Alright, we have these new factories online, making cells, batteries and vehicles. It looks
like 4680s will work, but possibly taking a little longer to ramp up than initially
thought, likely due to not enough automation yet. Either way, it looks like Tesla are going
to get there, be it potentially somewhat delayed. The point is that one day in the near future
we will have 4 vehicle factories at close to full capacity. It may be next year, or
it may not be for a couple more years. But these factories are now officially open and
making cars and Austin is making cells. There will be more cells available from CATL for
Tesla too, so they can keep ramping up in China.
Eventually even, its hopeful that the 4680 line ramps up fast enough to have enough GWh
for Cybertruck. So let's see if we can try and work out a valuation for Tesla's car business,
and I mean just the car business. From these 4 factories when they are at full capacity.
METHOD We are going to take the capacities of each
factory as we have been told, and will remove the potential for sandbagging. Perhaps this
can be viewed as a conservative estimate. There is just the reality factor of how much
larger Texas is than Shanghai, and how many more vehicles Tesla could potentially manufacturer
there. Either way, I think it would still be good
to have some indication of how much these vehicle factories are actually worth. So let's
get started. I am going to calculate the run rate that these factories would be at, for
a quarter that is at full capacity. We will then try and calculate how much profit we
expect, and assign a valuation from there.
FREMONT Starting with Fremont, and the two oldest
models, S and X. I feel fairly confident that Tesla can reach 30,000 units a quarter for
these two models. Elon has said that they plan to double the output of those lines,
but not reference as to what number Tesla were doubling. The run rates were around 30,000
before the inception of the Model 3, so seems definitely possible.
The Model 3 should have ample batteries now the standard range is using LFP, which means
there are more 2170 cells available for the Model Y. I believe Tesla will keep making
the Long Range and Performance Model Y at Fremont. I can't see this changing for some
time. We were told that Fremont should ramp up about
50% more though.
I am going to take Model 3 to 70,000 and Model Y to 90,000.
I think the Model Y will still be that much more popular and carry that much more profit
than the Model 3, that Tesla will still make it a priority, despite the extra supply from
Austin
That's a total of 200,000 vehicles from Fremont, which is probably inline with Elon saying
they expect 50% more capacity over the next couple of years.
SHANGHAI Alright, so what capacity might Shanghai have
hit by perhaps around late next year? Well in January we saw Shanghai produce over 68,000
vehicles. Remember Tesla are chip constrained and battery constrained at this stage still.
Next year CATL would have ramped up their LFP production even further, and the chip
shortage should be a thing of the past.
We talk about China hitting a run rate of 1 million a year. Well I think that's probably
accurate, so let's lock in 250,000 from China for the quarter. I am going to split this
number into 85,000 Model 3s and 165,000 Model Ys.
China does have a new fab, which would likely be up and running by this stage, I think it
will be accompanied by CATL's new fab next door too. But I am going to leave this out
in this model, but there is a good chance there is an additional 100 to 150,000 units
a quarter coming out of there.
BERLIN We have actually just heard that Berlin is
meant to be changing over to 4680 cells in fall this year. I wasn't expecting this to
occur until the start of next year. Therefore we should expect Berlin to be at full capacity
soon enough some time next year.
Now full capacity for Germany, we have been told is a new model every 45 seconds. With
100% up time, that is 700,000 vehicles. With 80% up time then we are at 560,000, however,
I feel like we can round this up to 600,000 and it still feel overly bearish, and I am
sure you would all agree. Although I think Tesla only have a permit for 500,000 vehicles
in Berlin, but I would expect that something could be done about that. This would come
to 150,000 for the quarter.
Also in order for Berlin to match production capacity with 4680 capacity, I would expect
a new fab next year, possibly for the Model 3. But we will not include that here either.
AUSTIN Well we have also heard the same rate of a
model off the line every 45 seconds at Austin, so we can add 600,000 vehicles in there too.
I mean I am pretty sure that Shanghai is already at that pace, or has been even higher at times.
So part of me thinks this is a ridiculous number. However, I still think it will be
good to know these numbers anyway.
Now we did say ramped up, so that would also imply the Cybertruck. Now Elon is saying end
of next year, and ramping will take sometime, but we need to add it in really. Elon says
Giga Texas can do over a million a year, so perhaps Cybertruck will also be about the
same as Model Y, remember it doesn't need a paint shop, which is quite a big deal.
So I am going to place 600,000 Cyber trucks a year.
Now we could also add in the Roadster and semi truck, but that might add to unnecessary
complexity.
PRODUCTION This gives us a total of 890,000 vehicles.
Which would be at a 3.5 million annual run rate. Perhaps you might consider that around
the start of 2024, this should be the run rate Tesla have achieved, or close to it,
perhaps a bit more Cybertruck ramping still to come.
I think that number coincides reasonable well with Tesla at 70% growth, basing 1.6 million
for 2022, and we are talking about reaching a run rate of 3.5 million at the start of
2024. I am happy with these figures.
PRICES Well we would have probably seen more price
rises by this stage, and possibly more inflation too, but it's profits we are most concerned
with, and if there is inflation, it will likely be rectified with more price rises, resulting
in about the same profit. Therefore, I am just going to calculate this all based on
today's prices, feel free to discount it back how you feel.
