STOCK ANALYSIS REPORT S&P 100 Index

Stock Analysis Report

University of North Florida- FIN6515

Parvez Ahmed, Ph.D. Professor of Finance Department of Accounting and Finance Coggin College of Business

Stock belonging to the S&P 100
Company	TESLA
Stock Symbol	TSLA
Industry	Automotive - Domestic
Sector	AUTOMOBILE-Tires-Trucks
Action	Not to Buy (hold)
Return Potential	50%
Industry View	Positive to Neutral
Stock Share	$ 619.13 +14.44 (+2.39%)

Contents:

1. Opinion and summary:

a. Opinion – buy, hold, or sell

b. Reason for opinion – buy because

c. Target price - The price target is the price an analyst believes the stock will achieve during their investment time horizon.

i. Fundamental valuation – DCF, DDM

ii. Relative valuation – PE

d. Executive summary on the stock.

2. Macroeconomic and Industry Analysis:

a. Broad economic trends

b. Porter’s Five Forces – Supplier, Buyer, New Entrants, Substitutes, Rivalry.

3. Key highlights of the company:

a. Company profile – its manufacturing facilities, its products, its key markets, key customers etc.

b. Relevant news update.

c. Future strategy - get this information by either reading the financial reports

d. Financial ratio analysis – time series and cross sectional analysis.

4. Valuation analysis – DDM, DCF, PE

5. Risk factors – Market risk, Business cycles, political risk, credit risk, VAR, etc.

1. Opinion and summary:

a. TESLA Forecast –Hold:

I would recommend hold currently on TESLA Stock. Even though it is trading well below 50 day moving average. It should be on dark side of the line if it continues in future going forward.

b. Reason for opinion – Hold because

1. Tesla has good talented resource and has good technology forte which it innovates the electric car market and it has autonomous driving features where competitors cannot beat.

2. It has expanding it is marketing capabilities and enter into China, India, Australia and other middle east.

3. Since the current pandemic will be better and the countries start Offices, uplift all COVID restrictions, there will be more number of buyers to buy automobile which positively impact the tesla share globally.

4. China is big part of TESLA’s growth. Since recently TESLA sales goes down due to pandemic and stopped production reportedly the shanghai plant.

5. Even though TESLA Model 3 sales and exports in higher, overall sales down by 67% comparatively March sales.

6. TESLA enters into Bitcoin and crypto currency, investing new stocks and results are unknown.

7. Competitors are growing; the auto makers GM, FORD in USA and BMW, Benz, VW are growing in electric and Hybrid vehicles and started plants for mass produce.

8. Global Chip shortage and COVID 19 Pandemic: resulting overall sales down for automakers globally.

c. Target price

The current Price of the TESLA stock is 619.13. if we check the intrinsic value total current assets and market trends and ratios whether the TESLA share is undervalued and overestimated.

Intrinsic value of Tesla Inc.’s capital 383,153

Less: Debt and finance leases (fair value) 34,433

Intrinsic value of Tesla Inc.’s common stock 348,720

Intrinsic value of Tesla Inc.’s common stock (per share) $361.99

Current share price $625.22

Off course, we cannot conclude the is accurate as TESLA comes with new strategy to keep the Market share high and also there will be 33% high that each TESLA sells the price of the car.

d. Executive summary on the stock:

In 2003, Elon Musk worked with Martin Eberhard and Marc Tarpenning to found Tesla Motors. These three Silicon Valley engineers wanted to prove that electric vehicles could be awesome. The Tesla Motor Company located their headquarters in Palo Alto, California. They currently have over six thousand employees and Tesla cars are on the road in 37 countries. In April 2004, Billionaire PayPal founder Elon Musk invested in Tesla Motors and joined the Tesla board. He funded a large majority if the Series A capital investment round of by funding 7.5 million dollars with personal funds.

In 2007, Ze’ev Drori became CEO and president of Tesla. In 2010, Tesla motors launched its first IPO and raised 226 million for the company and were the top performer on the NASDAQ index in 2013. Tesla was approved to receive US 465 million in interest bearing loans from the US department of Energy; this then helped produce the Model S. In 2013 they repaid the loan and became the first car company to have repaid the US government. They look to sell 40,000 vehicles in 2014, adding China to its export plans. Tesla’s strategy of direct customer sales and owning its own stores and service centers is a significant departure from the standard dealership model currently dominating the U.S. vehicle marketplace. This trio of cars includes the Model S, the Model X, and the Roadster. While they all bring different components to the table, Musk managed to keep all of these vehicles under the same specifications. As the product architect and CEO of Tesla Motors, Musk implemented his plans to perfection including zero emission cars with the ability to go nearly three hundred miles per charge.

