Tesla is expanding into most of the major industries of the future, which will likely include energy, transportation, computing, manufacturing and robotics. In addition to auto manufacturing, according to our estimates, all other trillion dollar opportunities are fully covered by the current stock price of $700. Citing revolutionary innovations such as Optimus, robotaxi and AI, Tesla is poised to become perhaps the first company with a market capitalization of US$10T in the distant future.
With a trailing 12-month price-to-earnings ratio of over 95, many analysts believe that Tesla, Inc. (NASDAQ:NASDAQ:TSLA) with Buy rating. However, we wonder whether investors are taking a closer look at Tesla and considering the full scope of the company’s potential, rather than just its auto manufacturing aspect. We suspect that people may have difficulty valuing Tesla’s full operations with traditional valuation models, as the company has a lot of activity in many areas and either doesn’t consider it or only considers the auto aspect. Does gives importance
So, we’ll look at what these other business activities are worth in the trillions, and why they may be completely discounted at today’s $700 share price. We’ll also discuss the reasons why Tesla should be considered a strong buy even at today’s high fundamental valuation, and why we believe it could become the first company to be valued at $10T.
Tesla is “just a car company” myth
The company has historically been valued by investors and analysts purely as an automotive company, and other sectors in which they operate have not been taken into account. Tesla should be viewed as a conglomerate rather than a car company. The high fundamentals could also be fueled by the fact that Tesla is working on solving the most meaningful challenges facing society in the future.
The company is preparing for most of the challenges coming in the future. Whether it’s converting all cars to electric, or making the grid completely green by introducing solar power and battery packs, creating self-driving cars and automating factories, use vertical integration to your advantage. Do it. Do it Do this and much more.
About 2 weeks ago, it was also revealed that Tesla submitted a proposal for a 24-hour drive-in restaurant and theater that customers could use while charging their electric vehicles (“EVs”). It is unlikely that automakers like Ford (F) and GM (GM) have AI divisions, a solar team, an expandable gigafactory with vertical integration, a humanoid robotics team, teams developing batteries, Powerwalls and Powerpacks , and many are developing separately. Solution. Accordingly, comparing Tesla to carmakers would not be an ideal method for valuation.
Undoubtedly, one of Tesla’s biggest opportunities is its EV business, which is currently its main driver. The total EV market is expected to reach 4,6M units in 2021, representing 6,6% penetration of EVs in the total car market, which will total around 70M units sold in 2021.
As the total car market is growing at a reasonable 3.5% CAGR between 2020 and 2030, the total car market is expected to reach 90 million units per year. The EU has set a target of 50% EV penetration rate by 2030, which is in line with most public forecasts.
However, given the significant drop in battery cost as a result of Wright’s law, we believe it could be closer to 60%. Batteries are currently the largest cost component of a vehicle. Wright’s law states that for each cumulative doubling of the number of units produced, costs will fall by a constant percentage. In the case of lithium-ion batteries, it appears that each cumulative doubling of the number of units produced will result in a 28% reduction in cost.
Market Outlook and Scalability
Therefore, we expect the sticker price of an EV to be similar to regular ICE vehicles by 2023, meaning the initial purchase cost of an EV will be similar to that of a regular gasoline car. This means that buying an EV should be no easy task, given the long-term benefits of low cost of ownership, ie low maintenance, tax benefits, low charging costs and avoiding the currently skyrocketing gasoline prices. At a 60% EV adoption rate, we can expect that 54 million of those 90 million cars will be EVs.
According to its fourth quarter report, Tesla delivered 936,222 vehicles in fiscal year 2021 while a total of 4.6 million EVs were sold in 2021, giving them a 20.35% market share in the overall EV market. Given Tesla’s order backlog and the fact that it still hasn’t met customer demand, their market share could still increase in the future. In this analysis, we assume that Tesla has maintained its 20% market share, and has not gained additional market share due to slow but growing competition.
If both criteria are met, i.e., Tesla maintains its market share and captures 60% of the EV market, Tesla is expected to sell 10.8 million vehicles by 2030, or 1.053 compared to FY2021. . , , , it will increase by 58 percent. It would also mean a 12% market share for Tesla in the total car market of 90 million vehicles. It’s too early for us to invest in Tesla given the global EV transition.
In terms of margin, Tesla was able to achieve an automotive gross margin of 32.9% and a blended GAAP gross margin of 29.1% in the first quarter of 2022. We expect this automotive gross margin on a cost basis to grow over the next 8 years. , deduction. , , while increasing production 10-fold between now and 2030 and achieving economies of scale. Tesla plans to increase production by more than 9 times between 2017 and 2021.
