A Tesla Revisit: Story Twists and Turns with Value Consequences

If valuation is a craft, there is no better company to hone that craft on than Tesla. I have valued Tesla almost every year since 2013, and while I have been woefully wrong on occasion, I return to the scene of the crime, to do it again. I review my 2013 valuation of Tesla briefly, before looking at lessons learned in subsequent valuations (story stock in 2016, corporate teenage in 2019, trillion-dollar wonder in 2021 and back-to-earth in January 2023). I then look at what this year has brought for Tesla, both in the market (a soaring first half of 2023, followed by stumbles in the second half) as well as as news (earnings reports and news stories). I focus in on three big news stories - the price cuts, the much-debated advances in FSD and the Cybertruck, and use those stories to reframe the valuation of the company, breaking it down into four businesses (auto, energy, software and robotaxi). With pathways (optimistic, albeit plausible) pathways to success in each business, I estimate a value per share of about $180. Needless to say, you will disagree with me on almost every part of my story, but use the spreadsheet which is attached to make it your own.
Slides: pages.stern.nyu.edu/~adamodar...
Blog Post: aswathdamodaran.blogspot.com/...
Valuation of Tesla: pages.stern.nyu.edu/~adamodar...

[@Ari-vz5tn]

The fact that this is free content is insane.

[@rezafachrizal6862]

agree

[@dant5550]

Thank you Professor, I've started watching you when being back to university 10 years ago, and still keep enjoing the channel

[@surani1948]

Great breakdown & logical but flexible numbers depending on numerous variables in Finance landscape. Thank you. Always look forward to your posts

[@edutalent3463]

Thanks for all your sharing and effort! Appreciate!

[@rubensm4093]

thank you for sharing your knowledge professor!!!

[@dinueduardmadalin2321]

Tks Prof. Damodaran!

[@alexchouchou]

Thank you Professor! I'm learning so much from your materials. Thanks for providing free access to such valuable education materials.

[@chrisstaneluis5493]

Prof. D. - Question on your Robotaxi valuation - Why didn't you treat an unknown business/industry as a separate part of the valuation process? It doesn't make sense to give a business that doesn't exist the same WACC as the rest of the business. Why didn't you split this out and consider this under a venture capital valuation model with significant start-up costs and a WACC at 2x the proven parts of the business? Thank you for posting your work to KZbin

[@tonylizzy4781]

thank you! Never miss our videos, love your cyber truck theory that it might cannibalize tesla's other product .

[@MrMe629]

Thank you for sharing

[@davemichaels9217]

Thank you sir, great video unlike any I have seen

[@pauljones9150]

The Prof has posted! Drop everyone and queue up the video!!!

[@benchpress200]

TLDR, stonk go up or nah? Just kidding, thank you for this very insightful analysis professor!

[@darshans8147]

Salute sir ji

[@TheGsinghg]

Hi Prof. D, thanks for this deep dive. How would you consider Tesla's competitors leapfrogging to advanced battery and AI tech. Nvidia has a self driving suite and is partnering with non-TSLA auto-companies to leapfrog them into fsd space. How can this impact the margins of tsla ass others may end up avoiding the iterations the first mover makes.

[@phalgunarao1]

Thanks for sharing your valuation of Tesla one again and appreciate the candour in your assessment. One point I might want to add to the growing set of revenue streams for Tesla could be the charging networks. Not sure the impact on revenue as yet, but I do believe there is a high probability of Tesla charging standards being adopted by more auto makers and them working with Tesla to share the charging networks to drive adoption of their EVs.

[@monkeywithcattle]

even though the charging standard would be adopted by the other remaining oem companies, the market is so crowded that only a few oems would eventually be able to operate the business profitably yet with sufficient cash flow to cover their capex while maintain their positive cash balance.

[@adhirajmukherjee8455]

This is more interesting than the FOMC today

[@matt79de]

I cannot help but love how You rip everything apart and put it back together. Yes: I really appreciate those deep dives into valuations...

[@matt79de]

@DorisMichelle-of9wt Naw, i am subbed to the channel and read his blog anyway...

[@lucianocalia4470]

Thanks Professor. I believe you have given a scientific/analytical dress to the thoughts of many Tesla investors. I really appreciated your humility in revising the target price and being totally ok with it. It is a sign of exquisite intellectual honesty, open-mindedness and desire to learn even with all the prestige you already have. This is great!

