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Tesla: Not As Expensive As It Might Seem

Apr. 07, 2021 2:11 PM ETTesla, Inc. (TSLA)173 Comments
Oleh Kombaiev profile picture
Oleh Kombaiev


  • Revenue growth is the only thing that Tesla investors are currently interested in.
  • It would be reasonable to compare TSLA through multiples previously adjusted for the expected growth rate.
  • Oddly enough, the current Tesla price is quite balanced with the market.
Tesla electric vehicle parking. Tesla EV Model 3, S and X are a key to a cleaner and greener environment
Photo by jetcityimage/iStock Editorial via Getty Images

In this article, I will try to more or less meaningfully analyze the fundamental state of Tesla (NASDAQ:TSLA) based on multiples. This is my first article about this company. Therefore, do not judge strictly. And I, in turn, will try to offer something that is

This article was written by

Oleh Kombaiev profile picture
Individual investor, data and financial analyst. I am interested in investment decisions based on objective methods of modeling and statistical analysis. Besides, I pay much attention to the psychological aspects of decision making.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (173)

howarddork profile picture
Just out of curiosity, if VW sells twice as many ID.4s as Tesla sells M3s in the EU this quarter - ID.4 is 10% cheaper than M3 and actually competes with MY, not M3 - will that change your growth thesis?

Localized deliveries is meaningless.
Because Tesla is production constrained, by necessity they must shift their focus from one geographical area to another.
The important metric is GLOBAL deliveries.
howarddork profile picture
@RealityMage Really? They're production constrained? Why are they shipping cars from China to Europe? Wouldn't it be more profitable to forego shipping them half way round the world if there was unlimited demand in China? Why are they cutting prices everywhere even though raw material prices are going through the roof? Why are North American sales falling? That doesn't really sound like they're production constrained to me. That sounds like they've saturated the market for people who want Teslas.
"They're production constrained?"
Yes. They're production constrained.
Read the comment that you're responding to.
Look at the global delivery charts.
They're going up at a rapid rate. Last quarter was up 110% YoY.
Deliveries will continue to rise at least 50% annually for many years to come.
Daytrader77 profile picture
Tesla is more expensive now trading at 1.10K P/E than last year which is 800-900 P/E.

The reason the market has gone parabolic is people are pricing optimistic too much..

We go balistic that a company has increased revenue and so excited to see a $.85cents return of you $700 capital..
That is: all you have to do is sell, sell, sell, even if you don't earn a dime with that effort, and the stock market will make you rich, right? As long as your P/S number is about average... (oops, the hope of that denominator, I mean)

Better: you don't have to really sell. You need to sell the *idea* of future sales. You may promise next year those sales will double to a million (roof tiles, cars, driverless cabs, whatever); again, and again, and again (always failing in that), but as long as you keep selling the tale, year after year, all of the sudden the market will start thinking it will not be a mere million, it will be 50 of them. And your endemic cahless company will get the money it needs for the boat not to suddenly sink. And, as it doesn't sink, the stock will go high, and higher, and higher...

Best, and final step: the more absurd that idea is, the better. So, try selling the idea that you will completely own (from your current <1% share) one of the most competitive and unprofitable markets of the world. But don't be shy: include planet Mars also (the world is not enough) and... the heaven of bitcoins will be yours.

Then write an article about it in Seeking Alpha and, of course, TSLA fans will celebrate that genius idea, as it does meet their usual standards: "great first article!". Because, is it even possible to write a more irrational thesis than this one?
UnderdogAchiever profile picture
@exAppleFanBoy Feel better now?
@exAppleFanBoy: Stop whining and deal with reality. This has nothing to do with robotaxis, etc. It's all about whether expected growth occurs or not. And notice that the expected growth isn't anything like 100% or even 50% for a decade.

