SVIC Facebook Q&A Discussion:
Is Tesla stock a good buy?
Question for the group:
*This question was asked to the community last December 31, 2022:
Is Tesla a buy?
I had a friend ask the following question and I would love to hear everyone’s thoughts: “I haven’t invested in Tesla because the hype drove the price so high before the business was really solid—now it seems like they really do have a manufacturing advantage over every other EV out there; but can people tell the difference? (Maybe it doesn’t matter to consumers.). Has Tesla been knocked down to a more rational level, or has the anti-Elon/Twitter PR overshot, making this a buying opportunity?”
Community Answers:
Answer #1: Too volatile
“I find Elon too Volatile which brings added risk that turns me off.” —SVIC Member
Answer #2: Depends on your investing timeframe
“I’m doing some research on them so it’s not clear yet but IMO, it depends on your investing timeframe.
In the very short term (a few months), maybe, but probably not.
In a year or so, likely a good buy.
Longer than that, who knows.
The issues are a combination of hype, investing against the Fed, and #1 – how much of a dominance it has on the EV market it keeps, and #2 – will their market share justify its current market cap. There are some concerns about availability of materials for the batteries as the EV market grows, though I think there will be a solution for alternative materials by the time we get there. I’m still researching and interested. In addition to having a massive advantage to other American car companies in China, they are planning on making a reasonably priced Tesla ($20-$30k). Also, a Tesla car is a supremely better experience driving.
Since Elon leveraged Tesla shares for Twitter, if Twitter keeps tanking, he’ll be forced to liquidate more Tesla shares causing a much better entry point in the future.” —SVIC Member
Answer #3: Elon has done very well in 2022 removing risk from (new) buyers of Tesla stock
“Yes.
I’ll add that one of the biggest risk factors before was that something would happen to Elon and he would not be able to be CEO anymore. I think it’s safe say at this point that if Elon stepped down, the market might actually react favorably. Elon has done very well in 2022 removing risk from (new) buyers of Tesla stock.” —SVIC Member
Answer #4: They’re a car company
“At the end of the day, they’re a car company. It didn’t make sense to value them at over $1t in a market (cars overall, not just EVs) with a TAM of $2.9t.” —SVIC Member
Answer #5: How much cashflow the company can generate in the future
“Here is my theory: The ultimate value of any security depends on the underlying company, how much cashflow this company can generate in the future in the long term (presumably in 10-20 years) combining with your goal on your asset pricing model assumptions. If you assume it’s just another car company and happens to make good EVs, in 2030 assume it sell 3 million cars with ASP of 30,000 USD, and 1 million FSD subscriber. That is 90 billion car sales revenue + 2.4 billion service revenue. Toyota normally has 9-10% net margin; Tesla gets 10-11% last year. Assume they keep that, that is 9 billion net income from car sales and say 1 billion net income from service. That is 10 billion. A car company has little differentiation (let’s not argue Tesla specialness here), best car company is traded at 9-10 PE multiple. That very rough calculation gives us 100 billion market cap as “fair” value for Tesla in 2030. Compared to the 400 billion market cap today, it is still very expensive.
HOWEVER, the beauty of investing is that, nobody predicts the future perfectly and everybody has their own assumptions that can be right or wrong. Someone may think:
- 2030 – Tesla may sell 10 million cars
- Service revenue will be much bigger than 2.4 billion, more subscriptions, higher selling price, more services, etc.
- Tesla has great product that is differentiated, and manufacturing excellence. That means, market might give 20X or even higher PE.
- After Teslabot is released, Tesla is no longer a car company.
All those assumptions can be right, and the fact that a lot of investors believe in those assumptions, the price is reflected.
I personally think Tesla is a great company, and if you buy today, you may make some money, but if you buy at 50 billion market cap (at least 2X with high probability from now to 2030), your gain and your probability to gain more profits will be higher.” —SVIC Member
Answer #6: Let’s talk about numbers
“I like talking about numbers because numbers can be discussed.
- Tesla guideline is 50% YoY growth. So that’s 1.35M in 2022, 2M in 2023, 3M in 2024, and 4.5M in 2025. I dunno if this is viable but so far they are on track. Let’s say they hit 5M in 2026.
- Tesla ASP is 55k(?). I assume with the low price model and the truck comes, the number will be a little bit lower so maybe 45k?
- Tesla gross margin is about 28% before carbon credit. Net profit is much lower but I expect it to grow a little bit after they scale to 5M vehicles. Let’s assume 18%.
- I don’t believe they can reach 33% of FSD adoption rate. Plus it’s reflected in ASP already. I don’t assume any service income.
- By 2026, there should be some significant revenue from Semi and energy section but I don’t know how much.
- I don’t count their bots and other stuff. Too far from being realistic.
- Put 1-4 together, that’s $40B of profit. If we put 5B on #5 that makes $45B profit. Assuming a PE of 10 that’s 450B market cap. If a company keeps growing at 50% YoY, it’s fair it PE a little bit over 20 so it’s 900B market cap at 2026. So is 1T reasonably? Maybe.
You might notice that for points 1-6, I start with known numbers in 2022 and some extrapolation toward 2026. I think there is a 50% chance I’m correct. I don’t think anyone can predict 2030 though.” —SVIC Member
Answer #7: No.
“No.” —SVIC Member
Answer #8: They probably won’t get FSD anytime soon
“They probably won’t get FSD anytime soon, but the charging business could be good.” —SVIC Member
Answer #9: Implies $400,000 mkt cap per car sold
“I think Tesla is a great company, and Musk is an outstanding CEO. They seem set to ship about 1 million cars in 2023, about 5% of the US auto market—so that implies $400,000 mkt cap per car sold.
Toyota is at $20,000.
I think the EV market is going to get very competitive and Tesla’s valuation (even though down 75% in the last year) is still fully priced for 10 years of extraordinary growth and success.” —SVIC Member
Answer #10: Yes. Huge Advantage
“Yes.
I own quite a bit of Tesla, have been purchasing since 2012. The company is sitting on a boatload of cash, has HUGE profit margins compared to other car companies, a HUGE advantage over other EV makers with their charging network and battery factory, and are one of only two (I think) car companies with vehicles that qualify for the tax credit that starts this year.
They missed Q4 projections. Well, the US Government announced a tax credit that takes effect in Q1 ’23. Why would anyone take delivery in Q4 ’22?
Also, China is their biggest market, and the Q4 miss coincides with the Chinese government releasing their zero-covid stance, and the whole country (almost) getting covid. You’re not buying a Tesla if you’re lying in bed, barely moving.
They are dramatically undervalued just by their cash reserves. They are ridiculously undervalued by their clear and massive advantages over other EV car companies. I think they have a PE the same as McDonalds.
Elon is a mess. Twitter is a distraction. But the underlying value of the company is there and if I had any extra cash I’d throw it at more shares of Tesla.” —SVIC Member
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