Is Saudi Aramco Tesla’s (TSLA) biggest competitor?

Elon Musk dropped a fascinating insight on 25 May 2022. The industrialist admits Saudi Aramco could be Tesla’s biggest competitor.

Musk Tweeted: “When Tesla’s market cap, making sustainable energy products, exceeds that of Aramco, producing fossil fuels, you know the future will be good for Earth.” To explain, Aramco is the Saudi Arabian Oil Company. Aramco is Saudi Arabia’s national oil company.

To elaborate, I think Musk considers Tesla Motors (TSLA) an energy company. Saudi Aramco is the world’s largest energy company with quarterly revenues of $516.9 billion in March 2022. Thus, Musk views Saudi Aramco as Tesla’s largest and most dangerous competitor.

Tesla is an Energy Company

Comparatively, Tesla (TSLA) supplies energy for vehicles as electricity from lithium ion batteries. Saudi Aramco supplies energy for vehicles in the form of gasoline and diesel fuel made from its petroleum.

Moreover, Tesla has a subsidiary they call Tesla Energy. Tesla Energy builds batteries, solar panels, and electricity storage systems. One of Tesla Energy’s biggest products is giant Megapack battery farms for storage of solar electricity.

Musk considers Aramco a rival because they are in the same business: energy. However, the two companies provide vastly different forms of energy.

 Saudi Aramco

Financial data for Saudi Aramco can be difficult to find. However, Aljazeera estimates Saudi Aramco reported quarterly revenues of $39.5 billion in March 2022.  

Saudi Aramco reports its financial results in Saudi Riyals (SAR). Aramco reported quarterly revenues of 516.9 billion riyals, and a quarterly operating income of 277.7 billion riyals in March 2022. Based on those numbers, I calculate Saudi Aramco reported quarterly revenues of $137.8 billion and a quarterly operating income of $74.03 billion in March 2022.

Hence, Saudi Aramco is a super-profitable company that generates lots of cash. However, it is hard to gauge Saudi Aramco’s true value because it has a government behind it.

Saudi Aramco vs. Tesla

In contrast, Tesla (TSLA) reported quarterly revenues of $18.756 billion, a quarterly gross profit of $5.46 billion, and a quarterly operating income of $3.603 billion on 31 March 2022. We have accurate numbers for Tesla because it is based in the United States where the Securities and Exchange Commission (SEC) makes Musk provide accurate financial numbers.

Nobody, except perhaps an Arabian mob, has any authority over Saudi Aramco’s true boss Crown Prince Mohammed bin Salman Al Saud. The Crown Prince, or MBS, is the current head of the Saudi government. Thus, we don’t know how much money Saudi Aramco makes or where that money goes.

For example, we know Tesla reported a quarterly ending cash flow of $18.04 billion and a quarterly operating cash of $3.995 billion on 31 March 2022. We also know that Tesla had $81.310 billion in cash and short-term investments, $66.038 billion in Total Assets, and $7.025 billion in Total Debt on 31 March 2022.

We know how much cash and debt Tesla has. Moreover, as far as I know, Musk has ordered no murders. There are allegations MBS has had some enemies rubbed out. Including Saudi American journalist Jamal Khashoggi in 2018.

Tesla’s Extraordinary Revenue Growth

Interestingly, both Tesla and Aramco are growing fast. For example, Stockrow credits Tesla with an 80.54% revenue growth rate in the quarter ending on 31 March 2022. In contrast, Google gave Aramco a year-to-year revenue growth rate of 72.21% in March 2022.

Stockrow credits Tesla with seven straight quarters of high revenue growth ending on 31 March 2022. For example, Tesla’s revenues grew by an incredible 98.11% in the quarter ending on 30 June 2021 and 73.58% in the quarter ending on 31 March 2022. Tesla’s quarterly revenues grew from $10.389 billion on 31 March 2021 to $18.756 billion on 31 March 2022.

Stockrow credits Tesla with seven straight quarters of high revenue growth ending on 31 March 2022. For example, Tesla’s revenues grew by an incredible 98.11% in the quarter ending on 30 June 2021 and 73.58% in the quarter ending on 31 March 2022. Tesla’s quarterly revenues grew from $10.389 billion on 31 March 2021 to $18.756 billion on 31 March 2022.

