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 is not currently in our screens, Tesla Inc (TSLA).
Profile
Tesla, Inc. is a global leader in electric vehicles (EVs), energy storage, and solar energy solutions. It operates primarily in two segments: automotive (85% revenue, 78% operating profit) and energy generation & storage (15% revenue, 22% operating profit). The company has expanded its footprint across North America, Europe, and China, with manufacturing facilities in the U.S., China, and Germany. Tesla also generates revenue from software-based services, including Full Self-Driving (FSD) and vehicle connectivity. The company aims to increase its production scale through innovation in battery technology and manufacturing efficiency.
Recent Performance
Over the past twelve months, the share price is up 86.09%.
Source: Google Finance
Inputs
- Discount Rate: 9%
- Terminal Growth Rate: 3%
- WACC: 9%
Forecasted Free Cash Flows (FCFs) in billions
| Year | FCF ($B) | Present Value ($B) |
| 2025 | 8.5 | 7.8 |
| 2026 | 9.6 | 8.07 |
| 2027 | 11 | 8.46 |
| 2028 | 12.5 | 8.8 |
| 2029 | 14 | 9.03 |
Total Present Value of FCFs = 42.16 billion
Terminal Value Calculation
Using the perpetuity growth model:
Terminal Value = (FCF_2029 × (1 + g)) / (r – g)
= (14.0 × 1.03) / (0.09 – 0.03)
= 240.33 billion
Present Value of Terminal Value
PV of Terminal Value = Terminal Value / (1 + WACC)^5
= 240.33 / (1.09)^5
= 156.35 billion
Enterprise Value Calculation
Enterprise Value = Present Value of FCFs + Present Value of Terminal Value
= 42.16 + 156.35
= 198.51 billion
Net Debt Calculation
Net Debt = Total Debt – Total Cash
= 6.9 – 28.6
= -21.7 billion (Net Cash Position)
Equity Value Calculation
Equity Value = Enterprise Value + Net Cash
= 198.51 + 21.7
= 220.21 billion
Per-Share DCF Value
Shares Outstanding = 3.18 billion
Per-Share DCF Value = Equity Value / Shares Outstanding
= 220.21 / 3.18
= $69.27
Conclusion
| DCF Value | Current Price | Margin of Safety |
|---|---|---|
| $69.27 | $360.56 | -80.78% |
Based on the DCF valuation, Tesla appears overvalued. The estimated intrinsic value of $69.27 per share is far lower than the current market price of $360.56, resulting in a -80.78% Margin of Safety.
This suggests that Tesla is trading at a significant premium to its fundamental valuation based on our discounted cash flow analysis.
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