In a recent video I made a comment to suggest that at Tesla's current stock price,
if it remained where it was today, Tesla would be trading at almost a p/e ratio of 10 just
next year. Now admittedly I said this somewhat impulsively, without the numbers to back it up.
It didn't seem to get much attention anyway, and it was in reference to me calculating that
this year's Q4 is going to be close to a p/e of 25 relative solely to that quarter.
Before investors and the markets were struggling
enough as it was on how to value a company like Tesla. As a result we have been running a lot of
simulations in financials, to try and gather what an accurate valuation for the company is today,
and how much it could be worth one day in the future. We do this in order to gain insight on
how much we should be paying for Tesla stock. Along with what might be necessary for Tesla's
stock price to double again, what will it take to achieve all of that, and when might it happen?
We try and predict events and products ahead
of time, due to comprehension of the direction of this company, we can make inferences, and try
and predict the future roadmap of Tesla. Lately we have been right about a bit, we thought it likely
a full EV factory in Indonesia, well ahead of it being proposed. We worked out that the new Model
Y from Austin was using 4680 cells, whilst most we thinking it could have been LFP. We predicted
this would be a dismal Q2 from back a year ago. And we have made other such bold predictions,
that will eventually be confirmed, such as a dedicated robotaxi being a high occupancy vehicle.
We are a great community, I get to present theories and ideas, and have thousands of
intelligent, credible people in their fields, with a vested interest, all giving me their
feedback too. Thus evolving our knowledge and improving the accuracy of our crystal ball.
Anyway,
I was actually dwelling slightly on this p/e ratio of 10, and it got me curious. What
would actually need to be achieved for Tesla to reach a p/e ratio of 10, at today's stock price.
As in how many vehicle deliveries, and when do we anticipate Tesla to reach this level?
Ok well this is not particularly difficult then. We take to current market cap at 673
billion dollars. If we wanted a p/e ratio of 10, then we need to estimate what it will
take for Tesla to reach $67.3 billion in earnings, and then we can estimate
when Tesla might have achieved this. We are going to reverse engineer our financial model.
What will do to
help us get numbers we can easily compare, is we will break this down into a quarter. So if
Tesla need to generate $67 billion, then it would be $16.8 billion for a quarter.
My hypothesis here is that we will get to peak economies of scale at around this stage, implying
that although we need to reach $17 billion dollars in earnings, which is a huge amount,
so huge than compared to last Q1 at 3.3 billion, it is about 5 times as
much profit. Well my point is that as Tesla delivered around 300,000 vehicles in Q1,
I don't think it is going to take close to producing 5 times as many vehicles,
to make 5 times as much profit. So another way to look at this model, is also to see how many
more vehicles Tesla need to be producing, in order to increase earnings a further 5 times.
On top of that, we have had price rises in excess of 30%,
that's relative to the price of the car too, not the cost to build. In other words,
it is more than over compensating for inflation and going to add to profits.
When these additional profits kick in they will not be linear to the production numbers.
To give you an illustration of how clueless the markets are about economies of scale,
Morgan Stanley has kindly put together a graph. It shows two lines pretty much
parallel. One line being number of units sold, the other being EPS. According to Adam Jonas,
if sales increase 50%, then so do earnings, forget any economies of scale, new technologies like FSD,
or new industries like energy. How basic an you get. The level of research that has gone into
this is scary. Never, ever go off reports like this when investing, always do your own research.
These analysts are not special prophetic geniuses. I listen to what they say, if they say something I
didn't know about, then I go and research first hand, as they are often incorrect.
In my opinion the most credible Tesla analsysts, are the ones on YouTube and Twitter.
There are plenty of really smart retail investors, who study Tesla full time,
and with their money where the mouth is. However, analysts are more influential on the stock price.
Anyway, back to the graph, it also estimates about 10 million vehicles by 2030. Which is just
guessing. Anyway, I am pretty sure what we will discover in this video will totally debunk Adam
Jonas's little chart. I expect to have inarguable numbers to show how wrong he is. This wasn't meant
to be a video debunking him, it was just relevant as to get the actual perspective the market has on
Tesla, and how wrong they are. Ok, I have made a lot of claims now, I better hope I am right.
Alright let's do the numbers starting
with the end. Earnings of nearly $17 billion, wow, in one quarter, that is pretty amazing.
After tax, or before tax I guess we should say, that be over $19 in operating income.
I have raised OPEX a reasonable amount, I am not entirely sure it's necessary, the majority of the
R&D expenses are FSD, which we are not going to price into this model anyway. Either way,
I think it's a fairly close OPEX, for whatever the quantity of cars will be. When we add OPEX,
we are looking at a gross profit of $22 billion.
I've included some numbers for energy and services, and expect them to be producing a
bit of gross profit by this stage, but nothing substantial that would have any major affect
on the stock price. But when removed, leave us with $21.6 billion in auto gross profit.
Now I think people
could argue for this to be higher, but I am going to place 36%. I think this will reflect Tesla's
new price rises, and cost savings. In fact I am hoping this might be closer to 40% really,
especially with FSD. 36% gives us a crazy $60 billion in revenue.
Alright then,
we have to try and work out how many vehicles Tesla are selling, from each factory, and each
model, to produce $60 billion in revenue, including FSD and regulatory credits too.
