What we think about Tesla (TSLA)

Tesla in Three Words: Powering The Future

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Tesla's electric vehicles are becoming internationally popular.

Background

Under the visionary leadership of CEO Elon Musk, Tesla has consistently pushed the boundaries of technology and sustainability. With advancements in self-driving capabilities and energy storage solutions, Tesla continues to influence various industries, cementing its status as a trailblazer in electric mobility and green technology. The company’s focus on sustainability, innovation, and scalability underscores its commitment to a cleaner, more efficient future.

Thoughts on Current Valuation and Capital Allocation

View our 7investing Article on Tesla's Valuation

7investing's quantitative look at Tesla's current valuation

After a solid month of deep-diving into Tesla, I've come to two important investing conclusions.

1) Tesla as "a car company" is only worth $104 per share.

That's not very much. Especially considering that $TSLA is trading hands at $180 per share today.

The reason is because the traditional auto manufacturing industry just isn't all that attractive.

My DCF model also isn't overly-conservative. I assume Tesla will be dominant and will achieve massive economies of scale from its Gigafactories.

I expect its Cybertruck will eventually sell 250 thousand units per year and its new Model 2 (introduced in 2026) will reach 3 million per year.

I predict Tesla as a whole will employ more than 400,000 people, will sell more than 9 million vehicles, and will generate more than $300 billion in automotive revenue by the year 2040.

Yet even this global dominance of the EV industry isn't enough to justify its $600 billion current market capitalization.

Elon is a smart guy and he already knows this. There needs to be something more.

Which leads to me conclusion #2...

2) Tesla as "an AI company" is worth $645 per share.

This is where Tesla steps on the accelerator and speeds past the other carmakers.

Its cars won't just bring in cash from their upfront sale. They'll continue to generate recurring revenue from full self driving software subscriptions ($99/month). And many will belong to its Robotaxi Network, charging only $1 per mile for riders and providing Tesla with a 20% take rate of the fare.

Autonomous vehicles will vastly expand Tesla's addressable market. No longer just going up against Ford $F and $GM, it will now compete in the "transportation" industry against $UBER, $LYFT, and taxi services.

The economies are much more compelling here as well.

Full self driving is very difficult and Tesla is miles ahead of its competitors. This rewards them with greater future cash flows, which surpass those generated by selling the cars.

Altogether, here's my overall takeaway for investors:

- If you're investing in Tesla, do so because you believe Elon will succeed in his AI ambitions of Full Self-Driving and the Robotaxi Network.

- At $180 per share, the market is pricing in only around a 16% chance of Tesla succeeding in getting these new ventures to scale.

- The race is challenging and it's a long way to the AI finish line. But the prize for the ultimate winner will be quite significant.

Complete Tesla Discounted Cash Flow Analysis

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