Elon Musk warned Bill Gates on Tuesday that he should stop making fun of him. The Microsoft co-founder risks death if he tries to bet against Tesla again.
That’s because Musk believes he will have transformed the automaker into an AI colossus worth a staggering $30 trillion once Tesla completes its pivot from selling primarily electric vehicles to operating a lucrative fleet of robo-taxis and humanoid robots.
“Once Tesla solves the range problem and their Optimus droid goes into mass production, everyone still holding a short position will be wiped out,” he wrote on social media Tuesday. “Even Gates.”
😂
Once Tesla solves the range problem and Optimus goes into mass production, anyone still holding a short position will be eliminated. Even Gates.
— Elon Musk (@elonmusk) July 2, 2024
The duo’s feud became public after a leaked 2022 exchange showed the world’s richest entrepreneur refused to support Gates’ charity work after learning the latter still had half a billion dollars on the line in a bet that Tesla’s stock price would fall.
“Sorry, but I can’t take your climate change philanthropy seriously when you have a massive short position against Tesla, the company doing the most to solve climate change,” Musk wrote in the undated text messages.
By the time these messages were leaked, Gates was already regretting his bearish call on Tesla. It is unclear whether he still holds a position in the stock, and he could not be reached for comment. Fortune for comment.
Elon Musk’s warning that short positions will be “wiped out,” however, is a bold claim for someone whose company has been the worst-performing name in the S&P 500 this year.
Tesla vehicle sales fell 6.6% in the first half of the year; its Cybertruck struggled to meet lofty expectations; and it ultimately buried Tesla’s goal of increasing volumes from 1.8 million electric vehicles last year to 20 million by 2030.
Musk has built a floor under the stock since April
But Musk is not one to back down in the face of adversity, and he has taken out other famous Tesla shorts like David Einhorn and Jim Chanos, who made their fortunes betting against Lehman Brothers and Enron, respectively.
In fact, the Tesla CEO has been on a rally since he put a floor under the stock in April.
He first mentioned the launch of a new robotic taxi model “CyberCab”, suggesting that it would finally solve the autonomy problem. He then announced that 2025 could see a return to growth in electric vehicle sales with new low-cost models, marking the low point of the stock price.
Tesla unveils its Robotaxi on August 8
— Elon Musk (@elonmusk) April 5, 2024
Lingering concerns that the totemic CEO might resign from the company altogether over the loss of his 2018 compensation deal — now worth $70 billion at the current stock price — were all but dispelled last month when his second-largest investor, Vanguard, joined others in backing him.
Finally, Tesla revealed Tuesday that it avoided an even sharper decline in vehicle sales in the second quarter by clearing excess inventory. By cutting EV production to its lowest level since the third quarter of 2022, Tesla had spare battery cells it could now invest in its stationary energy storage business, doubling its already record first-quarter volume to an all-time high of 9.4 gigawatt-hours deployed.
Tesla has now added $100 billion to its market capitalization in the past two days.
The stock trades at 70 times next year’s earnings, a high multiple even for a growth stock, let alone one whose revenue and earnings in 2024 – the period with the greatest visibility – are both expected to decline.
However, if you’re one of the investors who believes Musk will do for robot butlers what he did for electric vehicles, that’s a no-brainer.
In his mind, there will be a robot not only in every company or home, but for everyone, from the toddler to the elderly.
He therefore anticipates a demand of a billion droids per year, with Tesla conservatively controlling a tenth of the global market.
Does Tesla represent a third of current global GDP?
He would sell these Optimus robots, which are still in the prototype stage, for $20,000 each, although unit production costs would only be $10,000, leaving him with a 50% margin per robot.
In this scenario, total annual profits would reach $1 trillion, which, combined with a fairly standard earnings multiple of 25, gives a market capitalization of $25 trillion.
Add a measly $5 trillion to the robo-taxi fleet once it launches, and you’re talking real value for investors buying at the current $740 billion market cap.
The problem with this kind of rough calculation is that Musk’s assumptions may be off by several orders of magnitude.
Musk predicts that unit market volume will be much closer to demand for smartphones, which cost far less than the $20,000 he anticipates. Cars are a better proxy for this, and their production typically tops out at 100 million new vehicles per year, partly because they are much higher priced.
Chanos, for example, argued that Musk’s latest prediction means Tesla would have a market capitalization equivalent to nearly a third of the world’s total annual economic output.
So 30% of the world GDP…? Lol, ok. $TSLA https://t.co/KBysHiVDTR
— Diogenes (@WallStCynic) June 13, 2024
Take, for example, his calculation of Tesla’s now-abandoned 2030 annual volume target. Most companies with serious targets conduct a bottom-up macroeconomic analysis of their markets and projected demand over time for the product categories in which they compete.
By comparison, Musk got his figure of 20 million electric vehicle sales, more than the world’s two largest automakers combined, by taking the global installed fleet of 2 billion cars already on the road and estimating in advance that Tesla could replace 1% of it each year.
No wonder he was buried long before 2030.
Unless Musk can come up with some solid numbers to back up his claims this time, perhaps Gates will take his bet.