These vehicles have created luxury inside the cabin with panorama roofing and a 17-inch touch screen dashboard, noise cancellation, autonomous driving features and driver safety assistance features. Tesla is also one of the first auto online purchasing E commerce site.

2. Macroeconomic and Industry Analysis:

a. Broad economic trends

The supply and demand of the automotive industry as well as the profits derived from the sector are clearly impacting by then macroeconomic policies. The industry’s history demonstrates the trends it follows in the business cycle and how economic indicators have impacted the performance of the industry over the years. The measure of production, interest rates, real GDP, automotive sales and inflation and unemployment are some of the most compelling instruments that can be used to assess the state of the automotive industry.

Auto Production Business Cycle: The U.S automotive industry saw a steady expansion from its inception until 1978 in which where production reached its all-time peak. The automotive industry’s production rates have been cycling through different business phases throughout history. In 1999 the automotive industry finally recovered and reached its previous high. Now the automotive industry is again experiencing a recession. Traditionally, during times of expansion the inflation in the economy is stable, and firms invest more capital to meet increased demand. Expansions also contribute to a higher rate of employment. The final stages of expansion, at the peak “demand begins to outstrip the capacity of the economy to supply it. Labor and product shortages in the industry are evident in this stage. Contractions and recessions in a business are usually associated with a decrease in the economy’s real GDP. A recovery in a business cycle only occurs when GDP or business activity returns to its previous peak.

Interest rates: Interest rates are an important determinant of the performance of an industry. For consumers, interest rates represent the available funds they are willing to borrow to satisfy today’s needs. The following graph represents interest rates changes over the years alongside automotive production rates and real GDP. Production rates and real GDP decline as interest rates increase.

Real GDP: In the US the automotive industry can influence economic change up 45% down in 2020 due to COVID Pandemic. But it is up as much as 35% in 2021 but contributes about 4.7% of the economy’s GDP.

Auto Sales: Unemployment and inflation: The peaks and valleys of the GDP also trend in the industry with auto sales. After the peak in 1978 the cycle of sales have risen and fallen. The amount of sales foreseen will not reach the same level it once did because of the advances in technology, Covid pandamic and auto industry shifts and in transition faces from gas to electric which creating more long lasting durable vehicles.

b. Macro-economic factors:

Pricing Pressure: Excess capacity, coupled with a proliferation of new products being introduced in key segments by the industry, will keep pressure on manufacturers’ ability to increase prices on their products. In addition, the incremental new capacity in the United States by foreign manufacturers in recent years has contributed, and is likely to continue to contribute, to the severe pricing pressure in that market. In the United States, the reduction of real prices for similarly contented vehicles has become more pronounced since the late 1990s, and we expect that a challenging pricing environment will continue for some time to come. In Europe, the automotive industry also has experienced intense pricing pressure for several years for the same reasons discussed above, which has been exacerbated in recent years as a result of the Block Exemption Regulation discussed above in Item 1. “Business — Automotive Sector — Europe”.

Consumer Spending Trends. We expect, however, that a decline in, or the inability to increase, vehicle prices could be offset by the spending habits of consumers and their propensity to purchase over time higher-end, more expensive vehicles and/or vehicles with more features. Over the next decade, in the United States and in other mature markets, we expect that growth in spending on vehicle mix and content will grow at least as fast as real GDP per capita. The benefits of this to revenue growth in the automotive industry are significant. In the United States, for example, consumers in the highest income bracket are buying more often and are more frequently buying upscale.

Commodity Price Increases. Commodity price increases, particularly for steel and resins (which are used extensively in the automotive industry), have occurred recently and are continuing during a period of strong global demand for these materials. Manufacturers in China and other global steelmakers have responded through increases in capacity and production of steel. We expect this, coupled with an easing in global demand pressures, to result in pricing trends beginning to moderate in the intermediate term.

Currency Exchange Rate Volatility. The U.S. dollar depreciated against most major currencies in 2020. This created downward margin pressure on auto manufacturers that have U.S. dollar revenue with foreign currency cost. Because we produce vehicles in Europe (e.g., Jaguar, Land Rover and Volvo models) for sale in the United States and produce components in Europe (e.g., engines) for use in some of our North American vehicles, Ford experienced margin pressure, although this was partially offset by gains on foreign exchange derivatives. Ford, like most other automotive manufacturers with sales in the United States, is not always able to price for depreciation of the U.S. dollar due to the extremely competitive pricing environment in the United States.

b. Porter’s Five Forces – Supplier, Buyer, New Entrants, Substitutes, Rivalry.