[@maynik123]

Thank you very much for your story of Tesla. Let’s see where the cyber truck customers come from.

[@jascfdrac]

I like the way you say ‘us’ as a shareholder yourself.

[@missunique65]

brilliant as usual!

[@davidalejandrogutierrezgra7376]

dear Aswath, many many thnaks for your research and quality information shared. only one question fom my side and it is why you didnt estimate robotics (where they are working with the Optimus prototype) as one extra revenue stream?

[@GrindThisGame]

I think optimus will make more profit than all the other tesla businesses combined by 2040.

[@bhuvanajagarapu7977]

Thank you very much , you are value investment guru . 🙏

[@Markharlan95]

Interested in additional businesses - charging network (NACS adoption), and also optimus (realizing its high speculation)

[@alexandruolaru7855]

Yeah with Tesla I found it very tough to properly estimate it's cashflows. Hard to believe that they will manage 500B in revenue from Car Business By 2033. Tesla cars are on the high end not cheap, there aren't so many country in the world where people afford Teslas. In US anuallly are sold around ~13M cars each year. For Tesla to get there they will need pretty much to sell ~15M cars a year world wide or even more. Toyota does only 70B revenue on 10M cars yearly. There is a 66M cars sold per year market, Tesla will need a ~25% share of it to get 500B in revenue. You need to be a believer to invest in Tesla at current valuation, but maybe Elon is a genius and can pull it off... In my estimates I would give them 300B a top range for car business this means around 10M cars sold at 30K $. More realistic but this drops valuation to 80-100$ a share which is more like it.

[@user-qs1jt3hc8f]

Professor could you please refresh the valuation of Tesla?

[@user-ti8ly4zq2g]

Many thanks professor for your continuous masterpieces. Quick note, your valuation of 180$ / share in Nov 2023 can come higher only 30% based on your Jan 2023 distribution from Monte Carlo simulation. So why are you stating there is more upside than downside? Maybe I am not reading well the messages from your distribution. Grateful if you could comment on this. BR Panos

[@altronauta]

thx Prof. 🤓🤓 imho tesla is logistic (also)

[@jascfdrac]

🔥

[@vidhitrana2174]

Hello sir. There seems to be a problem on your website. The in class valuations cannot be opened. They are empty hyperlinks. Please fix as soon as possible

[@mammmmmoth]

Novelty says it all!!!

[@user-rn2os7lo3y]

Have you considered valuing AMD?

[@bdan2500]

Thanks as always Prof. D - fantastic lecture. Can I add one more valuation factor? How about all the other car companies switching to TSLA’s NACS plugs for their cars so that they can also use the TSLA charging network. The oppotunity to sell more chargers and adapters and to charge a premium when other companies’ products use their chargers is another value driver to maybe add in?

[@MrMe629]

When it is an official standard there will be price control

[@BigHenFor]

I don't think that will happen, as competition is the life blood of capitalism, and like Apple having to conform to USB-C, the needs of the many tends to outweigh the needs of the few. A standard connector will emerge that operates as a generic and readily replicable standard for all electric vehicles. That standard existed before Tesla. So it's the charging technology attached that defines the success of any charging point technology, and that has to be adaptable enough to adapt to the needs of new battery technologies, that are coming down the line as well as existing ones, as everyone cannot afford to update their vehicles every 3 years, and electric cars and their chargers need to be ubiquitous. This is where other car manufacturers and battery manufacturers will have input into that process too.

[@tzarcoal1018]

I am not so sure about it, In Europe and China they lost the charging plug battle years ago and moved away from their Tesla charging plug design to the local standards used by everyone else. In the US the situation is different, because their dominance in the EV market is much stronger and the gap in charging network quality is more pronounced. In the US the superchargers are a quite big USP, in other markets, this is a more minor selling point ( * there are other Tesla dominqted markets, for sake of simplicity I focus on the big 3 markets) Other car brands are very reluctant to cave in as they realize that thia would mean that they might be bound to paying Tesla fees for a long time, which hurts their profitability. On the Flip side if the advantage of the superchargers over other networks is perceived by the consumers as very relevant for their purchase decision the other brands are loosing sales to Tesla. Which is something that is happened right now. So the other players are in a situation where they have to decide what is the bigger loss.... It all depends on how dominant Tesla will be and how the other charging networks improve, which determines the leverage of Tesla and the reluctance of others. IMO opening up to others while adoptig a different plug (like done in Europe, would open up revenue streams for sure, but it would also mean that they are in direct competition with other charging providers and can not raise prices as freely. ) IMO the real cash cow opportunity is when Tesla is able to convince others that they buy into their network.

