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So Let’s take everything we know about $TSLA, but make the picture slightly more rosy to see if we can come to a reasonable bull-case value.
Assume 1) $TSLA has been consistently profitable over the last 16 years, with ROE, profit margin, etc. on par with the highest earning car companies selling vehicles at a similar ASP;
Assume 2) $TSLA generates sufficient FCF to re-invest in growth plans without having to tap the capital markets;
Assume 3) $TSLA has a long-tenured, deep bench of talented executives;
Assume 4) $TSLA has high quality manufacturing standards;
Assume 5) $TSLA has financials, including accounts receivable, interest earned on cash balances, property, plant and equipment that did not seem fraudulent,
Assume 6) $TSLA follows laws;
Assume 7) $TSLA has strong corporate governance with an ethical, honest, and open culture,
Assume 8) $TSLA owns its factory in China free and clear and its intellectual property will not be looted.
We’ll overlook the fact that its position in the market to date has been virtually unchallenged to date, while there are 20+ brand new models from manufacturers with decades more experience coming online in the US in the next 2 years.
We’ll overlook the fact that those vehicles will be entitled to subsidies that Tesla buyers can no longer have. We’ll overlook the fact that as EV production ramps up at these other manufacturers, their need to sell ZEV credits will decline.
We’ll ignore the ASP of $58k exceeds the average selling price of a car in the US of $37k while the US is racking up $1 trillion in deficits per month, unemployment is 20%, and GDP will likely decline 15%+ this year.
We’ll ignore auto sales are highly cyclical, with US unit sales declining by 35% to 10.3 million in 2009 from 16 million in 2007 despite the cash for clunkers program’s best efforts.
Under this scenario, $TSLA would be a well-run and well-positioned company.
With Ford and GM trading at 0.9 and 0.8 EV/Sales, respectively, we'll assign a 2.6x EV/ Sales multiple to $TSLA for a stock price of $373.
Of course if you relax a few of those assumptions, you might come to a value somewhat lower.