Interestingly, the same force, rising energy prices drive both Tesla’s and Aramco’s growth. When fuel prices rise, people are more apt to buy an electric car.

Fear of fuel shortages can drive Tesla prices up higher because Tesla’s vehicles run on electricity, which comes from any sources. For example, you can make electricity with hydro, wind, coal, oil, natural gas, nuclear, and solar.

Can Tesla Compete with Saudi Aramco?

Yet there is currently only one way to make oil, pump it out of the ground. Saudi Aramco’s problem is the problem of all oil companies. The forces that raise its profits also drive its most dangerous competitors.

Mr. Market loves both companies. Tesla had a Market Cap of $751.42 billion on 8 June 2022. In comparison, Companiesmarketcap gave Saudi Aramco a $2.38trillion market capitalization on 8 June 2022. Hence, Tesla has far to go catch Aramco.

Aramco has enormous resources. The Organization of Petroleum Exporting Countries (OPEC) estimates Saudi Arabia had 261.6 million barrels of total oil reserves and natural gas reserves of 8.438 billion cubic meters in 2020. OPEC credits Saudi Arabia with an oil production of 9.213 million barrels a day and a natural gas production of 119 million cubic meters a month.

In contrast, Tesla claims to have produced 305,407 vehicles and delivered 310,048 vehicles in the first quarter of 2022. Tesla achieved those figures despite supply disruptions and the closing of its Shanghai Gigafactory because of COVID-19.

Or is it Volkswagen?

So yes, Saudi Aramco could be Tesla’s biggest competitor. However, catching Saudi Aramco could be impossible for Tesla because the automaker has more competition and a product anybody can duplicate.

Notably, Tesla has enormous rivals in the auto business, including Volkswagen (VOW). Musk told The Financial Times he regards Volkswagen as a dangerous competitor. Musk also fears Chinese electric carmakers.

Notably, Volkswagen AG plans to invest €89 billion ($95.40 billion) in its electrification efforts through 2025, CNN claims. Those efforts include new factories, a battery manufacturing company, and superchargers. Volkswagen’s total budget is around $180 billion, CNN estimates.

Thus, I think Tesla will never rival Saudi Aramco in size. Indeed, Tesla has a long way to go to match Volkswagen (VLKAF). Volkswagen had $609.947 billion in Total Assets and $75.453 billion in cash and short-term investments on 31 March 2022. Volkswagen reported quarterly revenues of $70.409 billion, a quarterly gross profit of $13.453 billion and a quarterly operating income of $9.431 billion on 31 March 2022.

Thus, I think Tesla will never rival Saudi Aramco in size. Indeed, Tesla has a long way to go to match Volkswagen (VLKAF). Volkswagen had $609.947 billion in Total Assets and $75.453 billion in cash and short-term investments on 31 March 2022. Volkswagen reported quarterly revenues of $70.409 billion, a quarterly gross profit of $13.453 billion and a quarterly operating income of $9.431 billion on 31 March 2022.

Will Tesla ever be bigger than Saudi Aramco?

However, Volkswagen produced nine million vehicles in 2021 to make those profits, Reuters estimates. Hence, I calculate Tesla would have to manufacture 10 million to 15 million vehicles to rival Saudi Aramco’s revenues. I cannot see that happening. However, Elon Musk has done the impossible in the past.

Yet I can foresee a day when Tesla’s market cap exceeds Saudi Aramco. Moreover, I don’t think that day is far off. I think Tesla’s Market Cap will exceed Saudi Aramco’s in the year 2030. However, Volkswagen’s Market Cap will also exceed Aramco’s by the year 2030.

Notably, Volkswagen management hopes to produce 1.3 million electric vehicles by 2023 and fully electrify within the decade. Volkswagen could deliver 700,000 electric vehicles in 2022, Electrive estimates

To explain, I think Saudi Aramco is in a shrinking business while Tesla (TSLA) is in a growing business. Thus, Tesla could beat Aramco without ever exceeding the oil company’s revenues or market cap.