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Why I think Tesla stock will be more than $1,000 in 2020

If you have researched this subject you have found articles written by analysts who believe Tesla will appreciate nicely in the next few years. But I took a step back and wondered about the bigger picture. Tesla wants to have a full lineup of cars such as trucks, smaller cars, roadsters, etc. So I did a projection out to 2020 and estimated fairly conservative sales numbers for each model. I estimated various costs based off of their latest 10k filing. Then I calculated expected earnings and divided by the # of outstanding shares to arrive at an eps. I applied a p/e of 40 as this is a growth stock and I expect it still will be in 2020. The final result was a stock price right under $1,000. Below is my math. Keep in mind that the Model S is the number 1 selling Luxury sedan in the U.S. and this has happened with no advertising or marketing. In 8 years there will be a LOT more awareness and confidence in Tesla.

Introduction Model Class Annual sales Avg Price Margin Profit

2012 Model S Luxury Sedan 30,000 $80,000 25% $600,000,000
2014 Model X Crossover SUV 20,000 $85,000 25% $425,000,000
2016 Model M Mid-size Sedan 100,000 $40,000 20% $800,000,000
2018 Model T Pick-up Truck 100,000 $40,000 20% $800,000,000
2020 Model R Roadster 50,000 $50,000 25% $625,000,000
2020 Model E Economy 200,000 $25,000 20% $1,000,000,000

Total profit - $4.25B. R&D costs of $400m. S,G&A costs of $350m. 26% tax rate makes net earnings of $2.59B.
Divided into 114.5m shares gives EPS of $22.62 and P/E of 40 gives us a $905 stock price.

Tesla earned $50,000,000 last year selling ZEV credits. I have not forecasted any revenue for that because I do not have any info to help me understand how much they make off of each car nor do I know if they will still be able to sell those in 2020.

Also, I have not estimated revenue for selling their batteries and motors to other manufacturers. They are on a path to delivering LOTS of these to fleet delivery vans and possibly taxi cabs in the future but I cannot forecast that. Also licensing their patented batteries to other manufacturers could be huge. This piece of business alone could be a huge multiplier on their earnings. So that puts us over $1,000.

Now, call me crazy but I think Tesla will sell more than what I have forecasted. If they already out-sell BMW and MB w/ their 1st car what if we assume they could at least match those guys w/ their Gen III car? BMW sells 350,000 3 series worldwide each year. And what if they can match Prius sales with an economical model? Another 360,000 sales per year. So I had some fun and re-ran the model with the following sales numbers in 2020: S - 100,000, X - 100,000, M - 400,000, T - 200,000, R - 100,000, E - 400,000. I lowered the P/E to 30 to account for all of the growth they have already achieved in this scenario. Stock price - $2,205!!! With no revenue from selling drivetrains to other makers.

I actually think they will outsell BMW and MB in the future so I'm hoping for even more earnings. Afterall, they are outselling them already just out of the gate.

Now this only works under a few assumptions:

1) That Tesla will continue to improve range/price on batteries every 5 years or so as Elon has hinted at.
2) That there isn't a major setback in battery safety forcing a recall/redesign which would yield bad publicity and hurt sales.
3) That the other carmakers will not be able to emulate the same battery performance w/o licensing it from Tesla.

So go buy the stock and thank me later :))))

And Toyota bought about $50M worth of TM stock from them at the same time, so it washes; TM paid for the factory with treasury shares, not cash.

I know a modest size community that recently built a new high school for 100 million dollars and it's way smaller than this NUMMI plant (see link) which is 5.3 million square feet, with 160 acres of open land next to it. Peak production was 420,000 vehicles.

http://www.google.com/search?q=NUMMI+plant+diagram&client=safari&hl=en&s...

Tesla only uses a fraction of the space. They did have to clean up the space they use. To get that portion running, Tesla used their 465 million dollar loan. Add to that what Toyota says the plant was really worth about another 575 million, see link.

http://www.law360.com/m/articles/212230/toyota-nummi-seek-574m-from-old-....

