Tesla Valuation Based on 5 Year Outlook

[petit_bateau]

Great set of numbers. I should just quit my job now .

Why do residential solar roof sites increase to 1.2m/yr in 2023 before dropping back to 50k/yr from 2024 onwards?

Ooops. I made a silly and overwrote the equation in the MW-table that was driven by the #-table. So the MW table is correct, but the #-table is not. Because of the nature of my error it does not really affect the rest of it. I'll fix mine.

 

[petit_bateau]

@petit_bateau Wonderful work. So much thanks to you for doing this for all of us. I love seeing that relatively conservative assumptions yield such a price. Maintaining 30% gross margins throughout those ASP declines and after competition really actually does arrive, might seem optimistic, but I feel they’re fair given Elon’s companies‘ technological dominance.

1. Did you realize you predict a steep share price decline from 2028-2030?
2. Curious about the constant share count. I guess you predict that share buybacks will offset Elon’s 2nd comp package and other stock awards?

1. I just threw in some rough & ready PEs to reflect that likelihood that growth would be tapering off given the underlying set of assumptions. Those in turn cause somewhat of an overcorrection in share price terms, and in fact if you look at the PEG it goes below unity indicating an underpriced share. I suspect that a bit of tuning gives a smoother theoretical ride, more of a bumpless transfer in control terms, and I may play around with that. Conversely if you look at the earlier years there are grounds for considering that $700s in 2021 is still overvalued - I think it depends a lot on one's own discount rate and risk tolerance.

2. I held it constant for simplicity. Indeed I can see dilution via employee shares is to be expected. I am very open to better suggestions re what is reasonable to assume, especially as Elon comes off the current package and may well ask for another one.

 

[petit_bateau]

That's an interesting view into things. Fortunately if the economics works then I expect the financial side to be readily available. Whether the necessary mines can get permitted / environment assessment completed successfully - that might become our constraining factor.

Something of a sidebar with some relationship to the thread - an important mistake I see being made in the environment / climate change community is treating decisions like they are absolutes. All decisions have costs/benefits, risks/rewards. In this specific instance we're going to need a lot of raw materials and at least some of them are going to come from seemingly environmentally destructive work. Clearly we want to minimize the direct environmental impact - but do we want to stop the work completely? I've seen situations where it looks to me like we're fine with allowing the house to burn down in order to save a bush growing next to the foundation.

Like all decisions there are a range of factors that go into them and they all need consideration. The raw material acquisition is something I worry about - will the environmental lobby be the most effective block to progress to a renewable energy economy? I really hope not.

Currently the world gets through 100 mln bbls oil each day. There are 6.293 bbls/m3 and density is typically 0.8. The point is we already extract big numbers of resources each day, we just need to stop extracting the wrong ones and start extracting the right ones.

 

[adiggs]

Currently the world gets through 100 mln bbls oil each day. There are 6.293 bbls/m3 and density is typically 0.8. The point is we already extract big numbers of resources each day, we just need to stop extracting the wrong ones and start extracting the right ones.

Exactly.

 

[insaneoctane]

@petit_bateau , thank you for sharing your data. My thoughts:

• I don’t know if as the P/E comes down starting 2028 if we can assume the result in SP reduction…seems like for that outcome, Tesla will likely be the world’s largest company and will essentially stop innovating? Maybe the world’s biggest high tech company doesn’t hit P/E of 20 this decade? I need to think more about this…
• The printing press! Tesla might make $2B net profit after all expenses this year. That # balloons to >$100B net profit by 2028…which is more than $100 per share. What could Tesla possibly do with that amount of money. Every. Year. And growing?
• FSD not included
• AI, Dojo, SaaS not included
• Manufacturing technology not included

WOW

 

[adiggs]

@petit_bateau , thank you for sharing your data. My thoughts:

• I don’t know if as the P/E comes down starting 2028 if we can assume the result in SP reduction…seems like for that outcome, Tesla will likely be the world’s largest company and will essentially stop innovating? Maybe the world’s biggest high tech company doesn’t hit P/E of 20 this decade? I need to think more about this…
• The printing press! Tesla might make $2B net profit after all expenses this year. That # balloons to >$100B net profit by 2028…which is more than $100 per share. What could Tesla possibly do with that amount of money. Every. Year. And growing?
• FSD not included
• AI, Dojo, SaaS not included
• Manufacturing technology not included

WOW

Somewhere in there - dividends. I think Elon has something to spend his 20-25% share of the dividends on!

At some point its inevitable. That might be a long ways off - 20 years? - but it'll happen. I picture this like Apple, except a company that continues innovating and expanding capital investment for a lot longer. Eventually the pile of cash is just too big to spend for one entity, and returning it to shareholders is exactly the right thing to do. But of course, that isn't soon by any stretch of the imagination.

