Tesla Valuation Based on 5 Year Outlook

[Chunky Jr.]

If these projections become reality, that will be more than 20M Teslas on the road by end of 2026. If 75% of those are paying the $10/mo premium connectivity, that's $150M a month in revenue. If just 10% of them do the FSD subscription, that's another $400M a month. So it is possible Tesla will be making over $500M a month in subscription revenue by 2026. If FSD sub take rate is 25% or more, then we could be talking more than $1B/mo in subscription revenue.

Could also add in Tesla Insurance, but I have no idea how many people are opting for that now given that it has limited availability. If that was also 10%, that's probably another $150M a month assuming a $75 a month premium.

 

[The Accountant]

Ok, how did you get your fair value of 1200$? I though the exercise was to base it on Amazon's P/E multiples (540 for 2015).

Ah - I misunderstood your original question. It's a fair point.

I saw the Amazon 2015 multiple as an outlier. In the table below with the Green headers, I compute Tesla's share price using exactly the Amazon multiples.
Doing this shows a share price of $1,841 for 2021 and then drops to $1,752 for 2022.
I used some judgment in arriving at $1,200 for 2021. I felt this was a number that was within reach for 2021 yet still aggressive and the share price climb for the next 5 years worked well ($1,700 in 2022, $2,200 in 2023, etc).

btw: I saw 2017 as an outlier as well. I took the Amazon multiple of 190 down to 115 for Tesla in 2023.

 

[Mengy]

Good thread, but man my own model predicts a much lower share price in 2026. My total revenue is a bit larger but my margins and profits are lower, thus my EPS both GAAP and non-GAAP are lower. I'm predicting a share price of around $1500 by 2025, yours is over double that!

Of course I will admit my model is conservative, I've done that on purpose to keep my expectations in check. I also don't include anything for robotaxis. And I will admit I'm not great at modeling, mine is probably basic compared to yours which seems much more fleshed out than mine is.

If your predictions are right then I'll be super happy about it because it will mean I'm MUCH more wealthy than I'm expecting to be!

 

[The Accountant]

This is totally a question, not criticism, is it Apples-to-Apples* to use Amazon’s p/e?
I am not well versed with Amazon’s revenue distribution across its divisions (starting 2015), thus not sure about the margins, and the comparison to Tesla (from 2021).

*I did not intend to bring in Apple into this discussion

I agree. I don't think it is a correct comparison. I don't believe that there is a company that would be.
I selected it as the best we have because of Amazon's size and its impact as a disruptor in more than one industry.
My original plan was to develop a 10 year plan (with terminal value) and use Discounted Cash Flows to value the company, but when I got into years 6-10, it became too difficult. I had to assume 2-3 additional models, robo-taxi, etc. I decided using Amazon as a multiple proxy could give us a good idea of share price potential.

 

[The Accountant]

Does this factor in the newly released FSD subscription?

It doesn't. I should have made a point of that. I was not sure how to model that. The FSD subscription model should improve the numbers I presented.

 

[The Accountant]

I too wonder if Amazon's current P/E could be low for Tesla in 2026, given that Tesla will still have enormous growth ahead. @The Accountant's 2026 vehicle production estimate (6.3M vehicles) is only a third of Tesla's announced 2030 target (20M vehicles). Has Amazon guided for (or does anyone expect) a tripling of Amazon's revenues in the next four years?

Edit: On the other hand, using Amazon as a precedent is a nice tactic to impress simpleminded analysts who don't understand Tesla.

I took a very conservative approach to years 4 & 5. By year 5, revenue is only growing by 27%. If I was to model out 2027, growth would have dropped below 20%. I ran out of ideas for new vehicle models, new factories, new lines of businesses but you can be sure that Elon won't run out of ideas and we could continue to see 50% revenue growth in 2026 and beyond. You can look at the $4,500 share price in 2026 as the floor.

 

[The Accountant]

By comparison for 2026 my own model has:
= $334 bn revenue
= 18% GM%
= $58 bn GP
= 16% NM%
= $53 bn NP
= 515 GWh battery production

All this is approximately what you have, except you do not explicitly give a GWh number. Care to share ?

(I tend to agree with you on share price.)

Let me know if you have any feedback on my GWh rates per unit. I am not sure how accurate they are.

 

[Chunky Jr.]

Let me know if you have any feedback on my GWh rates per unit. I am not sure how accurate they are.

I'm not sure if I understand your units. A 100 kWh pack for a Model S is 0.100 MWh, or 0.0001 GWh

 

[petit_bateau]

Let me know if you have any feedback on my GWh rates per unit. I am not sure how accurate they are.

View attachment 685906

Most of your pack sizes look correct. So we agree very closely on GWh/yr in 2026, i.e. you are at 482 GWh/yr and I am at 515 GWh/yr, just as we agree closely on likely 2026 revenue - your $346 vs my $334 bn.