I don't know what the future holds, but this is a very interesting article, re the observation of Tesla's historical and current share price.
Andreas Hopf profile picture

Expected growth this year is 65% or more, to put things into perspective.
Legacy Legends, LLC profile picture
20 years from now, after many splits, TSLA will be $30k/share!
@Legacy Legends, LLC
You seem to be well informed.
Anything else I should know about the world in 2041?
glenart profile picture
This analysis is basically in 1 word, laughable. You compare a vastly overvalued stock to a bunch of overvalued stocks and say it isn't so bad. Then you compare based upon hoped for sales growth for next year which
is in fact based upon a once in a lifetime event from the previous year. AKA Main Street was shut down to corrupt local and state government decrees. NOW Main Street is rapidly opening up and consumers can once again spend money on gyms, travel, restaurants, and concerts. AKA NOT TECH! Better think again. Wall Street had better wake up soon. You cannot have it all your way. Stay at Home cannot coexist with a normal economy. Whatever comes to B must come from A.
@glenart: And of course, you know the future and whether Apple, Adobe, etc. are overvalued. Better than the "Wisdom of Crowds" metric the market provides.

Sure. Like any random internet commenter using no data, no citations, nothing but emotion, I believe every word you type. /s
Thx for sharing your effort to validate Tesla's share price.
The problem I see with this is, you only take into consideration sales growth of last, current and next year.
These three years are the years where Tesla, due to tax payers money, political momentum and the lack of competition, was able to grow enormously. However this growth most likely will start to slow down significantly at the start of 2022, due to the fact subsidies will cease to excist and competition will be flood the markets with EV's.
Wait to buy at $99 after bitcoin crash.
@Phil Dumfee: As if BTC had more than 5% or perhaps 1% to do with the future of Tesla's annual earnings.
VW sold as many EVs as Tesla in 2020 and hence is a much better bargain given how much cheaper it is than Tesla ?
Keubiko profile picture
Comparing Tesla revenue to many of those tech companies is apples and oranges.

GOOG has 53% gross margins and 31% EBITDA margin
MSFT has 68% gross margin and 48% EBITDA margin
FB has 81% gross margin and 48% EBITDA margin
ADBE has 87% gross margin and 41% EBITDA margin

There's no chance Tesla (already at scale) could ever get anywhere close to those.

Silly analysis with no fundamental foundation.

Sorry for being harsh.
Jason Z profile picture
@Keubiko I disagree, I believe there's a very high chance TSLA will eventually get to those margins, unless you think of TSLA as solely a car company.
Keubiko profile picture
@Jason Z And if wishes were horses, beggars would ride.
08 Apr. 2021
@Jason Z But it is solely a car company. Just look at the sources of revenue. If I am not mistaken, approximately 92-95% comes from their cars. Probably, if Tesla really decides to invade other markets, we will see those margins (yet insurmountable).
Elon Musk is the genius behind Testla. But he is only one man. I do not here about other leaders there. Man is mortal. Can the company continue to be attractive without him ? It’s dangerous to bet so much money on the one.
Andreas Hopf profile picture
Yep, Elon Musk is the one and the many.
Thanks. This is well thought out. You have received many comments related to PE ratios, as can be expected. I believe PE ratios are for stable, older companies where the dramatic growth happened a long time ago. Most people here won’t know that Tesla’s deliveries will double this year, and again next year (perhaps only 90% growth) and will not be able to see that has an enormous effect. Well done.

I’d just add one thing: if you have 50,000 people working in a company that is used to growing at a dramatic rate, you can’t turn that down. Every employee knows they are part of an incredibly rapidly growing company - and are recompensed accordingly - and it is in the basic makeup of the company to continue that.

