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Tesla's Over Inflated Valuation
This article is pretty worthless be ause the author simply assumes a bunch of statistics that support his presumption. I was an institutional investment analyst for over 20 years.
First of all, ROI is not calculated on market cap, its calculated on the capital deployed on the balance sheet. Second, Tesla recently adjusted their pricing, effectively implementing about a $12,000 price increase. Not sure where you pull your $80,000 assumption of car price from. I recently priced a Tesla, and the cost for a car which wasn't even fully optioned was over $100,000 and that was AFTER the federal tax credit nd before sales tax. This means that Tesla would have gotten closer to $110,000 from the sale. Moreover, Tesla minimizes capital requirements by not carrying inventory, since it doesn't have conventional dealers, which doesn't seem to have impaired its sales at all.
If your assumptions are adjusted to something closer to reality, you might want to assume a $95,000 average sales price and a 15% margin. Also, with tax loss carry forwards (it did just have its first profitable quarter- meaning it has lost money in previous quarters) Tesla will not be paying 35% tax rates, probably closer to 20%.
Suddenly, your assumed 2014 earnings are closer to $800mm. And if it ships 70,000 cars, that implies revenue growth of roughly 300%, and earnings growth in the 4 digit stratosphere. I can't recall many sticks that are growing at 300% yet trade at only a 40 multiple. If you see some, please write about them.
So, if I use my assumptions, the company trades at 100x $800mm, or develops a market cap of $80bil. A 4x run from here.
That said, just from a technical basis, I wouldn't be a buyer here, but the shares can still look cheap. Given the unknowns and risks, I would apply a 50% discount rate, but that still yields a $40bil cap, almost twice the current valuation.
I can assure you that Tesla will not be going broke. If the shares were to pull back significantly and VW, BMW or Mercedes didn't snap them up I'd be shocked.
I'm only surprised that Elon Musk doesn't get Shell and BP on the phone and cut a deal where gas stations offer supercharging or battery swaps. The typical gas station earns about $0.25 gal on fuel sales. That's about $5 per fill up. If Tesla is charging $30 for a battery swap, that looks like good margin. If I'm a gas station, I generate a unique position if I offer battery swaps, and if I'm Tesla, overnight I alleviate 'range anxiety' and the need for capital.
The stock would soar 30% on that type of deal. What if he announces a deal with Wal-Mart or Target to deploy Superchargers at all their locations? And if he were to tie in a solar deal for all those Wal-Mart roofs with Solar City.
If I were short the shares, I'd be mighty worried about any one of a handful of scenarios that could launch shares higher.
It's called whiplash.
Oct 15, 2013. 01:35 PM
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