>>> Except that I think the initial van pack will be 100kWh, just as you assume for the blended CT pack. This would likely be an equivalent to the Ford Transit / VW Transporter and it fulfills the equivalent tradesman's vehicle function in its market as a pickup does in (say) the USA market. (Plus of course al the weekend warriors who want to look like salt-of-the-earth types who just happen to have a van full of toys. )

I have the same problem as you for the period 2026-2030. Either one assumes constant 50%yoy growth, or one assumes an S-curve to taper-out at 20m/yr cars. One way assumes Tesla run out of ideas and/or run into (competitive or other) barriers to growth. The other implies the taper begins later and that Tesla becomes the biggest economic entity on Earth.

Your margin assumptions create approximately double the profit that my model does. Your model ignores : FSD subscriptions; and connectivity; and non-Tesla use of Supercharger; and generalised autonomy; and Superbidder utility creaming; etc etc etc ; and I ignore all these other income streams as well. So although you are at double my profit it seems to me your level is more likely to be correct than mine.

My model is driven by cell supply. Yours is driven by vehicle supply. It seems to me that cell supply is the pacing constraint.

I fully agree with your tapering P/E approach. You might find it interesting to calculate the corresponding PEG for each end-year. To the extent that swings around a lot (or not) versus being a smooth ride, it indicates the extent to which share price volatility might result.

It should be an interesting ride, not for the fainthearted.

 

[The Accountant]

I'm not sure if I understand your units. A 100 kWh pack for a Model S is 0.100 MWh, or 0.0001 GWh

MWh - it was mis-labeled. thanks for catching that.
Here is a corrected revision. I also now include the units delivered.

 

[MP3Mike]

I think you are under estimating packs sizes:

• The Model 3/Y use a 55kWh, or rumored 60kWh in newer versions, in the SR and a ~78kWh pack in the LR. So your estimated pack size for the 3/Y may be on the low side.
• It is definitely low for the Cybertruck. I am guessing the base pack will be 150kWh and the top spec pack will be 250-300kWh. (I would probably put the average at 200kWh.)
• Rumors are the Roadster would be a 200kWh pack.
• A van would surely have a pack size larger than the X, I would guess 150kWh.

 

[insaneoctane]

Let me know if you have any feedback on my GWh rates per unit. I am not sure how accurate they are.

View attachment 685906

I agree with @petit_bateau that your ”van” pack size is possibly too small. I know that you admitted that your “van” was a stab at a next vehicle, so maybe that’s why it’s low, but the poor aerodynamics of a van almost necessitate a large 85/100kWh pack to be useful.

 

[Chunky Jr.]

If Tesla's goal is 3 TWh a year by 2030, I'd expect they would be over 1 TWh by 2026, which to me implies that energy storage will ramp much faster to much higher volume.

Another possibility is that they license/sell packs to other auto manufacturers.

 

[insaneoctane]

I think you are under estimating packs sizes:

• The Model 3/Y use a 55kWh, or rumored 60kWh in newer versions, in the SR and a ~78kWh pack in the LR. So your estimated pack size for the 3/Y may be on the low side.
• It is definitely low for the Cybertruck. I am guessing the base pack will be 150kWh and the top spec pack will be 250-300kWh. (I would probably put the average at 200kWh.)
• Rumors are the Roadster would be a 200kWh pack.
• A van would surely have a pack size larger than the X, I would guess 150kWh.

I don’t think CT average pack size is that high….EDIT: I’m wrong, see calcs below

start with an expected efficiency of the 3 trims…

base @ 450 watts/mi. 0.450 * 250 miles = 112 kWh
AWD @ 500 watts/mi. 0.5 * 300 miles = 150 kWh
plaid @ 550 watts/mi. 0.55 * 500 = 275 kWh(!)

Damn. I think I just concluded you’re right! So average is likely somewhere north of 175 kWh, you can estimate the take rates of the trims per my estimate above to nail it down…

 

[hobbes]

First of all, thanks for your work and all the time you take to model and share this!

I took my fair value of $1,200 per share divided by the EPS of $3.41 (1,200 / 3.41 = 352)
If you take today's price of $644, it would be a P/E of 189 (644 / 3.41 = 189)

I am a bit confused here though. You said in your first post, "I used the Amazon P/E multiples to project Tesla's value.".

So what I assumed was:

1. You get Tesla´s EPS from your own long-term model
2. You take an P/E from Amazon
3. You calculate Tesla´s fair share price by multiplying the two

The post I quoted seems to contradict that though (sounds like Tesla fair value is not calculated from a given P/E but the other way round).

