‘Who’s going to catch them?’: A Tesla analyst who once covered Intel breaks down the similarities he sees in the 2 disruptive companies — and shares why the stock has the potential to soar another 30%

  • Tesla shares have soared since the announcement that the electric-car maker will be included in the S&P 500 starting December 21.
  • To JMP Securities' Joe Osha, the rise is due in large part to the increasing realization that Tesla is a "category killer" like Intel and Apple.
  • Osha, who used to cover Intel, broke down the similarities he sees between the two disruptive companies.
  • He also said in a November 17 note that he sees Tesla's price appreciating 100% from where it was then— about 30% from current levels.
  • Visit Business Insider's homepage for more stories.

From calls of overvaluation to eye-catching tweets from CEO Elon Musk, there's rarely a moment when Tesla's stock isn't in the news.

Currently, it's the decision to include them in the S&P 500 that is dominating headlines, with investors anticipating a buying spree from index funds around December 21.

But for Joe Osha's liking, people are talking about it too much. 

Osha, a senior analyst covering Tesla at JMP Securities, argues that it's not what people ought to be focusing on, and that for the most part, it's not why the firm has seen its share price jump by about 50% to above $600 in recent weeks.

Instead, he says, it's the rising investor consciousness that Tesla is what he calls a "category killer," and will stand alone above legacy automakers as the premier producer of electric vehicles, where technology and policy are inevitably bringing the industry.

"Who's going to catch them?" Osha said in an interview with Business Insider on Wednesday. "It's not apparent. And that's quite remarkable to me. And I think this continued move up in the stock is driven in large part by this realization of what's happening."

The Intel of the auto industry

Osha said he sees a clear path for Tesla to industry preeminence — something he's seen before.

Before covering Tesla, Osha was an Intel analyst for Bank of America Merrill Lynch. He said he sees parallels between the two disruptive companies and their rise to dominance. 

"This reminds me a little bit — I've been in this a long time, and I was actually covering Intel years ago, and watched that company wipe out everyone in the processor market," Osha said.

"We kept on saying 'Hey, is this really going to happen. Who's going to catch Intel in processors?'" he continued. "Not that things can't change a little bit, but you get these big inflection points in the market when a company steps in with the right skill set and wow, big things can happen."

Osha broke down similarities in the progression of both companies in the mindset of investors. 

With processor maker Intel, he said computer industry giants like IBM and Hewlett Packard were too slow to react to the shift from mainframe computing to processors. By the time they did, it was too late as Intel already had the infrastructure and production capacity the others couldn't compete with.

He said the same thing is happening with Tesla in the auto industry.

"We've gone through these various stages. First it was, 'Well, this is just kind of a silly idea.' And then it was, 'OK, yes electric vehicles are real, we're going to work on it a bit, but it's not that serious.' Then it was 'Hey, wow, Tesla's getting pretty big, so I guess we're going to have to really focus on this now, but don't worry we'll catch it.' So that's kind of where we are now," Osha said. 

He continued: "And if you look at it, how are you going to catch it? How are you going to catch a company that has so much scale? In particular, the core of the car, which is the battery pack. And increasingly, it's gotten so big now that they've been able to pour money into other things, like vehicle autonomy, at a scale that legacy names can't match."

If he did have to identify companies that have the potential to one day compete with Tesla in electric vehicles, he said Volkswagen and General Motors appear to be the most committed. 

Still, it's not clear if they'll ever catch up to Tesla, he said.

"There's this kind of growing realization that it's not clear that any of the colossal companies, like Toyota, General Motors, or Volkswagen, even with all the resources they have, can't simply say, 'I'm going to throw a bunch of money at this and catch up by next year.'"

'The potential to more than double in size from 2021 to 2025'

Tesla has climbed high above the price target of $516 that Osha reiterated in a November 17 note.

But he still hesitates to call it overvalued. 

"One of things I hear a lot is Tesla's very overvalued because 'gosh, look at how other automakers are valued.' To which I respond, that's not the right comparison," Osha said. "Tesla's a category killer, in the same way that other businesses that have completely upended other businesses like Intel or Apple were category killers. That's how you have to think about it."

Osha's opinion, which is shared by many, of course has its dissidents. 

JPMorgan, for instance, recently said that Tesla is dramatically overvalued and that investors should avoid it in the near-term. 

But Osha doesn't appear to be worried, especially in the longer-term.

He said in the November 17 note — when Tesla's share price was $408 — that Tesla's market cap could double by 2025, which at today's levels means an upside of about 30% over the next five years.

"Apple (AAPL, NC), a company with higher margins, a strong brand, but with lower growth than TSLA, is currently trading at 6.5x 2021E revenue and 23x EBITDA," Osha wrote. "Viewed in that context, we think TSLA, which has the potential to more than double in size from 2021 to 2025, looks reasonably valued at 6x our 2025 revenue and 30x EBITDA projections."

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