What's up guys and welcome back to wall street millennial on this channel, we cover everything related to stocks and investing today we're talking about tesla. Over the past year, tesla has been one of the most popular stocks in the market. It has consistently been in the top 100 stocks owned by robin hood users, and its market cap has surpassed 700 billion dollars and those willing to stomach the volatility have been rewarded handsomely since the beginning of 2020, tesla shares have increased more than 700 percent and it Received inclusion into the s p 500 index. Obviously the people who own tesla think it will increase even further with the next logical milestone being 1 trillion dollars of a market cap in 2018 apple became the first company to reach 1 trillion market cap.

A level previously thought to be impossible for any company. Since then, microsoft, saudi aramco, google's parent company alphabet and amazon have all surpassed one trillion dollars and facebook is within striking distance at 984 billion dollars. In this video we'll explore how likely it is for tesla to join the trillion dollar club, and if so, how long it will take keep in mind that we are not financial advisors and this video is, for entertainment purposes, only make sure to do your own research And consult with a professional before making any investment decision. The analysis is a bit complicated because tesla isn't just one company.

They have an electric vehicle business, which they are most well known for the energy storage, business, the residential solar business, the insurance business and they plan to soon have an autonomous, ride-hailing business. While they have other operations, such as their supercharging stations, we'll focus on the five main business units mentioned earlier, as these are the most significant we'll start off with the cars. Tesla has four main production vehicles, the models s three x and y. They also have the high price point roadster, with expected deliveries in 2022, the cyber truck expected in late 2022 and the tesla semi truck, also with expected release date in 2022.

Next is the energy storage business. This includes the power wall which people can use to store electricity generated from home solar panels. They also make industrial scale battery packs for utilities using renewable energy sources, their residential solar business, which is built off their 2016 solar city acquisition, installs solar panels onto roofs, tesla insurance offers insurance coverage for tesla vehicles. It is currently only available in california, but they plan to expand nationally and even internationally in the coming years.

And finally, is the proposed robo-taxi network musk plans to develop a ride hailing app where existing tesla owners can put their cars on the network and earn passive income from autonomous ride? Hailing this is the most uncertain part of the business, but also has by far the greatest potential for upside. If tesla can get to 50 billion dollars of annual net profit, they should be able to justify a 20 times earnings multiple in one trillion dollar valuation we've created a sum of the parts valuation adding together projected profits from their three main business units. These are vehicle sales and energy, auto insurance and their robo taxi network. By 2027, we estimate that they can make 50.2 billion dollars of net profit or 45 dollars of earnings per share at a 20 times price to earnings.

Multiple. This would value the company at slightly over one trillion dollars. As you can see, the robo taxi network makes up 33.5 billion dollars of net profit or almost 70 percent of total net profit. The tesla bull case is highly dependent on the robo taxi network, which is also the most uncertain part of the business and has not yet been launched.

Let's start off with the automobile business. Currently tesla makes the relatively lower price point model 3 and model y. They also make the higher price point models - s and x, but over the next few years they plan to massively expand their lineup with the tesla roadster, cyber truck and semi truck expected to launch in 2022 and the still unconfirmed tesla model 2 to begin deliveries in 2023 in 2020, they delivered 500 000 cars with most of these being model 3s by 2027. We project that this will 10x to 5.3 million deliveries with the vast majority of these being the lower price point models 3 y and 2.

between their california and shanghai gigafactories. Tesla currently has the capacity to create a little more than 1 million vehicles, but they also have the berlin and texas gigafactories, which will be operational soon. Musk also says that they plan to make a second gigafactory in asia, while the exact location has not yet been confirmed. There is wide speculation that will be in south korea, which has highly developed automobile and battery industries, keep in mind that 2027 is still six years away, given tesla's rapid growth.

Historically, it's not a stretch that they could have five million cars worth of capacity by then, and if they can produce five million cars, there will almost certainly be enough demand to sell them. The volkswagen group sold 11 million cars in 2019. under elon musk. The tesla brand has become ubiquitous and demand has never been a problem for the company.

Statista estimates tesla to be the most valuable automobile brand in the world worth roughly six times that of vw selling. Five million cars seems like a reasonable estimate, especially if they can deliver on the twenty five thousand dollar model too. Next off is the energy division, which includes solar roofs, power walls and industrial power pack batteries. The business is small today only making up six percent of 2020 revenue, but elon musk says that this business will grow to be as big as the automobile business or at least on the same order of magnitude.