Also, I´d like to understand how you match the P/E from Amazon to Tesla (2. in my list above). Do you model Amazon´s P/E as a function of EPS so for a given Tesla EPS you can calculate fair value using that? I have no accounting background so maybe I completely miss your approach here...

EDIT: missed some posts that discussed what I asked here because I didn´t reload before replying, leaving this anyway

 

[The Accountant]

First of all, thanks for your work and all the time you take to model and share this!


I am a bit confused here though. You said in your first post, "I used the Amazon P/E multiples to project Tesla's value.".

So what I assumed was:

1. You get Tesla´s EPS from your own long-term model
2. You take an P/E from Amazon
3. You calculate Tesla´s fair share price by multiplying the two

The post I quoted seems to contradict that though (sounds like Tesla fair value is not calculated from a given P/E but the other way round).

Also, I´d like to understand how you match the P/E from Amazon to Tesla (2. in my list above). Do you model Amazon´s P/E as a function of EPS so for a given Tesla EPS you can calculate fair value using that? I have no accounting background so maybe I completely miss your approach here...

EDIT: missed some posts that discussed what I asked here because I didn´t reload before replying, leaving this anyway

I see your edit but I will add some comments here in case some of the prior posts did not fully answer your question.

I computed Tesla's EPS wihout any regard for Amazon. I took my Quarterly model that I have used for several years and revised it for the 5 year plan.
Once I had Telsa's EPS from 2021 to 2026, I took Amazon's historical Price to Earnings (P/E) ratio as guidance to arrive at the Share Prices for Tesla.

 

[DarkandStormy]

The baseline (2021) is nearly a doubling (+85%) of the current stock price in 5 months. Outside of a repeat of 2020 (which is unlikely, but possible, sure), that's not happening.

Amazon isn't a good comp, imo. Completely different business, different cash conversion cycle, different capital management, which means (probably) different valuation - or rather, different valuation as related to P/E.

We've also seen Tesla's stock price move around with no real regard for P/E or other fundamentals. Now, sure, the stock price could start falling in line with more traditional metrics at some point, but if you're not factoring in FSD, no robotaxis, and energy appears to be pretty minimal in terms of income...wouldn't it make much more sense to value Tesla as an auto company in this scenario? Auto sales (minus COGS - auto) makes up 90% of your projected income in 2026. So why wouldn't a traditional auto company P/E apply?

Anyway, long term looks are fun because things could go in so many different directions. And this is way more detailed than anything I could come up with. But my two main points are 1) getting to $1,200 by EOY 2021 and 2) I think a valuation...at least based on P/E...should be more in line with an auto company if 90% of income is projected to be from selling cars and there's no FSD/robotaxis factored in.

(Fwiw, if you use something like a 15x P/E then 2026 stock price would be closer to $900, if I'm reading everything right - and there's certainly a good chance I'm not.)

 

[PeterJA]

...So why wouldn't a traditional auto company P/E apply?

You better learn more about Tesla if you want to have any credibility in this forum. On the other hand, too late.

 

[adiggs]

Amazon isn't a good comp, imo. Completely different business, different cash conversion cycle, different capital management, which means (probably) different valuation - or rather, different valuation as related to P/E.

Do you have an alternative comp?

I choose Amazon as I know of no other capital intense business at similar scale, growing at anything like similar levels.

Completely agree that the businesses themselves don't directly compare well for reasons that you cite. If TSLA were a $600M, $6B, or even maybe $60B market cap company then I'm pretty sure that we could find higher quality comps of capital intense business with more similar business dynamics, including the capital intensity and growth rate.


I don't use any of the 'software' companies as comps, such as Microsoft, Google, Facebook, Netflix, Oracle, .. I also don't count Apple. The first are easy - they can grow at effectively any pace that their customer base demands - they have little more than servers to install, and occasionally server farms to build. They don't need to wait a year from breaking ground to first unit, and another 3-6 months for volume units, from a new factory that is needed to continue the 40%-50% growth rate.

I put Apple more in the software than the hardware camp, as they subcontract their hardware build. There is some similarity - to the degree that Apple is buying that incremental infrastructure (capital intensity) and the degree to which they have to wait for it to appear, then maybe. Mostly though I see Apple growth as gated something closer to the software companies - customer demand.

 

[DarkandStormy]

You better learn more about Tesla if you want to have any credibility in this forum. On the other hand, too late.

Did you read the rest of the post or just like to cherry pick without context? Of the ~$101bn projected net income in 2026, ~90% comes from selling cars. You can't say, "well...there's some magic sauce" but not model it in and then say, "we should use this P/E." You can't really have it both ways.

I'm not saying Tesla is automotive company only, but I am saying that if you're projecting 90% of net income to come solely from selling automotives, it would make sense to use traditional auto co's P/E ratios to get to a projected stock price.