The case for a $20-30b current TSLA valuation
So, everyone is groaning about the TSLA's valuation being too high. Honestly, I can't blame them. At this point it escapes any kind of reasonable fundamental analysis. That doesn't mean it can't go higher, of course it can. We just can't make the numbers work out to justify the stock price. Even looking pretty far forward into the future and allowing for really good margins the math just doesn't work.
Actually I think a case for a current valuation of $20-30b for TSLA can be made without looking 5+ years out.
Let's take 2015 and let's project 40k Model S and 20k Model X. I'd say those are decent projections considering Model S will likely sell 32-36k in 2014 IMO (demand is higher but production capacity is limited, but by 2015 production capacity should be greatly increased.).
Let's do an ASP (average selling price) of $90k per vehicle (I think this is reasonable because Model X will be slightly higher cost with 4x4 options).
2015 Revenue: $5.4 billion (this is not including any ZEV credits, etc)
Gross Margin: $1.62 billion (assuming 30% since the Elon Musk ceo incentive plan calls for 4 consecutive quarters of 30% gross margin and this needs to be reached prior to Gen III to have a realistic shot at it)
Net Profit: $810 million (assuming half of gross margin. Even if this number is lower than 1/2 gross margin because of large genIII capex expenses amortized, then that's fine because it will just raise the P/E investors will give because GenIII is imminent.)
So, in 2015, what kind of P/E multiple will investors give considering the company is growing very fast (probably $2b in 2013, $3.4b in 2014, $5.4b in 2015). I'd say investors will give at least a 50 P/E, and I think that's very conservative. With GenIII imminent I could see investors give a 100 P/E or more at that time. But let's take the more conservative 50 P/E for now.
2015 Market cap: $40.5 billion (50 P/E X $810m 2015 profit)
So now we need to apply a discount because we're purchasing TSLA stock today and there's some uncertainty in reaching those 2015 numbers and we need a decent investment return. So, let's apply a 40% discount (now this is arbitrary and really depends on how bullish you are on the stock). But I'll say 40% discount because Gen III is still looming in 2015 and provides a huge upside if successful.
Presently justified market cap: $24.3 billion ($40.5 billion 2015 market cap - 40% discount)
In terms of stock price, that's approximately $200/share (almost 120m outstanding x 200/share = $24 billion).
So, with TSLA at $155 right now, I think there could be a case that it's still undervalued (this is my current investment hypothesis, and the reason why I'm not selling anything right now).
Now, if Tesla reveals a Gen III prototype and the Gen III vehicle becomes increasingly more believable, I think it's likely that the P/E multiples that investors are willing to give for TSLA will increase, thus justifying an even higher stock price.
Side note: A lot of people are saying that you can't value TSLA because it's a speculative/momentum stock, but I tend to disagree. I think you need to make a solid case for valuation of any stock you own, or how else I'm not sure how else you know you're making a long-term good investment (other than if you're just going with the current momentum/swing in which case you need to exit before that changes).
Another side note: Just to clarify, I'm not saying the stock is going to jump to $200+ right away or that it's not going to go down from here. Short-term movements are extremely difficult to predict (even long-term ones are too). I also think people need to see either 25% gross margin or close to it (from autos, not ZEVs) to really start believing in the profit-making potential of the 2015 (and beyond) Tesla Motors.
