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Why I think Tesla stock will be more than $1,000 in 2020

Why I think Tesla stock will be more than $1,000 in 2020

If you have researched this subject you have found articles written by analysts who believe Tesla will appreciate nicely in the next few years. But I took a step back and wondered about the bigger picture. Tesla wants to have a full lineup of cars such as trucks, smaller cars, roadsters, etc. So I did a projection out to 2020 and estimated fairly conservative sales numbers for each model. I estimated various costs based off of their latest 10k filing. Then I calculated expected earnings and divided by the # of outstanding shares to arrive at an eps. I applied a p/e of 40 as this is a growth stock and I expect it still will be in 2020. The final result was a stock price right under $1,000. Below is my math. Keep in mind that the Model S is the number 1 selling Luxury sedan in the U.S. and this has happened with no advertising or marketing. In 8 years there will be a LOT more awareness and confidence in Tesla.

Introduction Model Class Annual sales Avg Price Margin Profit

2012 Model S Luxury Sedan 30,000 $80,000 25% $600,000,000
2014 Model X Crossover SUV 20,000 $85,000 25% $425,000,000
2016 Model M Mid-size Sedan 100,000 $40,000 20% $800,000,000
2018 Model T Pick-up Truck 100,000 $40,000 20% $800,000,000
2020 Model R Roadster 50,000 $50,000 25% $625,000,000
2020 Model E Economy 200,000 $25,000 20% $1,000,000,000

Total profit - $4.25B. R&D costs of $400m. S,G&A costs of $350m. 26% tax rate makes net earnings of $2.59B.
Divided into 114.5m shares gives EPS of $22.62 and P/E of 40 gives us a $905 stock price.

Tesla earned $50,000,000 last year selling ZEV credits. I have not forecasted any revenue for that because I do not have any info to help me understand how much they make off of each car nor do I know if they will still be able to sell those in 2020.

Also, I have not estimated revenue for selling their batteries and motors to other manufacturers. They are on a path to delivering LOTS of these to fleet delivery vans and possibly taxi cabs in the future but I cannot forecast that. Also licensing their patented batteries to other manufacturers could be huge. This piece of business alone could be a huge multiplier on their earnings. So that puts us over $1,000.

Now, call me crazy but I think Tesla will sell more than what I have forecasted. If they already out-sell BMW and MB w/ their 1st car what if we assume they could at least match those guys w/ their Gen III car? BMW sells 350,000 3 series worldwide each year. And what if they can match Prius sales with an economical model? Another 360,000 sales per year. So I had some fun and re-ran the model with the following sales numbers in 2020: S - 100,000, X - 100,000, M - 400,000, T - 200,000, R - 100,000, E - 400,000. I lowered the P/E to 30 to account for all of the growth they have already achieved in this scenario. Stock price - $2,205!!! With no revenue from selling drivetrains to other makers.

I actually think they will outsell BMW and MB in the future so I'm hoping for even more earnings. Afterall, they are outselling them already just out of the gate.

Now this only works under a few assumptions:

1) That Tesla will continue to improve range/price on batteries every 5 years or so as Elon has hinted at.
2) That there isn't a major setback in battery safety forcing a recall/redesign which would yield bad publicity and hurt sales.
3) That the other carmakers will not be able to emulate the same battery performance w/o licensing it from Tesla.

So go buy the stock and thank me later :))))

KOL2000 | 30 April 2013

I hope you are right. But does anyone know how Tesla can avoid android-like thievery? You say they have to license the technology but can't they just make a tiny modification and rip it off Samsung-style?

carlk | 30 April 2013

Market cap more than Mercedes and BMW combined? I believe Tesla will do great but I don't think that will happen.

JZ13 | 30 April 2013

carlk - BMW has a p/e of 9 because there are few growth opportunities. Tesla should have a very high p/e for years to come. At least until they have built out a full lineup of cars.

TikiMan | 30 April 2013

One can only hope it does, however, thus far they are showing the auto industry as a whole, it's time to start thinking different, because if they don't... 'To Big To Fail' is history!

