Poll: What is TSLA worth today

[Buckminster]

We have discussed how we think that the SP will increase following short squeeze, Q4 ER, Q1 ER & S&P inclusion etc. Based on this and given that ARK can see a way through to $4000 in 5 years, what do you think the true valuation should be today, free of manipulation?

 

[EinSV]

There are different ways of looking at this.

From an intrinsic value perspective, Tesla's product roadmap and company guidance would result in something along these lines for 2023 (excluding Tesla Network).

700K Model 3 @$45K $31.5B
1M Model Y @$45K $45B
300K pickup @$50K $15B
100K S/X @$100K $10B
100K Semi @$165K $16.5B
200K solar roof @$40K $8B
5K Roadster at $225K $1.1B
Storage $8B
Services and other $3B

Total: $138B

The numbers above are based on Elon/Tesla's estimates where available (700K Model 3/1 million Model Y/100K Semi/100K S/X).

The automotive business in Q3 already had ~10-12% operating margins despite not being fully ramped and Tesla as a whole had 6.1% operating margins despite having two major product lines (storage and solar roof) that are still just beginning to ramp up.

Back of the envelope valuation assuming 12% operating margins, 10% net margins and a P/E of 40 (conservative for a fast-growing company), results in a 2023 valuation of $552B, or $2629/share assuming 210M shares outstanding (rough guesstimate assuming dilution from Elon's package, convertibles, employee stock and options, etc.).

A 10% discount over 5 years brings us to $1552/share (not including Tesla Network).

There obviously is a possibility that Tesla will not grow as fast as predicted or that margins will get squeezed. Most market participants would likely view the scenario above as extremely optimistic, and discount the SP accordingly.

On the other hand, Tesla's revenues and profitability could be much higher than estimated. Many of Tesla's products have the potential to greatly exceed the revenue numbers above (including Pickup, Semi, Model Y, Model 3 and storage) and the valuation does not include Tesla Network. Also, Tesla's high profitability for its automotive business at such an early stage of the Model 3 ramp is a promising sign that it can earn operating profits in the 15-20% range, although this may be masked to some extent by Elon pouring money into new projects (which personally I think is great given Tesla's track record -- and a non-manipulated market likely would too).

Also, higher P/Es ala AMZN (currently 87 TTM) or Netflix (98 TTM) are a distinct possibility given Tesla's extraordinary growth and potential. That would take the valuation into the stratosphere.

 

[neroden]

Assume a P/E of 10 for a fast-growing company (we're headed to overall much lower market P/Es, I think) So chop your $1552 estimate in 1/4 and get $388. Which is in the right ballpark.

If we assume that some of Tesla's businesses will fail, we might lower the estimates, but I think you were conservative on the operating margin estimates, so I figure that was included there. Given the current trend in the S&P you might also have been using too high a discount rate.

 

[EinSV]

@neroden — for the valuation above I assume Tesla’s growth after 2023 slows to a no-longer insane but still Amazon-like 25-30% per year. Historically S&P 500 PEG ratio is about 1.25.

Bloomberg - Are you a robot?
https://www.yardeni.com/pub/spearnrevalgrpeg.pdf

This translates to a P/E of 30-37.5 but earnings should grow a bit faster than revenues due to operating leverage. Also, hyper-growth companies like Amazon tend to enjoy premium PEs as noted above so PE of ~40 seemed reasonable to me.

PE of 10 for a company growing that fast would be extremely low — PEG of 0.3-0.4. That seems like a very pessimistic assumption to me.

FWIW, I don’t see any reason Tesla would slow down to 25-30% growth after 2023 but made that assumption for valuation purposes since we know very little about its roadmap after that and a lot can happen in 5 years.

 

[neroden]

I'm expecting a period of persistently low market (Schiller) P/Es. As in, market average P/E of 5. Couldn't tell you exactly why... but it's happened before.

This, of course, would be a great period to buy stocks. But you see my point. The price may be low, which just means that you get more earnings for each dollar invested.

 

[EinSV]

I'm expecting a period of persistently low market (Schiller) P/Es. As in, market average P/E of 5. Couldn't tell you exactly why... but it's happened before.

This, of course, would be a great period to buy stocks. But you see my point. The price may be low, which just means that you get more earnings for each dollar invested.

I hope that doesn’t come to pass mostly because it would tempt me to put off retirement for another year or two to generate a little more cash to buy stocks on the cheap.

But assuming your scenario where extremely (I would say irrationally) negative market sentiment prevails with market valuations near historically low P/Es, TSLA would still be valued at $657/ share in 2023 with the assumptions outlined above (reducing PE from 40 to 10 reduces valuation by 75% or $2629/4).

I could live with that while waiting for markets to come back to their senses.

Plus the OP asks for “true valuation” so IMO that should exclude not just market manipulations but irrationally pessimistic or optimistic markets.

 

[neroden]

Ah, well, there's no such thing as a true valuation. The long-term Shiller P/E chart shows us that, and it only goes back to 1870.

Nobel Prize winner Shiller sees 'bad times in the stock market' ahead

But yeah, I basically agree with that: $657/share in 2023 seems fair. Discount by, say, 5% per year (which you can probably get by investing in solar farms), and get $514 today. Discount by 8% per year and get $447.