Our Model Says TSLA is Worth $982, What Does Yours Say?
Goldman Sachs’ model says TSLA is worth $1200, Citibank’s model says TLSA is worth $262; what does your model say? Don’t have one? We got you covered!
Financial models are an important resource for investment professionals to decide when to buy and when to sell a stock. Unfortunately, they are often tedious to create and hard to adjust. But don’t worry, FinanceTLDR is making financial models accessible to anyone, starting with TLSA (google drive link). According to the model and our assumptions, TSLA stock is worth $982 per share right now, which is 29% above its current price. In comparison, Goldman Sachs has a $1200 price target for TSLA while Citibank has a $262 price target. Before we get any further, we want to remind everyone that financial models are meant to be a resource and model results are not a recommendation to either purchase or sell a stock.
TLDR - TSLA Valuation
How Do You Use a Model?
How do financial models actually get used? Take this hypothetical scenario for an example:
Elon Musk tweets: “Due to the popularity of new optional features, Model X’s are selling at much higher prices than in the past. We will continue to add new features so stay tuned!🚀🌑”
How do you turn this tweet into an estimate of how much revenue Tesla will generate and how much higher TSLA stock should be? Without a model, you won’t be able to contextualize important news into an estimated revenue, earnings, and stock price impact. Instead, you will be scratching your head when news comes out and the stock price moves. That’s where financial models come into play. With a financial model, you can go in and change your assumptions around the Model X average selling price (ASP) and see how that changes the entire Tesla financial model and stock price. You can even play around with a couple of variations based on exactly how high you expect Model X selling prices to be. This is why financial models are a powerful tool for all investors looking to get serious about their investments.
Our TSLA Assumptions
To power our TSLA stock price estimate of $981, we made some key assumptions that we will share for examination. We don’t expect everyone to agree with our assumptions. In fact, disagreeing with our assumptions is a good opportunity for you to input your own assumptions and see what it does to the estimated stock price. Here are our key assumptions:
Number of vehicles delivered. We are assuming Tesla can increase from about 1.5% of the total light automotive market in 2021 to around 10% by the end of 2026. This equates to 7.1M vehicle shipments compared to 936K in the past 12 months.
Average selling price (ASP) of vehicles. We assume ASPs for Tesla vehicles will decline for the overall mix as Tesla creates more “mass market” models. This will be offset by Tesla adding more features to existing models and some level of inflation.
Gross margin of the automotive division. Historically, Tesla’s automotive gross margin has increased as its business scale increases. We expect this trend to continue but at a more moderate pace than previous gains.
Other revenue. Tesla doesn’t break this out explicitly so it's hard to model but we are assuming that one of Tesla’s other investments are going to hit. It could be semi-trucks, it could be solar, it could be something that’s still brewing in Elon’s brain.
Other revenue gross margin. Similar to the automotive segment, we expect margins to improve as business scale increases. We assume that there are a lot of R&D projects that will start generating revenue in this segment.
Operating expenses. Tesla’s spending has grown less than its revenue growth. Considering our high growth assumptions, we expect this trend to continue.
The FinanceTLDR Approach to Modeling
With great power comes great responsibility… or in this case, hours of tedious work. Making financial models requires laborious amounts of data entry and formatting. Making the model work for future predictions and making it adjustable to your personal assumptions takes even more time. Financial models are also rarely shared because many investors view the model itself and the assumptions within the model as their “proprietary data”. We don’t believe in that. We are going the opposite way and making models simpler and more accessible for every investor. To achieve this vision, we are doing a couple things to start:
Only focusing on the major assumptions that drive a model. Instead of changing every little detail, to adjust our TSLA model, you only have to adjust one of a few key assumptions that we are making. This makes it easier to quickly respond to news events and make rough estimates based on how your view of Tesla changes. As you can see from the previous screenshot, you won’t have to manipulate hundreds of spreadsheet cells to play around with the model. Changing any of the 6 major assumptions will result in changes in the underlying financial model as well as the stock price recommendation. In our hypothetical Elon Musk tweet scenario, you could change the “Automotive ASP growth” assumption from -6% to -3%. That would move the stock price estimate from $982 to $1100.
Hiding unnecessary detail. While the detail is still there to play around with if you are an expert in financial models, we are hiding much of the detail around the income statement, segment model, and valuation methods (DCF & PE). That means you don’t actually have to understand what any of that means to be able to wield the power of a financial model.
Model Access
The link to the TSLA model can be found in a Google Drive here. The drive is open to the public (so share with your friends) but the models are locked. To access a model that you can edit, you will need to make a copy of it. In the future, we will be adding models for other companies into the same drive. We will announce new models in our WeeklyTLDR email as well as on our website (FinanceTLDR.com) so keep an eye out! Hit us up on Twitter if you have a request for a specific model or want to share your own model to the FinanceTLDR community.