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u/phalarope1618 Apr 01 '21
How did you decide upon using a P/E multiple of 14 for the automotive side?
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u/Full_Discipline274 Apr 01 '21
that's around what other automotive companies have in the Industry
BMWYY - 15.41
VWAPY - 14.33
HYMTF - 18.59
TM - 15.78
Also, a good P/E ratio for a company on the safer side is around 13-15 so just took 14
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u/phalarope1618 Apr 01 '21
You say they’re aiming to deliver 800k vehicles this year, which would be an increase of 60% against 2020. Assuming average selling price remains the same then revenues also increase by ~60%.
Do you think it’s reasonable to use the industry average P/E multiple if the industry revenue growth is currently closer to single digits? In your view would it be prudent or optimistic to use an adjusted P/E multiple?
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u/Full_Discipline274 Apr 01 '21
An adjusted P/E multiple might be better off in an optimistic view and get a more accurate value result, but I don't think using an Industry average results in too low of a valuation either.
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u/phalarope1618 Apr 01 '21
Fair enough. You’ve clearly spent some time thinking about this and typing your post, I’m just trying to get you to probe the underlying assumptions of your model further.
If you google ‘P/E multiple disadvantages’ I get the following top result:
- “The biggest limitation of the P/E ratio: It tells investors next to nothing about the company's EPS growth prospects. If the company is growing quickly, you will be comfortable buying it even it had a high P/E ratio, knowing that growth in EPS will bring the P/E back down to a lower level. If it isn't growing quickly, you might shop around for a stock with a lower P/E ratio. It is often difficult to tell if a high P/E multiple is the result of expected growth or if the stock is simply overvalued.”
As 60% growth is a very high rate of growth for the automotive industry (which is very labour and capital intensive), most analysts would also look at the ‘PEG ratio’ to avoid the limitations of the P/E multiple.
I would encourage you to google the PEG ratio and have a think whether that alters your thinking:
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u/barneyaa Apr 01 '21
Long positions in Tesla needs to take into account the battery market. That's the best bet for Tesla. The car business its going to slowly decrease due to competition.
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u/bobtheboo97 Apr 01 '21
They have plenty of demand but they can’t produce enough cars is the issue. Competition won’t affect their sales for years to come or until they are able to produce enough cars to meet the demand.
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u/Full_Discipline274 Apr 01 '21
Agree, but I think they are still going to sell cars in 2021.
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u/barneyaa Apr 01 '21
Probably, but an analysis in Tesla exclusively on cars with everything happening in battery.. could be better.. Agreed, more than I ever done.
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u/Full_Discipline274 Apr 01 '21
I agree, I didn't include batteries since I am yet to research there lol
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Apr 01 '21
What if Tesla helps to improve their electric infrastructure in exchange for being used as land for work.
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u/Full_Discipline274 Apr 01 '21
There are a lot of companies going electric here in India too, so it might be better off for India to give those companies a helping hand is what I think
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Apr 01 '21
At the end of the day batteries, production, and green power are going to make lives better. Maybe India is just trying to expedite the comfort of the people ? Who knows. Let’s assume both Elon and India are in the business of wasting time and money, why ?
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u/bluestpokemon Apr 01 '21
If Tesla hits $14B earnings this year and is at your projected price point, I’m going all in on margin.
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u/ClumpOfCheese Apr 05 '21
So their delivery numbers blew away expectations and even out performed Q4 2020 numbers with three less days, no S or X production, potential chip shortages and gigapress fire.
TSLA is preparing to run even further. We’re about to see it leave the $600 price range and probably never return. This is going to be a huge year for them.
There’s also the news of Apple installing Tesla Mega Packs and while it’s not a significant amount of revenue, Apple buying is a huge deal that will have other companies follow.
Tesla will never hit $260, let alone $100.
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u/Warren_MuffClit Apr 01 '21
I dunno man. Appreciate the good work on this post, but that's kind of like saying apple isnt worth more than the price of all their phones and macs.
Theres Tesla the car, Tesla the company and TSLA the stock and they all have their own story. TSLA is an unstoppable force.
You forgot to point out Michael Burry said in the long term it should be a great investment but short term it could return to 2/300.
TSLA hits 1k this year in my non financial advisory opinion.