Thank you, Conor, for the great post. Regarding the part on Tesla, I totally agree with you but it looks like we are in another case in which markets can stay rationale for longer than we can stay liquid. This said, what is your perspective on the analysis now that 2 years have passed?
Using LTM to analyze high growth stocks such as Tesla is not the best approach? Look at TAM of EV's, Tesla's potential/estimated market share of the EV market on a forward looking basis and then forecasted volume/revenue growth. Implies a forward looking P/E that is high but more in line with other high potential growth stocks. Gary Black's analysis is exceptional.
Appreciate your point on use of LTM metrics, but my point with this exercise was to highlight the level of hope value priced into Tesla today. TAM-based estimates of value are full of pitfalls in my opinion and effectively assume that Tesla not only holds its current market share in EVs today but actually grows it at expense of other auto manufacturers who are actively developing EVs, such as Ford etc. The level of competition here is enough to cast doubt over future Tesla dominance of TAM in my view.
For example, as a further exercise consider the following:
Assume by 2030, Tesla is a mature EV-auto company, similar to where Ford, GM etc are today, and so the enterprise value/sales multiple on 2030 revenues should be about 1.3x (where Ford, GM, Toyota are currently).
Dividing the current Tesla EV by 1.3x implies 2030 revenues of ~$845bn
Assuming average Tesla car price of say $50k, this implies vehicle sales for Tesla of 16.9m EVs per annum by 2030.
Working back from here, the current ~$1.1trn EV implies Tesla will sell 16.9m vehicles, or 65% market share of EVs globally, despite intense competition ahead with all auto manufacturers having to shift to EVs anyway given policy backdrop.
Is a 65% market share for Tesla realistic, when Ford, Toyota, Volkswagon not too mention Chinese and Korean auto manufacturers also competing in the great EV transition ? I can't see how it is.
Even it we assume a more growth-y EV/S multiple in 2030 of 5x, this still implies 2030 revenue for Tesla of ~$220bn or 4.4m vehicles at $50k price point, or 17% global market share. This is slightly more than the combined share of Toyota and Volkswagon today. And each of these firms are developing their own e-vehicles, along with Hyunder, Ford etc.
So in order to ground my (admittedly high level) analysis in some facts rather than conjecture about future TAM and market share, I opted from LTM metrics to compare against other auto firms today, which showed 2 things: 1) even by growth multiple standards on LTM numbers, Tesla is off the charts, and 2) the growth/hope value implied beyond the LTM value seems implausible, which seems to be supported by this quick market share analysis above.
Thank you, Conor, for the great post. Regarding the part on Tesla, I totally agree with you but it looks like we are in another case in which markets can stay rationale for longer than we can stay liquid. This said, what is your perspective on the analysis now that 2 years have passed?
Great analysis. Some points of note:
Using LTM to analyze high growth stocks such as Tesla is not the best approach? Look at TAM of EV's, Tesla's potential/estimated market share of the EV market on a forward looking basis and then forecasted volume/revenue growth. Implies a forward looking P/E that is high but more in line with other high potential growth stocks. Gary Black's analysis is exceptional.
Thanks for reading and the feedback Colin.
Appreciate your point on use of LTM metrics, but my point with this exercise was to highlight the level of hope value priced into Tesla today. TAM-based estimates of value are full of pitfalls in my opinion and effectively assume that Tesla not only holds its current market share in EVs today but actually grows it at expense of other auto manufacturers who are actively developing EVs, such as Ford etc. The level of competition here is enough to cast doubt over future Tesla dominance of TAM in my view.
For example, as a further exercise consider the following:
Assume by 2030, Tesla is a mature EV-auto company, similar to where Ford, GM etc are today, and so the enterprise value/sales multiple on 2030 revenues should be about 1.3x (where Ford, GM, Toyota are currently).
Dividing the current Tesla EV by 1.3x implies 2030 revenues of ~$845bn
Assuming average Tesla car price of say $50k, this implies vehicle sales for Tesla of 16.9m EVs per annum by 2030.
Let's park how it can reach the production capacity to get there, and just consider the implied market share here - per the IEA (https://www.iea.org/reports/global-ev-outlook-2021/prospects-for-electric-vehicle-deployment), global EV sales by 2030 will be ~26m vehicles (includes China).
Working back from here, the current ~$1.1trn EV implies Tesla will sell 16.9m vehicles, or 65% market share of EVs globally, despite intense competition ahead with all auto manufacturers having to shift to EVs anyway given policy backdrop.
Is a 65% market share for Tesla realistic, when Ford, Toyota, Volkswagon not too mention Chinese and Korean auto manufacturers also competing in the great EV transition ? I can't see how it is.
Even it we assume a more growth-y EV/S multiple in 2030 of 5x, this still implies 2030 revenue for Tesla of ~$220bn or 4.4m vehicles at $50k price point, or 17% global market share. This is slightly more than the combined share of Toyota and Volkswagon today. And each of these firms are developing their own e-vehicles, along with Hyunder, Ford etc.
So in order to ground my (admittedly high level) analysis in some facts rather than conjecture about future TAM and market share, I opted from LTM metrics to compare against other auto firms today, which showed 2 things: 1) even by growth multiple standards on LTM numbers, Tesla is off the charts, and 2) the growth/hope value implied beyond the LTM value seems implausible, which seems to be supported by this quick market share analysis above.