Brian H | 1 May 2013

JZ;
Tesla outsells them in the large luxury sedan class, but they are involved in many classes. TM's overall sales are still a fraction of theirs.

noel.smyth | 1 May 2013

Thats about 500k cars sold and a market cap greater than toyota who sold over 7MM cars in 2012 and they have a p/e of 18. If Tesla can show that 25% margin then maybe the valuation can be up there, thats a big IF. At some point they will have to reduce price at the expense of margin. of course that will drive even more sales. my point is that they can maybe hit the 25% margin on the S and X but in the lower priced, higher volume cars I would expect the GM to be much smaller by design. Maybe use 10% for the higher volume models and rerun the scenarion.. the good news is that there should be significant growth left in 2020 in the above sales senario. good job and thanks for sharing... I am hoping you are right !

Benz | 1 May 2013

That is a very high number ($1,000).

It will go that high, but it will take a few more years to get to that point. How about 2025?

ghillair | 1 May 2013

JZ

I like your numbers, I too look forward to TSLA doing very well. However, I think there are a couple of adjustments that I would make. First 25% is a target for a gross profit margin, If they can achieve that it produces a bottom line NET profit of only 10 to 12%. Second a P/E of 40 for TSLA is valid but as their market cap exceeds 50Bil 40 is no longer justifiable, 20 to 25 maybe.

Finally you assume no increase in the number of shares outstanding. It will take a great deal of capital to expand to the numbers you forecast and that means either another stock offering or loans, the interest on which reduces profits.

I still am long TSLA and very positive I just thing your numbers are high unless sales excite your projections. Higher Model M and E are a real possibility.

Brian H | 1 May 2013

Elon's targets, on which a bonus depends, are to hit 30K per year and 30% gross margin.

JZ13 | 1 May 2013

@BrianH - I'm not saying Tesla will outsell the total sales of the German's in 7 years, I'm only suggesting they can at least match them for each class of car.

Also, you raise an important point re: Elon's incentive plans. Another is that he delivers a Gen III car.

JZ13 | 1 May 2013

@noel - thanks for your input. I did lower the margin's to 20% for the higher volume models. Elon has stated several times that he expects a 25% margin. In fact, he's delaying the X so that he can they can focus on getting the S margins to 25% shortly. Also, to Brian H's point - Elon gets stock options if he achieves 30% margins. I'd rather bet for than against Elon.

JZ13 | 1 May 2013

@ghillair - P/E of 40 for large market cap is very possible. Dow chemical has a market cap of 39B and a P/E of 48. AMAT has a P/E of 488 w/ a 17B market cap.

Basically, I see TSLA as the next AAPL. I think it will break through the normal stats because of it's growth prospects. No one envisioned AAPL changing the entire cell phone business. No one foresaw AAPL change the demand for laptops and desktops with the tablet. I think that's where we are with electric cars and specifically TSLA. The street doesn't see that they are about to change the car industry.

mrspaghetti | 1 May 2013

Thanks for putting some numbers out there. I was wondering to myself if in 10 years or so I'd be asking my son, "Do you remember when you were a kid and people used to drive those gas cars around? Remember, Daddy used to have one of those?" Kinda like I remember having to get up, walk over to the TV and change the channel by turning the knob (CLICK-CLICK-CLICK).

As more and more people get exposed to how cars ought to be, they will pile into Teslas. And I think TM will continue to be a leader in this area for a long time to come, given the infamous lack of agility and vision of BIG INDUSTRY (and BIG AUTO in particular).

So I think it is completely plausible that a significant investment in TSLA now will make one rich in 10 years or so. Not just a "nice return", but RICH.

JZ13 | 1 May 2013

@ghillair - forgot to comment on the need for more capital. You raise a valid point. Many growing companies require more $ to build their business. I didn't include a new issuance because in my model because Tesla likely will be able to fund it's own growth. They are currently cash-flow positive and profitable. That in an environment where they are only delivering 20k cars/year and they are still improving their margins to the 25% target. And they have capacity to build 500k cars in their current facility.

bostoncde | 1 May 2013

I think there are more costs that you are not including. R&D would make up a much larger number if you expect to roll out all these different models. Plus where is the govt loan payback which I believe is $15M per quarter. Then the gross margin which is a goal will be harder to reach as they try and scale. 4th Qtr 2012 margins were 8%, long way from 25%.

derek | 1 May 2013

@JZ13 You said "No one envisioned AAPL changing the entire cell phone business."

