(What follows is not financial advice, and all numbers are rounded and in nominal Oct 2021 $USD without regard to inflation.)
Dawning Awareness of the Juggernaut
What we are witnessing now I believe is primarily the market waking up to basic facts that were obvious to anyone actually paying attention to the data:
1) Tesla is selling cars far below the market clearing price even though gross margin ex emissions credits is tickling 30% (backlogs of 9-12 months for almost all products they sell)
2) The competition is floundering
3) Tesla's earnings power is going to explode moving forward now that we've hit enough scale to pass the break-even point with fixed costs and as new manufacturing efficiencies come into play in Austin, Berlin and Shanghai
4) Tesla can construct factories faster and cheaper than anyone in the entire manufacturing sector of the world economy
GAAP Earnings per Share EXPLOSION
FY 2018 ($1.1)
FY 2019 ($1)
FY 2020 $0.7
Q3 '21 was $1.6 (that's right, 2.3x the EPS of all of 2020 in one quarter)
> At Friday's $1128 after-hours close, that's annualized P/E of 170
By Q1 '22 it will roughly double again to at least $3
> $1128/share --> annualized P/E of 90
Look forward to Q4 '22 and we've got like $5 EPS
> $1128/share -->annualized P/E 60
Then supply pressures hopefully have eased by 2023/2024ish and Austin and Berlin have ramped substantially. Sometime in 2023 or 2024 quarterly EPS will have doubled again to $10.
> $1128/share --> annualized P/E only 30!!! About equal to Apple's P/E.
And this is just looking at the vehicle business.
What's a Reasonable P/E?
Realistically, P/E is likely to stay well above 100 while earnings grow this quickly.
P/E DCF Derivation
If you have an asset producing an income stream that starts at $1 in Year 1
...that grows 50% annually for 10 years
...then stabilizes for 10 more years
...with an 8% discount rate
---> The net present value of that asset is a whopping $181.
Hmm...that's about the same as the current P/E of 170 that we hit on Friday! This is fundamentally why the P/E for Tesla's growth trajectory will probably be at least 150. The only good reason the P/E would fall is either material increases in interest rates (and thus the discount rate) or an expectation in any year that there isn't a clear path for sustained 50% earnings CAGR for a decade out from that point. Doing a more detailed discounted cash flow analysis for Tesla's earnings growth produces approximately this same result, so this is good enough for rough estimates.
Plus, I believe the potential of FSD and Energy will be increasingly adding to valuation in the coming years. If so, the 50% earnings CAGR projection could be egregiously too conservative.
If that 150 annualized P/E is applied to when quarterly EPS hits $10 in 2023/2024, then we're looking at a $6,000 share price.
Conclusion
I believe any drop in the share price from this level will be a buying opportunity that lasts 6 months at most.
Except for small amounts to fund quitting my job, I'm not f^$%ing selling.
www.cnbc.com
