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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 :))))

I hope you are right. But does anyone know how Tesla can avoid android-like thievery? You say they have to license the technology but can't they just make a tiny modification and rip it off Samsung-style?

Market cap more than Mercedes and BMW combined? I believe Tesla will do great but I don't think that will happen.

carlk - BMW has a p/e of 9 because there are few growth opportunities. Tesla should have a very high p/e for years to come. At least until they have built out a full lineup of cars.

One can only hope it does, however, thus far they are showing the auto industry as a whole, it's time to start thinking different, because if they don't... 'To Big To Fail' is history!

JZ;
Tesla outsells them in the large luxury sedan class, but they are involved in many classes. TM's overall sales are still a fraction of theirs.

Thats about 500k cars sold and a market cap greater than toyota who sold over 7MM cars in 2012 and they have a p/e of 18. If Tesla can show that 25% margin then maybe the valuation can be up there, thats a big IF. At some point they will have to reduce price at the expense of margin. of course that will drive even more sales. my point is that they can maybe hit the 25% margin on the S and X but in the lower priced, higher volume cars I would expect the GM to be much smaller by design. Maybe use 10% for the higher volume models and rerun the scenarion.. the good news is that there should be significant growth left in 2020 in the above sales senario. good job and thanks for sharing... I am hoping you are right !

That is a very high number ($1,000).

It will go that high, but it will take a few more years to get to that point. How about 2025?

JZ

I like your numbers, I too look forward to TSLA doing very well. However, I think there are a couple of adjustments that I would make. First 25% is a target for a gross profit margin, If they can achieve that it produces a bottom line NET profit of only 10 to 12%. Second a P/E of 40 for TSLA is valid but as their market cap exceeds 50Bil 40 is no longer justifiable, 20 to 25 maybe.

Finally you assume no increase in the number of shares outstanding. It will take a great deal of capital to expand to the numbers you forecast and that means either another stock offering or loans, the interest on which reduces profits.

I still am long TSLA and very positive I just thing your numbers are high unless sales excite your projections. Higher Model M and E are a real possibility.

Elon's targets, on which a bonus depends, are to hit 30K per year and 30% gross margin.

@BrianH - I'm not saying Tesla will outsell the total sales of the German's in 7 years, I'm only suggesting they can at least match them for each class of car.

Also, you raise an important point re: Elon's incentive plans. Another is that he delivers a Gen III car.

@noel - thanks for your input. I did lower the margin's to 20% for the higher volume models. Elon has stated several times that he expects a 25% margin. In fact, he's delaying the X so that he can they can focus on getting the S margins to 25% shortly. Also, to Brian H's point - Elon gets stock options if he achieves 30% margins. I'd rather bet for than against Elon.

@ghillair - P/E of 40 for large market cap is very possible. Dow chemical has a market cap of 39B and a P/E of 48. AMAT has a P/E of 488 w/ a 17B market cap.

Basically, I see TSLA as the next AAPL. I think it will break through the normal stats because of it's growth prospects. No one envisioned AAPL changing the entire cell phone business. No one foresaw AAPL change the demand for laptops and desktops with the tablet. I think that's where we are with electric cars and specifically TSLA. The street doesn't see that they are about to change the car industry.

Thanks for putting some numbers out there. I was wondering to myself if in 10 years or so I'd be asking my son, "Do you remember when you were a kid and people used to drive those gas cars around? Remember, Daddy used to have one of those?" Kinda like I remember having to get up, walk over to the TV and change the channel by turning the knob (CLICK-CLICK-CLICK).

As more and more people get exposed to how cars ought to be, they will pile into Teslas. And I think TM will continue to be a leader in this area for a long time to come, given the infamous lack of agility and vision of BIG INDUSTRY (and BIG AUTO in particular).

So I think it is completely plausible that a significant investment in TSLA now will make one rich in 10 years or so. Not just a "nice return", but RICH.

