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How Much is Tesla Stock? An Expert Analysis

Tesla Inc. (NASDAQ: TSLA) has been one of the most exciting and controversial stocks of the past decade. Led by visionary founder and CEO Elon Musk, the electric vehicle maker has disrupted the stagnant auto industry with its innovative products and is now leading the global transition to clean energy. But for investors, the key question is: how much is Tesla stock actually worth? In this in-depth article, we‘ll examine Tesla‘s business fundamentals, stock price history, competitive advantages, and future growth prospects to try to determine a fair value for this high-flying stock.

Tesla‘s Financial Fundamentals

Let‘s start by looking at some of Tesla‘s key financial metrics:

Metric 2019 2020 2021
Revenue $24.6B $31.5B $53.8B
Net Income $(862)M $721M $5.5B
Gross Margin 16.6% 21.0% 26.5%
Operating Margin 0.5% 6.3% 12.1%
EPS (GAAP) $(4.92) $0.64 $4.90
Operating Cash Flow $2.4B $5.9B $11.5B
Capital Expenditures $1.3B $3.2B $6.5B
Free Cash Flow $1.1B $2.7B $5.0B
Cash & Equivalents $6.3B $19.4B $17.6B
Total Debt $13.4B $9.6B $7.0B

As we can see, Tesla has delivered explosive growth in recent years, with revenue increasing 118% from 2019 to 2021. The company achieved GAAP profitability in 2020 and saw earnings per share rise nearly 8x in 2021 to $4.90. Profit margins have also improved substantially due to economies of scale and manufacturing efficiencies. Tesla generated $5 billion in free cash flow in 2021 and has a solid balance sheet with $17.6 billion in cash versus just $7 billion in debt.

However, Tesla‘s valuation remains extremely rich compared to other automakers. The stock currently trades at a trailing P/E ratio of 75, a forward P/E of 50, and a price-to-sales (P/S) ratio of 12. In contrast, legacy auto giants like Toyota and Volkswagen trade at P/E ratios in the single digits and P/S ratios below 1. While Tesla is growing much faster than these incumbents, it will need to continue expanding rapidly to justify its premium valuation.

Tesla‘s Stock Price History

Tesla went public in 2010 at a split-adjusted IPO price of $3.40 per share. In the early years, the stock was extremely volatile as the company struggled with production delays, quality issues, and skepticism from Wall Street. However, the stock began to take off in 2013 as Tesla launched the acclaimed Model S sedan and ramped up deliveries.

The stock surged to an all-time high of $900 in January 2021, representing a stunning 26,000% return from the IPO price. However, the rally proved unsustainable and the stock has since fallen nearly 80% to around $190 today. Here is a chart showing Tesla‘s wild ride:

Tesla Stock Price Chart

Source: Yahoo Finance

The key question for investors today is whether the recent selloff represents a buying opportunity or the bursting of a bubble. Bulls argue that Tesla‘s long-term growth prospects remain intact and that the stock is now undervalued based on future cash flows. Bears argue that Tesla‘s valuation is still excessive and that increasing competition will eat into market share and margins going forward. Ultimately, the truth probably lies somewhere in between these two extremes.

Tesla‘s Competitive Advantages

Tesla‘s lofty valuation is based on the assumption that the company has significant and durable competitive advantages over legacy automakers and newer EV startups. These advantages include:

  1. Brand: Tesla has established itself as the premier EV brand, known for cutting-edge technology, sleek designs, and high performance. This brand equity allows Tesla to command premium prices and attract loyal customers.

  2. Scale: Tesla is by far the largest EV maker globally, delivering nearly 1 million vehicles in 2021. This scale provides cost advantages in areas like battery pack production, where Tesla pays less than $100 per kWh compared to over $150 for most competitors.

  3. Vertical integration: Unlike traditional automakers, Tesla is vertically integrated and controls everything from battery cell production to charging infrastructure. This allows for tighter coordination, faster innovation, and higher margins.

  4. Software: Tesla‘s vehicles boast industry-leading software capabilities for self-driving, over-the-air updates, and in-car gaming/entertainment. This software expertise is a key differentiator that legacy automakers will struggle to match.

  5. Direct sales model: By selling directly to consumers and operating its own stores, Tesla avoids the inefficient dealer model and captures more of the value chain. This also allows for a better customer experience and more control over pricing.

  6. Supercharger network: Tesla operates the largest global network of fast charging stations, which is a key selling point for consumers concerned about range anxiety. Competitors are scrambling to build out their own charging networks to catch up.

  7. Elon Musk: While a controversial figure, there is no denying that Musk is a visionary leader with an incredible track record of innovation across industries. His involvement gives Tesla a significant edge in recruiting top talent and generating media buzz.

Of course, Tesla‘s advantages are not unassailable. The company faces a number of risks and challenges, including:

  • Increasing EV competition from established automakers and well-funded startups
  • Potential loss of market share in key regions like China and Europe
  • Execution risk around new factories and supply chain constraints
  • Regulatory challenges around self-driving technology and carbon credits
  • Brand damage from product recalls or controversial statements by Elon Musk
  • High valuation leaves little room for disappointment

Tesla‘s Growth Prospects

To justify its lofty valuation, Tesla will need to deliver substantial growth in the coming years across its core automotive business as well as newer initiatives in energy generation and storage. Here are some of the key growth drivers investors are watching:

  1. Vehicle deliveries: Tesla aims to grow annual production to 20 million vehicles by 2030, up from just under 1 million in 2021. This will require major expansion of existing factories in California, Shanghai, and Berlin as well as new plants in markets like India and Southeast Asia.

