Tesla Stock Analysis

Tesla Stock Analysis History

22 min read

Have you looked at Tesla stock analysis lately? You know the name, the brand, and the stock that has captivated investors for most of this year. Tesla (NASDAQ: TSLA) is undoubtedly the most intriguing company in the world. Whether you are a Tesla bear or a Tesla bull, it’s impossible to deny the impact that it has had on the investing world.

Chart by TradingView

At this point, there probably aren’t many people who are still asking this question. This is especially true if you follow the stock market at all. Tesla (NASDAQ: TSLA) is arguably the world’s most popular publicly traded company.

The company was founded in 2003 and is headquartered in Austin, Texas. Tesla is an American technology and clean energy company most well known for its line of fully electric vehicles. 

Tesla also provides renewable energy sources through solar panels and other stored energy sources. Although most people believe he is the founder, current CEO Elon Musk did not become involved until 2008. Musk had been the largest shareholder since 2004 and took over the corner office several years later. Since then, Musk has become a global celebrity and the wealthiest person in the world. 

The world was changed forever the second that Tesla’s first zero-emissions vehicle hit the roads. It’s a necessary evolution for our environment, fossil fuel reserves, and the overall shift toward digitizing and autonomizing our transportation methods.

But I’m not here to sell you on Tesla’s cars. This article will provide a full Tesla stock analysis of where it is now and where it could be. Cars are just one part of Tesla’s long-term plans. We are quite literally just the vessel used to carry out Elon Musk’s Master Plan.

Where Is $TSLA Headed?

While Tesla’s stock is one of the most popular, it’s also one of the most polarizing. The stock has officially reached cult status and is a mega-cap constituent of the S&P 500 and a meme stock.

Tesla stock analysis transcends the divide between retail and institutional investors. Generally, investors either love the company or think it is highly overvalued. 

Tesla’s stock chart has certainly been a microcosm of its success as a company. For years, Tesla was bleeding money as a non-profitable startup company. Likewise, its stock traded sideways for over two decades until it began to surge in 2020.

Why the sudden move higher? Tesla was beginning to see the results of its company growing to a global scale. In the first quarter of 2021, Tesla finally reached profitability. 

This growth also coincided with a sudden rise in stock investing during the COVID-19 pandemic. With stimulus checks and stay-at-home orders, more money was being injected into the stock market than ever.

Of course, one of the stocks that reaped this benefit was Tesla. It helped that the stock was already a globally recognized brand amongst younger investors. 

Tesla’s stock peaked in the second half of 2021 following a much-publicized 5 for one stock split in August. The stock hit an all-time high price in November. Unfortunately for investors, 2022 hasn’t been as kind. Tesla has been mired in the ongoing growth stock correction that has hammered stocks down to pre-COVID multiples. 

As of May 2022, the stock has lost 47% in 2022. With headwinds like higher interest rates and global supply chain issues, Tesla will likely continue to be challenged for the rest of this year.

Check out the chart via TrendSpider.

In Musk We Trust?

When it comes to Tesla stock analysis, do we trust Musk? Musk has become such a prominent public figure that many investors have started to follow him unthinkingly. Retail traders and noted Tesla bull Cathie Wood of Ark Invest have been hanging on their every word.

But for some investors, Musk’s tongue–in–cheek tone and obsession with social media are troubling signs from a company leader. 

Another issue investors have with Musk is that he is a busy man. Not only does Musk own Tesla, he also owns SpaceX, the Boring Company, and is currently attempting to acquire Twitter (NYSE: TWTR). With so much work on his plate, many wonder if Musk can lead Tesla with the same success.

Whatever your stance on Musk, it’s difficult to deny his impact on this world. At the top of Musk’s list of accomplishments is building companies that improve the world. He has nearly single–handedly created a global shift in the automotive industry, as nearly every legacy automaker has a model or line of electrified vehicles coming to the market. 

Tesla is Taking Over the Roads (Slowly)

The Model Y and the Model X provide the same luxury, performance, and zero-emissions for the crossover and SUV classes.