 

[kbM3]

@petit_bateau , thank you for sharing your data. My thoughts:

• I don’t know if as the P/E comes down starting 2028 if we can assume the result in SP reduction…seems like for that outcome, Tesla will likely be the world’s largest company and will essentially stop innovating? Maybe the world’s biggest high tech company doesn’t hit P/E of 20 this decade? I need to think more about this…
• The printing press! Tesla might make $2B net profit after all expenses this year. That # balloons to >$100B net profit by 2028…which is more than $100 per share. What could Tesla possibly do with that amount of money. Every. Year. And growing?
• FSD not included
• AI, Dojo, SaaS not included
• Manufacturing technology not included

WOW

P/E ratio is tied to growth expectations. At a certain size, massive growth just becomes too difficult. We’re already projecting Tesla to be 2X Apple, but to have very high growth even at that size would be unprecedented (Of course Tesla is already at an unprecedented growth rate at their current size, but it does just keep becoming more and more difficult the larger they will get).

However if anyone can pull it off, I would put my money on Elon

 

[insaneoctane]

Somewhere in there - dividends. I think Elon has something to spend his 20-25% share of the dividends on!

At some point its inevitable. That might be a long ways off - 20 years? - but it'll happen. I picture this like Apple, except a company that continues innovating and expanding capital investment for a lot longer. Eventually the pile of cash is just too big to spend for one entity, and returning it to shareholders is exactly the right thing to do. But of course, that isn't soon by any stretch of the imagination.

I personally think that Tesla will be making so much cash, in very short order, they won't be able to spend it fast enough...I think dividends will be here much sooner than anyone realizes.

 

[petit_bateau]

@petit_bateau , thank you for sharing your data. My thoughts:

• I don’t know if as the P/E comes down starting 2028 if we can assume the result in SP reduction…seems like for that outcome, Tesla will likely be the world’s largest company and will essentially stop innovating? Maybe the world’s biggest high tech company doesn’t hit P/E of 20 this decade? I need to think more about this…
• The printing press! Tesla might make $2B net profit after all expenses this year. That # balloons to >$100B net profit by 2028…which is more than $100 per share. What could Tesla possibly do with that amount of money. Every. Year. And growing?
• FSD not included
• AI, Dojo, SaaS not included
• Manufacturing technology not included

WOW

1. You'll see that this projection takes TSLA's mkt cap to $ 5.7 trillion in 2028 or so. That would be for a company growing revenue at 25-30% per year and with a net margin of about 15%, not shabby. In comparison AAPL is about $2.5tn now, often grows at 20-25%, but has an average long term growth of only (!) 13.5% and a net margin of about 20%. Essentially I think I am being pessimist re how the market will view TSLA, but I would rather err on that side.
2. Total world stock market cap is about $85 tn, and total world GDP is about the same (i.e. there is a contradiction in these numbers) (Global market capitalisation exceeds world GDP, evoking 'bubble' concern) so I'll use $100t as an easy number to play with. Then let's say total mkt cap doubles over the next ten years (i.e. a 7% growth rate) to $200tn. That means that in 2030 if TSLA had a $6t mkt cap it would represent 3% of the global economic value.
3. However energy sector is about 3% of global GDP (Energy industry's share of GDP by select country 2015 | Statista) which I suspect is an underestimate, but it does mean TSLA would be about 100% of the energy sector mkt cap if one was simplistic. Fortunately automotive is another 3% (Read @Kearney: The contribution of the automobile industry to technology and value creation.) but even so that would put TSLA as being 50% of both. Personally I think more delving will find that the two sectors properly analysed represent about 15%, in which case TSLA would be about 20% of the mkt cap of the sector at that time. Which would make sense as 20m vehicles per year would be about 20/85 of global vehicle production using now figures, more likely 20/100 by 2030 due to demographics. I'd like to see someone do that mkt cap exercise properly, personally I get lost in the World Bank and OECD stats engines because I am unfamiliar with setting up a query properly (Table 2: GDP by sector (in percentage)).
4. You will note that I left interest as a $0 number, i.e. I assumed all the cashflows would go to fund expansion or pay dividends. I've previously analysed capex requirements for expansion of this scale and concluded that TSLA can now self-fund, so there comes a time when dividends are required to clear the money out, after amassing a suitable sized warchest of course. Elon's plans for Mars and space will likely require very considerable amounts of cash input for planetary-scale pump-priming, so I think I can see a willingness to consider dividends at the very top.

But indeed, wow.

 

[petit_bateau]

I fixed that error in the solar table, and tidied up the graphs and added a few extra tables to pull out some of the important points.

It's just one pathway, but it is at least a fairly consistent one.

We shall see.

