I know times aren't looking great right now,
and if you think you may need money for your mortgage, or to live on, and have to sell
shares in order to do so, then it's understandable. Holding Tesla shares is not worth becoming
homeless for. I don't know, did any of you sell up absolutely everything so much so,
that you are homeless? Let us know in the comments below, because that is some serious
conviction.
FUTURE Anyway, how about we look at a forward p/e
for Tesla whilst the stock price is available on sale today at these low low prices. However,
instead of a forward p/e being some arbitrary time period like I year, instead lets pick
a future time more relevant to Tesla, something close to a year still, but also a time where
they have wrapped up some of the projects they are doing now. I would guess something
close to the end of next year.
So instead of a one year future p/e, I am going to use a future which is probably closer
to 18 months out, in order for it to just be a more suitable time for Tesla's valuation.
We have a difficult time ahead of us to navigate through the business, both internally and
in the macros. A regular forward p/e would include this nightmare Q2 and a potentially
not so hot Q3 as well, which will end up skewing the numbers to not give an accurate and fair
portrayal of the true value.
Similar to when Tesla was crashing last year, and dipping even below 600. We would do our
valuation estimates and it just looked like too good a value not to buy.
Look let's face it, I have never admitted I can see the future, and know whats going
to happen. We have no idea what will happen with inflation, the economy, or rates. We
don't know what the value of a dollar will be in the future. But as for investing, and
wanting to put your money somewhere, then to me, I can't think of anywhere better than
Tesla. Although I am keeping some cash on the side at the moment too, as a buffer in
case things get bad. But my point is, what if you converted everything to cash, do you
think that's safe now either? My investment and advice, that I preach is
more about trying to buy low, and hold, in a safe way. But I do use 10% of my portfolio
for more risky trading, although it's only 10% I am a lot more active with that obviously
and thus can regularly share my latest trades and strategies.
SCENARIO Now in this future scenario, we aren't going
to say everything went perfect either. The scenario we are playing is Fremont has ramped
up perhaps 10-20% more. Shanghai's new fab was built and the total
of Tesla China is at a run rate of 2m a year, which is what Tesla which is the rate at which
are told to expect according to what Tesla were telling Reuters. However, we are going
to say that the 4680 ramp is still taking a little longer than we hoped, but the factories
are nearing volume production and each operating at break-even. In other words, to keep this
simpler, I am just going to delete the new factories, but I will be adding in the extra
fab in Shanghai.
For the record this is not me saying this is what I think will happen, I am just trying
to use a more balanced approach. For example, it might be at the end of the year, that China
is suffering economic and maybe political issues, and things aren't going so well there.
And on the other hand maybe Texas might be at 1 million a year. I hope that's not the
case, but that's why I want to balance it out, and to be honest I hope this is a bear
case more than anything, but either way, another angle on how we can value Tesla, particularly
at times like this when it becomes more difficult to gain perspective.
At the same time we know we should buy when others are fearful. The question is, just
how fearful can they get? And it's a serious question as the market can go far beyond rationality,
you'd be amazed. Hence why no one can ever predict what it's about to do. If you ever
think you get it, then you are in trouble.
Alright, so I also am not going to do the p/e ratio for the entire year, but solely
related a single quarter that has reached these events. So no, this isn't literally
a forward p/e, but as Tesla is still in such a growth stage, I feel like this is really
a much more apt way of giving Tesla a forward p/e, especially if you were to compare it
with a forward p/e of a legacy company. Given they likely wont be at 2 to 3 times growth
at that stage.
BATTERIES And this scenario is mainly seeing the growth
in Shanghai, and this would be due to CATL's growth with LFP batteries, which I think would
be fairly straightforward, at least relative to a lot of other things that go on in the
Tesla world. Such as the revolutionary new 4680 cell. Which we are discounting. And as
I have said in the past, once that gets going then the stock price should triple. So before
that happens, what's the p/e ratio of the future of the rest of the expansion, at today's
stock price.
NUMBERS
We will give Fremont a run rate of 600k, so a 150k for the quarter, which is an increase
of 15% from Q1. And we said Shanghai would get to 2 million, or 500,000 per quarter.
And we are deleting the other two, as they are cancelling their costs out with enough
profit, just to keep it easier. That's 650k deliveries, an increase 110%. Does that sound
likely? Well that's actually about 60% growth year over year, which is pretty realistic,
remember we are comparing the first quarter of one year, to the last quarter of another,
it is nearly 2 years difference. Of course we do have the other factories too, which
we are saying would be at 80,000 total for the quarter. But it still fits within 60 to
70% growth, which is kind of what Elon has suggested.
We can just go through these numbers quickly, as you have seen many times how I work all
this out, and through experience we know that my estimates tend usually be close to within
about 1% of the real numbers, so it's a fairly well tested model.
REVENUE When I enter all the numbers in, we get to
$35 billion revenue. Along with a little bit of FSD revenue too.
I am going with just a 32% profit margin, as we really only focusing on Shanghai and
Fremont, and we don't have those new 4680 structural pack cost savings yet. However,
the new factory in China might have, and should at least have some improved margins.
Like I say, we don't really need to worry about the other sides of the business for
now, even if the revenue is up, energy is likely to still only be about break even,
and any profits would be dwarfed by auto profits anyway.
I have also increased R & D and S, G and A, although these could be higher due to Berlin
and Austin, but remember we are cancelling them out, as they are in an break even state.
Anyway, once we get down to it, we are at $8.1 billion in profit. Compared to 3.3 billion
in Q1 an 150% increase in profit, yet only about 110% increase in deliveries. More evidence
of more economies of scale kicking in. As I say, when we get to about 3 million deliveries,
then we are really into the economies of scale. From there the extra economies from the additional
scale start to diminish.
P/E Alright, well that's a fairly decent improvement
in profit. But let's not forget the reason we did this, we wanted to work out our own
special Tesla forward p/e ratio.
Alright, well let's get all the numbers, an $8.1B quarter would be $32 billion annualized.
At the time of this video Tesla is sporting a $750 billion market cap. If we relate that
to this scenario, then we are now at a forward p/e ratio of 23. Granted that forward p/e
ratio has been somewhat manipulated of it's definition, but to me, this is still useful
information. Especially in times like this, where I am trying to place some sort of intrinsic
value on Tesla, in case the crash gets worse.
SUMMARY Alright there we go, I have created a customized
forward p/e that I feel gives us a better idea of the future valuation, more tailored
to what is happening with Tesla. Of course you can say I arbitrarily cherry picked these
dates to make Tesla look like its more valuable, well either way, so what, it doesn't make
the valuation any less true.
We are still withing 60 to 70% annual growth rate here. Remember though, this is hopefully
a very pessimistic Berlin and Texas. Chances are they should be doing double that too.
But China still has so much easy growth remaining and can pull the company for a bit longer.
But those new factories really need to start pulling their weight sometime next year.
I estimate this to occur around the end of 2023, but in reality, even if it's not until
mid-2024, it's still an exceptional rate of growth, especially from a company this size.
But we get to enjoy this level of growth still, because although the company valuation is
large, the actual quantity of sales, is still relatively low. It's just that Tesla make
so much profit for every unit they sell, well when the sales numbers start to approach some
of the legacy numbers, Tesla's total profits are going to break records.