@ghillair - forgot to comment on the need for more capital. You raise a valid point. Many growing companies require more $ to build their business. I didn't include a new issuance because in my model because Tesla likely will be able to fund it's own growth. They are currently cash-flow positive and profitable. That in an environment where they are only delivering 20k cars/year and they are still improving their margins to the 25% target. And they have capacity to build 500k cars in their current facility.

I think there are more costs that you are not including. R&D would make up a much larger number if you expect to roll out all these different models. Plus where is the govt loan payback which I believe is $15M per quarter. Then the gross margin which is a goal will be harder to reach as they try and scale. 4th Qtr 2012 margins were 8%, long way from 25%.

@JZ13 You said "No one envisioned AAPL changing the entire cell phone business."

I beg to differ. This analyst wrote an article the day before the first iPhone launched which predicted most of the outcomes:

http://www.techdirt.com/feature.php?sid=200706293

You're neglecting direct competition as the electric car industry matures which will cause Tesla market share to decrease. As for TSLA being the next AAPL - even AAPL never hit $1000.

@KOL2000 Please! Stop with the overworked Apple fanboy rhetoric about how Samsung stole all Apple's ideas.

"rip it off Samsung-style?"

Every industry uses ideas and best practices first offered by others. This is how humanity advances. If we each had to solve the quest for fire by ourselves, we'd still be living in caves. No surprise, then that Samsung and Android have borrowed some good ideas from Apple.

But Apple have done a heckuva job of borrowing ideas from others, too. Especially for the iPhone. Not one bit of technology in the iPhone was something I hadn't seen earlier in some other company's products. What Apple DID do was assemble the technology into a delightful whole product with a great user interface. That is innovation.

And Samsung / Android, for their part, have come up with innovations, too. Like live widgets on the home screens instead of Apple's dead icons. Some innovations Apple copied, like pull-down notifications.

Android's long history pre-dates the iPhone, so don't kid yourself that it is all stolen from Apple, as Steve Jobs famously thought. Android was a latter version of the OS used in the Danger Hiptop smartphones that Andy Rubin led before Google acquired the technology. Google worked on updating the DangerOS on their own, and yes, borrowed some ideas from Apple.

Just stop drinking the Kool Aid. Apple makes good products, but they're not the only ones. Everybody "rips off" the best ideas. That's how humanity advances. People will "rip off" Tesla's ideas, too. And if that makes the state of the art advance, all the better.

@L8MDL

Actually AAPL has had three 2:1 splits. So it's actual increase in valuation would amount to 8x its current value, or about $3500. Its peak valuation would be 8x $700, or $5600.

JZ, I hope you are correct! if so, my financial freedom will be a lot sooner than originally thought even at half that price!

If Tesla is going to get their car production into the millions , they will need a several billion dollars to build "design by Elon" car factories. Say at least 4 revolutionary factories at 2 billion. Their current NUMMI plant was basically given to them byToyota.

One solution would be a SEV (Super Electric Vehicle) version of each model to juice sales 10% and profits 20%. Here how it works. Elon says he can do a 500 mile EV now but it's expensive. So just build it and charge for it as a super electric and luxury EV. Super Electric meaning NO range anxiety, and it gets 2 to 20 times more miles than anything out there. Toyota is not coming out with a 500 mile EV till 2020 at the earliest. Elon could put out a 500 mile version of each model in 2015, five years ahead of Toyota.

So what if it cost $150k or even $200k ? It's a luxury item that no one else can offer. I guestimate that Tesla could sell 5000 of these SEV's of each model: MS, MX, MR, Ms GenIII, MxGenIII. That's 25,000 extra sales at higher profit margins, and the capacity of NUMMI is not even used up. Nor is any production scheduling slowed down. It's basically the same cars with super extra miles with some luxury features thrown in.

Everyone loves the fact Tesla makes totally different battery backs for the"Smart Car" and the electric Mercedes coming out. So this will just be one more new battery, weather the same form factor, or a new invention. This will always keep Tesla in the Milage lead by at least twice.

