Tesla's Revenue Would Need To Increase More Than 40 Times To Justify Its Valuation

Sep. 02, 2020 7:59 PM ETTesla, Inc. (TSLA)661 Comments


  • Tesla is enormously overvalued at this time by every reasonable metric. Its share price has gone up by 1000% in the past year.
  • The company would have to grow to have a near 50% market share of all cars sold worldwide to justify its valuation. Toyota currently has a 12% share.
  • The company has other side businesses that can support the company, such as its solar and battery business, however, they won't help the valuation with lower margins.
  • The company is opportunistically using its current share price to issue equity, which we're a fan of. But it will hurt current shareholders.
  • We instead believe that current shareholders should sell their stock and take their wins.
  • I do much more than just articles at The Energy Forum: Members get access to model portfolios, regular updates, a chat room, and more. Get started today »

With Tesla's (NASDAQ: NASDAQ:TSLA) market capitalization approaching a $500 billion mark, it's time to take a good long look and ask... how? Tesla's market capitalization is now more than Ford (F), General Motors (GM), Mercedes, Honda (HMC), Nissan (OTCPK:NSANY), and Toyota (TM) all combined together. That's despite a roughly 0.5% stake of the worldwide car market, which for reference, Toyota alone has 12%.

As we'll see throughout this article, as Tesla's market capitalization has crossed any semblance of a reasonable valuation, investors should now sell and reap the rewards.

Tesla - Tesla

Tesla Valuation

Tesla's valuation has gone up dramatically by any metric worth paying attention to.

Tesla TTM Revenue and Income - YCharts

The above graphs highlight Tesla's TTM revenue and EPS diluted over the past 12 months. It's worth highlighting that throughout this time, the company's share price has increased by nearly 1000%, taking the company's market capitalization from roughly $45 billion to $450 billion. Right now the company went from trading at roughly 1.8x TTM sales to nearly 20x the same number.

It's worth nothing that Tesla has swung to a GAAP EPS profit, with $0.384 billion in 2Q 2020 profits. However, the company also achieved these numbers with numerous accounting tricks to paint a picture of exciting financial profitability for shareholders. At the same time annualized profits of ~$1.4 billion doesn't justify a $450 billion valuation.

Tesla Theoretical Valuation

Of course it wouldn't be fair to solely value Tesla off of its current profits. Obviously the company does have some growth potential. We'll analyze here its potential fair valuation.

Largest Car Manufacturer Revenue - Statista

The above graph shows the world's five largest car manufacturers by revenue. Together, these companies had $1.037 trillion in annual revenue with a particularly strong year with car manufacturers having an

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