Let's talk about one of the most popular stocks among retail investors – Tesla. I've never talked about Tesla on social media, because I feel (as a content creator) you almost have to support certain stocks if you want to be liked. I honestly don't care to hype up a company or stock, for the sole purpose of being "liked" or not being "hated" on. So, don't be butt-hurt if I don't agree with your thought process or logic... we can agree to disagree. That being said, I do believe Tesla is good stock that can (and will likely) reach $1,000 – but, it comes with more risks. That being said, I hold investments that are riskier than Tesla, so I personally wouldn't have a problem owning it. The question then comes down to allocation – which, I can't answer for you... but I can help give you the information I have to help with your decision, whatever it may be.
Tesla was founded in 2003 by the engineers Martin Eberhard and Marc Tarpenning in California. It was originally called Tesla Motors – which was later changed – named after 19th-century inventor Nikola Tesla.
They launched their company to develop and produce an entirely electric car, actually inspired by GM's EV1 – which never made it to production.
Elon Musk, the face of Tesla today, joined the company a year later in 2004. He invested $30 million into the company and became the chairman of its Board of Directors. After some controversy in the leadership and resignation of the original founders, Musk took over as CEO in 2008. The first model Roadster was also produced, which Elon received.
Tesla suffered financial troubles as the Roadster was not a practical solution for scaling EVs... it costs more than $100k and took 24-48 hours to charge. Though the technology is still evolving, we're at a much better place today in terms of batteries and charging.
Tesla re-branded as "more than just a car company" and grew a cult-like following of its products (and stock) thank to Elon Musk. He's proven to be a marketing genius for Tesla.
The stock ran up to $900 in early 2021, but later retraced nearly 40% from that run. It's still up more than 2,000% in 5 years. The stock is reaching the ATHs and picking up some momentum. The million dollar question is, should you buy now?
Tesla's revenues are broken into three segments – Automotive, Energy Generation & Storage, and Service & Other. This proves Tesla is not just a car company, right? Sorry, but no it doesn't. Tesla's other segments are less than 15% of revenues, and (so far) have negative contribution margins – meaning they aren't contributing to profits. The growth rates on these other segments aren't super impressive when you compare them to the size and growth of the Automotive segment. Tesla is doing the right thing by focusing on cars. It has a lot it can offer down the line with its unique vertical integration, first mover's advantage, technological developments and superior brand. But, for the moment, let's face it... Tesla is just a car company.
But, Tesla deserves a lot of credit for leading the change in transforming the automotive industry to a more tech-forward industry... which could justify valuation expansion. Because now these things are not just cars, they're computers on wheels.
Tesla grew its revenues by nearly 30% in 2020, but tracking to do nearly 70% in 2021. Their primary bottleneck is production, which is why they're expanding with Gigafactory Berlin, Texas and Shanghai. They're forecasting to grow 50% CAGR for the next few years, and reach production of 20M electric cars annually by 2030 – an ambitious goal, to say the least.
For the purposes, of my forecast, which you can see on YouTube (or premium subscribers can download below) I go somewhat more conservative, as I usually do.
Full-Self Driving (FSD)
One of the biggest success factors and anticipated inflection points for Tesla, will be FSD. There are 6 levels of vehicle autonomy which you can read about here. Tesla has released its "FSD beta" which is a Level 2 autonomy. What's really cool about Tesla, is that it is collecting real mile data with people behind the wheels. The Tesla customers, are essentially the "guinea pigs". There's a lot of controversy and criticism behind this, for good reason. Regulatory bodies aren't just going to allow this without it being deemed safe.
When it comes to real life miles, Tesla has a huge advantage from the data it's collecting. But, behind the scenes, the FSD race is quite competitive. Tesla believe it only needs cameras for FSD, whereas much of the industry is working towards combination solutions that include cameras and Lidar sensors. This is an entire discussion on its own. I'm not going to dive into that, but nobody really knows who the winner is going to be. However, we do know that competitors like Waymo (owned by Google), Cruise (owned by GM, Honda, and others), Argo (owned by Ford and VW), and a bunch of others are looking to give Tesla a run for its money. Some of these are displaying Level 4-5 autonomy. Waymo even has self-driving taxis in Arizona.
Honestly, to me, it's not really clear that Tesla will win this race... and if they lose, it'll take a big share out of the Tesla brand (and it's stock).
In terms of valuation, you can see in my analysis, I do believe that Tesla will be on track to be a $1,000 stock. Although the fair value, from a DCF doesn't align with a fair value of $130, you can see my assumptions and reasoning on YouTube or below. There are of course a lot of risks in growth and valuation here, which I discuss below. Any of these risks can completely blow the thesis of Tesla receiving the valuation premium it is today.
ARK Invest released their price target and assumptions for Tesla, which I wanted to corroborate with mine. I won't even entertain the Bull Case, because it's too wild for me. I don't get down like that. But, their Bear Case somewhat aligns with mine. The key difference in their Bear and Bull Cases are the Autonomous Ride-Hail revenues being equal to Automotive Revenues. Basically, the case for self-driving Teslas driving people around instead of taxis. My money is just too precious for me to take those kind of assumptions. But, that's what you'll get from me.
- FSD does not go according to plan. A lot is riding on Tesla to be the winner in this case, with their camera technology. Should they not succeed, this would completely blow up for Tesla and its valuation.
- Elon Musk is the pinnacle of key man risk. Should, God forbid, he get hit by a bus... Tesla will not be worth what it is today. The question is, how much of a premium is Elon? We don't know for sure, but I imagine it is a hefty one.
- Competition, as I mentioned is fierce. Yes, Tesla has the first mover's advantage, but this is being gunned down like no tomorrow by both legacy and new players in the automotive space.
- Supply Chain and Scaling issues can prevent them from producing and delivering vehicles according to their forecast. Their goal of expanding rapidly to make sure Teslas are adopted as primary EVs is mission critical, and it makes complete sense to me. But, if production slows them down... it's critical.
- Liability & Safety Claims can arise from their FSD beta's which they're essentially testing on live roads. Yes, this gives them a significant advantage from a real-miles perspective, but it also exposes them to unique risks.
- Bitcoin ...if you're now HODL'ing it yourself, they are. This is subjective, but I'm just putting it out there. Not a risk, imo.
Finally, I do like Tesla as a company and as a stock. I do believe it's worth $1,000 as I mentioned, and it could be up to $1,200 with the current assumptions. However, we're taking on a lot of risks, which I mentioned for this return. So, calculating from where we are today an 11-33% upside is not enough for me.
Had you bought during the dip, at the $500-600 levels, then that's a good buy and good R/R ratio. But, be patient with Tesla and wait for dips to buy it because it is a highly volatile and controversial stock. The dips will come.
The first dip I, personally, would buy is near the $760 level. I wouldn't touch it before then. But, that's just my opinion.
If you really want to get EV exposure you can through charging networks, like Chargepoint, or battery pureplays, or even legacy automakers. We know the industry as a whole is adopting EVs and it is the future. So, I do think we're going to see (in fact we're already seeing it) is multiple expansion on legacy automakers like GM and Ford. And, as we know, they have quite competitive investments in vehicle autonomy. They're trading at ridiculously low multiples, because of lack of growth and current supply chain issues. However, the risk is much lower, so it might make sense for you. As always, do your own research!
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