I beg to differ. This analyst wrote an article the day before the first iPhone launched which predicted most of the outcomes:

http://www.techdirt.com/feature.php?sid=200706293

L8MDL | 1 May 2013

You're neglecting direct competition as the electric car industry matures which will cause Tesla market share to decrease. As for TSLA being the next AAPL - even AAPL never hit $1000.

derek | 1 May 2013

@KOL2000 Please! Stop with the overworked Apple fanboy rhetoric about how Samsung stole all Apple's ideas.

"rip it off Samsung-style?"

Every industry uses ideas and best practices first offered by others. This is how humanity advances. If we each had to solve the quest for fire by ourselves, we'd still be living in caves. No surprise, then that Samsung and Android have borrowed some good ideas from Apple.

But Apple have done a heckuva job of borrowing ideas from others, too. Especially for the iPhone. Not one bit of technology in the iPhone was something I hadn't seen earlier in some other company's products. What Apple DID do was assemble the technology into a delightful whole product with a great user interface. That is innovation.

And Samsung / Android, for their part, have come up with innovations, too. Like live widgets on the home screens instead of Apple's dead icons. Some innovations Apple copied, like pull-down notifications.

Android's long history pre-dates the iPhone, so don't kid yourself that it is all stolen from Apple, as Steve Jobs famously thought. Android was a latter version of the OS used in the Danger Hiptop smartphones that Andy Rubin led before Google acquired the technology. Google worked on updating the DangerOS on their own, and yes, borrowed some ideas from Apple.

Just stop drinking the Kool Aid. Apple makes good products, but they're not the only ones. Everybody "rips off" the best ideas. That's how humanity advances. People will "rip off" Tesla's ideas, too. And if that makes the state of the art advance, all the better.

mrspaghetti | 1 May 2013

@L8MDL

Actually AAPL has had three 2:1 splits. So it's actual increase in valuation would amount to 8x its current value, or about $3500. Its peak valuation would be 8x $700, or $5600.

noel.smyth | 1 May 2013

JZ, I hope you are correct! if so, my financial freedom will be a lot sooner than originally thought even at half that price!

Tesluthian | 1 May 2013

If Tesla is going to get their car production into the millions , they will need a several billion dollars to build "design by Elon" car factories. Say at least 4 revolutionary factories at 2 billion. Their current NUMMI plant was basically given to them byToyota.

One solution would be a SEV (Super Electric Vehicle) version of each model to juice sales 10% and profits 20%. Here how it works. Elon says he can do a 500 mile EV now but it's expensive. So just build it and charge for it as a super electric and luxury EV. Super Electric meaning NO range anxiety, and it gets 2 to 20 times more miles than anything out there. Toyota is not coming out with a 500 mile EV till 2020 at the earliest. Elon could put out a 500 mile version of each model in 2015, five years ahead of Toyota.

So what if it cost $150k or even $200k ? It's a luxury item that no one else can offer. I guestimate that Tesla could sell 5000 of these SEV's of each model: MS, MX, MR, Ms GenIII, MxGenIII. That's 25,000 extra sales at higher profit margins, and the capacity of NUMMI is not even used up. Nor is any production scheduling slowed down. It's basically the same cars with super extra miles with some luxury features thrown in.

Everyone loves the fact Tesla makes totally different battery backs for the"Smart Car" and the electric Mercedes coming out. So this will just be one more new battery, weather the same form factor, or a new invention. This will always keep Tesla in the Milage lead by at least twice.

And the timing is just right. The car market is booming and luxury sales increasing. Bentley is coming out with a luxury SUV at 200k and is shooting for 5000 sales a year. See link.

http://www.topspeed.com/cars/100-000---200-000/ke3741.html

And like I said the plant capacity is not constrained it has a capacity of 500,000 cars a year. Figure:
Model S 40k cars. SEV Version. 5k
Model X. 60k cars. SEV Version. 5k
Model R. 40k cars. SEV Version. 5k
Gen3#1. 100k cars. SEV.Version. 5k
Gen3#2. 100k cars. SEV Version. 5k
TOTAL: 340k cars. TOTAL. 25k. cars with higher margins

25,000 extra car sales a year should fund all of Tesla's new factories and R&D going forward. This solves the problem of financing growth to a million cars a year production. And this in turn, allows for a stock price in the $1000 dollars a share or more, should this be achieved. All without diluting shares with new stock offerings, but it's there if needed.