[@anirudhbindal1590]

Where is the roic used in the valuation that is shown on the spreadsheet?

[@user-uo5gj3xj7g]

❤❤❤

[@rigeshyogi]

You touched upon competition, but a significant factor to note is that competition in the largest auto markets is going to be fierce. Taking India as an example, Tata is leading the charge (no pun intended) on EVs, and will target the mass market with cars priced in the $10K range. Tesla will at best be a niche luxury player (if it doesn't get into the ultra low-cost game). BYD is the leader in China, and if not blocked politically, will give Tesla a run for its money in North America and Europe. Perhaps you could look at competition more seriously and consider the impact on Tesla valuation.

[@shadez221]

Hi prof, is it a good assumption that Mercedes has a better lead in self driving since they are ready to take liability for accidents caused by their system whereas Tesla is actively mocking folks who are suing them

[@TalGur]

No mention of Tesla Bot, Optimus.....??

[@gursharnsekhon153]

(Not sure if you will be replying to this) - I have a question about your approach in regards to the timeline of valuation, Is it OK or better to stay short-term, for example consistently dwelling on quarterly reports, it seems like we are more caught off in the cyclical or short-term nature of business and ignoring the full long term view (all phases of the market cycle, as the macro environment is sort of unstable right now). Do you think we should look at a company to see its potential in 5+ years or, Is it impossible to know the unknown variables in that long term so we don't have any tools for that? I would appreciate any reply from you or your staff🙂

[@goldreserve]

He ignores recessions unless they will affect the long term business model.

[@qwerty072009]

Thanks Prof. 180$ is your estimation but you didn’t add premium due its Elon Musk 😂 first time I see a company where customer/investor base is so loyal with company and ceo .

[@gmsthisvilekingdom3390]

I would love your valuation of PayPal

[@anshika7758]

Timestamps are as follows: A Tesla Revisit: Story Twists and Turns with Value Consequences Valuation as a Craft 00:01 Three Lessons about Tesla 01:40 The Importance of Tesla's Story 03:24 Tesla's Journey to a Trillion-Dollar Company 05:00 Challenges in Tesla's Valuation 06:50 Tesla's Stock Performance in 2023 08:28 Financial News About Tesla 10:11 Key News Stories Impacting Tesla 11:51 A Need for a Valuation Reset 13:35 Breaking Down Tesla into Four Businesses 15:21 Cybertruck's Impact on Tesla's Valuation 16:56 Full Self-Driving (FSD) and Its Business Potential 18:32 Robo Taxi Business and Its Implications 20:04 Debate Over Tesla's Price Cuts 21:41 Strategic vs. Tactical Implications of Price Cuts 23:16 Strategic vs. Tactical Price Cuts 24:50 Tesla's Position in the Automobile Business 26:25 The Energy Business and Tesla's Shift to Storage 28:01 Auto Software and Robo Taxi Business 29:39 The Promise of Robo Taxis and Uncertain Profitability 31:13 Potential of a Robo Taxi Company 32:48 Tesla's Revenue Projections by Business Segment 34:19 Growth Expectations and Stock Valuation 35:48 Options and Margin of Safety in Tesla Investment 37:21 Professor's Perspective on Tesla Investment 38:55

[@Flyboard12345]

Thank you! Hope prof. will pin this comment

[@Flyboard12345]

Better rename heading of the comment to “Timestamps” or “time codes” in 1 line

[@anshika7758]

@@Flyboard12345 I will do that, thank you for pointing that out.

[@wesleysanders8570]

I think its a mistake to not mention robots, even if this is not a current business line, given Optimus progress and their absolute focus on bringing that to scale.

[@jascfdrac]

What about the valuation of humanoid bots?

[@vivekrathi675]

Tesla semiconductors, bots, semi trucks, should all these be part of the 4 core listed here?

[@DJsTeLF]

Wave is we are live please boss..