  2. Model lineup: Tesla currently offers four vehicles (Model S, 3, X, Y) with starting prices ranging from $46,000 to $138,000. The company plans to launch the Cybertruck pickup in 2023 and has hinted at a cheaper $25,000 car down the road to expand its addressable market.

  3. Profit margins: Tesla‘s automotive gross margin rose to 30.6% in Q4 2021, up from 24.1% a year earlier. The company expects further margin expansion as it ramps production of the higher-priced Model S/X, reduces battery costs, and recognizes more revenue from autonomous driving software.

  4. Energy business: While still small compared to the auto segment, Tesla‘s energy generation and storage business grew revenue by 65% to $2.8 billion in 2021. The company sees significant opportunity to cross-sell solar panels and Powerwall batteries to its EV customers and provide grid-scale storage.

  5. Robotaxi: Tesla has been working on autonomous driving technology for years and aims to eventually launch a "robotaxi" network of self-driving cars that can generate high-margin recurring revenue. However, the timeline for this service remains highly uncertain.

  6. Strategic partnerships: Tesla has formed partnerships with major battery suppliers like Panasonic and CATL to secure supply and drive down costs. It has also partnered with companies like Toyota and Daimler on EV technology, which could lead to broader collaboration and licensing opportunities.

Analysts have a wide range of growth forecasts for Tesla given the high degree of uncertainty around the EV industry and the company‘s long-term prospects. The consensus view calls for annual revenue to reach $200 billion by 2025, representing a 40% compound annual growth rate (CAGR) from 2021. However, more bullish analysts see revenue potentially exceeding $400 billion by the end of the decade if Tesla can maintain its market share lead and expand margins.

Valuation Multiples

As mentioned earlier, Tesla trades at very high valuation multiples compared to traditional automakers and the broader stock market. Here are some of the most commonly cited valuation metrics for Tesla:

Metric Value
Market Capitalization $734B
Enterprise Value (EV) $724B
Trailing P/E Ratio 75x
Forward P/E Ratio 50x
Price/Sales (P/S) Ratio 12x
EV/Sales 11x
EV/EBITDA 50x

Source: Yahoo Finance, author‘s calculations

By comparison, the average P/E ratio for the S&P 500 is around 20x, while the average EV/EBITDA multiple for the auto industry is closer to 10x. Tesla‘s rich valuation implies that investors are betting on the company to not only dominate the EV market but also disrupt multiple other industries.

Some investors argue that Tesla should be valued more like a high-growth technology company than a mature automaker. They point to Tesla‘s software and autonomous driving capabilities as well as its potential to expand into new markets like robotics and energy storage. However, others argue that Tesla‘s valuation is simply too high given the risks around competition, execution, and regulation.

Risks and Challenges

While Tesla has delivered incredible innovation and growth to date, the company still faces a number of significant risks and challenges going forward. These include:

  1. Increasing competition: Nearly every major automaker globally has announced plans to electrify their lineup in the coming years, with many launching direct Tesla competitors. This includes established players like Volkswagen, GM, and Hyundai as well as well-funded startups like Rivian, Lucid, and Nio. As the EV market matures, Tesla could lose market share and pricing power.

  2. Supply chain constraints: Tesla has grappled with various production bottlenecks in recent years due to shortages of key components like semiconductors and battery cells. These constraints could limit Tesla‘s ability to meet its ambitious growth targets and put pressure on margins.

  3. China exposure: China is a key market for Tesla, accounting for over 20% of revenue. However, the company faces increasing competition from local players like BYD and Xpeng as well as geopolitical risks around trade tensions and human rights issues. Any slowdown in Chinese EV demand or government support could hit Tesla hard.

  4. Musk factor: While Elon Musk is undoubtedly a visionary leader, he is also a loose cannon who has made numerous controversial statements and decisions over the years. His recent acquisition of Twitter and political activism could prove a distraction and turn off some customers. There are also concerns about succession planning and key man risk given Musk‘s outsized importance to Tesla.

  5. Regulatory challenges: Tesla has benefited from various government incentives for EVs, including tax credits, emissions credits, and subsidies. However, these incentives are being phased out in some markets, which could dampen consumer demand. Tesla also faces scrutiny over its Autopilot and Full Self-Driving claims, which could lead to regulatory action or legal liability.

  6. Capital intensity: Manufacturing cars is an extremely capital-intensive business, and Tesla has historically struggled to generate consistent positive free cash flow. As the company expands globally and vertically integrates its supply chain, it will need to invest heavily in new factories, equipment, and tooling. This could strain Tesla‘s balance sheet and require additional equity or debt raises.

Conclusion

In summary, Tesla is a fascinating and polarizing company that has delivered incredible innovation and growth in the EV market. Led by visionary founder Elon Musk, Tesla has pioneered new technologies around batteries, software, and manufacturing that give it significant competitive advantages. However, the stock‘s valuation remains extremely rich compared to other automakers and there are significant risks around increasing competition, execution, key man risk, and regulation.

For investors considering buying Tesla stock, it is important to have a long-term perspective and be prepared for ongoing volatility. Given Tesla‘s high valuation and uncertain future, prudent portfolio management strategies like diversification, position sizing, and risk management are especially critical.

At the end of the day, the decision to invest in Tesla stock is a personal one that depends on your individual financial goals, risk tolerance, and view of the company‘s prospects. But one thing seems certain: just as Tesla has electrified the auto industry over the past decade, it is likely to remain one of the most dynamic and exciting stocks in the market for years to come.