It might be possible that Berlin makes a long range 4680, but I am not entirely sure, it
might mess with the product mix too much. On the other hand they are having to send
the long range and performance all the way from Shanghai and pay tariffs. But at the
same time, the will have 2170 cells that need to be put in some vehicle. So I am going to
go with the same AWD Model Y from Austin being manufactured in Berlin.
I have also estimated the average selling price of the Cybertruck, at least for it's
initial ramp, at $65,000.
I am only going to include FSD at the take rate we have today, and the revenue we are
able to collect today. We are going to exclude future FSD potential from this model.
REVENUE Alright, with that we can calculate the total
revenue for this quarter. Which comes to $53 billion, or over $200 billion annualized.
This is about 3 times the revenue Tesla are at today, or at least compared to Q4 2021.
This is a big jump, and will carry more economies of scale, and higher margin vehicles. So let's
get to the profits.
Now we probably still see some credits floating around, so we will just add $250m in there
for good measure. Taking us to a total nice round $54 billion. But now it comes down to
profit margin. Due to these factories being at higher capacities, then margins should
also be higher in general. Ignoring commodity prices somewhat, as it's very likely Tesla
had long term contracts anyway.
MARGINS
On top of that we are now dealing with increased prices. Remember if costs increase 20%, and
prices increase 20%, then profits also increase 20%. At the end of the day, it's the actual
amount of earnings that is the determining factor for stock price.
Now with this level of growth the new facilities are responsible for 50% of the production.
And I think they would have easily hit over 40% margins, especially with structural 4680
packs, and front and rear castings. But let's lock them in at just 40%, and add to that
the others at a base of 32%, resulting in an average of 36%.
I am locking in a 36% margin here. I mean we are assuming a somewhat perfect quarter
here, where there haven't been supply chain issues, wars, lockdowns, or any other catastrophic
event that resulted in issues.
This gives us a gross profit of close to $20 billion. Pretty good. This auto profit is
going to be the total gross profit we use, as we are not interested in other sides of
the business, as this was a valuation based on just the auto business.
OPEX Now like I said, just the auto business, so
this also needs to be reflected in cost. The majority of R & D is in FSD, and we are only
taking today's version of FSD and selling it at today's prices. We will not be factoring
in FSD or Robotaxi breakthroughs with the p/e ratio, therefore we should not be including
future FSD advances in the R & D. I am cutting the R & D down to $150 million
a quarter, it's usually around $500 million. S, G and A, I am going to place a bit higher
than it usually is, due to the expansion. But not relatively, this is economies of scale.
You see if Tesla double there auto production, S, G and A may only increase 20%. In other
words the S, G and A per vehicle diminishes with scale.
And remember this is just for the auto side of the business too, we are not including
the OPEX for the rest of the business.
EARNINGS This gives nearly $18 billion in operating
income, incidentally a 33% operating margin, which is over twice what Tesla achieved in
Q4. Again more of the economies of scale kicking in, and Tesla's vertical integration from
their own in-house cell and battery production.
I think tax is going to start getting a bit higher, as revenue is growing too much, relative
to the CAPEX to depreciate. Tax doesn't work so well with economies of scale, it kind of
does the opposite.
Leaving a net income of $15 billion. Which is pretty good in my opinion. Annualized that
would be $60 billion. Which at today's stock price would mean a p/e ratio of 16.
But what p/e ratio should we place on this company? Remember this is just a car company.
Tesla likely still has plenty of demand, and could expand these factories, and new location,
along with adding more models. Of course the future models will all be more vertically
integrated with in-house cells, and thus also having the higher margins. There won't be
any competition that should be forcing Tesla's prices or margins down. In other words, the
future expansion will still be profitable. I mean even from a bearish view, we might
expect production to double over the next 3 years, which would likely further triple
actual profits. Which is probably how I would base the p/e ratio.
I also think that the EV industry naturally gets a much higher p/e ratio than ICE, and
I have explained why in previous videos. Then I think Tesla also should receive a higher
p/e ratio on top of that again, due to the margins, vertical integration and tech. Therefore
I feel like a p/e ratio of 50 is justifiable here, just for autos, this doesn't factor
in any FSD, bots, or even energy. If you think that is high, well Tesla have demonstrated
success with their own in-house battery production, and should simply be able to repeat it again
and again.
STOCK PRICE
Well this comes to a market cap of $3 trillion, or approximately a $3,000 stock price. Now
on top of that I do expect FSD to have made some more advances by this stage. And once
it actually looks like a possibility of coming into fruition then that will increase the
p/e ratio further. Of course if you think I have chosen a p/e that is too high, then
change it yourself, the math isn't difficult to work out the valuation. And the market
may have changed in general, p/e ratios could be lower, if we see interest rates rise.
SUMMARY I think this is a good model that we can build
on, and play around, I might use it again, and experiment with different cases. Notice
how although revenue was had only increased 3 fold from Q4 2021, earnings are up over
6 times, this is the economies of scale kicking in more, which I don't think the market is
fully valuing in. This spreadsheet is also available in some
of my Patreon memberships.