The environment industry analysis of Tesla as per “Porter’s Five forces” can be summarized as below:-

Threat of new entrants - The new entrant’s threat to Tesla is moderate as it is a new segment which is evolving

Threat of substitute products and services: - It is low as it is technology driven segment and buyers look for expertise and functionality.

Bargaining power of Buyers: - The bargaining power of buyers is high as buyers look for specific things and customization as per their needs. Innovation and performance is an important factor for success in the industry.

Bargaining power of Suppliers: - The bargaining power of suppliers is moderate as they are building the facilities for a growing industry of future.

Rivalry between existing firms: - The rivalry between existing firms is increasing as environment friendly vehicle and alternate fuel vehicles are becoming popular and buyer prefer innovation in technology and products.

3. Key highlights of the company:

a. Company profile – its manufacturing facilities, its products, its key markets, key customers etc.

TESLA Inc. is an organization that works and operates globally. It is fundamentally managers Auto Manufacturing, energy storage, Green energy and etc. It also maintaining utilizes Information Systems, which facilitates it to receive positive administration practices and decision-making. The data frameworks continuously company enhances its activities through customer assistance and dealing with considerable volume of information. Tesla was founded in 2003 by a group of engineers who wanted to prove that people didn’t need to compromise to drive electric – that electric vehicles can be better, quicker and more fun to drive than gasoline cars. Today, Tesla builds not only all-electric vehicles but also infinitely scalable clean energy generation and storage products. Tesla believes the faster the world stops relying on fossil fuels and moves towards a zero-emission future, the better. TESLA Produces, MODEL X, MODEL Y, MODEL S, MODEL 3 and actively working on TESLA CYBER TRUCK, TESLA ROAD Start and the company is expanding and come with innovative ideas.

Tesla also manufactures a unique set of energy solutions, Powerwall, Power pack and Solar Roof, enabling homeowners, businesses, and utilities to manage renewable energy generation, storage, and consumption. Supporting Tesla’s automotive and energy products is Giga Factory – 1 a facility designed to significantly reduce battery cell costs. By bringing cell production in-house, Tesla manufactures batteries at the volumes required to meet production goals, while creating thousands of jobs. TESLA’s NASDAQ Symbol is TSLA. TESLA Growth rate started from 2017 with 43.80 USD and grown exponentially 880 USD and settled at 625 USD today with Market Cap 602.29 B.

b. Relevant news update.

Model Y Achieves 5 start rating, After Model S in 2012, engineered every Tesla advanced architecture which won the NHTSA safety rating – 5 and thus a new Utility MODEL Y SUV has won the same 5 star rating.

The Lowest Price from home Solar: Tesla is producing the lowest-ever cost to go solar in the United States. It is now one third of less expensive industry average solar system from other competitors.

MODEL-2 Long Range Plus: Building the First electric 400 Mile long range electric vehicle is on schedule.

Model – X Earns a 5 Star Safety Rating from Euro NCAP: Model X history first ever SUV got 5 star rating from EURP NCAP which elevates safety assistance features and it protects adults, children and vulnerable road users.

Introduce TESLA Insurance: introduced a new insurance offering 20% lower than its competitors.

Tesla OS Version 10.0: Introduced newly upgraded software 10.0 fully autonomous features.

c. Future strategy – Investment Summary

· Tesla's main goal is to accelerate the world transition into sustainable green energy.

· Tesla is planning to address the entire segment in the automobile industry and planning to come up with new models in its automobile segment.

· Tesla is planning to increase its battery Gig factories in different four locations. Which help them to cover the global market including the Europe.

· Tesla is aiming to develop a self-driving car, which is 10X safer for its customer.

· The future strategy of TESLA is to reduce the charging time of its vehicle. So, that its customer can save their time.

· The future strategy of Tesla is to make a car. which is cheaper or less costly than the Model S.

· Tesla is working on more efficient cars and improves self-driven cars.

d. Financial Statement and Ratio analysis – time series and cross sectional analysis.

