Tesla will do in three years what it took Porsche 10 years to do, says analyst

• After the Model 3 buildout, analyst George Galliers expects Tesla can sustain gross margins of 25 percent.
• That would place it above BMW and Mercedes and just below Porsche.

Tesla will do in three years what took Porsche a decade to do, an analyst said Monday.

The electric car maker is an "extreme growth story" that cannot be valued in the same way large automakers are, said Evercore ISI analyst George Galliers said in a research note.

Following the buildout of the Model 3, Tesla has the potential to achieve sustainable gross margins comparable to those of high-end German auto brands, while growing more like a rapidly advancing Chinese automaker, he said.

The rates at which Tesla's top-line metrics are growing are unrivaled, Galliers said. Tesla's unit sales grew just over 50 percent last year and automotive revenues rose 70 percent. Tesla CEO Elon Musk has said he expects this rate of growth to continue.

"To put Tesla's growth in context," Galliers said, "we note it took Porsche 10 years and four product lines to grow from" about 35,000 units to just under 100,000. And that was with four different product lines, compared with Tesla's three. "Even with only a small contribution from the more affordable Model 3, Tesla is on course to achieve similar growth in only 3 years."

At the same time, "Tesla's unadjusted gross margin of 25 percent last year is impressive by any standard," he said.

Indeed, Tesla is burning massive amounts of cash now. In the short term, Tesla is spending a lot on the Model 3.

Galliers estimated that without the Model 3-related spending, Tesla's gross margin could grow to around 30 percent, putting it roughly on par with Porsche.

After the Model 3 buildout, Galliers expects Tesla can sustain gross margins of 25 percent, which would place it above BMW and Mercedes and just below Porsche.

He added that an EBIT margin range of roughly 12 percent to 15 percent is achievable in the long term, once growth normalizes and costs begin to flatten. "In other words," he said, "Tesla has the potential to achieve margins that are double those of US peers today."

And while Galliers acknowledged that Tesla's ambitious production schedule will be a stretch for the company, it is not unprecedented. For example, Chinese automakers Great Wall, BYD, Jianghuai, and Chery all ramped up production at rates similar to, or not far behind Tesla's stated goals.