And I doubt the high school building contractor would of taken half of the 100 million in Tesla stock during what was then called a possible depression, let alone if you asked the contractor to buy the stock instead !
Which just goes to show what an incredible salesman & CEO Mr Musk truly is.

But that's a billion in cost to get 100,000 + cars a year. If Elon wants to max out the plant, he has to remodel the rest of the plant, which is a little old and a bit of a fixer upper. Figure another 1/2 billion dollars for that remodeling (or expansion if you prefer). Now your up to around 400,000 to cars plus capacity. And your still not up to a million cars per year production capacity yet. You need at least 1-2 more car plants to get there.

So figure at least 1 & 1/2 billion dollars to build one plant in today's dollars that can produce anywhere near 400k to 500k cars a year. Remember the NUMMI plant is over 25 yrs old, and a billion dollars went a lot farther back then.

So anyways I wonder if Toyota got a good price on the 50 million in stock they bought, initial inside investors usually do. Any info on that !

@Tesluthian

Was it a government or a private school? If the former, it's not a good comparison since governments tend to spend money unwisely in case you hadn't noticed. It's a natural consequence of spending other peoples money, which doesn't have to be paid back, and of which more can always be had for the taxing (from the typical politicians perspective).

As for Toyota's assessment of actual NUMMI plant value, they have a strong incentive to overstate that for tax purposes ("Oh, yeah Mr. IRS Auditor, we took a HUGE loss on that plant...")

mrspaghetti,

The high school was public, I agree they overspent other peoples money. And good point about overstating the loss for tax purposes, I hadn't thought about that. But are you saying Elon can build a car plant for 100 million dollars that can produce 400,000 plus cars a year ? Don't you think that's a little unrealistic ? Just the land with some nice trees on it is probably worth 100 million.

So let me ask you this. If Tesla eventually wants to expand to another car plant. How much do think it would cost to build a car plant with equipment capable of building 400,000 plus cars a year ?

I'm sorry to always be the one to piss in the punch bowl but please, projecting a mkt cap of $100bil for a $6bil mkt cap auto manufacturer in seven years? This is a very cyclical industry and right now Tesla is an innovative niche player in that industry. If our economy gets hit, this and every auto manufacturer will have a hard time of it. Competition? If there's a fat margin out there, ultimately Toyota will get into it and compress that margin.
Tesla is a good company, but let's see how sales develop after the reservation list has been filled. Hopefully the company will execute their plan well and stay ahead of the curve- but this is a tough business to be in.

LNKD has a larger market cap with a P/E of 1025 right now.

I did some forward projections of my own based upon 10-25% of worldwide car sales and p/e of only 15 and arrived at share price estimates between 3995 (low cost car 10% margin) and 41,190 (higher margin higher cost car).

Hey Koolaid!!!

I think LNKD is a somewhat different industry, but wow let me buy some of this stock in a hurry.

@Tesluthian

are you saying Elon can build a car plant for 100 million dollars that can produce 400,000 plus cars a year ?

Not saying that at all.

How much do think it would cost to build a car plant with equipment capable of building 400,000 plus cars a year ?

I wouldn't want to hazard a guess at this point.

I hope my post didn't come across as poo-pooing your arguments - that was not the intent at all. You made some excellent points and I was just trying to contribute by pointing out some things you may not have thought of. This way we build on the original poster's calculations and we can come up collectively with a better WAG :)

Better WAGs are pro-survival.

What am I looking for in the earnings announcment tomorrow?

Since Q1 is the first period of full production we will begin to see the normalizing of their costs. I am interested in the R/D and the S,G&A figures. The margin will certainly be higher than the 8% they realized in Q4 but below the 25% goal. I'm curious how much improvement they have made.

Guidance on reservation numbers seems to be the most debated subject. Let's hope all of the test drives in Europe this year have driven high demand there.

TSLA was at $54 when I first posted this thread. It's been a great ride and a LOT of new info has been shed on the subject. Today's article in seekingalpha comes to nearly the same conclusion I have. Stock north of $2k in 6-7 years.

http://seekingalpha.com/article/1532842-tesla-motors-full-analysis-2-0

I'm not sure if this has been mentioned because I just breezed through the posting but they are all about a car.