Consolidated Balance Sheet:
Assets
US$ in millions
	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016
Cash and cash equivalents	19,384	6,268	3,686	3,368	3,393
Accounts receivable, net	1,886	1,324	949	515	499
Inventory	4,101	3,552	3,113	2,264	2,067
Prepaid expenses and other current assets	1,346	959	558	424	300
Current assets	26,717	12,103	8,306	6,571	6,260
Operating lease vehicles, net	3,091	2,447	2,090	4,117	3,134
Solar energy systems, net	5,979	6,138	6,271	6,347	5,920
Property, plant and equipment, net	12,747	10,396	11,330	10,028	5,983
Operating lease right-of-use assets	1,558	1,218	—	—	—
Intangible assets, net	313	339	282	362	376
Goodwill	207	198	68	60	—
Other assets	1,536	1,470	1,391	1,171	991
Non-current assets	25,431	22,206	21,433	22,085	16,404
Total assets	52,148	34,309	29,740	28,655	22,664

Liabilities and Stockholders’ Equity
US$ in millions
	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016
Accounts payable	6,051	3,771	3,404	2,390	1,860
Accrued purchases	901	638	394	753	585
Taxes payable	777	611	349	186	153
Payroll and related costs	654	466	449	378	219
Accrued warranty reserve, current portion	479	344	201	126	117
Sales return reserve, current portion	417	272	108	—	—
Operating lease liabilities, current portion	286	228	—	—	—
Accrued interest	77	86	78	76	—
Resale value guarantees, current portion	23	317	503	787	180
Build-to-suit lease liability, current portion	—	—	82	15	—
Other current liabilities	241	260	434	198	137
Accrued liabilities and other	3,855	3,222	2,597	2,519	1,390
Deferred revenue	1,458	1,163	630	1,015	763
Customer deposits	752	726	793	854	664
Current portion of debt and finance leases	2,132	1,785	2,568	797	984
Current portion of solar bonds and promissory notes issued to related parties	—	—	—	100	166
Current liabilities	14,248	10,667	9,992	7,675	5,827
Debt and finance leases, net of current portion	9,556	11,634	9,404	9,418	5,970
Deferred revenue, net of current portion	1,284	1,207	991	1,178	852
Operating lease liabilities, net of current portion	1,254	956	—	—	—
Accrued warranty reserve, net of current portion	989	745	547	276	150
Sales return reserve, net of current portion	500	545	84	—	—
Deferred tax liability	151	66	—	—	—
Resale value guarantees, net of current portion	19	36	329	2,309	2,210
Build-to-suit lease liability, net of current portion	—	—	1,662	1,666	1,323
Deferred rent expense	—	—	59	47	37
Liability for receipts from an investor	—	—	—	30	77
Other non-current liabilities	417	343	358	424	305
Other long-term liabilities	3,330	2,691	3,039	4,752	4,102
Long-term liabilities	14,170	15,532	13,434	15,348	10,923
Total liabilities	28,418	26,199	23,426	23,023	16,750
Redeemable noncontrolling interests in subsidiaries	604	643	556	398	367
Convertible senior notes	51	—	—	—	9
Preferred stock; $0.001 par value; no shares issued and outstanding	—	—	—	—	—
Common stock; $0.001 par value	1	1	—	—	—
Additional paid-in capital	27,260	12,736	10,249	9,178	7,774
Accumulated other comprehensive income (loss)	363	(36)	(8)	33	(24)
Accumulated deficit	(5,399)	(6,083)	(5,318)	(4,974)	(2,997)
Stockholders’ equity	22,225	6,618	4,923	4,237	4,753
Noncontrolling interests in subsidiaries	850	849	834	997	785
Total equity	23,075	7,467	5,758	5,235	5,538
Total liabilities and equity	52,148	34,309	29,740	28,655	22,664