 

[InTheShadows]

@petit_bateau , thank you for sharing your data. My thoughts:

• I don’t know if as the P/E comes down starting 2028 if we can assume the result in SP reduction…seems like for that outcome, Tesla will likely be the world’s largest company and will essentially stop innovating? Maybe the world’s biggest high tech company doesn’t hit P/E of 20 this decade? I need to think more about this…
• The printing press! Tesla might make $2B net profit after all expenses this year. That # balloons to >$100B net profit by 2028…which is more than $100 per share. What could Tesla possibly do with that amount of money. Every. Year. And growing?
• FSD not included
• AI, Dojo, SaaS not included
• Manufacturing technology not included

WOW

Dividends.

 

[CorneliusXX]

1. You'll see that this projection takes TSLA's mkt cap to $ 5.7 trillion in 2028 or so. That would be for a company growing revenue at 25-30% per year and with a net margin of about 15%, not shabby. In comparison AAPL is about $2.5tn now, often grows at 20-25%, but has an average long term growth of only (!) 13.5% and a net margin of about 20%. Essentially I think I am being pessimist re how the market will view TSLA, but I would rather err on that side.
2. Total world stock market cap is about $85 tn, and total world GDP is about the same (i.e. there is a contradiction in these numbers) (Global market capitalisation exceeds world GDP, evoking 'bubble' concern) so I'll use $100t as an easy number to play with. Then let's say total mkt cap doubles over the next ten years (i.e. a 7% growth rate) to $200tn. That means that in 2030 if TSLA had a $6t mkt cap it would represent 3% of the global economic value.
3. However energy sector is about 3% of global GDP (Energy industry's share of GDP by select country 2015 | Statista) which I suspect is an underestimate, but it does mean TSLA would be about 100% of the energy sector mkt cap if one was simplistic. Fortunately automotive is another 3% (Read @Kearney: The contribution of the automobile industry to technology and value creation.) but even so that would put TSLA as being 50% of both. Personally I think more delving will find that the two sectors properly analysed represent about 15%, in which case TSLA would be about 20% of the mkt cap of the sector at that time. Which would make sense as 20m vehicles per year would be about 20/85 of global vehicle production using now figures, more likely 20/100 by 2030 due to demographics. I'd like to see someone do that mkt cap exercise properly, personally I get lost in the World Bank and OECD stats engines because I am unfamiliar with setting up a query properly (Table 2: GDP by sector (in percentage)).
4. You will note that I left interest as a $0 number, i.e. I assumed all the cashflows would go to fund expansion or pay dividends. I've previously analysed capex requirements for expansion of this scale and concluded that TSLA can now self-fund, so there comes a time when dividends are required to clear the money out, after amassing a suitable sized warchest of course. Elon's plans for Mars and space will likely require very considerable amounts of cash input for planetary-scale pump-priming, so I think I can see a willingness to consider dividends at the very top.

But indeed, wow.

I find the same internal conflict on Tesla's market cap by 2030. Fairly conservative numbers forecasts building up to 20m vehicles/yr plus 1.5TWh of storage plus solar lead to a market cap that is 2x-3x the current largest company in the world (excluding inflation, and multiple bolt-on revenue streams (robotaxi, robotics, autobidder, open supercharger network, AI compute, etc)). It's hard to believe there will be a company that reaches this size without some sort of government intervention, while the bottom-up forecast makes complete sense.

Perhaps we need to look to history to find better market comps.

This article from 2017 is not scientific, however it does provide some perspective on companies that were larger than today's largest companies.

The Most Valuable Companies of All-Time

Saudi Aramco has a comparable market cap to what is expected for Tesla, however they only controlled the fuel - Tesla focuses on production and consumption of fuel - so maybe that provides some justification of the larger market cap.

The only other larger companies were quasi government entities that had monopoly rights to trade.

 

[Chenkers]

I find the same internal conflict on Tesla's market cap by 2030. Fairly conservative numbers forecasts building up to 20m vehicles/yr plus 1.5TWh of storage plus solar lead to a market cap that is 2x-3x the current largest company in the world (excluding inflation, and multiple bolt-on revenue streams (robotaxi, robotics, autobidder, open supercharger network, AI compute, etc)). It's hard to believe there will be a company that reaches this size without some sort of government intervention, while the bottom-up forecast makes complete sense.

Perhaps we need to look to history to find better market comps.

This article from 2017 is not scientific, however it does provide some perspective on companies that were larger than today's largest companies.
View attachment 696778
The Most Valuable Companies of All-Time

Saudi Aramco has a comparable market cap to what is expected for Tesla, however they only controlled the fuel - Tesla focuses on production and consumption of fuel - so maybe that provides some justification of the larger market cap.

The only other larger companies were quasi government entities that had monopoly rights to trade.

