Hello Investors and Gamblers! We all know what Tesla is, but do we really know what it is worth? Are you bagholding and want to know if you shall cut losses or hold it to the core of the Earth? Or are you looking for a good entry price for a heavy Call or Put slapping?

Well you came to the righ post! Here i am evaluating TSLA Fair Value for you! Hope you enjoy the reading! And don't forget to share with the community your thought and prayers! Cheers!

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Purpose

The purpose of this thesis is to analyse the development of Tesla during the past three years, from 2019 to 2022. Not only are the financial statements taken into consideration. In addition, a comparison to its main competitors and the market situation is also made. All is made to determine the fair value of the stock price and determine the investment strategy. All is made to answer the following questions:

• What is its position compared to competitors?
• Is the company fairly valued by the market by its fundamentals?
• Is the company a Buy or a Sell?

Delimitations and Assumptions

This thesis is delimited to an analysis of TSLA between the years 2019 and 2022. The thesis is based on the assumption that TSLA is the one of the most trending automotive company in the world, and that the prestige it has will support its price action in the next months.

Methodology

In this thesis, data from its financial statements are taken from SEC filings, Yahoo Finance and other publicly available information on the company on-line. The Company valuation is made based on:

• Adjusted Graham Fair Value Formula
• Free Cash Flow Evaluation Model
• Discounted Cash Flow Model

Hypothesis

• US next interest rates hike of 25-50bps
• Inflation of 6.5% and cooling down to 6% for January 2023
• TSLA is high volume stock
• TSLA is overvalued
• There are many TSLA bagholders

• TSLA can’t outproduce its competitors in the near nor mid term

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Methodology

The thesis used macroeconomics data from the 13th of January 2023 for its valuations, Income Statements, Balance Sheets and Cash Flow are considered and projected to the next three years. The final price tag is obtained by the average of three valuation methodology: Graham Formula, Discounted Cash Flow and Cash Flow Evaluation. It is then given a 20% margin of error in both direction.

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Data	Value	Source
Levered Beta	2.03	Yahoo Finance, 5y monthly
Unlevered Beta	1.99	Calculation
CAPM	15.25%	Calculation
WACC	12.84%	Calculation
ROE	24.40%	Next Year’s Analyst Growth Estimate
EPS	3.24	Yahoo Finance
P/E	37.18	Yahoo Finance
PEG ratio	2,13	Calculation
Growth Rate Estimate	24.40%	Analysts
Intel’s Corporate Bonds	4.77%	Business Insider
Outstanding Shares	3,157,752,000	Excel Data Type

Macro Economic Data

Data	Value	Source
Market Expected Return	9.40%	Motley Fools, 50y average market return (1972-2021)
Risk Free Rate	3.48%	Yahoo Finance, 10y US Treasury Bonds
Risk Premium	5.29%	calculation
AAA Bond Yield	4.40%	Moody's Seasoned AAA Corporate Bond Yield
Average US GDP Growth	3.18%	Tradingeconomics – Average US GDP growth rate (1947-2022)
Current Market P/E	20.72	Multpl.com
US interest Rate	4.40%	Trading Economics

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Evaluation Methods

In this paper, three methods are used to evaluate the company's final fair value. Each method gives us different current fair values for a single share of the company. The final price tag is determined by the average price between all the methods used.

Growth Rate

The Growth Rate of 24.40% is determined by the average analysts consensus for the company’s next year growth rate.

Free Cash Flow Evaluation Model

This simple model takes in mind the company last year’s available cash flow data, its WACC based discount rate of 12,84% and its Growth Rate of 24,40% to determine a fair value of $78.88 per share.

Adjusted Graham Fair Value Formula

This model is used in the Value Investing communities to price tag a company based on its intrinsic value. This formula is created by Benjamin Graham, a value investor and professor at Columbia University who is considered the father of Value Investing. This thesis uses the adjusted formula to better adjust it to the current market environment.

Data used for the calculation:

Data	Value
EPS	3.24
Growth Rate	24.40
AAA Bond Yield	4.40

The Adjusted Graham Intrinsic Value Formula gives us a price tag of $101.74

Discounted Cash Flow Model

This thesis uses Free Cash Flow, gained by subtraction Capex from Cash floe From Operations. Free cash flow (FCF) is the money a company has left over after paying its operating expenses and capital expenditures. It is used to remove the impact of capital structure on a firm's value and to make companies more comparable

In simple words. It is the cash flow of a company based on the belief that the company owes no debt, therefore has no interest payments to make.

In this model, it is taken in mind the following data:

Data	Value
WACC based discount rate	12.84%
Growth rate	24.40%
Average US GDP growth rate	3.18%
Average Shares outstanding	3,157,752,000

Which projected a FCF for the next five years as per follow:

Note: the projection is based on the assumption the company will keep growing by a perpetual rate of 24.40%, which is highly improbable due to unknown future events and variations in the market. This shall be taken only as an indicative forecast.