[@happyfinance1806]

Tesla real Valuation how much dollar ??

[@nomennescio8443]

06:09 xDD

[@monkeywithcattle]

Despite the fact that the landscape is changing but given tesla current financial performance over recent 5 years, I would not give tesla my real consideration unless TESLA would be able to meet the following criteria and transform itself over another 5~10 years, (1) after the significant transition/migration of volume of sales from non-ev to ev vehicles while company would be able to sustain without tax credits applied (2) another appointed CEO with honesty and intergity in the following years. If you deduct the tax credits between countries and regions, they're the catalyst and the motivation behind the irrational behaviors between stockholders. Take Cisco founded in 1984 as the example. The profitability has since been improved significantly more than 5 times due to recurring subscription software services ,with 17 PE ratios as opposed to 1.x billion profit with 200 PE during 2000. it would be risky to chase the stock before the company is mature enough to distribute part of its earning to shareholders.

[@altronauta]

Prof! Almost 180 bucks...🤓

[@musaabsi]

160 :)

[@Viktor_Shcherbyna]

About your expectations of $500 billion auto revenues: In 2022, 90 mln. cars were sold, including 10 mln. EV vehicles (1.3 mln. were sold by Tesla, which is 13% market share, compared to 18% BYD market share). In 10 years it was expected that EV market will make up about 50% (but now experts say that they were somewhat overoptimistic making those forecasts). Anyway, assume that 50% is our assumption. Thus, in 2033, 45 mln. EV cars will be sold (=90 mln. * 50%). I expect that TOP-10 producers will get 2/3 of EV market, so the average market share of each EV-manufacturer will be about 7%. Remember, current market share of Tesla is 13%, BYD is 18%. Taking into consideration the feedbacks of Tesla users (they are disappointed about its quality) and the fact that current Tesla cars buyers are more enthusiasts and people for which money is not a problem, by 2033 we will see the situation when people who likes quality will buy BMW/AUDI/Mercedes EV, and people who count money will buy VW/BYD/Toyota. Thus I don't see any arguments for Tesla to increase its market share. Now, assume that prices will not change (despite it is expected that EV prices will decline because of new technologies developments), your $500 billion Tesla sales expectation is 7 times the EV sales of 2022, so will be 9.1 mln. EV in 2033 (=7*1.3 mln). It is 20% market share of EV market (=9.1/45). I believe the resulting 20% market share of Tesla is overly optimistic expectation for 2033, when China still be the greates EV batteries manufacturer and we will see other well-known manufacturers (German, Japanese, Chinese) at the EV market.

[@nitishbhatia25]

“Competition is coming” have been hearing since 2020s but legacy automakers unable to sell their EVs and scaling back. This market share of tesla is when its cheapest car is in 35-40k segment. Wait for it to launch a car in 20-25k USD segment. That model 2 success/failure will determine tesla’s ev market share.

[@raym6747]

Tx for sharing.. However I don't see Tesla going back to $ 180,-.. What I missed at the end.. will you then remain staying at the sideline as You see it as a very valuable company for the future..?

[@darrylgarcia9147]

Aged like fine milk.

[@michaelbennett5568]

Price cuts MIGHT have contributed to cuts in margins????????????? MIGHT also be headed back down to $100.

[@bettingresource]

Tesla valuation video with zero mention of BYD? come on. I love your classes and some of your assessment videos but this one seems off. The main reason tesla is rapidly dropping their car prices is because of BYD. BYD has overtaken tesla in global sales recently. BYD is a big threat to tesla. China also controls over 80% over global lithium market. BYD is able to sell their cars cheap because they produce everything for their cars except tires which will not get affected by supply chains. I covered this in detail in my x account a while back in a reply to one of the tesla posts but the author of the original post deleted his post, so my reply also got deleted.

[@MegaAshfire]

Correct, I think that’s a good point . But in west, people buy apple instead of huawei no matter the discount.

[@MrShiva81]

Sir, can you please value Paypal and British American Tobacco

[@me0101001000]

I've been afraid to value companies where the CEO's personality is a big factor. Elon went from being a hero to a villain, but his fans have become loyal to a point of almost cultish behavior. So that's an incredibly confusing case for me to study. But hey, I'm a numbers guy. I have a BS and MS in engineering, and am doing a PhD in engineering. Maybe I need to learn to not just rely on the spreadsheets, information on the IP, and cashflows. I need to learn how to factor in people into valuation.

