I took my third shot at valuing Tesla about two weeks ago, just prior to its Solar City acquisition announcement, and I incorporated the news since my last valuation. In July 2015 I took another look at Tesla, keeping in mind the developments since September 2013. The company had not only sent signals that it was moving towards offering vehicles with lower price tags (expanding towards the mass market) but also made waves with its plans for a $5 billion gigafactory to manufacture batteries. The value of equity that I obtained was $25.8 billion (with a share price of $151/share), climbing from my July 2015 valuation but the market capitalization stayed at $33 billion. The value of equity based on these inputs was 19.5 billion (share price of $123), much higher than my September 2013 estimate, but still below the value of $33 billion (share price of $220) at the time.
The value that I obtained for Tesla’s equity was $12.15 billion (with a value per share of $70) well below the market capitalization of $28 billion (and a the boutique price of $168.76) at the time. Anyway, this stock is breaking out on massive volume. In fact, recent moves have underlined the phenomenon, they said, with the Nasdaq-100 significantly underperforming as the 10-year yield broke out to the upside from its longstanding range of 0.5% to 0.8% in October. To structure the process, let me lay out the dimensions where investors can differ on the story and how these differences play out valuation. The announcement of the Tesla 3 clearly reinforced my story line that it was moving towards being more of a mass market company. You are either for the company or against it, believe that it is on a pathway to being the next Apple or that it is worth nothing, a cheerleader or a doomsdayer. Given the Fed’s latest decision to do nothing, it’s safe to bet that the next recession won’t be caused by the tightening of monetary policy anytime soon. Given Tesla’s missteps on delivery and execution, though, Musk may not have the interest in the nitty gritty of operations, and if he does not, he may need someone who can take care of those details, replicating the role that Tim Cook played at Apple during Steve Job’s last few years at the company.