In the period between 2017 and the first quarter of 2022, Tesla managed to grow car gross margin by about 10%. Given Wright’s law and the fact that Tesla is expected to produce 10,8 million vehicles per year by 2030, which is a unit growth of about 10-11x, the car’s gross margin would be 42,9% or closer Needed Of course, this is only possible if Tesla can maintain its EV market share while maintaining its current price, which is highly optimistic. In this example, we assume a gross margin of 38%.
The last parameter of utmost importance is Tesla’s average selling price. Currently, Tesla’s average unit selling price for the fourth quarter of 2021 is approximately $52,000, and for fiscal year 2021 is approximately $50,450. While some analysts expect Tesla’s ASP to rise over time, we expect it to decline due to Tesla’s introduction of the Super – an affordable, possibly small sedan, with a target price closer to US$25,000-$35,000 . While Tesla’s cheapest Model 3 is around US $ 46,990.
Furthermore, we also believe that Tesla will reduce its ASP to remain competitive and maintain its 20% EV market share. In this analysis, we assume that Tesla has reduced its ASP to US$42,000 in order to remain competitive in this fast-growing EV market. 10.8 million sales at an ASP of $42,000 would generate $453.6 billion in automotive revenue. At a 38% gross margin for automobiles, this would equate to $172.37 billion in gross automotive revenue.
OpEx and scaling margin
However, we expect the biggest steps forward will be in the OpEx portion of the business, as Tesla could grow this dramatically in the years ahead. For example, Tesla’s fully self-driving option currently costs the customer $12,000. This is likely to increase dramatically as it approaches Level 5, which will be a fully self-driving autonomous car. Tesla currently has a fairly high OpEx, which even Elon Musk has acknowledged, and this should drop dramatically as Tesla continues to scale and variable costs approach Tesla’s fixed costs.
Currently, Tesla is still doubling production almost every year, and expanding into various verticals, hence the high OpEx cost. Tesla has an operating margin of 12.1% in 2021, operating income of $6.52 billion, while adjusted EBITDA is $11.62 billion, bringing the adjusted EBITDA margin to 21.6%. We believe Tesla can grow this adjusted EBITDA margin to 32% over the next 8 years, partially due to gross margin improvements, lower fixed costs, rights terms, historic improvement in margins and software-based revenue.
Tesla’s automotive outlook
If true, Tesla would earn US$145.15bn in adjusted EBITDA from its automotive business alone. However, we also correct for stock dilution. Between 2017 and 2021, the number of outstanding shares grew at a CAGR of 4.59%. We made a more conservative estimate and applied a CAGR of 5% to the number of shares between now and 2030.
This means that according to our estimates, Tesla is currently trading at 7.43 times the expected 2030 Edge EBITDA of $700. At a more reasonable multiple, given continued growth and looking at other companies like $AAPL, we think an optimistic 21x Adj EBITDA is assigned. This would make Tesla’s 2030 share price approximately US$1.979,35 per share.
Currently, at that multiple, Tesla has a downside risk of -66.48%. However, we expect Tesla’s automotive group to gain 182.76% by 2030. In contrast, the S&P 500 would gain nearly 100% at a historical CAGR of 9%, meaning Tesla’s auto segment could outperform the S&P 500.
Solar and Battery Opportunities
As mentioned earlier, according to Wright’s law, each cumulative doubling of the number of units produced represents a constant percentage decrease in price. For lithium-ion batteries, this stable percentage is around 28%. Given Tesla’s expertise and scalability in batteries, it’s no surprise that they could use this technology to disrupt the energy industry.
Not much is being spent on Tesla Energy, which launched in 2015 with the unveiling of the Power Wall and its range of Power Packs. To this day, most analysts are not even aware of Tesla Energy’s existence. Analysts are focusing on Tesla’s car segment, while the renewable energy market was worth US$952.16 billion last year alone and is growing rapidly. The renewable energy market is expected to grow to approx. US$2T by 2030, at a CAGR of over 8.6%.
According to BloombergNEF, the global energy storage market is expected to grow at an astonishing 30% CAGR. This means that 58GW/178GWh of energy storage will be deployed annually by 2030. Tesla, on the other hand, has installed 3,99GWh by 2021. Tesla still has a huge potential market share to capture and looks set to do so while reducing costs. , Follow Wright’s law while increasing the output. The energy storage market is a more than $435 billion opportunity by 2030, and Tesla is well-positioned to benefit from the abundant headwinds of market expansion.
