Tesla Valuation back to 2010 IPO

Updated

has had wild swings in valuation from under 2 times sales and over 20 times sales in the past few years. Granted, you have to know the future to know what the sales are, but in 2019 it was insanely cheap just as the Model Y was just starting to sell. The MODEL Y is why Tesla has done so well in my opinion. It has dominated and is still growing insanely fast and taking out the competition. The car is amazing. From the first moment I drove it using Turo out in the snow in Montana in 2020 I knew it was a world-car and it was in the largest segment which is Crossover SUV. After the Model Y started dominating, the valuation of Tesla then got up to over 20 times sales, which is beyond insane.
Markets provide you with opportunities to buy when things are cheap, but there are uncertainties. Then the market provides you with opportunities to sell when things are expensive, but the momentum and price gains are so strong that it is tempting to hold on. The best thing you can do is learn how to act in both situations. Also, it is OK to watch a stock go higher AFTER you sell. Let go of the need to think you are the smartest person in the market. The person buying from you deserves the right "to be right" for awhile too.
So where does stand now? In the middle between expensive and cheap. If Tesla goes lower, it gets cheaper and as sales growth continues it will drive the PSR down near 5-4 within 12 months. Will Tesla see 2 times sales again? I doubt it because at 2 times sales before it had a lot of debt ( and there were survival concerns at that time along with a VERY LOW investment grade rating in the junk-status category.) Now the opposite is true. Tesla has billions in cash and enough capital to buy back stock and still meet their capital spending for many years.
To step back and view the situation from a rational perspective, you have to look at the extremely high valuation that Tesla reached in the bubble of 2020-2021-2022. Step back and look at the long term valuation and trends.
Stay tuned.
Tim
9:20AM-9:37AM Thursday, November 10, 2022
184.24 last

Note

In just a month is now down to 150/share as of Friday, December 16th's close on Triple Witching Expiration day.

At $150, we can look at the valuation and draw some conclusions about what investors risks and potential rewards are from this price level. A month ago a $184 I pointed out that Tesla was in the middle between expensive and cheap.

With revenues expected to lift from 53B to this year ending Dec'22 and up to 96B-137B (115B average estimate) at year end 2023, we are looking at a valuation of 4X's sales (450B mkt cap / 115B sales or roughly 4x's sales). 2024 revenues are expected to grow an additional 48%, which puts sales at 170B-180B and if 's market cap slips to 340B-360B it will be down to a low 2X's sales, which is extremely low for a company with high profit margins and revenue growth > 20%.

What has happened in this last month is the hangover from people who bought shares hoping for the $7500 EV tax credit are taking a big hit because EV stocks peaked on that date back in August. What also happened is that $7500 tax credit is for Q1'23 deliveries which creates a disincentive to buy a Tesla this year and instead defer it to next quarter. This is going to HURT Tesla sales in Q4 for this insane reason because the Gov't will force people to put off buying an EV until next year which will hurt the YOY% gains in EV's this year. I would call this "very bad implementation of a well-intentioned law".

Also, anyone who has purchased shares in the last two years on margin and are being forced to either put up more money in maintenance margin or might need to dump their shares to raise capital. Furthermore, since it is year-end it is that time of year for people to take capital losses to use against any capital gains or to use to reduce their ordinary income. So the year-end tax-loss game is in full effect here.

What is also happening is Elon Musk has sold some more shares at these low prices to: pay taxes, to pay down margin debt used to buy Twitter, to cut debt at Twitter. If Elon is selling, other people want to sell too. The same rational doesn't seem to apply to other CEO's who are selling their stock, but that's the reasoning people are saying to justify selling their TSLA shares or avoiding buying more at these cheaper prices.

How does this all play out? Very simply, the price of a stock is the short term balance point between buyers and sellers with all of their moods and rationales and in the long run the stock price is the weighing machine for the future value of earnings from Tesla. There are many influences on the price of a stock and sorting out the news from the noise is what it is all about.

We have the cost of buying a car shooting up thanks to Jerome Powell and the Federal Reserve who have jacked up the price of borrowing to new heights in an attempt to stave off inflation. Crude oil peaked over $120 earlier this year and now was down at $70 which is a major portion of the inflation we had. Oil is the same price as it has been over each decade for the last four decades. So, I'd say that oil is telling us that inflation isn't a problem and inflation will drop sharply over the coming 12 months.

Stay tuned for more updates as 's valuation moves 10% one way or the other I will attempt to update this discussion. The risk from here is down to 2X's sales for in a year, which would be a drop of 30% from 450B to 300B mkt cap. I view this as a major floor of support and a "pound the table buy".

The positive catalysts for are: FSD software, 4680 battery cells, CyberTruck deliveries, Gigafactory Berlin, Gigafactory Texas, Gigafactory Shanghai and China opening up.

The negative catalysts are: Fed raising interest rates, Elon damaging his "brand" with his Twitter moves (I disagree, of course), recession fears from job cuts announced in high tech sectors, EV $7500 credit already baked in, overall valuation.

Stay tuned!
Tim
3:20PM December 17, 2022
$150.23 last

Note

When moves 10% from my last update, I will update this discussion. There has been weakness across the board in EV stocks like and to go with the move down in from $150 to $140.

Stay tuned!
2:08PM December 20, 2022
$141.20 last

Note

tradingview.com/chart/VwiLYtMv/

I'm trying to post a chart of the price performance of , and since April when the Twitter deal was announced. I also added short term interest rates, which have raised the cost of buying cars substantially.

