As part of a new series, each week we typically conduct a DCF on one of the companies in our screens. This week we thought we’d take a look at one of the stocks that are not currently in our screens, Tesla Inc (TSLA).
Profile
Founded in 2003 and based in Palo Alto, California, Tesla is a vertically integrated sustainable energy company that also aims to transition the world to electric mobility by making electric vehicles. The company sells solar panels and solar roofs for energy generation plus batteries for stationary storage for residential and commercial properties including utilities. Tesla has multiple vehicles in its fleet, which include luxury and midsize sedans and crossover SUVs. The company also plans to begin selling more affordable sedans and small SUVs, a light truck, a semi truck, and a sports car. Global deliveries in 2022 were a little over 1.3 million vehicles.
Recent Performance
Over the past twelve months the share price is down 4.08%.
Inputs
- Discount Rate: 12%
- Terminal Growth Rate: 2%
- WACC: 12%
Forecasted Free Cash Flows (FCFs)
| Year | FCF (billions) | PV(billions) |
| 2024 | 6 | 5.36 |
| 2025 | 8.5 | 6.78 |
| 2026 | 12 | 8.54 |
| 2027 | 17 | 10.80 |
| 2028 | 24 | 13.62 |
Terminal Value
Terminal Value = FCF * (1 + g) / (r – g) = 244.80 billion
Present Value of Terminal Value
PV of Terminal Value = Terminal Value / (1 + WACC)^5 = 138.91 billion
Present Value of Free Cash Flows
Present Value of FCFs = ∑ (FCF / (1 + r)^n) = 45.10 billion
Enterprise Value
Enterprise Value = Present Value of FCFs + Present Value of Terminal Value = 184.00 billion
Net Debt
Net Debt = Total Debt – Total Cash =-20.13 billion
Equity Value
Equity Value = Enterprise Value – Net Debt = 204.13 billion
Per-Share DCF Value
Per-Share DCF Value = Enterprise Value / Number of Shares Outstanding = $64.37
Conclusion
| DCF Value | Current Price | Margin of Safety |
|---|---|---|
| $64.37 | $218.52 | -239.45% |
Based on the DCF valuation, the stock is currently overvalued. The DCF value of $64.37 per share is significantly lower than the current market price of $218.52. The Margin of Safety is -239.45%.
It is important to note that this valuation is based on a number of assumptions, and these assumptions could change in the future. This valuation is meant to be a back-of-the-envelope analyse that could be used as a starting point in a much more thorough valuation process. As a result, it is important to do your own research before making any investment decision.
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One Comment on “Tesla Inc (TSLA) DCF Valuation: Is The Stock Undervalued?”
Looks accurate to me.