The solar power market is leading the way for the future. The worldwide solar power panel (PV) market is expected to reach US$ 641.1 billion by 2030 at 11.9% CAGR. In 2021, Tesla plans to install 345 MW of solar panels, compared to an estimated annual installation of 125 GW of solar power. Such panels will be needed to cover 30% of US energy production by 2030, meaning Tesla still has a ton of market share to capture in that area.
Tesla could also branch out into other industries that coincide with energy production, such as cryptocurrency and cryptocurrency mining, which Elon Musk has shown a lot of interest in over the past few years if it can be done in a sustainable manner. Currently, Tesla holds 43.200 BTC, which is worth approximately US$1,29BN at the time of writing this article.
As mentioned earlier, accommodation such as restaurants while customers charge their EVs. Technically, in the near future, Tesla could even fully automate these restaurants, as Amazon (AMZN) has done with its Amazon Go stores, requiring little or no staff. , Tesla could easily use their “Optimus” robot they are currently developing to perform this task, which I’ll talk more about shortly.
Autonomous Vehicles and Robot Taxis
Because the automotive evaluation was based primarily on the fact that Tesla would continue to sell its regular “fully self-driving” package, and would not seek regulatory approval for a truly autonomous vehicle if it did receive such approval. , the approach will fundamentally change. ,
In that case, Tesla could lower its ASP enough to sell/deploy as many autonomous vehicles as possible, and reduce the cost of ownership as owners would be able to generate income from their cars when They are not using it. Will be done, provided they’re willing to drive it on Tesla’s autonomous taxi network.
This cab network would be extremely cheap as it does not require the most capital-intensive parts, drivers and refueling which is done cheaply through electric charging. Low maintenance cost is also a big advantage for EVs. Another advantage is that the vehicle owner will gain several hours per week as he can spend his time productively instead of driving the car himself.
In this scenario, Tesla would generate a ton of passive income by cutting revenue from the platform alone, while also generating income for vehicle owners, who were already able to buy cars at much lower ASPs. Except for companies like Waymo and MobileEye, no other automaker is anywhere close to developing Level 5 autonomous driving capability to the same extent as Tesla, although Tesla is arguably ahead in real world/visual AI.
Almost every other car manufacturer uses LIDAR, which is mostly a very expensive technology that may not really be needed when solved with Visual AI. For example, companies such as Cruise Automation and Apple (AAPL) are also taking advantage of this opportunity. Because the car gets a lot of data from pre-existing cameras and autonomy systems, Tesla can also offer more competitive/reasonable insurance prices because it has the data advantage. Tesla is able to generate a safety score based on your driving habits and provide a customized data-driven insurance quote.
The combination of EV and autonomy could bring the cost per mile of cars down to 25 cents, or up to half the cost of a passenger car. If robotic cabs are launched, given the low cost, people may even decide not to own a car, but instead use an autonomous cab network. Ark Invest (ARKK) estimates that this could add an additional US$26T (yes, trillion) in value to global GDP, and expects this to be a US$11T market that can be tapped. Elon Musk confirmed on Twitter that this is true of autonomous vehicles, but said that “Optimus” would be much more than that, which I’ll talk about in a moment.
AI, Humanoid Robots and Automation
Anyone who has used facial recognition to unlock their phone, swiped through YouTube (GOOG) or TikTok, or perhaps even used a GPT3-based write tool, can directly attest That’s how far artificial intelligence has come. And sometimes it can be quite frightening as well.
Many analysts don’t realize the fact that Tesla is one of the best AI companies on Earth today, if not the best. The amount of data that Tesla has been able to collect over the past 7+ years by driving billions of miles and riding in thousands of cars gives them a light-year edge over the competition who have just started collecting data. Learn more about fully automatic cars.
A study last year also found that the acceptance rate of fully self-driving cars worldwide was only 11%, meaning it has great potential as Tesla nears Level 5 autonomy and its prices drop. Have been Development continues. Once fully autonomous driving is achieved and regulated, this software alone could generate hundreds of billions of dollars in revenue for the car portion of the business.
Tesla’s AI/Data advantage in robotics
Needless to say what they can do with this data, and apply it to the various products they are in the process of developing. One of those products is Optimus. We’ve all seen videos of Boston Dynamics’ dancing humanoid robots, which more and more resemble human movements. Now imagine Tesla being able to combine their vast amounts of data, AI and machine learning with the robotics they’ve mastered over the past 15 years.
That robot is called “Optimus”, and it is the humanoid robot that Elon Musk mentioned when he said that the concept could be worth more than the US$26T autonomous driving could contribute to the economy . That’s why this company is an interesting buy for investors with a long-term horizon like us.