We'll just add $300 million for regulatory credits, as a guess, it's not going to have
much impact either way. Generally whenever I do these models FSD revenue tends to be about
one and 2/3's of a percent of the overall revenue. Which is a billion dollars.
Leaving us almost $59 billion in revenue to find from auto sales of just one quarter.
Alright, this
obviously was not the easiest task, as I am trying to judge selling prices, with quantities of models
from each factory at no exact point in time per se. However, this was always meant to just
be indicative, as most of the analysis I do. We do all these indicative case studies to try and
catch out anything we missed. But 10 times out of 10, they always show Tesla as highly profitable.
Alright then, I started off with Fremont.
We have been told to expect Fremont's capacity to increase by as much as 50%, even recently.
We have an annual rate now of around mid 500,000s for Fremont, 50% increase will take it to 800,000.
I am going to go with a run rate of 720,000, which comes in at 180,000 for the quarter.
According to the
YouTuber Wu Wa, he claims that Shanghai is already at a run rate of 3,000 units a day, or 274,000
units a quarter. Right now they are at that rate. And although TroyTeslike does agree with Wu Wa's
numbers, he is expecting them to hit that rate in July as Tesla are making upgrades
there to further increase capacity. Up to you who you wish to believe,
but we will know a lot more when we get the July numbers. Q3 is going to be kind of exciting.
Either way, I don't think anyone is arguing that China will be hitting these numbers shortly.
However, I have a total production for Shanghai at 370,000 for the quarter. Now these existing
factories will have more capacity by next year too, but I am not sure it would reach 370,000.
Now although we are not working with an official timeline here,
no doubt by this stage though, China will have this new Shanghai fab most likely in early
production. I would expect it to be contributing to the deliveries in the last quarter next year,
and should contribute enough to reach these units, even whilst ramping.
Moving on to Austin,
we are meant to be in volume production for the Y this year,
and meant to be up to one new Model Y every 45 seconds, which equates to 700,000 a year.
If we take that down to 600,000 with a bit of downtime, then that's 150,000 a quarter.
The Cybertruck is also meant to be in volume production sometime next year.
I have placed 80,000 for the quarter for the Cybertruck. It is of course tough to judge,
as it's such a new vehicle. On the other hand, it should be very simple to manufacturer,
and Tesla have quite a few pre-orders.
I have also given it an average selling price $80,000.
Now some of you may think that Tesla will start with a quad motor Plaid Cybertruck that might cost
over $120,000 or something. I think this unlikely. I am expecting the first version to possibly
just be the dual motor, and possibly the tri-motor too. Why? Because I don't think 4680 cells will
be energy dense enough by then. Therefore, I am giving the Cybertruck an estimated ASP of $80,000.
Berlin
I just did the same for as Texas, another 150,000.
I know I said 150,000 for Texas and Berlin, yet wrote down 155,
I had to round the numbers a little to make them fit in. I have chosen what I think would be an
accurate proportion of models and factories sales at what would be around $58 billion.
Anyway, the total deliveries come to 940,000. When Tesla reach auto deliveries of around 940,000,
and if the stock price was the same as it was today, that would mean Tesla trades at
a p/e ratio of around 10 to its current value, if FSD is as good as it is today,
and none of the other businesses really do much more than they do today either.
This is an average selling price of $61,000, which may seem high, but remember there is more value in
a Tesla. You are basically pre-paying for all your fuel, servicing, and engine repairs. This
also factors in the new pricing, which for all we know, may very be even higher again by this time,
you know, because Teslas are so popular, and people are starting to realize there is a car,
that you can justify spending a lot more on, and make sacrifices elsewhere.
I have not included the Semi or Roadster in here, I don't believe they are necessary for this model,
nor likely to be in production until the 4680 cells chemistry improves.
Alright, so we now have
940k deliveries in this magic quarter. That is an increase of 3 times as many deliveries from Q1.
Yet we saw over 5 times in profits. Do you see what I mean? Does wall street
really not understand this? Can they not do models as basic as this? We even left out
FSD and the other sides of the business, oh and anything else new that comes out.
If Tesla increase their production by 3 times, then it increases their profits by 5 times. We
haven't seen these jumps before, because Tesla has been making losses for so long.
I know this is a kind of funny scenario to
be playing, but I think this is fitting in a lot with Q4 2023, or possibly Q1 2024. In other words,
by around the end of 2023, I would expect Tesla to be on a run rate of close to 4m vehicles a year.
Now if that is the equivalent of a p/e ratio
of 10 for this quarter, at today's stock price. Then what should be a suitable p/e ratio for Tesla
then. Remember, we would also assume we are past wars and inflation hopefully around this time
too. Alright, it's probably harder to guess the p/e ratio than the actual earnings, but
somewhere between 30 and 50 is likely, assuming no major breakthroughs in FSD or Robotaxis.
Well in case you hadn't worked it out, that would be a stock price of 3 to 5 times
what it is trading today, or somewhere between $2,000 and $3,000. Bear in mind
$2,000 is only about a 50% increase from where it would have been 2 years prior,
for a growth company, that would have probably increased capacity
approaching 10 fold with what other buildings Tesla have in the pipeline by then.
Ok, this was quite a random way to
value Tesla, or try and establish its value today. But to be honest, I really liked it. It absolutely
debunks Morgan Stanley, and shows how absolutely useless they are, or how little they really care,
and how they don't get Tesla, and how the rest of the market doesn't get it,
and I don't think there is anything wrong with you, if you don't agree with them either.