How to value it? How quickly do you think they can double earnings twice? 5 to 7 years? At that point the TTM pe is 26,and they would need to still be dominant in electric cars.
Other things like solar roofs,etc.would likely be moving forward as well. I can certainly see both sides of this discussion,and I have owned and sold more than one enduring growth stock way too early. Not for me to judge.
**BOTTOM LINE UP FRONT:**
A middling simple model of Tesla growth averaged over the last 5 years puts the time to “double earnings twice” that JimKredux seeks at less than 2.5 years from now. Most of the speed getting to that number arises from the fact that Tesla’s marginal cost to sell another Tesla is much less than their average cost, that is, they have built a big factory and cranking 10% more cars out of it raises their costs much less than 10%. The rest of their current story provides a lot of support for the idea that they will keep growing for another 2.5 years at least.
**TOO LONG DIDN'T READ:**
Jim, your post prompted me to do something I should have done a long time ago. Take 45 minutes to gather time series for share count, revenue, and net income. I put them in a spreadsheet and found, averaged over last 5 full years that share count grew at 9.4%/yr, revenue grew at 50%/yr and “revenue minus net income” grew at 44%/yr.
Extending those growth rates forward, we get an EPS which is growing faster than revenue growth because the cost of gaining revenue does not grow as fast as the revenue grows. This indicates what one expects from most manufacturing enterprises: the marginal cost of building the last car is far less than the average cost of building cars, so profit rises quickly as cars sold rises.
In the case of Tesla and with these numbers, using the 5 yr growth numbers to project forward, we would expect EPS to double in slightly over 1 year even though revenue takes 20 months or so to double. We expect EPS to double twice in perhaps 2.3 years even as it takes revenue nearly 4 years to double twice.
Will Tesla stay on its 5 year trends? On the “probably yes” side we have
- While growing its output 50%/year and raising prices on cars, and while Tesla has run its factories building cars as fast as it possibly can, Tesla has sold every car it has built, and the wait list for new Tesla cars has grown in length faster than 50%/yr
- Tesla has waiting lists for its SEMI and CYBERTRUCK. It seems virtually certain that these are not sold yet because Tesla can’t imagine why it should stop building the models it can manufacture at scale in order to gear up its factories to build another model. But the evidence is there is no sign of weakening in demand for existing models, and no sign that Tesla won’t be selling as many cybertrucks and semis as it can for a while once it starts building them.
- I have, very responsibly I think :), not considered the impact on sales of robo-taxis, robo-taxi rides, solar panels, or other types of battery applications. But if there is a case for 4X earnings in a little over 2 years without explicitly considering these things, then you get any extra income from these for free, in a sense.
What is the bear case? Something like
- All of the sudden, sometime in the next 2 years the last person who wanted a Model S, X, 3, or Y will get there car and demand will dry up and blow away in the wind. I don’t see any evidence for this, or even any evidence that demand growth will slow anytime soon, but could happen I suppose.
- Putin will nuke something and then either we will nuke something or people will go to ground, buying nothing but bottled water, long guns, bitcoin, and armored SUVs that can travel 600 miles on a tankfull of bunker fuel. Well, yes, that could slow Tesla’s growth, but not clear it hits Tesla differently than it hits nearly every other stock out there.
- The unicorn finally appears: some car company makes an electric vehicle that people want more than any of Tesla’s models. This unicorn has been reported every year since 2013 of course, but just because nothing has ever come of it before doesn’t mean it won’t finally show up. But I do think it is gigantically more likely given Tesla’s growing output and waiting lists that the final appearance of the magical unicorn would mostly just increase EV market share and would not actually push Tesla backwards.
So indeed, Tesla is priced for future success, and its ability to pay off as an investment will require it to clear hurdles that are not the two-foot kind we prefer. But the “expected” time for TESLA to clear the hurdles you mention is more like 2.5 years than “5 to 7” years, at least figuring it based on what they have done in the last 5 years.