High-profile venture capitalist Chamath Palihapitiya, the CEO and founder of Social Capital LP, thinks that electric carmaker Tesla (TSLA) could be worth “hundreds of billions” of dollars in the next decade.
Tesla’s market cap is currently just over $50 billion, with the stock last trading around $308 on Monday.
Speaking at the Sohn Conference in New York, Palihapitiya began his presentation: “Half of you would believe it’s one of the most interesting companies and the other half something that is close to a fraud or bankrupt.”
With controversy, he explained, there’s “always some good, generally some bad, and always some ugly.”
What’s good is that reservations for Tesla’s Model 3 reached 400,000, the equivalent to $16 billion in sales. What’s ugly is that it’s an incredibly capital intensive endeavor. Tesla has famously been burning through billions in cash as it scales up.
To that, Palihapitiya says Tesla is “absolutely un-modelable.”
An Apple playbook?
Instead, he started thinking about Tesla from a product and technology orientation.
“This amazing thing came to light which was a historical analog,” Palihapitiya said, “another company very similar to Tesla. I wanted to explain to you our view of Tesla in context to another company you already know — Apple.”
He added that Apple’s (AAPL) launch of the iPhone was “revolutionary.”
“The iPhone was an unbelievable feat of technology, of engineering. What this product did was capture consumer innovation and it created a tailwind of demand.”
Apple consolidated and redefined the market.
“Is Telsa running the same playbook?” Palihapitiya asked.
He said that drivers with a Model S will find it impossible to go back to a traditional combustible engine.
“What we do know is the early traction of Tesla is tracking close to Apple,” he said. “That third iteration [of the iPhone] is what broke down the walls for consumer demand. The S and the X have set the stage for Model 3.”
He sees Tesla as a business than can capture 5% of the global car market.
“What you see is a business that could be worth hundreds of billions of dollars in a decade.”
To play the trade, he recommended owning 2022 Tesla convertible bonds, which he views as offering limited downside.
“To the average investor in the room, it means we can buy these converts and we are guaranteed not lose money as long as the company is worth $15 billion,” he said.
“In the off chance this guy pulls it off, we get 95% of the upside,” he said, referring to CEO Elon Musk, whom he later called “our generation’s Thomas Edison.”
Palihapitiya made headlines at the Sohn Conference last year for his call that Amazon could be worth $3 trillion.
Julia La Roche is a finance reporter at Yahoo Finance. Follow her on Twitter.
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