Lastly, in regards to the SP, I'd be more convinced of this valuation if we'd come here along a different path. Going from ~$350 in December, to ~$920 in Feb, right back down to $360 in March, and now back up to ~$800, doesn't give me much confidence that we are fairly valued now (in the midst of a pandemic, I might add). Wouldn't it be reasonable to assume $350 - $450 is over sold and $800 - $900 is overbought? Common sense would suggest a fair valuation between the extremes. And wouldn't it be reasonable to be discussing risks of a pullback as we approach ATH? Just as it would be reasonable to discuss bullish factors at $350? I don't find it prudent as an investor to dream of multi-thousand price targets while at the top and fear an improbable bankruptcy at the bottom...
I'm going to reply specifically to this last paragraph of your long and well-written post right now and maybe, in the future I will have the time and feel like addressing some of your more specific concerns. But I might not because most of them are primarily relevant to stock traders, not long-term stock investors.
As you confirm in the first sentence, much of your lack of confidence in TSLA's valuation stems from how quickly we got to where we are today. And, we are in the midst of a pandemic no less! The reason neither of these things spells overvaluation to me stems from two things:
1)
I take a long-term view. High growth companies can be over-valued for years on end while continuing to appreciate rapidly. I missed AMZN because of this and I STILL don't own any. Shame on me! While Tesla is a different company in a different market situation, please explain how it is any different with regard to the expected growth and revenue expansion. MSFT in the early days was like this (and it's STILL growing like gang-busters!). I'm glad I "bit the bullet" and bought a bunch of it when almost every Wall Street analyst claimed it was a great company but it was too "over-valued" to seriously consider. I rode that big beautiful wave for years without selling a single share (added to my position when I could, fortunately). That stock grew and split (I forget how many times) for years before I sold it for a better opportunity in 1998. If you want to ride the wave you first have to catch the wave. Great stocks are almost always over-valued for most of their high growth period (and generally for some time after their high growth period slows down). I've avoided "value stocks" for my entire investing career (and my brokerage account is glad I did). Value stocks are "cheap" for the same reason very affordable housing is "cheap". Because no one will buy it if it costs more! Desirable things always cost more. And the more desirable they are, the bigger the premium you're going to pay. And with stocks, the potential for exceptional growth is a prime driver of desirability.
To understand just how important growth rate is, it's necessary to understand how valuable every 1% of additional growth or price appreciation each year is to your long-term investment performance, something I won't get into here. Except to say the answer may shock you. Skilled investors know this. Will TSLA have its ups and downs? Of course, but it won't be like it was in the days before they had cemented their reputation because the market now sees the potential and the likelihood of it in a way it never did before (and a pandemic doesn't change that fact, it strengthens it).
I know you put a lot of time and effort into your production and delivery estimates and I imagine it's really disheartening to see the market does not respond in lockstep to what you uncover and publish. But Tesla is growing beyond the stage of being strictly tied to next quarters numbers, especially during a pandemic. Because forward-thinking investors know the world continues to turn and people will go back to work, have sex and make babies. Birthday parties will happen again, the world continues. So when you are paying a premium upfront to buy into the potential for high growth, a temporary impact does not cause you to fine-tune future growth projections in the same way that a "normal" quarter would. So it will have a much smaller impact on the valuation. Investors are largely looking beyond Q2 for that reason. Granted, if the recovery drags on and Tesla is not recovering as fast as investors expect, that will become reflected more visibly in the share price. But that raises the question "What are we using as a baseline here for an appropriate valuation to a company like Tesla?". And that leads to my second comment.
2) How quickly we got to today's valuation. Being uncomfortable with the current valuation in May 2020 due to the fact that it was only $350 in December 2019 and the fact that it dropped to $360 in March basically assumes it might have been correctly valued in December or in March. But in point #1 I already discussed the reasons why a high growth stock is worth a lot more than a stock with a more normal growth rate. And I really encourage those who not aware of how much every percent of annual growth matters to your compounded returns over time to spend the time to crunch the numbers over a decade or more with different assumed annual growth rates.
This stuff matters more than most investors can even imagine!
My question to you is why would you assume Tesla was correctly valued recently at $350-$360 (but not now). Couldn't it be the other way around? That the market didn't understand Tesla's likely annual growth rate and profitability in December and it didn't understand how COVID-19 was going to impact the big OEMs in a negative and very challenging manner? Do you understand the effects of this impact and how it will benefit Tesla? The market appears to be getting it finally. Previously, the market was worried about the competition. Not only was that not a likely problem before COVID-19 but now it is even less likely. Why do you assume the market must have understood Tesla then, but not now? Companies tend to only appreciate that fast when the market didn't understand the potential until certain events made that potential apparent. In Tesla's case, the market had been told for years that Tesla had nothing special, they weren't efficient at making cars, the competition would eat them up, nobody wants electric cars, EV's are too expensive to make a profit on, etc, etc, etc.
The market was in a discovery phase with respect to TSLA share price when COVID-19 reared its head. We don't know how much discovery there was yet to manifest itself in the share price when COVID-19 entered the scene.
Even though I expect the TSLA share price to take a breather, perhaps as COVID-19 lingers longer than expected, I'm not selling because trying to time the market moves is a real crapshoot. The money is in catching the big wave and riding it. If you're not on it, you can't ride it. Tesla is not fake, it's not hype, there is a strong probability it will grow into a very profitable company and continue its exceptional growth rate. That growth rate is key and it's not about next quarter, it's about the next several years. I want to be on the wave that I'm on, not worrying about whether it will give up 30% of its value in the next few months. And there is a lot of other investment income that's thinking the same thing, judging by how quickly it recovered from it's March low.
I appreciate the numbers you work so hard on providing but I think you might be a little too close to the situation to fully judge their meaning and importance relative to the share price. They definitely mattered more when bankruptcy was a more pressing concern. The stock is simply not going to move in lockstep with monthly or quarterly production and deliveries except in the very broad sense that they can help inform about likely production and (especially) profits 5 or 10 years out. They are one very small part of the valuation and
primarily for their predictive ability.
I wish I could wrap this up in a manner that had more closure but just remember that valuation is not a simple thing unless you have a low-growth, low margin company with predictable and repeatable sales and slow but steady growth. Valuation of a high-growth company with the potential for high margins does not respond well to formulas because formulas need assumptions and small changes in assumptions create huge changes in future value due to the effects of compounding.
NEVER under-estimate the power of compounding - it's very non-intuitive.
