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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
January 2025
I've updated my Tesla Valuation Model on 7investing to include the company's recent full-year 2024 results.
The key takeaways are:
- The fair value for Tesla the car & energy company is $128/share.
- The additional fair value for Tesla the FSD software company is $106 ($234 per share in total) .
- The additionalfair value for Tesla the ride-hailing Robotaxi company is $491. ($725 per share in total)
- The combined fair value of Tesla -- IF it succeeds in its future AI ambitions -- is $726 per share. That would represent 102% upside from its current price of $360 per share.
Here were a few of the most important insights from the full-year results:
Tesla's Cybertruck is ramping up very quickly. The company produced and sold 13,000 units in the fourth quarter, which is nearly 1,000 more than it did in Q3. Altogether, Tesla looks to be on-track to produce and sell 120,000 Cybertruck units in 2025.
Tesla pulled back on the production of the Model S and Model X this quarter. This might be because it was previously sitting on inventory. It produced & sold around 10,000 Model S+X units in the fourth quarter, down from 14,000 in Q3.
The global average selling price of the Model 3 and the Model Y fell significantly. It's now a global average of $32,884 for the Model 3 in Q4, compared to $36,349 in Q3. And it's an average of $47,990 for the Model Y in Q4, compared to $52,500 in Q3. My gut tells me this was due to price cuts in China.
Energy & Storage knocked it out of the park. $3 billion in Q3 revenue was up 28% over the previous quarter and 112% compared to Q4 of last year. Energy is an underappreciated growth driver of Tesla's business. However, the growth came at a much lower margin, since this is a commodity business. Gross margin fell from 19.6% in Q3 to 15.9% in Q4.
Tesla did more with less this year. Total global headcount fell from 140,000 to 125,000. But revenue per employee grew from $179,000 to $204,000.
Summer 2024
View our 7investing Article on Tesla's 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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