Along with this is includes the upcoming Cyber Truck. It’s set to debut at some point in 2021 and offers the Tesla experience to an entirely new market of drivers.

Tesla is also getting into the long-haul delivery game with the Tesla Semi, that’s set to debut in the next couple of years.

Did you know it’ll save companies $200,000 in fuel costs for every 1 million miles the Tesla Semi drives? Are we sure Tesla isn’t a car company?

We need to learn how the stock market works so we can put Tesla’s stock analysis to use.

Tesla Stock Competitors

Tesla’s competition now is much different than when it was just starting. In the early 2000s, there wasn’t a lot of demand for completely electric vehicles.

Not only was there not a high demand, but the industry did not have the attention of legacy automakers. Today, the entire industry is competing with Tesla. Here are some of Tesla’s largest rivals.

1. Nio (NYSE: NIO) 

The Chinese EV maker is often known as the Tesla of China and is one of the most popular EV makers in the country. Nio offers a fleet of sleek, luxury EVs that are capturing a larger share of the lucrative Chinese auto market.

Its famous battery swap technology sets Nio apart, which allows Nio drivers to skip waiting for the charger and attend battery swap stations throughout China. 

Nio recently expanded into Europe and sold over 500 vehicles in the Norwegian market. The company has plans to further expand throughout Europe, with eyes on a future US release as well. 

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2. Lucid Group (NASDAQ: LCID)

Lucid is a relative newcomer to the industry but its CEO has a long history with Musk and Tesla. CEO Peter Rawlinson was a former executive with Tesla and helped to design the Model S. He left the company and famously did not get along with Musk and the two CEOs have continued this beef onto social media. 

Lucid was founded back in 2007 but came to the markets via a SPAC IPO in 2021. The company has the unique trait of being 61% owned by the Public Investment Fund of Saudi Arabia. This has led Lucid to skipping traditional markets like China.

Instead, Lucid will be establishing its second production facility in the Middle East. Lucid’s uber luxury Air Sedan vehicles have not been selling as well as it had hoped. In the meantime, it has slashed production estimates for 2022 and delayed the release of its SUV model, the Gravity.

3. Rivian (NASDAQ: RIVN)

The electric truck maker was one of the most anticipated IPOs in 2021. Why? Two of Rivian’s largest investors and stakeholders at the time were Amazon (NASDAQ: AMZN) and Ford (NYSE:F).

Rivian managed to come out of nowhere to get the first electric pick up truck on the market. The EV maker managed to beat Tesla’s Cyber Truck, which is now delayed until 2023 at the earliest. 

As mentioned, Rivian makes electric pickup trucks and electric last mile delivery trucks. It has a standing order to produce 100,000 for Amazon’s new all-electric fleet. Unfortunately for early investors, the stock has fallen by nearly 75% since its IPO.

4. General Motors (NYSE: GM)

Of the legacy automakers, General Motors has one of the most aggressive plans to electrify its fleet by the end of this decade. GM is dedicating $35 billion between now and 2025. This plan will lead to the company having an entirely electric fleet by 2035.

The company already has several electric vehicles in production,, including electric editions of its popular Chevrolet Silverado truck and popular models like the Corvette and Hummer.

Hourly Trend of $TLSA vs the 50 Simple Moving Average (daily time frame moving average) – The last time we tested this MA, we bounced. Will we bounce here? Be sure to check the MACD of any stock before you enter and ask yourself if the momentum is right to enter.

So Much More Than a Car Company

If you think that’s a bit of a leap from electric vehicles to electric homes, you should see what else Tesla is planning. Autonomous cars and artificial intelligence are at the forefront of Musk’s plans.

Musk believes that if we can create a network of cars that speak to each other on the roads when done correctly, this could be safer than cars driven by humans.

Musk once said, “The most important reason is that, when used correctly, it is already significantly safer than a person driving by themselves, and it would therefore be morally reprehensible to delay the release.”

But just how are these cars going to talk to each other? The same way any machines talk to each other: data. 