Consolidated Income Statement
12 months ended:	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016
Automotive sales	26,184	19,952	17,632	8,535	5,589
Automotive leasing	1,052	869	883	1,107	762
Automotive revenues	27,236	20,821	18,515	9,641	6,351
Energy generation and storage	1,994	1,531	1,555	1,116	181
Services and other	2,306	2,226	1,391	1,001	468
Revenues	31,536	24,578	21,461	11,759	7,000
Automotive sales	(19,696)	(15,939)	(13,686)	(6,724)	(4,268)
Automotive leasing	(563)	(459)	(488)	(708)	(482)
Automotive cost of revenues	(20,259)	(16,398)	(14,174)	(7,433)	(4,750)
Energy generation and storage	(1,976)	(1,341)	(1,365)	(875)	(178)
Services and other	(2,671)	(2,770)	(1,880)	(1,229)	(472)
Cost of revenues	(24,906)	(20,509)	(17,419)	(9,536)	(5,401)
Gross profit	6,630	4,069	4,042	2,222	1,599
Research and development	(1,491)	(1,343)	(1,460)	(1,378)	(834)
Selling, general and administrative	(3,145)	(2,646)	(2,834)	(2,477)	(1,432)
Restructuring and other	—	(149)	(135)	—	—
Operating expenses	(4,636)	(4,138)	(4,430)	(3,855)	(2,267)
Income (loss) from operations	1,994	(69)	(388)	(1,632)	(667)
Interest income	30	44	25	20	9
Interest expense	(748)	(685)	(663)	(471)	(199)
Other income (expense), net	(122)	45	22	(125)	111
Income (loss) before income taxes	1,154	(665)	(1,005)	(2,209)	(746)
Provision for income taxes	(292)	(110)	(58)	(32)	(27)
Net income (loss)	862	(775)	(1,063)	(2,241)	(773)
Net (income) loss attributable to noncontrolling interests & redeemable noncontrolling interests in subsidiaries	(141)	(87)	86	279	98
Net income (loss) attributable to common stockholders	721	(862)	(976)	(1,961)	(675)

The automotive sales increased 40% and Leasing increased 30% and revenues increased 35%. The operating expenses are shown improvement very less than the sales are a good sign. Comparatively 2016 & 2017 the 2018 and 2019 has improved high in tesla sales and Tesla is now concentrating to expand its foot print INDIA to keep the higher sales volume.

Short-term (Operating) Activity Ratios
	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016
Turnover Ratios
Inventory turnover	6.07	5.77	5.59	4.21	2.61
Receivables turnover	16.72	18.56	22.61	22.82	14.02
Payables turnover	4.12	5.44	5.12	3.99	2.90
Working capital turnover	2.53	17.12	—	—	16.17
Average No. Days
Average inventory processing period	60	63	65	87	140
Add: Average receivable collection period	22	20	16	16	26
Operating cycle	82	83	81	103	166
Less: Average payables payment period	89	67	71	91	126
Cash conversion cycle	-7	16	10	12	40

The receivables turnover ratio reduced and inventory turnover slightly increased by keeping the processing period constant and cash conversion cycle at -7%.

Long-term (Investment) Activity Ratios
	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016
Net fixed asset turnover	2.47	2.36	1.89	1.17	1.17
Net fixed asset turnover (including operating lease, right-of-use asset)	2.20	2.12	1.89	1.17	1.17
Total asset turnover	0.60	0.72	0.72	0.41	0.31
Equity turnover	1.42	3.71	4.36	2.78	1.47

Liquidity Ratios
	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016
Current ratio	1.88	1.13	0.83	0.86	1.07
Quick ratio	1.49	0.71	0.46	0.51	0.67
Cash ratio	1.36	0.59	0.37	0.44	0.58

Solvency Ratios
	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016
Debt Ratios
Debt to equity	0.53	2.03	2.43	2.43	1.50
Debt to equity (including operating lease liability)	0.60	2.21	2.43	2.43	1.50
Debt to capital	0.34	0.67	0.71	0.71	0.60
Debt to capital (including operating lease liability)	0.37	0.69	0.71	0.71	0.60
Debt to assets	0.22	0.39	0.40	0.36	0.31
Debt to assets (including operating lease liability)	0.25	0.43	0.40	0.36	0.31
Financial leverage	2.35	5.18	6.04	6.76	4.77
Coverage Ratios
Interest coverage	2.54	0.03	-0.52	-3.69	-2.75
Fixed charge coverage	1.96	0.40	-0.19	-2.40	-1.36

Profitability Ratios
	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016
Return on Sales
Gross profit margin	21.02%	16.56%	18.83%	18.90%	22.85%
Operating profit margin	6.32%	-0.28%	-1.81%	-13.88%	-9.53%
Net profit margin	2.29%	-3.51%	-4.55%	-16.68%	-9.64%
Return on Investment
Return on equity (ROE)	3.24%	-13.03%	-19.83%	-46.29%	-14.20%
Return on assets (ROA)	1.38%	-2.51%	-3.28%	-6.84%	-2.98%

Two-component disaggregation of ROE
	ROE	=	ROA	×	Financial Leverage
Dec 31, 2020	3.24%		1.38%		2.35
Dec 31, 2019	-13.03%		-2.51%		5.18
Dec 31, 2018	-19.83%		-3.28%		6.04
Dec 31, 2017	-46.29%		-6.84%		6.76
Dec 31, 2016	-14.20%		-2.98%		4.77

The current, quick & cash ratio The current, quick, cash ratio changed from last year due to pandamic and sales down. Solvency ratio showed much improvement and represents how stable the TESLA company and share is. Profitability ratios improved way better with increased financial leverage.