KOL2000 | 1 May 2013

Clearly you know more than me about this Derek, thanks for the education.

But from my naive vantage point you need to stop drinking the android and microsoft koolaid. The fact remains that the world never saw the likes of the iPhone before they invented it. Your argument is no different than saying "wheels and metal existed, therefore the Ford Model T just put together known technology".

What I'm talking about (and what Jobs was talking about) is REVOLUTIONARY advance (of the type we are witnessing with Tesla and we saw with iPhone), not INCREMENTAL advance (like a better widget or notification screen on the OS).

The general public is largely foolish and will happily support a foreign copycat company if they will save a few bucks and so if Hyundai changes the shape of Tesla's battery and re-markets it as the Hyundai Model G (for Gangham) most people will buy it to save a few thousand and undercut Tesla's lead and innovation investment.

Tesluthian | 1 May 2013

iPhone definitely revolutionary , not evolutionary. As for copycats, I hope Tesla has their skateboard platform well patented. China is the number one car manufacturer in the world, and they want All Electric Vehicles real bad.

L8MDL | 1 May 2013

Mr. S - I was thinking more in the timeline of the original post, i.e., 7 years from now. Apple split 8 years ago (02/28/05)and from that point forward has not hit over $700. Now if we look at TLSA in 25 years, that would be another story.

JZ13 | 1 May 2013

@bostoncde - You raise a good point regarding the loan repayments. I did not see the payments separated out in the financial reports so I am assuming that figure is in the S,G&A costs I listed. Maybe I am too low on the R/D who knows. But they spent about $270m last year so I did accellerate the R/D in my model. Yes I know margins were very low in Q4 but there were extenuating supplier problems directly related to ramping up production massively in Q4. Q1 margins will be much higher than Q4 and I believe Elon when he says he will get them to 25% shortly.

JZ13 | 1 May 2013

@derek - I was speaking in general terms about the market. You are correct that a small minority saw the big potential. Just as I and some others of us are in the small minority that thinks Tesla is a game changer for the automotive industry. (and the oil industry for that matter. Auto mechanics too.)

Anthony H | 1 May 2013

@JZ13
And they have capacity to build 500k cars in their current facility.

I respectfully disagree. The current factory has the room to build a production facility able to produce 500k cars per year, but in no way has the capacity. Equipment, infrastructure, have you seen the multiple 50' tall presses they use today to build 1 body-style?

Increased body styles will require significant increases in capital expenditures in everything from fabrication equipment, high-tech robotic units, delivery infrastructure (trains?) to service centers and payroll.

I'm long on TSLA, but they're not done spending money.

GeekEV | 1 May 2013

Boy that sure would be nice if it did climb that high. That would mean my measly amount of shared would have paid for my car. :-)

Brian H | 1 May 2013

The DoE loan is going to be repaid in half the 10-yr contract time.

JZ13 | 1 May 2013

@AnthonyH - Yes, I've been to the factory. It's quite impressive. On the tour they showed us all of the different molds (dye casts?) for the presses. They are interchangable so I don't think they would need new presses yet. Maybe for the Gen III car. The robots are all programmable as well so I would bet they could accommodate Model X production.

Also, it was reported that Musk offered Toyota $42m for Nummi because that was the budget to build their own Tesla factory at the time. $42m is not a lot of money. My model shows fat profits for S and X of approximately $350m - $400m per year. So a few years of that should easily fund the expansion of the factory.

Brian H | 1 May 2013

And Toyota bought about $50M worth of TM stock from them at the same time, so it washes; TM paid for the factory with treasury shares, not cash.

Tesluthian | 1 May 2013

I know a modest size community that recently built a new high school for 100 million dollars and it's way smaller than this NUMMI plant (see link) which is 5.3 million square feet, with 160 acres of open land next to it. Peak production was 420,000 vehicles.

http://www.google.com/search?q=NUMMI+plant+diagram&client=safari&hl=en&s...

Tesla only uses a fraction of the space. They did have to clean up the space they use. To get that portion running, Tesla used their 465 million dollar loan. Add to that what Toyota says the plant was really worth about another 575 million, see link.

http://www.law360.com/m/articles/212230/toyota-nummi-seek-574m-from-old-....