Data analytics and cloud computing are just two ways in which Tesla hopes that all of the data is is being captured. Its vehicles can create a digital map of the roadways in a specific city or area.

If each Tesla car can contribute its data to help construct this map, theoretically, Tesla can blast this data out to the entire fleet of Tesla vehicles.

See where this is going? Tesla also wants to leverage the data they’re capturing to start its own insurance company. They would then be able to provide Tesla drivers with a lower insurance cost based on the drivers’ tendencies.

How will they be able to measure this? Data. Each Tesla will be able to provide data from its driver, wWhich could include things like how fast or reckless the driver can be or how cautious they drive at night. Cars are just vessels; Tesla is much more than a car company.

Tesla Stock Analysis of Autos, Technology and Energy

Sure, Tesla can be categorized as a car company. In the same way, Apple (NASDAQ: AAPL) is a phone company, and Google (NASDAQ: GOOGL) is a web browsing company.

So what is Tesla, then, if not a car company? If you look at the very heart of what Tesla is trying to do, you’ll find that perhaps the most appropriate answer is that Tesla is an energy company.

What does Musk want more than anything? A fully sustainable ecosystem that thrives off of data analytics and machine learning. 

Twenty years ago, plugging your car into your home to charge it and then driving it to work would have seemed like something out of a science fiction movie.

But this is now a daily routine for hundreds of thousands of people. Musk wants to turn each of our homes into a source of energy.

He wants hour homes to have Tesla Power Walls that store energy and can be tapped when needed. Roofs should be made of solar panels that can absorb solar energy.

Then, store it in your home. All of these can be controlled by your Tesla mobile app, which can allocate and distribute energy around your home as required. 

Tesla stock analysis can use MACD to help you confirm a trend. This will be important if Musk takes over the world with his ideas.

What Is the Valuation of $TSLA

Valuation of Tesla Stock

Since the average trader has no specialized knowledge of automotive manufacturing or electric vehicles in particular, the obvious way to value TSLA is through comparables and using a basic understanding of the valuation of Tesla and TSLA‘s competitive position in the market.

Start with the following formula:

If T is the present value of TSLA, F of Ford, Y of Toyota, G of GM, and C is the cost of capital of TSLA, then the current value of TSLA ought to be the future value of TSLA in X years, which is a function of the future or current values of Ford, Toyota, and GM, discounted to the present using C. More mathematically, it would look like

T = f(F, Y, G) / (1+C)^X

Where f is a yet-to-be-defined function that describes TSLA’s value in the future using Toyota, GM, and Ford’s present state as a comparable.

This method is much easier than projecting and discounting cash flows because we don’t need to know much about autos to perform it; we only need to know what is different about TSLA and what will be different in the future.

Today

So, back to the Tesla stock analysis. The valuations for this company are trading at stratospheric levels. Everyone knows this.

Tesla isn’t even profitable yet. Yet the stock trades at a trailing 12-month price/earnings ratio of 936 and a forward price/earnings ratio of 116. 

In comparison, the average price/earnings ratio of the S&P 500 is historically between 13 and 15. The market cap of the company is sky-high.

That makes it easily the most valuable automaker in the world. If you consider Tesla a tech company, it’s worth more than Verizon, Netflix, Oracle, and Cisco.

If you consider Tesla, an energy company, it dwarfs the industry giants and is worth more than Exxon Mobile and Chevron combined. 

And yet, Tesla shares are some of the most popular stocks and options traded on the investing app Robinhood. In August, when the company underwent a 5 for one stock split, the stock popped over 50% in the month leading up to the split date. 

Tesla is on track to deliver its goal of 500,000 cars this year. However, the fourth quarter will need to be good as it still needs over 180,000 to reach its goal.

Even Wall Street doesn’t know what to do with Tesla, as 32 different analysts range from $19 to $800 per share over the next 12 months. The truth lies somewhere in the middle and fully depends on how you define Tesla as an investor. 

