I used to get downvoted for posts and comments about Tesla but I've noticed that people are willing to discuss it more reasonably now. I welcome all points of view. But tonight I wrote out my Long TSLA thesis and I figured it was worth sharing.
Assume that Tesla hits Wall Street estimates for 2022 Deliveries this year (bear in mind that Tesla has consistently outperformed Wall Street expectations, so this is likely conservative). That would be 1,460,906 deliveries.
Elon states that they will be able to comfortably surpass 50% delivery increase YoY for the next several years even with current supply chain bottlenecks. This is not a pie-in-the-sky Full Self Driving promise, this is the expectation that he has laid out in the past that Tesla has delivered on consistently, despite Covid issues and supply chain issues. This would be 2,191,359 deliveries in 2023 and 3,287,039 deliveries in 2024. This is likely conservative, given that Tesla has been supply chain constrained for the past year and still achieved 69% YoY growth, they have two new huge factories in Berlin and Austin ramping up, and Shanghai is going to add 450,000 cars/year capacity (announced yesterday).
For purposes of this DD, we will assume that (EPS/car delivered) will remain at Q1 2022 level despite Tesla's strong uptrend in margin. Beginning in Q2, we will see the Average Sale Price of a Tesla increase dramatically as the price increases that were introduced months ago finally start to have their cars delivered. But let's keep it conservative. Based on Q1 2022, the ratio was 3.22 EPS / 310,048 cars = 0.00001039.
If we use the above EPS/Car ratio on the conservative 50% YoY delivery estimates for 2023 and 2024, we get:
2023 EPS 22.76 (45% above current Wall Street Consensus of 15.62)
2024 EPS 34.14 (75% above current Wall Street Consensus 19.43)
*Consensus # source: Bloomberg*
(Note that it is normal for Wall Street to underestimate Tesla earnings like this. EPS estimates for 2022 and 2023 have gone up 50% since 12/31/2021–as share price dropped 18% along with the rest of the market)
The next question is: What is an appropriate P/E for Tesla in 2024 when they deliver nearly 3.3 million cars per year?
Some will argue that Tesla will be ending their hyper growth stage and should see an appropriate P/E compression. Perhaps that's fair, but everything points to growth remaining strong throughout the decade. Elon has stated that Tesla's goal is 20 million cars produced by 2030, which would mean sustained 35% growth from 2025 to 2030 after growing 50% per year in 2023 and 2024.
Based on my EPS estimate above, at TSLA's current price, at the end of year in 2024 share price would be:
$1024.20 at 30 P/E
$1,707 at 50 P/E
$3,414 at 100 P/E
$4,028 at current P/E of 118
Remember, this is all based purely on EV deliveries, and Tesla has a proven track record of consistently hitting goals and the company is developing into an agile EV manufacturing monster.
Here's where it gets nutty…
Elon has repeatedly stated that he believes Full Self Driving (100K full self driving beta testers on road today … goal of no-steering-wheel and no-pedal Robotaxi in production in 2024 as stated in Q1 2022 earnings call) will be worth more than the EV production business discussed at length above. Think: chauffeur service at a cost per mile of travel that is less than the cost/mile of owning a car– and eventually less cost per mile of a subsidized bus ticket.
Elon also believes that the Optimus project they have in development (with the goal of replacing jobs with menial tasks–similar to how FSD replaces driving) will be larger than both the car business and the Robotaxi business. How much would a company be willing to pay for a Robot that can replace 3-4 $35K+benefit salaries per year? How much would a transport company be willing to pay for a Semi that dramatically reduces gas cost and can replace the cost of paying two $100K/year semi truck driver salaries each year?
I understand that a belief that Full Self Driving and Optimus will come to fruition requires a lot of faith in Elon Musk's ability to get things done that have never been done before. And I agree it's probably unreasonable to think that the potential numbers for these projects should be thrown into the current valuation. But as a shareholder, you should appreciate the fact that Tesla is making progress on projects that could double or triple its EV-maker valuation, and these projects are being pursued under the leadership of *arguably* the greatest visionary of our time with nearly unlimited capital and first pick of Engineering and AI talent.
You can do the math on what will happen if Tesla develops 1 (or 2) businesses that eclipse the profitability of their car production. But the purpose of this was to show that it is well worth being invested in Tesla even for the car business alone. And by investing for the cars, you gain exposure to the moon shot possibility of either FSD or Optimus.
Disclaimer: I'm not qualified whatsoever to give out any advice or analysis. I have invested in TSLA since 2018 and my portfolio is… very heavily weighted toward TSLA.
Thanks for reading! 🙂
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