Is Tesla worth a trillion dollars? You bet, says a Minnesota analyst

A Minneapolis stock analyst staked an aggressive position in one of Wall Street's most polarizing debates — the value of carmaker Tesla Inc. — by saying that its shares, which soared last year, could easily and quickly take another big leap upward.

The company is doing more than redefining the industry with its electric and self-driving vehicles, the analyst, Alexander Potter of Piper Sandler Cos., said. With a mercurial, driven leader in Elon Musk, Tesla is changing fundamental ideas about the transportation and energy industries, Potter said.

"You have got a management team, a CEO and a company that is designed to exploit inefficiencies in the way the economy works," Potter told the Star Tribune. "Certain companies have that, certain companies don't. Tesla has it."

With a 104-page report called "The Definitive Guide to Investing in Tesla, 1st Edition," Potter became the first analyst at a major investment bank to attempt to show why Tesla could soon become one of just a handful of companies worth $1 trillion. It's already worth about $800 billion, far more than any other auto company.

While Tesla's $32 billion in revenue last year was considerably smaller than the other trillion-dollar valuation companies, Potter's call on its stock carries echoes of what pioneering analysts said about today's giants when they were smaller — Microsoft in 1995, Apple in 2003, Amazon in 2010.

In those moments, old notions of the direction and potential of those companies fell away and investors began to see something much bigger in their future.

"If there wasn't an Apple or an Amazon, then Tesla wouldn't have an $800 billion market cap," said Gene Munster, founder of the Minneapolis investment firm Loup Ventures. Working at what was then Piper Jaffray in the early 2000s, Munster was one of the first market analysts to forecast huge growth for Apple.

"There are very few markets that, when they get disrupted, it has massive impact on society," Munster said. "The smartphone obviously was one of those. And what's going to happen with the car and autonomy is going to be as transformative."

In one difference from those earlier moments, Potter made the projection after Tesla's shares had experienced an explosion. They rose from around $100 at the start of 2020 to over $800 at the end.

With the new analysis, Potter lifted his target for Tesla's shares to $1,200 from $515, making him the most bullish of Tesla analysts at major banks.

His report came amid a swirl of other developments that show how quickly perceptions are changing about electric and self-driving vehicles and related demand for oil and gas.

In just the past two weeks, General Motors said that by 2035 it would be producing only electric vehicles and used the Super Bowl to promote its transition. As well, news surfaced that Exxon and Chevron have explored a merger to contend with the expectation of future declines in oil. Norway's sovereign wealth fund, one of the world's largest investors, reported it sold its holdings in oil and gas exploration companies during 2020.

Shares in Tesla popped nearly 6% last Monday, the day Potter's report was published, and are up 9% since then. His analysis has been pored over on financial websites and TV and on dozens of message boards and YouTube video channels devoted to Tesla.

In an interview, Potter said the timing of the report was shaped chiefly by demand from Piper Sandler's main clients: managers of mutual funds and other portfolios at other investment firms.

Because Tesla was added to the S&P 500 index in late December, many professional investors who use the index to benchmark their performance must now try to understand the company. Potter has followed the company for years but the new report, written with colleague Winnie Dong, is his most comprehensive yet.

"In hindsight, we should have published one of these bigger reports on Tesla before now," Potter said. "But it wasn't until now that you had this really broad set of investors who needed that information."

Potter, 40, has been an analyst at Piper Sandler since 2008, chiefly tracking the auto industry and related manufacturing. He developed expertise in China's burgeoning auto market, now the world's largest, and its effects on U.S. manufacturers.

After graduating from St. Olaf College, Potter spent time living and studying in China on a Fulbright scholarship. Until the pandemic, he visited China three or four times a year doing research for Piper's clients. He devotes about 10 pages in the Tesla report to the company's prospects in China, where it has a factory and ambitious competitors.

In the report, Potter projects Tesla's global car production will grow from about 900,000 units last year to nearly 5 million in 2025 and 9.3 million in 2030.

As car production grows, Tesla is likely to supply its software and self-driving technology to other manufacturers, including some upstarts, in the way that Microsoft did with personal computer makers and Google with smartphone makers. Potter said the company by the mid-2030s may well be valued by investors chiefly for its software.

His report also plotted out more than a decade's worth of growth in Tesla's existing solar and energy storage business. It did not consider industries, such as insurance and building heating and cooling, that Musk has said Tesla might enter.

"There's umpteen different ways this company could add value," Potter said. "And I'm applying zero dollars of value in my $1,200 price target to most of them because I don't know how to articulate that exactly, just like nobody back in the 1990s knew about the iPhone."

Evan Ramstad • 612-673-4241