Sage Investment Club

Hello Investors and Gamblers! We all know what Tesla is, but do we really know what it is worth? Are you bagholding and want to know if you shall cut losses or hold it to the core of the Earth? Or are you looking for a good entry price for a heavy Call or Put slapping?Well you came to the righ post! Here i am evaluating TSLA Fair Value for you! Hope you enjoy the reading! And don’t forget to share with the community your thought and prayers! Cheers!_______________________________________PurposeThe purpose of this thesis is to analyse the development of Tesla during the past three years, from 2019 to 2022. Not only are the financial statements taken into consideration. In addition, a comparison to its main competitors and the market situation is also made. All is made to determine the fair value of the stock price and determine the investment strategy. All is made to answer the following questions:What is its position compared to competitors?Is the company fairly valued by the market by its fundamentals?Is the company a Buy or a Sell?Delimitations and AssumptionsThis thesis is delimited to an analysis of TSLA between the years 2019 and 2022. The thesis is based on the assumption that TSLA is the one of the most trending automotive company in the world, and that the prestige it has will support its price action in the next months.MethodologyIn this thesis, data from its financial statements are taken from SEC filings, Yahoo Finance and other publicly available information on the company on-line. The Company valuation is made based on:Adjusted Graham Fair Value FormulaFree Cash Flow Evaluation ModelDiscounted Cash Flow ModelHypothesisUS next interest rates hike of 25-50bpsInflation of 6.5% and cooling down to 6% for January 2023TSLA is high volume stockTSLA is overvaluedThere are many TSLA bagholdersTSLA can’t outproduce its competitors in the near nor mid term__________________________MethodologyThe thesis used macroeconomics data from the 13th of January 2023 for its valuations, Income Statements, Balance Sheets and Cash Flow are considered and projected to the next three years. The final price tag is obtained by the average of three valuation methodology: Graham Formula, Discounted Cash Flow and Cash Flow Evaluation. It is then given a 20% margin of error in both direction.Macro Economic Data__________________________Evaluation MethodsIn this paper, three methods are used to evaluate the company’s final fair value. Each method gives us different current fair values for a single share of the company. The final price tag is determined by the average price between all the methods used.Growth RateThe Growth Rate of 24.40% is determined by the average analysts consensus for the company’s next year growth rate.Free Cash Flow Evaluation ModelThis simple model takes in mind the company last year’s available cash flow data, its WACC based discount rate of 12,84% and its Growth Rate of 24,40% to determine a fair value of $78.88 per share.Adjusted Graham Fair Value FormulaThis model is used in the Value Investing communities to price tag a company based on its intrinsic value. This formula is created by Benjamin Graham, a value investor and professor at Columbia University who is considered the father of Value Investing. This thesis uses the adjusted formula to better adjust it to the current market environment.Data used for the calculation:DataValueEPS3.24Growth Rate24.40AAA Bond Yield4.40The Adjusted Graham Intrinsic Value Formula gives us a price tag of $101.74Discounted Cash Flow ModelThis thesis uses Free Cash Flow, gained by subtraction Capex from Cash floe From Operations. Free cash flow (FCF) is the money a company has left over after paying its operating expenses and capital expenditures. It is used to remove the impact of capital structure on a firm’s value and to make companies more comparableIn simple words. It is the cash flow of a company based on the belief that the company owes no debt, therefore has no interest payments to make.In this model, it is taken in mind the following data:DataValueWACC based discount rate12.84%Growth rate24.40%Average US GDP growth rate3.18%Average Shares outstanding3,157,752,000Which projected a FCF for the next five years as per follow:Note: the projection is based on the assumption the company will keep growing by a perpetual rate of 24.40%, which is highly improbable due to unknown future events and variations in the market. This shall be taken only as an indicative forecast.The calculation gives us a Fair Value of $70.99 per shareFinal Fair ValueThe Final price tag is determined as per following:DataValueFree Cash Flow Evaluation Model$78,88Adjusted Graham Fair Value Formula$101.74Discounted Free Cash Flow Model$70.99Final Price + 20% error margin$104.83Final Fair Price (Average)$83.87Final Price – 20% error margin$62.90__________________________ProductsTesla recently lowered their products price tag amid demand fall. Here are listed the current price tag as of 13th January 2023:Tesla Model X $109,990Tesla Model 3 $43,990Tesla Model Y $52,990Tesla Model S $94,990Total worldwide unit sold in thousands:2022: 1,3132021: 9352020: 3672018: 244We can observe a 40% increase of Unit sold in 2022.