And the timing is just right. The car market is booming and luxury sales increasing. Bentley is coming out with a luxury SUV at 200k and is shooting for 5000 sales a year. See link.

http://www.topspeed.com/cars/100-000---200-000/ke3741.html

And like I said the plant capacity is not constrained it has a capacity of 500,000 cars a year. Figure:
Model S 40k cars. SEV Version. 5k
Model X. 60k cars. SEV Version. 5k
Model R. 40k cars. SEV Version. 5k
Gen3#1. 100k cars. SEV.Version. 5k
Gen3#2. 100k cars. SEV Version. 5k
TOTAL: 340k cars. TOTAL. 25k. cars with higher margins

25,000 extra car sales a year should fund all of Tesla's new factories and R&D going forward. This solves the problem of financing growth to a million cars a year production. And this in turn, allows for a stock price in the $1000 dollars a share or more, should this be achieved. All without diluting shares with new stock offerings, but it's there if needed.

Clearly you know more than me about this Derek, thanks for the education.

But from my naive vantage point you need to stop drinking the android and microsoft koolaid. The fact remains that the world never saw the likes of the iPhone before they invented it. Your argument is no different than saying "wheels and metal existed, therefore the Ford Model T just put together known technology".

What I'm talking about (and what Jobs was talking about) is REVOLUTIONARY advance (of the type we are witnessing with Tesla and we saw with iPhone), not INCREMENTAL advance (like a better widget or notification screen on the OS).

The general public is largely foolish and will happily support a foreign copycat company if they will save a few bucks and so if Hyundai changes the shape of Tesla's battery and re-markets it as the Hyundai Model G (for Gangham) most people will buy it to save a few thousand and undercut Tesla's lead and innovation investment.

iPhone definitely revolutionary , not evolutionary. As for copycats, I hope Tesla has their skateboard platform well patented. China is the number one car manufacturer in the world, and they want All Electric Vehicles real bad.

Mr. S - I was thinking more in the timeline of the original post, i.e., 7 years from now. Apple split 8 years ago (02/28/05)and from that point forward has not hit over $700. Now if we look at TLSA in 25 years, that would be another story.

@bostoncde - You raise a good point regarding the loan repayments. I did not see the payments separated out in the financial reports so I am assuming that figure is in the S,G&A costs I listed. Maybe I am too low on the R/D who knows. But they spent about $270m last year so I did accellerate the R/D in my model. Yes I know margins were very low in Q4 but there were extenuating supplier problems directly related to ramping up production massively in Q4. Q1 margins will be much higher than Q4 and I believe Elon when he says he will get them to 25% shortly.

@derek - I was speaking in general terms about the market. You are correct that a small minority saw the big potential. Just as I and some others of us are in the small minority that thinks Tesla is a game changer for the automotive industry. (and the oil industry for that matter. Auto mechanics too.)

@JZ13
And they have capacity to build 500k cars in their current facility.

I respectfully disagree. The current factory has the room to build a production facility able to produce 500k cars per year, but in no way has the capacity. Equipment, infrastructure, have you seen the multiple 50' tall presses they use today to build 1 body-style?

Increased body styles will require significant increases in capital expenditures in everything from fabrication equipment, high-tech robotic units, delivery infrastructure (trains?) to service centers and payroll.

I'm long on TSLA, but they're not done spending money.

Boy that sure would be nice if it did climb that high. That would mean my measly amount of shared would have paid for my car. :-)

The DoE loan is going to be repaid in half the 10-yr contract time.

@AnthonyH - Yes, I've been to the factory. It's quite impressive. On the tour they showed us all of the different molds (dye casts?) for the presses. They are interchangable so I don't think they would need new presses yet. Maybe for the Gen III car. The robots are all programmable as well so I would bet they could accommodate Model X production.

Also, it was reported that Musk offered Toyota $42m for Nummi because that was the budget to build their own Tesla factory at the time. $42m is not a lot of money. My model shows fat profits for S and X of approximately $350m - $400m per year. So a few years of that should easily fund the expansion of the factory.


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