In the past I've made multiple posts on Tesla's valuation (here, here, here and here).
Sales
Last time I lowered my bear case for 2023 to 1.7M, with 2.15M sales expected and 2.4M in the bull case. With 889K cars sold in H1 and the announced retooling for the Model 3 refresh, I expect them to comfortably exceed my bear case, but believe the bull case needs to lowered to 2.2M for an expected amount of sales of 1.95M for the full year. With the slightly slower ramp in Texas and Berlin, the slower than expected rollout of the Cybertruck and Mexico only coming online by the end of 2024 at the earliest, I will also lower the bull cases for 2024 and 2025 from 3.4M and 4.8M respectively:
| Bear Case | Bull Case | |
|---|---|---|
| 2023 | 1,800,000 | 2,200,000 |
| 2024 | 2,400,000 | 3,000,000 |
| 2025 | 3,000,000 | 4,400,000 |
ASP
I expected Tesla to decrease ASPs from $54,385 to ~$51K in 2023. With ASPs of $46,379 in H1, and although I expect ASPs to be higher in H2, I will also lower my expectations here to $47K.
I then expect ASPs to increase to $49K in 2024 and then start to decline with the introduction of the compact car, starting with $48K in 2025.
Revenue
Based on the ASPs and delivery numbers, the new expected automotive revenues would come down to:
| Bear Case | Bull Case | |
|---|---|---|
| 2023 | $85B | $103B |
| 2024 | $118B | $144B |
| 2025 | $144B | $211B |
As for non-automotive revenue, I will leave my expectations unchanged:
| Bear Case | Bull Case | |
|---|---|---|
| 2023 | $16B | $24B |
| 2024 | $22B | $40B |
| 2025 | $30B | $60B |
Operating Margin
Despite IRA battery credits (starting in March), cheaper commodity prices, increasing economies of scale (especially in Berlin and Texas), operating margin came out significantly lower than I expected at ~10.5%. I will therefor lower my margin expectations for both the bear and bull cases.
| Bear Case | Bull Case | |
|---|---|---|
| 2023 | 8% | 13% |
| 2024 | 10% | 16% |
| 2025 | 12% | 20% |
Net Income
Multiplying the total revenue by the operating margin gives us the following Net Income:
| Bear Case | Bull Case | |
|---|---|---|
| 2023 | $8.1B | $16.5B |
| 2024 | $14.0B | $29.4B |
| 2025 | $20.9B | $54.2B |
P/E
After the incredible gains this year so far, the current $822B market cap divided by the projected net income gives us the following trailing P/E values should the stock stay flat around this market cap:
| Bear Case | Bull Case | |
|---|---|---|
| 2023 | 101 | 50 |
| 2024 | 59 | 28 |
| 2025 | 39 | 15 |
PEG
This would translate into the following PEG ratings:
| Bear Case | Bull Case | |
|---|---|---|
| 2023 | N/A | 1.61 |
| 2024 | 0.72 | 0.36 |
| 2025 | 0.79 | 0.18 |
The conclusion
It was obvious to anyone able to do a basic financial analysis that Tesla was oversold at $108, but I heavily underestimated the effects rising interest rates would have on Tesla's ASPs and by extension margins. While Tesla looks set to easily maintain their target growth of 50% on annual unit sales, their revenues will grow at a lower pace and net income will even be largely flat this year before resuming growth.
Despite all that and the increase in stock price since my last analysis, the PE and PEG ratios show Tesla is still undervalued in the long term. Assuming growth would flatten to ~30% after 2025, Tesla would still need to grow at least 2x for the valuation to be in line with other big tech companies. That said, the opportunity has come down a very large amount since my last evaluation and although I disagree, there is now a reasonable argument to be made that Tesla is no longer a no-brainer investment that every long term investor should have in their portfolio.
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