Today's most important news is Amazon $AMZN disappointing earnings(by Wall Street standards). Jeff Bezos is no longer the richest man in the world. In our portfolio, most of our stocks are doing well, especially our $OIL stocks $PE and $CXO since oil prices have gone above the $56 mark recently.
Will TESLA STOCK price reach $3000 by 2030? 🚗
Tesla $TSLA had amazing earnings and this year it seems that the company will be free cash flow positive for the first time in its history. Can the stock price 10X in 10 years? For this to be possible, the stock needs to gain 26% per year and yesterday it gained 17%. It seems plausible. How probable is this?
Tesla is going to be a big company in the future and the leader in electric vehicles(EV). According to Bloomberg NEF, in 2030, there are going to be 20 million EV sold. Out of these 15 millions are BEV(battery EV) and this is what Tesla makes. Right now they have 14% of market share and are the second largest EV manufacturer in the world after BYD $01211.HK but they will be leader in the coming years since the competitors are lagging behind with the technology. Best case scenario for Tesla, by 2030, they can have a third of the total BEV sales, that is, 5 millions. This will be the number of cars sold by BMW $BMW.DE and Daimler $DAI.DE in a year. The average selling price of a Tesla is $75 k and this number will go down as they sell more and more Model 3. Let's assume in 2030, the average Tesla will cost $60k. Again, this is the best case scenario, Daimler currently has the highest average vehicle price at $56k. This means the revenues in 2030 will be about $300 billion. Only 85% of the Tesla business is with automobile. They also make solar panels and batteries. We are not accounting them in the revenues but will account for them with the profits since they supply to the auto business, which is what really matters.
BMW right now has the highest profit margin in the industry at 8%. Since we are assuming the best for Tesla, let's assume a 10% profit margin. This is taking into considerations the solar and battery businesses. Therefore, in 2030, Tesla will have a net income of $30 billion. That's how much Berkshire Hathaway $BRK.B or JPMorgan Chase $JPM makes in a year.
The net income and operating cash flow for most car companies are about the same. Thus, we are assuming an operating cash flow of $30 billion in 2030. The car industry is a capital intensive industry and the average car manufacturer has capital expenditures about 2/3 of their operating cash flow, which means that the free cash flow, will be one third of the operating cash flow. For Tesla, this is $10 billion in FCF in 2030. Now we need to discount these future cash flows because money today has more value in 10 years. I've used a discount rate of 13% given the high debt that Tesla has. I've also assumed that after 2030, the growth of Tesla will slow to 5% per year and then after 2040, 2% per year till judgement day. We are using the same method Warren Buffett uses to calculate the intrinsic value of a company by summing all the FCF. This gives Tesla an intrinsic value of $7.8 billion.
The only way Tesla can afford to pay for all the capital expenditure is to issue more debt or more equity. Tesla has been diluting its shares. Last year, Elon Musk received $1.5 billion in stock compensation. They doubled the number of shares outstanding in the last 10 years. Since we are assuming the best case scenario, we will assume that the number of shares will only increase by 25% more by 2030. The intrinsic value/share today, is $35. It means there is a high premium on the stock? Will there be a premium in 2030?
It seems unlikely, auto sales are going down all around the world with an economic slowdown and in the US delinquency on auto loans are rising. If people cannot afford to repay the debt on their current, why would they buy a Tesla? There was a premium on Microsoft $MSFT in 2000 and the stock crashed when the dotcom bubble burst. It took 16 years for the stock price to recover although the company's revenue and earnings were increasing. Can the same thing happen to Tesla? Nobody knows. The stock price can go to $3000 or $5000 or even $200. There's too much uncertainty around this stock for it to 10X in 10 years. There are, however, many companies which can do it with a higher probabilty. When a stock is already famous and everybody is talking about it, it is already too late to invest.
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