Tesla Motors Book Value and Market Value Analysis

By: Hardy Tsumbu, Reuben John, and Darby Debreus

History

Based in Palto Alto, CA., Tesla Motors was founded in 2003 by a group of engineers in Silicon Valley who wanted to prove that electric cars could be better than gasoline-powered cars. Their products would be cars without compromise and each new generation of cars would be increasingly affordable, helping the company work towards its mission which at the time was: to accelerate the world’s transition to sustainable transport. In 2016, they complete their acquisition of SolarCity and are now involved in energy with a new mission statement: to accelerate the world’s transition to sustainable energy.

Products

They design and sell high-performance, highly efficient electric sports cars which combine style, acceleration, and handling with advanced technologies that make them among the quickest and the most energy efficient cars on the road, and which are changing the future of transportation. They also design batteries integrated with solar to harness the abundant power of the sun and reduce reliance on fossil fuels.

There main car products are:

The model S, unveiled in 2009
The model X, unveiled in 2011
The model 3, Production will begin mid 2017

There main battery products are:

The Powerwall Tesla
The Powerpack Tesla
The Solar Roof
Competitors Analysis
By company. (Tesla Motors, 2014)
By product types. (Tesla Motors, 2014)
Valuation Measures
Tesla Motors, Inc. (TSLA) NasdaqGS - NasdaqGS Real Time Price. Currency in USD. (Yahoo Finance, 11/28/2016)
Source: Yahoo Finance. (2015)
Profitability
Source: Yahoo Finance. (2015)
Management Effectiveness
Source: Yahoo Finance. 2015
Financial Statements
Income Statement Dec. 31, 2015. (Yahoo Finance)
Balance Sheet Dec. 31, 2015. (Yahoo Finance)
Cash Flow Statement. (Yahoo Finance)
How company executives create the most value for all stakeholders.
  1. Despite a slowdown in growth and margin erosion in the company’s maturing core business, management continues to focus on developing it at the expense of launching new growth businesses. Value-creating growth.
  2. They carry only assets that maximize value.
  3. They make acquisitions that maximize expected value, even at the expense of lowering near-term earnings, like recently, the SolarCity's acquisitation.
  4. They provide investors with value-relevant information.
Comparison of the book value and the market value

The company has reported losses for almost every year except for last quarter when they made a profit of 21.88 Million (.71 EPS). This beat analyst who predicted a loss of .54 EPS.

Even though with reported losses, the company has a price to book ratio of 10.99. This shows that investors are willing to pay more for the stock than the book value. It also shows that investors are betting on the company’s future.

To understand how much value investors are assigning to growth we need to look at this equation:

P0 = EPS/r +PVGO

*PVGO: present value of growth oppotunity

Or

PVGO = P0 - EPS/r

The current return on earning for S&P 500 is 5.2 and Telsa’s EPS is -6.32

therefore ,

PVGO = 196.97 - (-6.32/5.2) = 198.19

This is the value investors are putting on the growth of the company.

Market Watch attest to this because the mean sentiment from analyst is to hold the stock. This means that they are hoping to sell at a later time when the stock price will grow.

Tesla is a growth stock therefore investors are willing to take a risk now to get a big pay off later.

Several reasons Tesla stock is a growth stock:

Adam Jonas, lead auto analyst of Morgan Stanley states: “We continue to believe the ultimate outcome of Tesla's fundamental direction and share price performance will be dominated by its core automobile and transportation business. At a high level, we view Tesla’s share price as influenced by 3 main factors: (1) The quality and appeal of its cars, (2) the pace of cash consumption, and (3) the company’s ability to access capital markets to fund ambitious investment and growth objectives. We see the current business of selling high performance electric cars as largely a funding strategy. The bigger mission remains developing a sustainable transportation ecosystem.” (Business insider, 2016)

  1. The appeal and critical acclaim of their current Model S.
  2. The large order for their mass market Model 3.
  3. The fast changing infrastructure.
  4. R&D in autonomous driving. (Their cars are already semi-autonomous).
  5. The building of the massive Giga-factor.
  6. Battery technology and production
Areas of concern:

1)The recent merger with Solarcity and Telsa’s movement to energy production and storage.

Morgan Stanley cuts Tesla stock price target. Jonas states: "Given SCTY's financial condition and recent reduction in guidance, we have assumed zero value for SCTY equity to TSLA shareholders of $0. This dilution to equity with zero value compensation removed $20 from our price target, resulting in a net negative adjustment to our Tesla price target of $3, or a 1% cut from our prior target. Our price target also assumes $0 value from Tesla Energy (stationary storage)." (Business Insider, 2016)

2) The success of Model 3 and possible delay in production

Biblical Integration
  • Perseverance

"Rejoice in the Lord always; again I will say, Rejoice. Let your reasonableness be known to everyone. The Lord is at hand; do not be anxious about anything, but in everything by prayer and supplication with thanksgiving let your requests be made known to God. And the peace of God, which surpasses all understanding, will guard your hearts and your minds in Christ Jesus." (Philippians 4:4-7)

  • Concept of Investment for future gains

24 Then Jesus told his disciples, “If anyone would come after me, let him deny himself and take up his cross and follow me. 25 For whoever would save his life[g] will lose it, but whoever loses his life for my sake will find it. 26 For what will it profit a man if he gains the whole world and forfeits his soul? Or what shall a man give in return for his soul?" (Matthew 16: 24-26)

References
  • http://www.slideshare.net/joseangeldf/darden-school-of-business-tesla-strategic-analysis
  • https://www.tesla.com/
  • http://www.visualcapitalist.com/41-interesting-facts-about-tesla-motors/
  • http://www.forbes.com/sites/quora/2013/01/18/what-are-some-mind-blowing-facts-about-tesla-motors/#9466f8658974
  • http://financials.morningstar.com/valuation/price-ratio.html?t=TSLA&region=usa&culture=en-US
  • http://www.marketwatch.com/investing/stock/TSLA/analystestimates
  • https://hbr.org/2006/09/ten-ways-to-create-shareholder-value
  • https://finance.yahoo.com/quote/TSLA/financials?p=TSLA
  • http://www.businessinsider.com/morgan-stanley-cuts-price-target-tesla-2016-11

Thank you!

Credits:

Created with images by Wesley Fryer - "Tesla Motors - Portland Oregon"

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