I respect what Elon Musk has been able to accomplish with Tesla, but the astronomical price earnings ratio has been a turn off for me.
I decided to buy Tesla. My target price has been 685 when I calculated the forward PE fell to 60. Price fell to 664 (into the 640s Friday). I calculate as follows: Last quarter they reported 3.20/sh earnings. Times 4 gives 12.80. They are increasing production by 60% next year. I’m estimating a 30% increase in earnings. That gives 16.64 expected earnings. At 664, the estimated PE is 39.89. I see Tesla as a true growth company well worth a PE of 40. Supply chain and can he sell all the cars he can make are the risks. But so far looks promising.
Today the Tesla price seems to have bottomed. The Twitter deal could be a distraction. The sexual harassment charges are a concern. And Tesla got removed from an environmental list. But still Elon seems to be a winner.
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First five months of 2022.
Saul. -60%
Tesla -37%
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Yes, and Tesla bottomed on Monday, after an almost the previous Friday. And is up about 15% for the week.
I think a PE of 40 is sustainable. So if earnings are up 30% next year, share price should be too.
Getting to 9 mm EVs by 2030 at 50% market share will require 10 Tesla plants up 6 from the 4 they have now. That is quite a growth curve (if he can build all those cars and sell them).
Looks like a good opportunity to me. A true growth stock.
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I added on Friday.
With exponential growth the P/E compression is also exponential. 
Denny Schlesinger
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I think a PE of 40 is sustainable.
IMO, 40 is way too high…once they reach the scale of other automakers. But they are not at that scale yet and are growing fast while the “other guys” are not really growing and/or are stuck with most of their businesses in the combustion era. Once EVs are around 25% market share the switch over will accelerate, but the other guys will have to provide parts and service for another decade or more on their old cars while trying to build out EV capacity.
They will probably be as successful as Kodak digital cameras, the Blockbuster streaming service, or the steam ships trans oceanic transportation service etc. Maybe they’ll get lucky and be like the IBM PC business and last for a decade (lol).
Also remember once EVs become widespread, Tesla will bring in a lot from the Superchargers and maybe insurance.
Mike
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A typical S&P 500 company has a PE of 16. A peg ratio of 1 implies an earning growth rate of 16%. A 30% growth rate justifies a PE of 30. 40 is not unreasonable for a growth company.
The US makes 18MM vehicles per year in a good year. To be successful, EVs need to get to 50% share by about 2030. If Tesla gets 50% market share that implies 4.5mm Teslas for the US market.
At this time Tesla has two US plants with a capacity of about 400k cars per year. To reach 4.5mm Teslas he needs ten or more plants. Needs to open a new one each year. And he has similar growth needs in Europe and China.
That is quite an implied growth rate.
Can Tesla sell all those cars? Can they come up with the raw materials to make them? Those are the risks.
So far they have done pretty well reaching their goals. Investors are betting the Elon can make it happen.
At this time Tesla has two US plants with a capacity of about 400k cars per year. To reach 4.5mm Teslas he needs ten or more plants. Needs to open a new one each year. And he has similar growth needs in Europe and China.
That is quite an implied growth rate.
Initially I also though that Tesla plants were limited to 500K cars per year. which had me wondering where Tesla was going to build them. Lousy economic policies in India. War in Russia. Indonesia, not really. Vietnam? Then Tesla’s thinking revealed itself. They are increasing the capacity at existing plants. In Texas they have huge extra land. They are looking to buy more land in Brandenburg. They have plans a new factory in Shanghai. The huge Texas factory building is mostly empty. And the new plants, the “Machines that Build the Machines” are highly efficient. While Henry Ford optimized production with the assembly line (his Machines that Build the Machines), it has a huge drawback, it is linear. Stop it anywhere and the whole line stops. Tesla’s model is cellular, stop any cell and it does not affect the others. The robots that move the bits and pieces around just get rerouted.
The above has huge implications. In the assembly line model it is costly to make changes which is probably the reason behind the slow adoption of changes and improvements. With the cellular model you can try out ideas in any cell without affecting the production rate. If the idea works you adopt it, if not, try something else. This is the foundation of the Agile manufacturing process that makes it so hard to catch up with Tesla.
This video gives a good idea (there is a typo in the title, not 4D but 3D)
Tesla’s SECRET weapon is DSM & 4D hexagon Cube’s !!!
https://www.youtube.com/watch?v=HI2wRdx_N4I
The Agile - 3D hexagon Cube bit starts around minute 8.
Denny Schlesinger
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Elon’s explanation at minute 11:20.
Denny Schlesinger
More about factory efficiency, courtesy rainphakir, X-post at METaR:
Tesla rolls its own wiring harness?
https://discussion.fool.com/tesla-rolls-its-own-wiring-harness-3…
Denny Schlesinger
Most industries learn theres an optimum size for a plant. Yes multiple plants on a site save overhead costs by sharing services like security, maintenance, etc.
But you can be talking about huge parking lots. Lots with traffic lights. Lots with bus service to your car. Ditto storage and loading vehicles, etc. Raw materials.
Plus extra sites gives you diversification. Access to a larger labor pool. Better resistance to events like hurricanes, strikes, epidemics, etc.
Plus multiple plants saves shipping costs and speeds delivery.
If you were Tesla where would you put your next plants? Ontario, then Virginia or the Carolinas, then Illinois, then Mexico.