8:27AM December 21, 2022
$140 last pre-market

Note

Tesla increased incentives to clear out inventory going into year end to match the EV incentives that kick in starting in January, this has dragged down shares further along with a terrible quarter for CarMax who pointed to very weak sales and a very weak outlook. Maybe Jerome Powell will take some of these facts into consideration when implementing further tightening to wring out inflation expectations. Very high borrowing costs for new car buyers is cutting into demand and that is reflecting in the shares of auto manufacturers today.

10:56AM EST December 22, 2022
$129+ last

Note

was down under $105 yesterday to push valuations deeper into value territory with the market cap reaching down to $320 billion. With revenues in the trailing 12 months pacing on , the PSR or "Price to Sales Ratio" will be down to just over 3. I did point out that likely wouldn't retreat as low as 2X's sales but that is still 40% lower than current prices. That is how investing works. You have to know your valuations and what everyone else's expectations are so you can position yourself for the best risk/reward opportunities. At this level of valuation, the upside over the next 10 years is significant with 40%+ growth for 10 years. Revenues double in less than 2 years at 40% growth, so in 8 years revenues will double 3 times and every $1 in revenue will be $8. When you can define a level where the upside is 20 times the downside risk, you are doing pretty well indeed. With here, the upside potential vs downside risk is getting substantial with $900 upside and $40 downside for a ratio of 22:1. At $60, the upside is $940 and a downside of less than $10 for a 94:1 ratio. That's how investing works. The upside/downside ratio potential soars as the price falls.

Stay tuned!
9:21AM EST January 4, 2023
$109 last pre-market

Note

With 's earnings out and the stock back up over 160/share, I'm able to update the proper shares outstanding, revenues and therefore revenues/share to derive the low PSR that Tesla had dropped to at those lows. As I had reported in my last update, the upside potential had become huge when the PSR had fallen as low as it had to just over 3X's sales. The upside had become over 20:1 at that time. The crowd was eager for lower prices but from what it seems very clearly now is that value investors were accumulating shares quietly and aggressively as fell under $120 all the way down to $104 and absorbed all of the short sellers, put-option-buyers and TeslaQ enthusiasts' utter disdain for Tesla. The new fundamental data will be ready soon, but it is not ready now in the system so I'll post the #'s that I have for reference from Tesla's Investor Relations site:

TESLA INVESTOR RELATIONS:
Shares outstanding and fully diluted 3.16-3.471. Revenues (81.462B). That gives us 25.78/share in revenues (fully diluted 23.47/sh). Which means at was trading at 4X's trailing 12 month sales or a PSR of 4. Looking ahead to Q4'23, 's sales may move up to $30- and that will drive the PSR down to 3.3-3X's Sales at the level, which is attractive long term.

More to follow!

January 27, 2023 8:46AM EST
163.42 +3.15 premarket

Note

tradingview.com/chart/6qpcpJNi/

A picture of the fundamental graph, updated

March 27, 2023 7:41AM EST
$193.21 +2.80 premarket

Note

It is important to do you long term valuation work on long term charts so you can see and act at important valuation levels. Reviewing the valuation of down near $100 per share was an opportunity along with many other stocks at that time.

October 10, 2023 10:17AM EST

Note

Here we are again with down to bargain-basement prices due to a slew of news announcements:
1. Weak Q1 deliveries overall is a sign of loss of growth momentum
2. Very weak deliveries in other auto manufacturers
3. Very high interest rates on auto loans, which have crimped demand (2% rates back in 2020-2021 vs 5%-8% rates today makes a huge difference in customer buying power
4. Competitors are having trouble selling their inventory, which is putting pressure on pricing for Tesla
5. Massive Gov't deficit spending doesn't bode well for future economic growth or future interest rates especially with the Fed unwilling to cut rates due to slightly higher than desired inflation rates
6. Huge Gov't incentives to purchase EV's accelerated demand for EV's
7. Used car prices have been falling dramatically as "restricted supply" wears off and people aren't getting what they need for trade-ins to buy a new car. The bubble in car pricing in 2021-2022 is long over.
8. Tesla's 4680 battery cell isn't turning out to be the huge boost in energy efficiency and lower cost that was originally thought. Those cost savings mean lower margins for Tesla vehicles going forward.

Some good factors are:
1. Tesla has no debt and $29 billion in cash reserves to weather soft economic activity
2. Tesla is adding to the cash pile steadily and remains the only company profitable in manufacturing EV's
3. Software development for Tesla FSD V12 is extremely impressive and is only 99/month subscription. 6 million Tesla vehicles and counting have been produced to date and almost all of them can run this new software.
4. Charger network profits. With almost every car manufacturer planning to use Tesla's NACS (North American Charging Standard) for charging their EV's, Tesla can make profits from the charger network and also invest to grow out the charger network even further. Over 150,000 Tesla chargers exist now vs 5,000 8 years ago. The network is growing substantially each year and destination charging at hotels (40,000 wall connectors now at hotels) will further expand EV charging and reduce range concerns.
5. Tesla vehicles are still the safest on the road in each category and anyone interested in protecting their life can consider driving a Tesla
6. CyberTruck deliveries are a positive, although on hold now to fix an accelerator pedal issue.

I have an appointment to get to and will put up another commentary in later today.

Cheers,

April 18, 2024 3:23PM EST 150.81 last

timwest

Subscribe to my indicator package KEY HIDDEN LEVELS $10/mo or $100/year and join me in the trading room KEY HIDDEN LEVELS here at TradingView.com

Also on:

Disclaimer

The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.