Tesla and Solar City together have implications that are far beyond the addition of Solar Panels & a Vehicle.

While I hate to echo what has been said so many times before, I will because I believe it is accurate.

Tesla will do something similar with the Car and Solar energy as Apple did for the Cell phone.

Tesla Growth and impact will be exponential.

I will give one minor example, consider 3rd world countries, they totally skipped land line phones because Cell phone require significantly less Infrastructure to build and maintain. Tesla's cars and supercharger stations provide the same advantages.

We are on the precipice of the next great Technological change for mankind, and luckily Elon Musk has the business acumen to have patented and licensed technology.

There is no other applicable precedent to try and understand or calculate the growth of Tesla and it's stock.

I came up with an estimate of share price getting close to $1,000 for different reasons:
1. With a P85 or even the S85 the battery pack cost to Tesla is around $25k. The rest is the car. Looking at the simple design of the car, including the electric motor, inverter, gearbox, electronics, AL construction, significant costs reductions can be achieved. Once their design is optimized to facilitate automated production, additional robotics, etc, the cost of the car should be no more than what a Honda Accord or Toyota Camry with ICE costs to produce. Yes, it uses Al, but that is only an extra $1,500-2,000 cost. The cost of electronics drops big time with Moore's Law. I would say the whole thing should not cost more than $30k with volume. The battery tech that Tesla uses is maturing and those costs should come down along with packaging bring the battery pack cost to $20k. Add it up and total cost of the car is $55k. Or $66.5k with a 25% gross margin. Lesser models cold be sold for < $55k and same margins. Do the same thing with Model X and demand will explode worldwide.
2. Tesla could offer hi end Model S, X with range of 500 miles costing may be $20k more. AWD with hi performance, etc.
3. Model S, X could be optimized by cutting weight (500-100 lbs) using stronger alloys of Al and steel at minimal incremental cost. Better handling, etc.
4. The supercharger network will be expanded to 200 SC and could go even higher to 500 SCs nationwide and Canada. If they do not have solar panels, except for a few places, it could be done for less than $100M. That will drive demand.

With ASP of $60k, Tesla could sell 500k autos/year worldwide. Revenue would be $30B. Gross margin would be $7.5B. Take out overhead, R&D, taxes and $4B is net profit. Gen III is still in the horizon. PE of $25-30 and we get the $1,000/s within sight.

The big issue is competition. Whenever there is tech revolution the old players get swept into the dustbin of history. Just look at the companies that dominated the steam engine locomotive, then diesel electric and now electric hi speed trains. Or in the cellphone>smartphone history. Tesla has a lot of unique technology some with patents. See any competing products?

Then there is the network effect of the superchargers which is proprietary.

Bubba...Being a stockholder, I hope you are right. Personally I would be happy to see $300-400/share in 5-7 years.

nick at night - have not seen a post from you in months. Glad to see you're as articulate as ever. Carry on with your pablum my friend.

chicago.ev | May 2, 2013
.
Tesla is a good company, but let's see how sales develop after the reservation list has been filled.

The delivery time is now basically manufacturing and delivery time, already. The reservation list exists in Europe, but not in the US. Sales apparently are exceeding TM plans and expectations, still with zero advertising.

Just came across this thread whilst researching opinion on the future stock price of Tesla. On the 19th August the price closed at $142. News just in that the S is the safest car ever built in history will probably push it to over $150 today!

I think based on Tesla's flawless execution to date and its future plans, your $1000 by 2020 is not only quite possible, but maybe even conservative.

Happy days :)

Sorry, correction to above post, Tesla closed at $144.91 0n 19th August.

And closed at $149.58 today.

Yes my $1,000 target is conservative. I added a second projection in the OP with higher sales numbers that I believe to be very attainable. In that scenario I project the price at $2,200!!! Go TSLA!!!!!

How do you look at the potential competition coming from fuel cell vehicles ?

http://articles.latimes.com/2013/jun/14/autos/la-fi-hy-fuel-cell-grants-...

Toyota says it will start selling FCV-R in 2015. The range is 500 miles.

