Problems at Tesla, or a compelling value play?
The lay of the land:
2010: Tesla's IPO, becoming the first American car company to go public since Ford in 1956.
2012: Launch of Model S, the world’s first premium electric sedan.
2015: Introduction of Autopilot, Tesla's advanced driver-assistance system.
2016: Acquisition of SolarCity, expanding into solar energy services.
2017: Unveiling of Tesla Semi and Roadster 2.0, showcasing Tesla's expansion into commercial transportation and high-performance sports cars.
2018: Achieving production milestones with Model 3, making electric vehicles more accessible to a broader market.
2020: Tesla's inclusion in the S&P 500 Index, highlighting its financial growth and market influence.
2021-2023: Continued expansion of global manufacturing with new Gigafactories, introduction of new vehicle models like the Cybertruck, and advancements in battery technology and autonomous driving capabilities.
2024: Tesla is expected to experience a transitional period, working on launching the next-generation vehicle platform at Gigafactory Texas, which may lead to a lower vehicle volume growth rate compared to 2023. However, the growth rate of deployments and revenue in the Energy Storage business is anticipated to outpace the Automotive business. The company aims to maintain a strong balance sheet and has sufficient liquidity for its roadmap and expansion plans. Tesla also plans to ramp up Cybertruck production and deliveries throughout the year.
The Stock Price: $TSLA stock has been down recently.
Tesla's stock has been impacted by concerns over increasing competition in the electric vehicle (EV) market, as other major automakers are investing heavily in their own EV offerings.
Another factor contributing to the decline is the company's recent price cuts on its vehicles in various markets, including the U.S., China, and Europe. While these price cuts may help boost sales and maintain market share, they have also raised concerns about the potential impact on Tesla's profit margins.
Furthermore, the recent recall of over 360,000 Tesla vehicles due to concerns over the Full Self-Driving (FSD) software has also weighed on the stock. The recall, combined with the ongoing scrutiny of the FSD system by regulators, has led to increased uncertainty about the future of Tesla's autonomous driving technology. It's a software update, and we view this as overblown.
Is $TSLA compelling in the $170-$180 range?
Assumptions and Projections:
Revenue Growth: From $96,773 million in 2023, growing steadily to $188,529 million by 2028, with growth rates declining from 19% to 15%.
Cost of Goods Sold (COGS): Decreasing from 82% to 63% of revenue, indicating operational efficiencies.
Operating Expenses: Stable at a consistent percentage of revenue, with R&D expenses steady at 4% of revenue.
Net Profit Margin: Expected to increase from 15% to 24%.
Tax Rate: Constant at 17%. Net Interest and Other Expenses: Maintained at 1% of revenue.
Capex: Holding steady at 10% of revenue from 2024 to 2028.
Depreciation and Amortization: Increasing from $7,455 million in 2024 to $14,086 million in 2028.
WACC: 8.2%, reflecting the cost of financing.
Long-term Growth Rate: 4.0%, indicating sustainable growth beyond the forecast period.
Changes in Net Working Capital (NWC): Fluctuating, with a notable reduction in 2027 and an increase in 2028.
Days of Receivables and Payables: Consistent at 13 days and a slight decline in payables, respectively.
Free Cash Flow (FCF): Calculated for each year, considering EBITDA, taxes, Capex, and changes in NWC.
Present Value of FCFs: Discounting FCFs using the WACC.
Terminal Value: Calculating based on the long-term growth rate and discounting to present value.
Enterprise Value: Summing the present value of FCFs and terminal value. Equity Value: Adjusting enterprise value for net debt.
We can really only guess at things in the end, but I like this stock at sub-$180
Disclaimers:
- I do not currently own $TSLA stock but may enter a position in the near term.
- This analysis and post are for informational purposes only and should not be considered financial advice. Investment decisions should be based on individual risk tolerance and financial goals.
- We do not make personal investment recommendations and only provide research insight. At Kurtosis, we give retail investors access to the type of analysis performed by quants and analysts on Wall St. every day. Please consider following our newsletter!
@kurtosiscapital on X.