[@matt79de]

That's certainly a very relevant factor. The same goes for management behavior (e.g. business owner mentality vs. driving the share price up) while You're at it. The intangible stuff is certainly worth being kept on one's radar...

[@crohmer]

We get it, you’re educated

[@Mopoppy]

Tesla’s CEO is its founder. Most other companies’ CEOs are just high paid executives. They have different visions and motivations. Prof, I’ve followed the company since 2018 and followed your channel since very early days. I definitely have faith in both.😊 I’d like to add that long term Tesla bulls are still with Elon. Some short term bulls who speculate and try to outsmart other people find it unacceptable because the stock price didn’t go as they planned, and might have affected their hedging positions. There are also fake bulls/bears who just try to muddle the water, so they can make money. For Tesla’s financials, I refer to James Stephenson who has been blocked by many many Tesla haters 😂😊

[@Ferdinand208]

How much research did you do into Musk being the founder of Tesla?

[@Mopoppy]

@@Ferdinand208 I’m not saying people should buy the stock. The stock fluctuates a lot given so many different voices and Musk being a controversial person, especially if you focus on short term profit, and try to time the market. But I follow him and his company closely. I try to watch all his interviews and tune in all the company’s earnings calls. His track record in terms of founding companies and bringing it to success is quite amazing.

[@Ferdinand208]

@@Mopoppy As far as I know: he founded Zippy and Space X. He bought into paypal and tesla. He bought Twitter. Zippy: profit Paypal: profit Space X: loss with government subsidies Tesla: profit with government subsidies Twitter: loss What companies did he found and brought to success other than Zippy?

[@jmbelarmin]

It's all those optionalities that continue to surprise Tesla investors and confound perma-bears like the Professor. Just recently, BP signed a contract with Tesla for $100M to buy their Supercharges. This seems to have come out of nowhere and will not find its way into traditional valuation because it did not fit nicely under the "auto company" story. Those optionalities are driven by Tesla's bucket of intellectual properties (IP). If the professor did a deep dive on Tesla's IP portfolio, he would find that Tesla actually has a pipeline of these technologies ready to be deployed and add more to its lists of businesses either as licensing deals or services or hardware/software products.

[@crohmer]

Permabear? Did you even watch the video? Cmon man

[@crohmer]

We get it you love Elon

[@jmbelarmin]

@@crohmer I know it's a cheap shot. I save all of the Professor's spreadsheet projections, and he did say in his 2020 DCF that Tesla will get to 2M cars and ~100B revenue by 2030, only 7 years late. I think he is sandbagging his projections again.

[@DharminderSingh]

Wrong 2 times prior and probably on the third time too.

[@dolevmazker736]

יסססס

[@danielheckel2755]

Hebrew? I stand with Israel lol Greetings from Mexico

[@dolevmazker736]

@@danielheckel2755 Thanks brother for not following their propaganda

[@mcawesome4150]

Tesla is not a luxury automobile, it’s just an expensive automobile. Expensive ≠ Luxury

[@marcobiccadrummer]

Not expensive at all. Just compare it with the alrernatives.

[@KadinYu]

Ain’t a model 3/Y cheaper than the average new vehicle in US? This means it’s actually a relatively affordable luxury vehicle with the potential to increase in value once FSD is solved

[@mcawesome4150]

@@KadinYu Again, it is not a luxury vehicle, you can call Tesla and ask

[@andreaisonline]

@@mcawesome4150No one cares

[@user-cf2px2ko8y]

If only people would listen to the whole video

[@karensams994]

Elon is like trump. The more you doubt, the more he wins.

[@ahhsugoi]

It is difficult to value religion.

[@MrVanMises]

Mr Damodaran might fear becoming old and irrelevant, but aging people can remain relevant provided what they bring to the table is. Failing to spot a crumbling scam which is Musk's Tesla will for sure secure his place in irrelevance. Hopefully he still has time for a "valuation update" later this year when facts will have spoken. Failing to spot a scam and on the contrary enticing people to invest in it when your primary audience is made of students crippled by debt is however involuntary harm and this will stick out as an indelible spot.

[@antonskundrotspravieniskis1188]

tesla is very overvalued

[@travelwithcamera]