Fundamental Valuation of Tesla

One often thinks of fundamental value as a value found with a particular calculation or process. This idea is reinforced because most stock valuations are partially performed by formula, at the very least, a present value of future free cash flows. However, estimating those cash flows and the uncertainty associated with those cash flows can be unusual and computationally intensive. So, what does that mean for Tesla’s valuation?

Such a valuation can only be done with access to specific company revenue models that aren’t often available to the public.

Thus, other methods are preferable in most cases. In particular, using comparables is very efficient, provided the correct assumptions and comparisons are made.

Consider Tesla (TSLA). The company is seventeen years old and has just begun to turn a profit. It’s the largest producer of electric vehicles on the globe.

Its revenue and production are far smaller than those of the largest automakers, yet its market cap is much larger than Ford, GM, or Toyota.

Capital

While a 50% discount on the cost of capital seems high, consider that TSLA has no serious competition because its growth could be impeded.

The major automakers have demonstrated serious risks in the past. They are largely undifferentiated (all apologies to serious fans of each brand or model!) from each other, which drives their profits down to or below the cost of capital.

Frankly, TSLA could probably do better than 1.5X the margin of other automakers, given the prices Tesla charges and the wide feature set available.

In addition, Tesla’s huge war chest allows the company to make decisions on efficiencies well in advance and create new opportunities for future margin growth.

You could, of course, choose a different value for C or a different net margin for TSLA in the above calculations.

Why would we not use these assumptions to create a list of costs and the number of cars produced in future years to create a more precise value?

Quite simply, it would require expertise in automotive manufacturing and would be subject to just as much variance and disagreement as the above value.

Additionally, the future demand for cars, costs of cars, and manufacturing numbers have all been calculated for us by the market. Remember the first principle of trading?

Assumptions

What do assumptions do to Tesla’s valuation? TSLA will continue to be the leading manufacturer of electric vehicles for the foreseeable future. TSLA has a decade or more head start on direct competitors.

And traditional automakers would incur a cost in switching from gasoline to electric production. Factory equipment must be changed, and production of saleable gasoline and diesel-powered cars must stop. All of these would be difficult actions to take for management, as the risks may exceed the potential gains from switching a factory or line to electric vehicles.

TSLA can produce the same number of vehicles relative to demand as any major manufacturer today.

“Relative to demand includes specific demand for electric vehicles, general demand for vehicles in the future, and within price demands of customers.

In 10 years, TSLA will be as large as Toyota. Elon Musk certainly wants it to be as large as Toyota and it certainly has the capacity and demand to reach such a size.

Therefore, how does the valuation of Tesla shake out? TSLA has competitive advantages that allow it to have a net margin, say, 50% higher than Toyota.

By selecting features to maximize profit, and have less competition, TSLA has the ability to dictate its margins.

TSLA has competitive advantages that allow it to have a cost of capital, say, 1/2 of Toyota. Toyota has to compete with GM for investment money. TSLA does not.

Tesla Production

TSLA produces enough vehicles and has enough cash on hand to make this a reasonable assumption. Certainly, TSLA could build a factory of almost any size to produce almost any number of cars with cash.

TSLA commands a high price. This is borne out by the fact that TSLA cars are expensive now. And cars are often delivered months or a year after they are ordered.

How does that help the valuation of Tesla? TSLA is innovative. The claim that TSLA loses money on each car is probably true and intentional.

TSLA has invested in providing innovative features at the likely real market value and can mix and match features to maximize profit in the future.

All these assumptions imply that at a point X years in the future, the likelihood is that TSLA will be as large as any other manufacturer, have a higher net margin, and not suffer from the same level of competition as the gasoline-based vehicle manufacturers.

Additionally, TSLA is not exposed as much to the cost of fossil fuels. While much electricity is currently produced by fossil fuels, as the price of oil increases, the cost of ownership of a TSLA will increase more slowly than a gasoline-powered vehicle.

Just as high interest rates on mortgages cause home prices to decline, the high fuel cost causes car prices to decline.

