Tesla Inc.
Company valuation
Input
Tesla valuation – Drivers
A “Drivers” sheet helps us organize some inputs we
will need when working on the valuation model.
Typically, the inputs we will have here are external
inputs (such as macroeconomic data) that are not
dependent on the company we are valuing.
Workings
Tesla valuation – Production sheet
The “Workings” sheet serves as a section divider in
our model. It helps us distinguish the “Inputs” section
and the calculation sheets we will need afterwards.
This makes things easier for other people working with
the model.
Tesla valuation – Production sheet
We analyzed Tesla’s historical production of three main groups of products:
• Model S and Model X – established models with strong market
performance
• Model 3 – the first mass market electric vehicle
• Other vehicles to be released in future (Tesla Semi, Model Y etc.)
Tesla valuation – Production sheet
Then, we used this data to project year-on-year growth
rates. For Model 3 and Other vehicles, we assumed a strong
initial growth and a gradual normalization throughout the
forecast period.
Tesla valuation – Production sheet
Using the Choose function to create different
scenarios:
(1) Best case
(2) Base case
(3) Worst case
3
Tesla valuation – Pricing sheet
$78,000 – the average price of Model S and Model X
$38,000 – Model 3 price ($35,000 starting price + $3,000 extras)
$65,000 – an assumption regarding the average price of the other
vehicles Tesla will introduce in the forecast period
Tesla valuation – Pricing sheet
Assuming prices will increase in line with
expected inflation
Tesla valuation – Revenues sheet
Calculate revenues per each group:
Production * Pricing
Tesla valuation – Revenues sheet
Add Solar City revenues to the Energy generation and
Storage figures and calculate historical revenue growth
of the combined units to account for the Solar City
merger. Then use these figures to project year on year
growth rate.
Tesla valuation – Margins automotive
Consider historical margins for Model S and Model X. Then,
work with hypothetical margins for the low-cost Model 3
(some believe it would have negative profitability) and
future models that will be introduced by the company.
Tesla valuation – Margins automotive
Margin (Modes and Model X) * Revenue
= Gross Profit
Tesla valuation – Margins other
As we did with revenues, add Solar City’s Gross profit
data and use historical figures to predict the margins of
the Energy generation and Storage division.
Tesla valuation – Cost of sales
Calculate Cost of sales of the three main categories:
Cost of Sales = - (Revenues – Margins)
Tesla valuation – Opex
Calculate Opex as a % of Revenues
We assume Tesla will improve its Opex efficiency once the “production
hell of 2017” gets resolved and they can focus on Opex efficiencies.
There is no reason their Opex spending shouldn’t be in line with the
percentage larger auto producers spend.
Tesla valuation – Fixed asset roll forward
Historical D&A figures taken from Tesla’s annual
reports (cash flow section)
Tesla valuation – Fixed asset roll forward
Calculate historical Capex as:
Ending PP&E – Beginning PP&E – D&A
(because we have the formula
Beginning PP&E + Capex – D&A = Ending PP&E)
Tesla valuation – Fixed asset roll forward
Use historical figures to calculate Capex as
a percentage of revenues
Create the three
scenarios assuming
different levels of
Capex spending
Tesla valuation – Fixed asset roll forward
Calculate annual depreciation in the following way:
Year 1: Ending PP&E 2017 / Useful life historical assets + Capex/Useful life Capex
Year 2-10: Capex/Useful life Capex
Tesla valuation – Working capital
Calculate historical DSO, DIO, and DPO (we
have done it in the Balance Sheet Input sheet)
Tesla valuation – Working capital
To calculate Trade receivables in the forecast period:
DSO * Revenues / 360
To calculate Inventory in the forecast period:
DIO * Cost of sales / 360
To calculate Trade payables in the forecast period:
DPO * Cost of sales / 360
Tesla valuation – Working capital
To calculate Trade receivables in the forecast period:
DSO * Revenues / 360
To calculate Inventory in the forecast period:
DIO * Cost of sales / 360
To calculate Trade payables in the forecast period:
DPO * Cost of sales / 360
Tesla valuation – Financing
Assume cost of debt remains constant
throughout the entire forecast period
Tesla valuation – Financing
Interest expense = Long-term debt * Interest rate
Tesla valuation – Financing
Given that the company produces negative cash flows, it will
need additional financing during the forecast period. Here (on the
left side), we assume such additional financing is covered with
50% debt and 50% equity. These percentages can be easily
changed to test different hypothesis.
Tesla valuation – WACC
Calculate cost of equity using the CAPM:
Risk-free + Beta * Market risk premium
Tesla valuation – WACC
Use Tesla’s current YTM as cost of debt
Tesla valuation – WACC
Calculate the portion of debt and
equity financing
Tesla valuation – WACC
WACC = E / (D+E) * Cost of equity + D / (D+E) * Cost of debt * (1-t)
Output
Tesla valuation – P&L
Fill in the P&L sheet with available information and calculate Taxes. We assume that
when EBT is negative, the company will pay 0 corporate income taxes.
Tesla valuation – Balance sheet
Fill in the Balance Sheet with the items we have
already forecasted. Model the rest of the Balance
Sheet as flat or as items growing in sync with
revenues. If we assume an item grows in sync with
revenues, then this means it is an essential part of the
firm’s operations and the company must increase it to
expand its business.
Tesla valuation – Cash flow
Start the cash flow calculation by
calculating Operating taxes, which would
allow us to calculate NOPAT
(Net Operating Profit After Tax)
Tesla valuation – Cash flow
Add-back D&A to obtain Gross Cash
Flow. D&A is a non-cash expense.
Tesla valuation – Cash flow
Unlevered Free Cash Flow = Gross Cash Flow +(-) Investments in Working capital –
Capex +(-) Change in Other assets +(-) Change in Other liabilities
Tesla valuation – Cash flow
To reconcile Unlevered Free Cash Flow and Net Cash Flow, we must consider all
items related to the financial structure of the firm (interest expenses, financial
liabilities, and equity) and adjust for the difference between taxes in the P&L and
Operating taxes we calculated here.
Tesla valuation – DCF
Assuming a 2% perpetuity growth rate
(growth rate after the explicit forecast period). Some
industry practitioners use 3% alternatively. This input
is easily changed and tested.
Tesla valuation – DCF
Calculating Continuing Value
(what the firm’s business is worth
after the explicit forecast period
Tesla valuation – DCF
Calculating present value of Continuing
Value (we are valuing the company
today, hence we must discount the
company’s Continuing Value)
Tesla valuation – DCF
Calculating the sum of all discounted cash
flows during the explicit forecast period
Tesla valuation – DCF
Enterprise Value = Present value of cash flows + Present value of Continuing value
Tesla valuation – DCF
Equity Value = Enterprise Value + Cash – Financial Liabilities
Tesla valuation – DCF
Divide Equity value by Total number of shares
outstanding to obtain Price per share
Tesla valuation – DCF
Prepare a sensitivity analysis to see the
company’s valuation using different perpetuity
growth and WACC figures