Any repetitive and boring work, such as warehouse picking/fulfillment and many other tasks can be replaced by robots working 24/7 at an initial cost of production and electricity and maintenance. Imagine how much less the cost of goods would be if things like warehouse fulfillment at Amazon were done entirely by humanoid robots. It is also worth noting that these robots will not take away jobs, but rather lower the cost of goods in a competitive capitalist society and allow people to focus on more meaningful tasks.
For anyone who hasn’t yet experienced what AI is capable of, we highly recommend trying text autocomplete or other tools running GPT3 powered by OpenAI. In fact, few analysts would know that OpenAI was founded in 2015 by Elon Musk and others including the former chairman of Y Combinator, and together they pledged a total of US$1BN. Elon Musk resigned from the board in 2018, but remains a sponsor.
All these reasons add up to the fact that Tesla’s auto part may seem insignificant compared to its robotics and AI 8-10 years from now, and it may be its most important aspect right now. Tesla builds factories which in turn build machines.
Take a step back
So, Tesla’s Adj. Together. Even at a more conservative 15x EBITDA, assuming an EBITDA/share price of $94.25 in 2030, Tesla’s automotive manufacturing should be able to equal/slightly exceed S&P 500 growth at approximately US$1,400 per share. On average, the S&P 500 also doubles every 7-8 years. However, this will only happen if growth slows significantly after 2030 and Tesla is unable to grow any of its other trillion-dollar businesses.
That’s when Tesla is still experiencing reasonable growth through 2030, and it’s trading at a high but acceptable multiple of 21x AdJ. EBITDA, so on the car side their value according to our calculations would be an estimated $1.979,35. Again, this is without regulatory approval for its robot cab/fully self-driving network, without scalability in its power generation and energy storage business, and without expansion into robotics and AI, among other ventures.
At this point, we believe Tesla will be worth buying for the car portion of the business alone, with other verticals giving Tesla free exposure to tens of trillions of dollars in upside. If Tesla was able to successfully expand in those areas, the stock price could skyrocket and Tesla could become the first company with a market capitalization of over US$10T in the distant future.
A more pessimistic outlook
The disastrous scenario for Tesla would be that either it is unable to ramp up production as fast as expected, Tesla’s more than 15 years of experience in EV production will be quickly overtaken by competitors, or that lack of demand will result in higher margins. There will be pressure. What will happen. So far, analysts have speculated on these factors, despite the fact that demand for Tesla remains very strong. That could change in the future, which could lead to more speculative declines in buying Tesla stock.
Pay attention to what?
One of the key factors we are currently considering is positive earnings modification. Since the Street currently expects Tesla’s earnings to grow at a much slower rate than ours, we expect earnings volatility to continue, as we’ve seen in the past, and especially now through the first quarter of 2022. .
Since September 2019, Tesla has always outperformed revenue with positive revenue surprises. In the past 3 months, despite a decline of nearly 50%, Tesla has seen 25 positive EPS revisions and only 6 negative EPS revisions.
Typically, analysts use classic valuation methods to value Tesla and compare it to other car companies, while carmakers don’t really cater to the kind of business Tesla is in.
Companies like Ford and GM are unlikely to develop humanoid robots, an advanced AI division to solve autonomous driving (not LIDAR), develop/scale robotics like Tesla’s Gigafactories, develop renewable energy generation/storage, etc. . It doesn’t mean they are companies. For better or worse than Tesla, they are not in the same target areas.
Tesla’s downside is that it’s still trading at a high fundamental ratio, which some consider reasonable given Tesla’s potential, while others take a more rational view of the company’s future. A large number of analysts have made mistakes in the past about Tesla’s scale and ability to expand, and may continue to do so in the future, as most sector experts from various sectors find analysis time-consuming and overwhelming. It seems like it isn’t.
It also appears to us that analysts value Tesla in a linear, purely quantitative way, without looking at actual underlying activities and developments, or taking into account principles such as Wright’s law, which allow for huge cost savings. gives. gives. gives. We suspect that given the many uncertain parameters and the challenge of valuing a company that didn’t exist before or that is disrupting existing sectors at breakneck speed, most investors and analysts are quickly giving up on Tesla.
We believe Tesla’s automotive sector will slightly outperform the S&P 500 over the next 8 years, even if we don’t take into account the trillions of dollars that could be generated by self-driving cars, autonomous cabs, humanoid robots. Energy production and storage, insurance, robotics, automation in general, and more.