The calculation gives us a Fair Value of $70.99 per share

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Final Fair Value

The Final price tag is determined as per following:

Data	Value
Free Cash Flow Evaluation Model	$78,88
Adjusted Graham Fair Value Formula	$101.74
Discounted Free Cash Flow Model	$70.99
Final Price + 20% error margin	$104.83
Final Fair Price (Average)	$83.87
Final Price – 20% error margin	$62.90

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Products

Tesla recently lowered their products price tag amid demand fall. Here are listed the current price tag as of 13th January 2023:

• Tesla Model X $109,990
• Tesla Model 3 $43,990
• Tesla Model Y $52,990
• Tesla Model S $94,990

Total worldwide unit sold in thousands:

• 2022: 1,313
• 2021: 935
• 2020: 367
• 2018: 244

We can observe a 40% increase of Unit sold in 2022.

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SWOT ANALYSIS

Strengths

• Most Valuable Automotive Company: It is currently the the automotive company with the highest market capitalisation.
• Tesla Increased its Electric Vehicle Delivery: In 2022 it increased its deliveries of 40% from 935 milion to 1.3 billion units.
• Cross-sell and Diversification: Tesla has comprehensive insurance program for its vehicles in association with Liberty Mutual insurance company.
• Innovative Company: Tesla has a very high rate of innovation, the market expects the company to develop competitive and profitable products.

Weaknesses

• Manufacturing Complications: Tesla faces continuous launch, manufacturing and production ramp delays while launching their new vehicles and other products. For example, Tesla faced endless manufacturing challenges when they were about to launch Model X, which lead to constant delays for distribution. Similarly, the company went through extreme troubles while manufacturing Model X’s battery module assembly line at Gigafactory 1.
• Unable to meet demand might affect brand value: Due to highly experimenting and complicated procedures, Tesla’ might face an unbalanced supply and demand, unable to meet the production ramp.
• Lack of High Volume Production: It has failed to produce high volumes of automobiles for any of its models. Even now, as the company plans to manufacture Model 3 vehicles at high volume, it faces issues in terms of production cost and management resources.
• Shortage of Batteries: The shortage directly affectes the sales of electric vehicles and energy storage systems.
• Elon Musk as Tesla’s Sole Representative: Musk is deeply involved in other projects and side quests.
• Financial Uncertainty: Tesla has outstanding debt of $5.38 Billion. If the company is unable to generate enough cash flow to repay its debt, then there is a risk of delaying expansion, reducing investments, selling assets, etc.
• Employee Safety Concerns: Tesla was recently fined in 2019 for creating a tent production line without a permit or safety inspection. Also, the company did not train workers about the risks of working in the tent for long periods under the scorching California’s heat.
• Leadership Wrangles: Friction and conflict between management and the board of directors can undermine productivity and long-term success. Tesla’s management and board have been engaged in several power struggles.
• Tesla Faces Lawsuit over Sexual Misconduct: Many Tesla workers filed a lawsuit alleging sexual misconduct and harassment at the workplace. The women have complained that the company fosters a dark culture of sexual misconduct. They also alleged that they were cat-called and were frequently subjected to shameful remarks, groping, and misogynistic behaviour.

Opportunities

• Sales expansion in untapped Market: The most significant opportunity for the company right now is the Asian market, even tho there are increased risks.
• Less Expensive Car: Tesla’s Model 3 is a more affordable version of Model S with less range, power, and fewer features.
• Bringing battery production technology in-house: Tesla intends to make its own battery cells.
• Market Confidence in Tesla: The stock market has shown confidence in Tesla after beating the projected car deliveries.

Threats

• Product Liability Claims: The company has faced lawsuits and claims related to the failure of technology in their products. If these liability claims continued, then Tesla may be subjected to greater financial setbacks.
• Extensive Competition: Tesla, Inc. faces aggressive competition from both alternative fuel vehicles (Hybrid, Plug-in hybrid, fully electric car) and self-driving technology. Many automotive brands in the luxury segment like Mercedes, BMW, Audi, Lexus and in the economy segment like Toyota, Ford, General Motors , Volvo are getting ready for a fierce competition. Many brands are not only launching or planning to launch their environment-friendly-Self-driving technology but also, they are offering them at a comparably lower price.
• Product Defects: Tesla’s cars and other energy products have exhibited major flaws in many cases. The defective products often have weaknesses in design, manufacturing, and other features which harm the company’s image permanently.
• Long term confidence: Tesla, due to its unstable manufacturing conditions, suffers from disbelief among the public about its long-term existence, which can result in a deficiency in further business development.
• Customer Adaptation: The company highly depends upon customers willingness to adopt electric vehicles.
• Disruption of Supply Due to Shortage of Materials: Tesla can face major suspensions in the supply of manufacturing materials due to the increased prices. The company uses aluminum, steel, lithium, nickel, copper, and cobalt, as well as lithium-ion cells from suppliers. All these materials have volatile prices, which can affect the company’s production line severely in the future.
• High-Risk Factor Due to Usage of Lithium-ion: Tesla uses lithium-ion cells in their battery packs. Lithium is a highly reactive and explosive element, which increases the risk factor of our products. Tesla has faced a a few cases where their cars have caught fire and vented smoke, which has defamed the company on a major level.
• Elon Musk’s Behavior Affecting Tesla’s Reputation: Tesla’s entire reputation is built upon the cult of Elon Musk. But recently, his waky behavior and impulsive reactions are affecting Tesla.

• Competitors increasing productions of EV Vehicles: Competitors are jumping in the EV segment eating huge portions of the market share.

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Analysts Price Target

$436 High

$250 Average

$85 Low

$83 OP’s