What is Tesla's Intrinsic Value?

Dear Reader,

There are tons of news and analyses about Tesla and its future possibilities and intrinsic value. Recently, even Morgan Stanley's research analysts expressed doubts whether Tesla would hit its production targets. And Morgan Stanley research analysts have long been proponents of Tesla.

So what is Tesla's intrinsic value? Basically, it seems it is a binary outcome. One of the many sources for Tesla's financials is https://finance.yahoo.com/quote/TSLA/financials?p=TSLA&.tsrc=fin-srch-v1

On the positive side Tesla's has managed to also quadruple its revenue from 3.2 bln. USD to 11.8 bln. USD since end year 2014 to end year 2017. And this is the main reason investors keep funding Tesla - Tesla exhibits very fast growth. The logical argument is that as the revenue keeps growing, Tesla would become highly profitable and investors would be able to multiply their money with dividends and the rising stock price. Until recently the price of Tesla's stock did really rise a lot.

The problem? Tesla's loss increased almost sevenfold from 294 million USD in 2014 to 1.96 billion  in 2017 end year financials. Basically, nearly 2 billion USD loss is a staggering amount. Why is Tesla's future value a binary outcome? Basically, if Tesla achieves its production targets for Model 3, the company may even become profitable. If not, the company could go under.

What is my opinion on Tesla's valuation. Basically, it all depends whether the market for electric vehicles takes off. So far, it hasn't. Yes, there are orders, but I do not see many Tesla's on the streets of Europe. If you see a Tesla, it is a rarity and you check it out with curiousity. In my personal opinion, so far the market for electric vehicles is a no starter. Electric cars are just too expensive to produce. They contain too much ferrous metals, which cost a fortune.

Elon Musk seems to have underestimated how hard is to manufacture cars. Tesla's costs just keep going up. Musk says much of the costs are for research and development. Tesla has to achieve a technological breakthrough, otherwise the company would remain loss making.

In short what is my estimate of Tesla's intrinsic value. Tesla's current market capitalization is 53.85 billion USD. I think Tesla should be trading at a market capitalization of 20 billion USD at the moment.


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Kind regards,
Petar Posledovich