And I doubt the high school building contractor would of taken half of the 100 million in Tesla stock during what was then called a possible depression, let alone if you asked the contractor to buy the stock instead !
Which just goes to show what an incredible salesman & CEO Mr Musk truly is.

But that's a billion in cost to get 100,000 + cars a year. If Elon wants to max out the plant, he has to remodel the rest of the plant, which is a little old and a bit of a fixer upper. Figure another 1/2 billion dollars for that remodeling (or expansion if you prefer). Now your up to around 400,000 to cars plus capacity. And your still not up to a million cars per year production capacity yet. You need at least 1-2 more car plants to get there.

So figure at least 1 & 1/2 billion dollars to build one plant in today's dollars that can produce anywhere near 400k to 500k cars a year. Remember the NUMMI plant is over 25 yrs old, and a billion dollars went a lot farther back then.

So anyways I wonder if Toyota got a good price on the 50 million in stock they bought, initial inside investors usually do. Any info on that !

mrspaghetti | 2 May 2013

@Tesluthian

Was it a government or a private school? If the former, it's not a good comparison since governments tend to spend money unwisely in case you hadn't noticed. It's a natural consequence of spending other peoples money, which doesn't have to be paid back, and of which more can always be had for the taxing (from the typical politicians perspective).

As for Toyota's assessment of actual NUMMI plant value, they have a strong incentive to overstate that for tax purposes ("Oh, yeah Mr. IRS Auditor, we took a HUGE loss on that plant...")

Tesluthian | 2 May 2013

mrspaghetti,

The high school was public, I agree they overspent other peoples money. And good point about overstating the loss for tax purposes, I hadn't thought about that. But are you saying Elon can build a car plant for 100 million dollars that can produce 400,000 plus cars a year ? Don't you think that's a little unrealistic ? Just the land with some nice trees on it is probably worth 100 million.

So let me ask you this. If Tesla eventually wants to expand to another car plant. How much do think it would cost to build a car plant with equipment capable of building 400,000 plus cars a year ?

chicago.ev | 2 May 2013

I'm sorry to always be the one to piss in the punch bowl but please, projecting a mkt cap of $100bil for a $6bil mkt cap auto manufacturer in seven years? This is a very cyclical industry and right now Tesla is an innovative niche player in that industry. If our economy gets hit, this and every auto manufacturer will have a hard time of it. Competition? If there's a fat margin out there, ultimately Toyota will get into it and compress that margin.
Tesla is a good company, but let's see how sales develop after the reservation list has been filled. Hopefully the company will execute their plan well and stay ahead of the curve- but this is a tough business to be in.

RNB | 2 May 2013

LNKD has a larger market cap with a P/E of 1025 right now.

I did some forward projections of my own based upon 10-25% of worldwide car sales and p/e of only 15 and arrived at share price estimates between 3995 (low cost car 10% margin) and 41,190 (higher margin higher cost car).

Hey Koolaid!!!

chicago.ev | 2 May 2013

I think LNKD is a somewhat different industry, but wow let me buy some of this stock in a hurry.

mrspaghetti | 2 May 2013

@Tesluthian

are you saying Elon can build a car plant for 100 million dollars that can produce 400,000 plus cars a year ?

Not saying that at all.

How much do think it would cost to build a car plant with equipment capable of building 400,000 plus cars a year ?

I wouldn't want to hazard a guess at this point.

I hope my post didn't come across as poo-pooing your arguments - that was not the intent at all. You made some excellent points and I was just trying to contribute by pointing out some things you may not have thought of. This way we build on the original poster's calculations and we can come up collectively with a better WAG :)

Brian H | 2 May 2013

Better WAGs are pro-survival.

JZ13 | 7 May 2013

What am I looking for in the earnings announcment tomorrow?

Since Q1 is the first period of full production we will begin to see the normalizing of their costs. I am interested in the R/D and the S,G&A figures. The margin will certainly be higher than the 8% they realized in Q4 but below the 25% goal. I'm curious how much improvement they have made.

Guidance on reservation numbers seems to be the most debated subject. Let's hope all of the test drives in Europe this year have driven high demand there.

JZ13 | 3 July 2013

TSLA was at $54 when I first posted this thread. It's been a great ride and a LOT of new info has been shed on the subject. Today's article in seekingalpha comes to nearly the same conclusion I have. Stock north of $2k in 6-7 years.

http://seekingalpha.com/article/1532842-tesla-motors-full-analysis-2-0

My5bAby | 3 July 2013

I'm not sure if this has been mentioned because I just breezed through the posting but they are all about a car.

