By Roni Leider
Entrepreneur Elon Musk, the co-founder and CEO of Tesla, is primed to expand his empire beyond electrical cars. Adam Jones, a Morgan Stanley analyst and COO of Datawallet, predicted that Musk will expand his company to include aircrafts, calling it “Tesla Aviation.” Jones described, “In our view, the chance that Tesla does not ultimately offer products and services to the eVTOL [electric vertical takeoff and landing aircraft]/UAM, Urban Air Market, is remote. The potential skills transferability and network adjacencies are too strong to ignore.” As of March 2022, Jones has a price target of $1,300 and an Overweight rating on Tesla shares, meaning that Tesla shares will generate a greater return than the average return in the general industry.
Jones’ prediction is not without basis; Musk has alluded to his future plans of building an electric aircraft. In October 2020, Musk tweeted, “there should be a new supersonic jet, this time electric.” This was written in response to a tweet from “The World of Engineering” twitter account commemorating Concorde’s, an infamous supersonic jet, last commercial flight, which took place on that day, 19 years prior. Musk also tweeted, “I’m so dying to do a supersonic, electric VOTL [sic] jet, but adding more work will make my brain explode.”
The proposed aircraft will have vertical takeoff and landing, allowing it to takeoff and land without the presence of a runway as well as hover without lateral movement. The aircraft will also be able to reach extremely high altitudes. It will use two propulsion systems: one would lift the plane off the ground and the other would thrust the aircraft forward at high speeds of 1,236km/h (768mph). It is ideal for an electric plane to go as high as possible, but it also needs to overcome gravitational potential energy which can be done by having a certain energy density in the battery pack. Once this is achieved and the aircraft is at a high altitude, the energy used is low and the aircraft is able to recapture a portion of the gravitational potential energy on its descent.
A note from a team of Morgan Stanley analysts was released, discussing the finances regarding the potential future of Tesla Aviation. It stated, “We have run a range of scenarios flexing market share and EBITDA margin assumptions based on our global eVTOL/UAM model (a $9tn TAM by 2050…yes….2050). Discounted back to the present on a per-share basis, we’re coming up with potential preliminary outcomes on the order of $100 per Tesla share on the low-end to approximately $1,000 per Tesla share (or more) on the high end.” This means they have crunched numbers using valuation techniques like looking at market share and EBIDTA margins in order to conclude that the present value of Tesla stock is $100 per share on the low end and $1000 per share on the high end. Currently, the firm has a $900 target, but it is not inclusive of Tesla’s possible participation in the aviation sector.
Morgan Stanley estimates that by the year 2030, the total addressable eVTOLmarket could amount to $12 billion. By 2050 it could reach $9 trillion. The idea of reducing traffic, increasing sustainability and bettering the environment is appealing to many companies and the government. Many positive effects may result as an effect of this change, such as an improved air quality and reduced greenhouse gas emissions.
Adam Jonas has confidence that in the years to come, Tesla will explore other areas alongside eVTOL. Musk has demonstrated his clear ability to revolutionize the automotive industry, and it seems probable that he will soon revolutionize the aviation industry, as well.