Tesla is currently the hottest topic in the financial markets – there has not been a single individual that has created so much value for the mass and generated so much noise around his companies.
Tesla stock is just so electrifying (pun obviously intended) on both camps – the bulls keep shouting out higher number on the stock (sometimes without much numbers behind them) and bears go as far as saying Tesla is a fraud.
I think it is pretty clear that Tesla is not a fraud – as an owner of Model 3, it is pretty easy to tell that this car is really unparalleled in terms of experience and performance among cars that I can realistically afford. I have owned my car since December 2020 and I am not going back to ICEs.
HOWEVER WHEN YOU ARE INVESTING YOUR HARD-EARNED DOLLAR YOU HAVE TO SEPARATE YOUR LOVE FOR THE PRODUCT WITH THE STOCK.
And YOU HAVE TO HAVE YOUR OWN VIEW AND NOT RELY ON OTHERS.
Now, we are all busy people here – we want to be as efficient as possible with our most precious asset: time.
Therefore I introduce my own LAZY MAN’S VALUATION for Tesla – you can make your adjustments on growth rate or multiples.
I see valuation of Tesla in two different segments: 1) automobile / energy manufacturing and 2) in-vehicle services
Automobile / energy manufacturing
This is the bulk of Tesla revenue today – products rolling out of these massive factories. Tesla is set to hit one million deliveries this year, and vehicle delivery increased 64% Y/Y, but true increase is closer to 80% if you only look at Model 3/Y growth Y/Y because Model S/X facelift essentially shut down delivery for 3Q21. And this business is delivering 23% EBITDA margin – which is expanding by 300bps Q/Q.
There is no car business (or any large scale manufacturing company) that have 1) that kind of crazy growth profile and 2) margin expansion profile.
Per my LAZY MAN’s analysis, I see Tesla’s automotive and energy segment to be worth $1.387 trillion.
I have a very high level top line growth and EBITDA margin profile and I think this business deserves 30x 2023 EBITDA multiple. High multiple is completely justified because even at the end of 2023, Tesla will still be showing topline growth of 30-40% AND continued EBITDA margin expansion. If Tesla remains the absolute leader of electric vehicle (sustains 15-20% market share or greater), I would not be surprised if this segment gets even higher multiple with ENHANCED DURABILITY OF THIS BUSINESS.
LAZY MAN’s revenue projection and valuation matrix:
In-vehicle services segment
This is insight coming from a Tesla owner. A key difference between Tesla vehicle and normal ICE vehicle is that Tesla vehicle continues to generate EXTREMELY HIGH MARGIN CASH FLOW for TSLA while normal ICE cars make money for dealers (and low margin / volume constraint services and parts).
As a Tesla owner, I pay Tesla for multiple services
- Premium connectivity: this is like $150 per year or something. This is a must have for Tesla owner because it is important for everything that makes Tesla special, including enhanced navigation or Spotify.
- Tesla full self driving: I didn’t buy the whole thing but I have used it on subscript for my long road trips (San Francisco to Los Angeles) – this is GAME CHANGING Experience. Tesla owners are pleasantly shocked when they get on Tesla vehicle for the first time. The second shock for me was getting the FSD. I plan to use it for long trips – it is available for monthly subscription, so I probably use it ~2x a year (summer and winter), but using 3 months of average use in the analysis as some people just buy the product ($10K).
- Other revenues: Tesla also has Tesla insurance in California – this is MUCH CHEAPER than regular insurance companies. My insurance at the moment is ~$1,000 per year. I am assuming ~$300 per year for each vehicle just to be conservation
LAZY MAN’s revenue projection
LAZY MAN’s valuation for in-vehicle services
I am ascribing 40x 2023 sales, but it likely deserves even higher multiple given its crazy revenue growth profile (2023 growth rate is 70% Y/Y) on multi-billion sales and this is essentially just cash that drop down to bottom line on CAPTIVE CUSTOMERS – IF YOU DRIVE A TESLA VEHICLE, YOU ARE USING TESLA’S IN-VEHICLE SERVICES.
SO THE TOTAL VALUATION is $1.6tn – this translates to $1,607 stock
Tesla stock today is $1,033, so that represents >50% upside
I consider that valuation to be conservative (almost bear case scenario) because 1) assumptions are highly conservative 2) it is not giving much credit to more organic developments from the company, and 3) I am not giving premium for Tesla’s essentially market owning competitive position (should be using higher multiple).
For example, Tesla’s super charging network value is not included here – imagine the real estate value and the cash flow that Tesla can generate when non-Tesla vehicles start charging – I am hearing there will be subscription business and Tesla will be charging a spread over cost (CA$H).
I really love the car, but I love the stock even more. Also, I am so happy to be part of this Tesla’s mission:
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