__________________________SWOT ANALYSISStrengthsMost Valuable Automotive Company: It is currently the the automotive company with the highest market capitalisation.Tesla Increased its Electric Vehicle Delivery: In 2022 it increased its deliveries of 40% from 935 milion to 1.3 billion units.Cross-sell and Diversification: Tesla has comprehensive insurance program for its vehicles in association with Liberty Mutual insurance company.Innovative Company: Tesla has a very high rate of innovation, the market expects the company to develop competitive and profitable products.WeaknessesManufacturing Complications: Tesla faces continuous launch, manufacturing and production ramp delays while launching their new vehicles and other products. For example, Tesla faced endless manufacturing challenges when they were about to launch Model X, which lead to constant delays for distribution. Similarly, the company went through extreme troubles while manufacturing Model X’s battery module assembly line at Gigafactory 1.Unable to meet demand might affect brand value: Due to highly experimenting and complicated procedures, Tesla’ might face an unbalanced supply and demand, unable to meet the production ramp.Lack of High Volume Production: It has failed to produce high volumes of automobiles for any of its models. Even now, as the company plans to manufacture Model 3 vehicles at high volume, it faces issues in terms of production cost and management resources.Shortage of Batteries: The shortage directly affectes the sales of electric vehicles and energy storage systems.Elon Musk as Tesla’s Sole Representative: Musk is deeply involved in other projects and side quests.Financial Uncertainty: Tesla has outstanding debt of $5.38 Billion. If the company is unable to generate enough cash flow to repay its debt, then there is a risk of delaying expansion, reducing investments, selling assets, etc.Employee Safety Concerns: Tesla was recently fined in 2019 for creating a tent production line without a permit or safety inspection. Also, the company did not train workers about the risks of working in the tent for long periods under the scorching California’s heat.Leadership Wrangles: Friction and conflict between management and the board of directors can undermine productivity and long-term success. Tesla’s management and board have been engaged in several power struggles.Tesla Faces Lawsuit over Sexual Misconduct: Many Tesla workers filed a lawsuit alleging sexual misconduct and harassment at the workplace. The women have complained that the company fosters a dark culture of sexual misconduct. They also alleged that they were cat-called and were frequently subjected to shameful remarks, groping, and misogynistic behaviour.OpportunitiesSales expansion in untapped Market: The most significant opportunity for the company right now is the Asian market, even tho there are increased risks.Less Expensive Car: Tesla’s Model 3 is a more affordable version of Model S with less range, power, and fewer features.Bringing battery production technology in-house: Tesla intends to make its own battery cells.Market Confidence in Tesla: The stock market has shown confidence in Tesla after beating the projected car deliveries.ThreatsProduct Liability Claims: The company has faced lawsuits and claims related to the failure of technology in their products. If these liability claims continued, then Tesla may be subjected to greater financial setbacks.Extensive Competition: Tesla, Inc. faces aggressive competition from both alternative fuel vehicles (Hybrid, Plug-in hybrid, fully electric car) and self-driving technology. Many automotive brands in the luxury segment like Mercedes, BMW, Audi, Lexus and in the economy segment like Toyota, Ford, General Motors , Volvo are getting ready for a fierce competition. Many brands are not only launching or planning to launch their environment-friendly-Self-driving technology but also, they are offering them at a comparably lower price.Product Defects: Tesla’s cars and other energy products have exhibited major flaws in many cases. The defective products often have weaknesses in design, manufacturing, and other features which harm the company’s image permanently.Long term confidence: Tesla, due to its unstable manufacturing conditions, suffers from disbelief among the public about its long-term existence, which can result in a deficiency in further business development.Customer Adaptation: The company highly depends upon customers willingness to adopt electric vehicles.Disruption of Supply Due to Shortage of Materials: Tesla can face major suspensions in the supply of manufacturing materials due to the increased prices. The company uses aluminum, steel, lithium, nickel, copper, and cobalt, as well as lithium-ion cells from suppliers. All these materials have volatile prices, which can affect the company’s production line severely in the future.High-Risk Factor Due to Usage of Lithium-ion: Tesla uses lithium-ion cells in their battery packs. Lithium is a highly reactive and explosive element, which increases the risk factor of our products. Tesla has faced a a few cases where their cars have caught fire and vented smoke, which has defamed the company on a major level.Elon Musk’s Behavior Affecting Tesla’s Reputation: Tesla’s entire reputation is built upon the cult of Elon Musk. But recently, his waky behavior and impulsive reactions are affecting Tesla.Competitors increasing productions of EV Vehicles: Competitors are jumping in the EV segment eating huge portions of the market share.__________________________Analysts Price Target$436 High$250 Average$85 Low$83 OP’s

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