Bull Case for Tesla Stock

The bull case for Tesla is a fairly simple one. As of the most recent quarter, electric vehicles account for nearly 5% of all American cars on the road. A staggering 70% of those cars are made by Tesla in the US.

Currently, if you were to order a Tesla, it could take anywhere from a few weeks to several months, depending on where you live. Tesla is also highly sought after in key markets like China and Europe.

Tesla recently opened two new GigaFactories in Berlin, Germany, and Austin, Texas, which it anticipates will grow its global production capacity by 50% at a minimum. 

On top of this, Tesla is actively involved in other technology areas. Tesla routinely works with artificial intelligence and machine learning. It also designed a human assistance bot as the company took its first steps into robotics.

It’s easy to get excited about Tesla as a company when you step back and realize it is more than just electric vehicles. 

Bear Case for Tesla Stock

The bear case for Tesla revolves around an increasingly saturated automotive market. There are dozens of startups like Lucid and Rivian, but legitimate legacy automakers like General Motors, Ford (NYSE: F), and soon, Toyota.

Even if Tesla is the dominant brand in the industry, added competition will only naturally lower its sales and market share. This is reason to be at least slightly bearish for the long-term.

This doesn’t mean Tesla’s stock will fall to zero, but most can expect the company to grow at a reduced pace. Other Tesla products, including its highly anticipated FSD full self-driving technology, have been difficult to get going. Further delays in the Tesla Semi, Tesla Roadster, and Cyber Truck are also concerning. 

Tesla vs Toyota

So, what will Toyota be worth in 10 years? At a growth rate of 2% annually, Toyota’s annual earnings would be approximately $22 billion.

And at the current automotive cost of capital of about 7.5%, it would be worth $286b then. With a 50% higher margin, TSLA’s annual earnings would be $33b, and at the cost of capital of

C = 50% X 7.5%, worth $880b.

Thus, in the above formula, f(F, Y, G) = $880b, and

T =  / (1 + C)^10 = $608b.

This number is an estimate due to the assumptions made. All kinds of things could make it higher or lower. A disaster impacts a plant; oil prices increase more quickly than assumed.

Thus, if it were correct and the market agreed, we would expect it to vary from month to month, week to week, or even day to day.

The current market capitalization of TSLA is $594b, so we can say that the market has probably arrived at a reasonable, if highly imprecise, value for TSLA.

Final Thoughts: Tesla Stock Analysis

The most significant risk might be something small, like Tesla being unable to brand a down-market correctly and losing sales in luxury cars as a consequence.

What is the likelihood that people will stop buying cars or wanting a Tesla in their garage or that an upstart fast-forwards a decade to surpass Tesla in technology, as well as financial, business, and marketing expertise, and finds an untapped market segment to attack?

Not very significant. Is a major competitor doing the same? A major competitor preceding significant sales to inject precious capital into a war with Elon Musk?

Is Tesla a Good Investment? This is the million-dollar question for investors: should you buy Tesla stock? If you are a value investor, Teslanow trades at a low revenue multiple after this year’s losses.

What’s so difficult to analyze about Tesla’s stock is that both the bull and bear cases make sense. If you believe in clean energy and electric vehicles over the long term, then it’s hard not to like Tesla at these prices.

No matter what happens with the stock, one thing is certain: Tesla will continue to be the most polarizing company on the US stock market. Whether it will be a good investment from here on out remains to be seen. 

Before you go, if you’re looking to the future of space travel, consider a look at Blue Origin stock.

Frequently Asked Questions

As of right now, Tesla is worth around half a trillion dollars. That’s a lot of money! Their share prices keep increasing every day. Their market cap is over $515 billion, which has grown significantly over the year. How will that help the valuation of Tesla?

The market has already decided the correct price!) in the current valuations of Toyota, GM, and Ford because the market is paying the present value of the future cash flows of these companies and telling us the required rate of return. So, with Tesla's evaluation, you could say it is overvalued.

It seems smarter, faster, and more accurate to rely on the experts with automotive expertise buying and selling Ford.

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