Tesla – what is fair value? Not $320

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How do you value an auto company that has no earnings? Tesla still bleeds chips badly. Of course the $54bn market cap share price ($320/share) is forecasting a very bright future. High hopes for the Tesla Model 3 (despite the production disaster) remain. In the endeavour to find another way to cut the data, when one divides market capitalization by production rates some glaringly BIG differences emerge. So for each unit of production the weighted average of Mercedes & BMW Group would get an investor $31,000 worth of market cap. Tesla on the same measure is $637,500. If Tesla hits its 2020 target of 1,000,000 units production, even if we generously gave it the same margins as the German luxury makers, the shares would have a fair value of around $185 (or 42% lower than today). If put against the volume makers (Toyota, Honda, Nissan, GM, FCA etc) the fair value at 1,000,000 units ceteris paribus is (you’ll need to wait for that!)

CMR is mid way through a 30 point reason why Tesla is massively overrated after spending a full day yesterday with engineers (a very honest bunch) of the parts suppliers at the Tokyo Motor Show. Like I always thought – all the auto makers are pulling out all the stops with their PR departments to virtue signal. The parts suppliers do not have anywhere near the expectations of the OEMs which tells us all we need to know. How I see all the de ja vu of the time that governments were chucking cash on renewables and created such a disaster of misallocated capital that sent many to the wall.

One comment

  1. Well said – and cant wait to see the full report.

    In reality, there is little chance in my view that Tesla will survive long enough to get anywhere close to production levels Elon Musk, analysts and Tesla acolytes are expecting and that would be required to see the company turn a profit.

    Telsa headwinds are numerous, from increased competition by established automakers, to technology advances in electric batteries (like Toyota solid state) and drive trains, to Tesla’s cash burn, government subsidy reductions, poor build quality resulting in significant recalls (relative to actual cars on the road), self driving software and hardware issues just to name a few.

    The Wall Street bankers and analysts that have closed their eyes to what have been obvious issues with the Tesla business model for many years should be held to account, as should the governments that have bank rolled Elon Musks fantasies.

    Like

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