Tesla and Solar City together have implications that are far beyond the addition of Solar Panels & a Vehicle.

While I hate to echo what has been said so many times before, I will because I believe it is accurate.

Tesla will do something similar with the Car and Solar energy as Apple did for the Cell phone.

Tesla Growth and impact will be exponential.

I will give one minor example, consider 3rd world countries, they totally skipped land line phones because Cell phone require significantly less Infrastructure to build and maintain. Tesla's cars and supercharger stations provide the same advantages.

We are on the precipice of the next great Technological change for mankind, and luckily Elon Musk has the business acumen to have patented and licensed technology.

There is no other applicable precedent to try and understand or calculate the growth of Tesla and it's stock.

Bubba2000 | 3 July 2013

I came up with an estimate of share price getting close to $1,000 for different reasons:
1. With a P85 or even the S85 the battery pack cost to Tesla is around $25k. The rest is the car. Looking at the simple design of the car, including the electric motor, inverter, gearbox, electronics, AL construction, significant costs reductions can be achieved. Once their design is optimized to facilitate automated production, additional robotics, etc, the cost of the car should be no more than what a Honda Accord or Toyota Camry with ICE costs to produce. Yes, it uses Al, but that is only an extra $1,500-2,000 cost. The cost of electronics drops big time with Moore's Law. I would say the whole thing should not cost more than $30k with volume. The battery tech that Tesla uses is maturing and those costs should come down along with packaging bring the battery pack cost to $20k. Add it up and total cost of the car is $55k. Or $66.5k with a 25% gross margin. Lesser models cold be sold for < $55k and same margins. Do the same thing with Model X and demand will explode worldwide.
2. Tesla could offer hi end Model S, X with range of 500 miles costing may be $20k more. AWD with hi performance, etc.
3. Model S, X could be optimized by cutting weight (500-100 lbs) using stronger alloys of Al and steel at minimal incremental cost. Better handling, etc.
4. The supercharger network will be expanded to 200 SC and could go even higher to 500 SCs nationwide and Canada. If they do not have solar panels, except for a few places, it could be done for less than $100M. That will drive demand.

With ASP of $60k, Tesla could sell 500k autos/year worldwide. Revenue would be $30B. Gross margin would be $7.5B. Take out overhead, R&D, taxes and $4B is net profit. Gen III is still in the horizon. PE of $25-30 and we get the $1,000/s within sight.

The big issue is competition. Whenever there is tech revolution the old players get swept into the dustbin of history. Just look at the companies that dominated the steam engine locomotive, then diesel electric and now electric hi speed trains. Or in the cellphone>smartphone history. Tesla has a lot of unique technology some with patents. See any competing products?

Then there is the network effect of the superchargers which is proprietary.

AlMc | 3 July 2013

Bubba...Being a stockholder, I hope you are right. Personally I would be happy to see $300-400/share in 5-7 years.

jjaeger | 3 July 2013

nick at night - have not seen a post from you in months. Glad to see you're as articulate as ever. Carry on with your pablum my friend.

Brian H | 3 July 2013

chicago.ev | May 2, 2013
.
Tesla is a good company, but let's see how sales develop after the reservation list has been filled.

The delivery time is now basically manufacturing and delivery time, already. The reservation list exists in Europe, but not in the US. Sales apparently are exceeding TM plans and expectations, still with zero advertising.

Favguy | 20 August 2013

Just came across this thread whilst researching opinion on the future stock price of Tesla. On the 19th August the price closed at $142. News just in that the S is the safest car ever built in history will probably push it to over $150 today!

I think based on Tesla's flawless execution to date and its future plans, your $1000 by 2020 is not only quite possible, but maybe even conservative.

Happy days :)

Favguy | 20 August 2013

Sorry, correction to above post, Tesla closed at $144.91 0n 19th August.

David70 | 20 August 2013

And closed at $149.58 today.

JZ13 | 20 August 2013

Yes my $1,000 target is conservative. I added a second projection in the OP with higher sales numbers that I believe to be very attainable. In that scenario I project the price at $2,200!!! Go TSLA!!!!!

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