Perhaps the most interesting part of the energy business is the industrial power packs. As the world transitions to renewable energy. There will be tremendous demand for battery storage from utility companies and at scale. This business can be incredibly profitable.

For example, one of tesla's first power pack, projects in australia cost 66 million dollars to build and generated more than 20 million dollars of revenue in the first year, with its operating costs likely minuscule it could pay for itself in just three or four years. We estimate that the energy business will generate 20 billion dollars of revenue in 2027 and make a 25 gross margin. The next major business area is tesla. Insurance tesla collects data in real time from the software embedded within their cars.

They then apply machine learning, algorithms to estimate the accident risk of each individual driver. This allows them to write profitable policies while at the same time, charging premiums 20 to 30 percent less than legacy insurance providers. Tesla insurance is currently offered in california on a limited basis. Data scientists at tesla are refining their algorithms and expect to launch nationally and internationally in the coming years.

There are currently about 1 million teslas on the road. This number will grow over time as they sell more cars by 2027. We estimate that there will be about 16 million active tesla cars as they roll out the insurance offering to more jurisdictions. The number of insurance policies they can write will grow.

Eventually. We think that 50 of all teslas will be covered by tesla insurance. This reflects the superior rates that they can give to most customers based on their granular driving data. This will also give them industry leading ebit margins of 25 percent.

Ebit stands for earnings before interest and taxes by 2027. We estimate that their insurance business will contribute 2.3 billion dollars to tesla's net income and now we'll move on to the most important part of their business, which is their proposed robo-taxi network. As early as the end of this year, tesla is expected to launch their network of autonomous robo taxis once full self-driving is complete and approved. They'll make a software update for existing teslas already on the road.

Tesla owners will be able to put their car on the network and generate passive ride-hailing revenue, while they're at work or otherwise would not be using their car anyway. Tesla will generate revenue by taking a 25 to 30 cut of the ride-hailing transactions. A tesla owner could potentially make back the cost of their car in two to three years and ride-hailing revenue beyond that will be pure profit. It'll take a while for the robo taxi network to get regulatory approval in all jurisdictions.

But it's not a stretch to think that they can launch in some jurisdictions by the end of this year, tesla will likely start off in more friendly jurisdictions and after they build up a track record of safety, they can expand nationally. There are other competitors working on their own robo-taxi networks in the us. Waymo is the most notable competitor in china. Companies, including baidu and dd, are working on similar endeavors, but tesla has a massive advantage over any of these players.

Other companies have to build their fleet from scratch, which will cost tens, if not hundreds of billions of dollars and take many years. On the other hand, there are already more than one million teslas on the road. They can just flip a switch and turn all those robo taxis on the average uber driver in the us makes 30 thousand dollars per year. A tesla robo taxi could easily make at least this amount, because the autonomous system will be more efficient than a human.

We estimate that by 2027 there will be 16 million teslas on the road of which 35 percent will be integrated into the robo taxi network. This means 5.5 million robo taxis. Each taxi will generate thirty thousand dollars of ride-hailing revenue per year. Tesla will take thirty percent of the cut of each transaction, which translates to fifty billion dollars of revenue.

Once the network is up and running, there will be almost no cost. We estimate eighty-five pre-tax margins after taxes. This will generate 33.5 billion dollars of net profit. If we combine all these businesses additively, we get to 50 billion dollars of net profit and one trillion dollar market cap to have confidence in the bull case.

There are two main things that you must believe. First, you must believe that tesla can continue to grow and achieve 5 million annual deliveries. This is about what ford produces today. More importantly, you must believe that they can successfully roll out their robo-taxi network within the next few years.

Tesla is a global leader in autonomous driving, and we already know that they will have the necessary technology. The bigger question is whether they can get regulatory approval. Well, musk thinks that we will see fully autonomous tesla taxis within a couple years. The timing is very difficult to actually predict a one trillion dollar market cap would value each tesla share at 893 or 25 above the current share price.

At the time of recording this video, if musk can deliver on his ambitions, then there could still be room to run with tesla stock. Alright guys that wraps it up for this video. Do you think that tesla can reach a 1 trillion market cap? Let us know in the comments section below, as always. Thank you so much for watching and we'll see in the next one wall, street millennial signing out.