Monday, November 18, 2013

Genius Premium: Jobs vs Musk

What Will It Take for Elon Musk to Meet All-Time Expectations?

Many have compared Telsa's CEO Elon Musk to former Apple CEO Steve Jobs. Both men have been considered innovators, known for possessing superior intelligence,  savvy business acumen, and a rabid following devoutly loyal to their products. How do we put a value on these intangibles?

It may be instructive to see how the market assigns a "genius premium" by analyzing the performance of Apple stock during Steve Jobs second stint at the company from September 1997 until his passing in November 2011. During this 14 year span, Apple stock experienced a gain of about 6800% or 35% per year from a split adjusted price of $5.28 to $365.73.

Elon Musk has seen Tesla climb from its IPO in late June of 2010 from $23.83 to around $135 in early November 2013. This return of about 470% over the first three plus years as a public company has seen his stock charge ahead an average of about 70% per year. This meteroic rise in valuation has partially fueled commentators to draw comparisons between Elon and perhaps the greatest CEO and American company of all-time, Steve Jobs and Apple.

So the question going forward now becomes if there is a "genius premium" to place on Tesla what should it be? It may be difficult to compare cars to iPhones, Samsung to BMW, and car fires to Foxconn incidents but essentially on some level, these questions are worth asking. Was Jobs as valuable to Apple as Musk is to Tesla? Can Tesla achieve 35% annual stock returns for the next ten years years and trade at $1600 a share in 2023? If Musk can grow his capital intensive car companies share price half as quickly, should we expect 17% annual stock returns from Tesla for the next several years and a more dampened stock price of $214.65 in 2023? If competition picks up and Telsa grows share price only 10% per year, maybe the stock will only trade for $90 per share in ten years. A wide range of outcomes with big investor consequences.

Maybe the best takeaway from this exercise is to marvel at how well Jobs executed on his vision and how far Musk and Tesla have to go to fulfill their vision of bringing electric cars to the masses in an exponential way. Big goals, but maybe not unattainable goals for a man who has secured contracts from NASA to send rockets into outer space. 

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