This quora article does some more detailed analysis that casts a lot of doubt on the Dutch East India company valuation: How is the Dutch East India Company the most profitable company in history? - Quora
I'd view the capitalisation of Saudi Aramco as being a more realistic target, and quite fitting for Tesla to displace them.

 

[dc_h]

Tesla Energy growth should start growing to Elon's expectations in 2022. The new Megafactory has 40GWh capacity, which is about what Tesla just signed up for with CATL. Tesla has not shared 2022 expectations, but would like to hear this in the Q3 projections. I expect at least 10GWh in 2022, which I think is about 400% growth over 2021. If they have systems in place, production could be even higher. With this plant built under the radar, it would be cool to see another 2 or 3 TE plants in 2022. Another in China, Europe and maybe Australia, or maybe Indonesia, where many resources are located.

 

[dhanson865]

2/6

View attachment 685644

Key Points:
- This table delineates production output, not capacity
- Over the 5 year period, Tesla will need to greatly expand Shanghai, Austin and Berlin.
- Tesla should begin construction of 2-3 new sites in 2022/2023 to ensure production of over 6m cars by 2026.

Elon's latest comments imply the first 4 sites will grow but the 5th and later sites might not happen as soon as we previously expected.

From his comments I'd expect 0 new sites to start construction in 2022 and only 1 new site to start construction in 2023 (the one you have marked as Asia Site #2 assuming you didn't mean that as an expansion at Shanghai).

Then you might have to move the one after that into starting construction in 2024/2025.

 

[dc_h]

Elon's latest comments imply the first 4 sites will grow but the 5th and later sites might not happen as soon as we previously expected.

From his comments I'd expect 0 new sites to start construction in 2022 and only 1 new site to start construction in 2023 (the one you have marked as Asia Site #2 assuming you didn't mean that as an expansion at Shanghai).

Then you might have to move the one after that into starting construction in 2024/2025.

You can think of the plant sites as multiple plants. Shanghai phase 1 (Model 3 plant), phase 2 and 3 Model Y and Y expansion and what appears to be phase 3 or 4 for a new car apparently. Tesla is already two plants, one for the Y and one for the Cyber, plus a 40GWh battery plant. I’d expect another site to start once the cyber truck starts production as well. I expect Berlin to also have 2-3 plants on site, making 2 or 3 different cars.

 

[The Accountant]

1/8 (2022-2026 Price Targets)
Back in July, when TSLA stock closed at $644, I predicted a year end price of $1,200.
Although we did exceed this target in November, we finished the year at $1,057. No complaints from me.

Now 6 months later, I have revised my 5 year (2022-2026) numbers to reflect input from fellow members and to account for the strong Q3 & Q4 2021 performance.
I now have a:
2022 target of $1,930 (revised up from $1,700)
2026 target of $4,300 (revised down from $4,500)

My P/E multiple for Tesla now drops to 70 in 2026 as I only show sales growth of 25% that year.
The low growth rate is not due to a lack of conviction but rather a lack of imagination on my part. It’s difficult to identify the growth drivers beyond 2025 especially with no robo-taxi or AI (robots, etc) baked in.
I also do not assume that Tesla disrupts the Utilities Industry (which they might do).

 

[The Accountant]

2/8 (Comparisons to Amazon)
Amazon showed consistent profits starting in 2015 and I provide below their metrics to provide a comparison to my Tesla forecast. Amazon may not be a proper analog but I believe it can show what is possible from a company that is disrupting various industries.

Tesla will have Operating Margins in the low 20% range by 2023 dwarfing Amazon’s margins during it’s historic rise between 2015 – 2020 where Amazon’s OpInc Margin reached 5.9%

I project Tesla to achieve Free Cash Flow of $50B in 2026.
Not shown below, Tesla will likely have over $165B in cash by 2026

 

[The Accountant]

3/8 (Production, Deliveries and Market Share)

Key Points:
- This table provides production output, not capacity
- I originally had new sites coming on-line in 2023 but have now moved that to 2024 requiring faster expansion in Shanghai, Austin and Berlin.
- I believe Tesla will need 7 auto production sites by 2025.

Key Points:
To meet the 6m units in 2026,
- Model Y will need to become the best selling vehicle in the world
- the Cybertruck launch will need to go well
- the new Compact vehicle will need to launch by early 2024
- a new vehicle will need to be introduced by 2025. I have selected a van but other analysts include either a small crossover (smaller Model Y) or a city car (smaller than compact).
The 28% growth rate in 2026 is likely conservative as Tesla won’t sit still and new products and new territories can bring the growth rate much higher.

Market Share
I have Tesla maintaining a 22%-23% of the EV market.

 

[The Accountant]

4/8 (Auto Average Selling Price and Cost per Unit)