A weakness of FC may be the high deployment cost of stations, which require public funding.

Taking advantage of the so-called first mover advantage with its faster deployment of Tesla charger network may be one of the key factors for Tesla to differenciate vis-a-vis FC competition and
to realize 1,000 USD/share.

Tesla CAN do it alone without additional public funding. That is the strength of Tesla initiative.

I don't see fuel cells as anything but a red herring at this point, in fact they've been this for the last 15 years or so.

They make no sense from an energy usage or infrastructure point of view compared to the simplicity of battery powered EV's.

I personally feel they are a stall tactic by big auto.

Elon: "Fool cells".

Remember that network of fault lines that goes up the east bay. An earthquake could shut them down for six months, so it would be nice if Tesla had a second factory elsewhere.

Let's not forget to model in for the supercharging network's worldwide buildout in 5-10 years and it's revenue potential, which could be in the hundreds of millions of dollars.

Elon has said he's not against letting other car companies use the superchargers out in the future, and I see a potential 3 tier payment system.

1) Tesla owners, superchargers are free for life.

2) Investment Partners and their cars that use Tesla made batteries and drive trains. These partners get to use superchargers at a reduced price.

3) Non investment partners that use Tesla made batteries and drive trains pay the highest price; but always pegged to be at least 20% less than the equivalent price of gas.

It's important to remember that no other company knows how to supercharge batteries, or what battery chemistry to use. Nor could they manage the charging system software etc. that's a moat wider and deeper than the Grand Canyon. In short, the supercharger system has no competition !

So to get into the supercharger system, and stop themselves from becoming obsolete, other EV car companies will have to buy Tesla batteries , drive trains and supercharging management systems, wireless billing systems , etc., thus increasing those sales. (Tesla would have to work on making their hardware as non reverse engineering and steal-able as possible).

In addition to these hardware fees, supercharging usage fees could end up in the hundreds of millions of dollars. Thus supercharging fees would fund even more worldwide buildout of the supercharging system, all paid for by Tesla's competitors in a virtuous continuous feedback loop for Tesla. As the supercharger network gets bigger and bigger more and more companies will want to get onto the supercharger system, and pay for the system with usage fees. And consumers will benefit from a faster and much more density in the supercharger network.

This is just one of many non-traditional hidden profit streams Tesla has that is not being priced into any of the potential earnings models. And it's just one reason why I also think $1,000/share by 2020 is well within reach.

@Tesluthian - I agree with you 100%. I also believe that the other auto manufacturers could very well end up paying Tesla huge revenue streams for their supercharger network access.

Here's another thought that could dramatically increase Tesla share price: Autopilot cars. Autopilot technology is definitely going to come from Silicon Valley. It's a race between Google and Tesla. Given that Elon thinks that Google's lidar system is too expensive, Tesla's camera plus software option may win out. If Tesla is first to market with an affordable auto pilot software program look out! Imagine how many cars will be sold to commuters who want to work or surf the Internet while their car drives them to the office. And then imagine the licensing revenue they would receive for lending this technology to every other automaker. That alone could be another $1,000 added to the stock price.

JZ13

+1

JZ13,

Tesla is nowhere near a driverless car solution. They are back of the pack.

Google already has 500,000 miles (as of a few months ago) of intervention-free testing.

Their one thing going for them is that Elon has embraced autopilot far more directly that any other automobile CEO.

I think a partnership/product integration works well since the GPS is already powered (in-part) by Google.

With all that being said, Tesla has the clearest path of any manufacturer. The Google Lidar system is going to get smaller. TM is not going to strap a bunch of ugly sensors to the roof to destroy the low drag coefficient.

Just a thought , not even 2 cents worth. I wonder if there would be a use for auto-drone mode ? Sit at home at the computer and drive the the car around for various purposes. Any uses, I wonder, for that ? EG anti-theft, your car gets stolen, you fire up the computer and drive it right back home. Others?

Be the same concept as airplane drones, only for commercial and consumer purposes, not military ones.

Maybe a better name for it would be Drone Pilot mode rather than Auto Drone, since a person is guiding the car remotely.


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