I’m generally bullish on TSLA stock. It is more than a car company. But that still doesn’t mean it can eclipse Apple stock.

Jonas’s Forecast Isn’t Built on Tesla Autopilot

Before we go further, perhaps you should see what Jonas wrote. It might surprise.

He isn’t putting his faith in the Tesla “Model 3,” Tesla “Autopilot,” or even the battery business. To his credit, the argument itself is novel.

“In our view,” Jonas said in his note, “there’s only one market big enough to propel the stock’s value to the levels of Elon Musk’s aspirations: that of miles, data and content.” (Source: “How Tesla can become worth more than Apple, according to Morgan Stanley,” CNBC, June 12, 2017.)

Very few people have pointed this out before.

You see, Tesla collects data from every vehicle it puts on the road. Each of them feeds data into an algorithm that powers the Autopilot feature; the more data there is, the better the self-driving technology. Human drivers get better with experience, and so do computers it seems.

Jonas points out that, “Any number of firms (and funds/consortiums) across the tech stack have been making big moves to get closer to the 10 trillion miles traveled annually by the global car population.” (Source: Ibid.)

He means that Tesla should sell access to this data. That is, according to Jonas, the only way for Tesla stock to eclipse Apple stock.

Bravo. I take my hat off to him. If Tesla started selling consumer data, I would certainly rethink my price forecasts. But is AAPL stock going to sit still while all this is happening?

That’s what I don’t understand about this prediction.

Apple stock advanced 48% in the last 52 weeks, not counting dividends and share buybacks. It has the cash deposits of a medium-sized nation, and international expansion has turned positive once more. In other words, AAPL stock looks like it’s well on its way to a $1.0-trillion valuation, so why are Jonas and others treating it like a corpse?

Even if Tesla stock outpaces Apple stock, the latter has a formidable lead and no intention of falling apart. Hence I have to respectfully disagree with Mr. Jonas.

TSLA certainly has a ton of upside, but so does AAPL.