Edit: one more thing: this is not exponential growth. It’s an S-curve.
kkvakk profile picture
Tesla plans to issue more stock to finance their acquisition of the Federal Reserve, at that point there will be QE-T(esla) where the central bank buys up these cars in the aftermarket. I must say this is a brilliant move by Elon. That together with a 55" touchscreen in the new Model 3 makes me a HODLer at whatever p/e.
Dilution of current holders.
White Cat Society profile picture
I suggest P/G. Forward Price to Gallons of Kool-Aid.
UnderdogAchiever profile picture
@White Cat Society Disagree, but I applaud your humor!
White Cat Society profile picture
@UnderdogAchiever Cathie will be happy to take your money. Not sure you'll be getting it all back.
UnderdogAchiever profile picture
@White Cat Society We will see. She's the alpha in our relationship.
Vasily Sarslander profile picture
Price to sales is a good metric for IT companies. Auto industry is light years away from that. Auto industry has extremely low margins, in another words you can't sell a car which producing cost is $200 for $1000.
All that really matter is how given auto company produces free cash flow. In Tesla case we clearly see that after some years of money burn now the company is pretty stable at free cash flow generation. So we can assess the company through its free cash flow. Last year Tesla's fcf was about 3B and we can assume that after Shanghai, Berlin and Austin factories will be working at full speed in 2022-2023 the fcf will jump to 7-10B yearly. In those times Tesla will still be growing story so 25-30 price to free cash flow ratio will not be too bad.
So from my point of view Tesla market cap must be below 300B or in another words Tesla overpriced roughly 2 times.
Price/Sales is a bad metric while TSLA has a P/E ratio. Maybe the P/E > 1,000 made the author scared to promote the message...:D
Flex68 profile picture
@DeepInValue ,

Author clearly stated, "In this article, I will try to more or less meaningfully analyze the fundamental state of Tesla (TSLA) based on multiples."

"Because multiples based on EPS, in this case, can reach astronomical values, but it almost makes no sense. Therefore, as a basis for the analysis, I will use the P/S multiple."

P/S is, and was, only one metric.

I'll look forward to your article expounding upon "a P/E ratio" , as you apparently feel this is much more sage and important.

@Flex68 I read that but it doesn't make sense only to take Price to Sales.
Flex68 profile picture
"Maybe the P/E > 1,000 made the author scared to promote the message"

Does taking P/E make any more sense?

Don't crawfish, now.......
TSLA reminds me of the price action of the Semper Augustus and other "broken" tulips in Holland in 1636. Too bad I wasn't around then to take advantage of volatility with put/call options. Of course, it was more difficult to follow valuation in those days, because Jim Cramer hadn't been born yet.
"Tesla: Not As Expensive As It Might Seem"

Correct. It's more. Much, much more. TSLA losing market share in every jurisdiction at the moment and looks to lose its crown as leading EV manufacturer by Dec 2021.
uptick_rule_now profile picture
Headline might be expected from dinnertime why had more money than brains, ethics, and logic. Time for tesla to go to zero. Hold it up s few more months so I can do premium generating call vertical bear strategy
Flex68 profile picture
Always appreciate author's offerings.

But must express just how surprised I was to read the title and article that indicates TSLA is not as expensive as it might seem.

And the graphing is interesting, without a doubt.

But I also think that there are other things which are worthy of consideration.

EPS(TTM) only $2.24
Rev 12/31/20 of $10.8B, compared to Rev Q12020 of $7.4B
P/E ranging somewhere between 1053-1347
PEG ranging somewhere between 3.85-5.2
Debt of around $11.7B.

So, TSLA has to fill-in some damned big shoes to justify valuation, IMO.
But, hey, maybe Elon will 'beat' Robert Wadlow's feets.......or, maybe not.
Good day Oleh, well written article and interesting conclusion. I don't own Tesla's stock anymore, sold it recently, because I was getting nervous. The reason is that the competition to Tesla is growing by leaps and bounces and I believe that the Gravity law will eventually claim Tesla as its victim, and even the Wall Street goddess (as I like to call Cathie Wood :) ) can't change the laws of physics. Disclaimer, I respect C. Wood very highly, but she is only a human being, albeit very talented, and thus prone to make mistakes.
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