Elon Musk is beginning to exude hints of Steve Jobs. Like Apple’s late chief executive, the boss of Tesla Motors crafts an impressive product. Now he’s gaining a reputation for beating earnings estimates. There is, however, a big difference in how shareholders have rewarded the two men’s work.
Apple under Mr. Jobs mastered keeping Wall Street analysts’ quarterly earnings expectations subdued, only to blow past them. The iPod and iPhone maker managed this feat for at least 24 quarters in a row until a miss in 2011.
Mr. Musk’s electric carmaker has only two quarters of besting estimates under its belt. That’s a good start, though, even if its adjusted $26 million of second-quarter profit, announced on Wednesday, relied on a number of one-offs.
And the company has a longer habit of surpassing bars set by others. Its Model S sedan has won several big awards and matched Consumer Reports’ highest-ever ranking. In the three months to June, the company built 5,100 of its flagship vehicles - beating even its own target by more than 13 percent.
Apple outdid itself under Mr. Jobs, too. By 2008, it was racking up double-digit growth and a pre-tax margin of 21 percent. By the time of his death in October 2011, the margin had hit 31 percent as iPhone and iPad sales took off. Yet the stock traded at barely 10 times forward earnings, suggesting investors remained skeptical even as the company’s successes mounted up.
In sharp contrast, investors in Tesla seem to be assuming the best. It’s a young company and even surviving, let alone thriving, for this long in a tough business is worthy of respect. But with Tesla’s shares up fourfold since January, Mr. Musk’s company is valued at a whopping 35 times estimated 2016 earnings.
By that time a new SUV, known as Model X, will be on the road. Tesla may have a mass-market vehicle to sell by then, too. But at just $35,000, that product is likely to bring down Tesla’s pre-tax margin, which is expected to hit 12 percent by 2016 - great for an automaker, but nowhere near Apple’s or Google’s.
That means it’s still early days for Tesla. Yet where investors seemed constantly afraid Mr. Jobs would lose his edge at Apple, they’re assuming Mr. Musk’s will only get sharper.
Antony Currie is an associate editor at Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.
