TSLA Analysis:Overprice | Underweight

TSLA Analysis

Overprice | Underweight

• Distinguish product, unique business model, cutting edge technology. No legacy burden such as pension, OPEB…

• However, all above factors have been priced in a lot, even with bolder forecast in model 3 volume.

• The street valuation is given by a combination of lots of valuation factors and apparently TSLA is not very attractive. Details see below:

• [High valuation ratio]40x EV/EBITA, significantly larger than industrial average (2-3x for GE/F)

• [2018 is a tough year] TSLA is having a dent this year in terms of all revenue indicators. While the market expects the reverse next year, and the first ever positive net profit in 2019.

• [Always above price target] Looking back two years historical analyst target price vs. real TSLA price, the stock price is always higher than the target price, indicating a stronger stock performance than analyst expectations and positive sentiment from the investors (especially individual investors)

• [Upside risk factor] Oil price rally and stir the electric vehicle demand; higher volume in production than market expectation.

Argument from investor who hold positive view on TSLA

1. EU growth has been going very well in the past two weeks. We expect to see even better growth in APAC for model 3, especially after 2019, when Shanghai Gigafactory is fully operational. The other energy products, like power packs and solarcity products, are also expected to experience a growth cycle in China.

2. Gen 3 charger will empower apartment owners to charge their Teslas at a low cost.

3. Financially, Tesla historically chose to focus more on top priority problems if there was a financial challenge. If financial situation is not threatening, Tesla will expand more battlefields for its business. Given that I don’t believe Tesla will go bankrupted with Elon running the company, it is hard to imagine finance should be a factor to evaluate Tesla, other than how fast it expands and develops.

4. Production leadership at Tesla has stabilized, which importance is under-estimated.

5. Comparing with the stock price before Model 3 was announced, we should see how much stock price change Model 3 has contributed. Similarly, we can compare before China Giga was announced and before production ramping.

6. My naive estimate: Tesla value * 2 within three years; Tesla value * 5 within ten years.

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