4. Valuation analysis – DDM, DCF, PE

Valuation Rations and Analysis:

	Dec 31, 2020
Price to earnings (P/E)	1,149.45
Price to operating profit (P/OP)	415.63
Price to sales (P/S)	26.28
Price to book value (P/BV)	37.29

The price to Earnings and Operating profit and Price to sales shows undervalued but book value 37.29. Overall Tesla Growth shows positive.

i. Fundamental valuation – DCF, DDM

Tesla Inc.
Dividends per share (DPS) forecast
Year	Value	DPS(t) or TV(t)	Present value at 22.38%
0	DPS(0)	—
1	DPS(1)	—	—
2	DPS(2)	—	—
3	DPS(3)	—	—
4	DPS(4)	—	—
5	DPS(5)	—	—
5	TV(5)	—	—
Intrinsic value of Tesla Inc.’s common stock (per share)	$0.00
Current share price	$625.22

The monthly rate of return for the Tesla share 4.36%.

Based on Monthly and yearly cash flows generated, the Required Rate of Return (r) Assumptions

Rate of return on LT Treasury Composite1RF is 2.17% , expected rate of return on market portfolio2E(RM) should be 11.72% and Systematic risk of Tesla Inc.’s common stockβTSLA 2.12% and Required rate of return on Tesla Inc.’s common stock3rTSLA is 22.38%. Since company does not pay dividends there is no Dividend Growth rate (G) and it is 0 as always.

In The DCF technic, the stock estimated on Present value and cash flow generated since from present. The Intricacy value of common stock is not possible.

Tesla Inc. DCF & DDM
	Tesla Inc. (TSLA)	Standard & Poor’s 500 (S&P 500)
t	Date	Price(TSLA, t)	Dividend(TSLA, t)	R(TSLA, t)	Price(S&P 500, t)	R(S&P 500, t)
	Jan 31, 2016	$38.24			1,940.24
1	Feb 29, 2016	$38.39		0.39%	1,932.23	-0.41%
2	Mar 31, 2016	$45.95		19.69%	2,059.74	6.60%
3	Apr 30, 2016	$48.15		4.79%	2,065.30	0.27%
.	.	.		.	.	.
.	.	.		.	.	.
.	.	.		.	.	.
54	Jul 31, 2020	$286.15		32.50%	3,271.12	5.51%
55	Aug 31, 2020	$498.32		74.15%	3,500.31	7.01%
56	Sep 30, 2020	$429.01		-13.91%	3,363.00	-3.92%
57	Oct 31, 2020	$388.04		-9.55%	3,269.96	-2.77%
58	Nov 30, 2020	$567.60		46.27%	3,621.63	10.75%
59	Dec 31, 2020	$705.67		24.33%	3,756.07	3.71%
Average (R̅):	6.60%		1.22%
Standard deviation:	19.19%		4.36%

Intrinsic value of Tesla Inc.’s capital 383,153

Less: Debt and finance leases (fair value) 34,433

Intrinsic value of Tesla Inc.’s common stock 348,720

Intrinsic value of Tesla Inc.’s common stock (per share) $361.99

Current share price $625.22

Tesla Inc.
	Value	Weight	Required rate of return
Equity (fair value)	602,293	0.95	22.38%
Debt and finance leases (fair value)	34,433	0.05	4.41%

1 US$ in millions

Equity (fair value) = No. shares of common stock outstanding × Current share price

= 963,330,448 × $625.22

= $602,293,462,698.56

Debt and finance leases (fair value).

2 Required rate of return on equity is estimated by using CAPM. See details »

Required rate of return on debt.

Required rate of return on debt is after tax.

Estimated (average) effective income tax rate

= (25.30% + 21.00% + 21.00% + 31.29% + 35.00%) ÷ 5

= 26.72%

WACC = 21.41%

FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)

= 100 × (636,726 × 21.41% – 2,056) ÷ (636,726 + 2,056)

= 21.02%

FCFF growth rate (g) forecast

Year Value gt

1 g1 -1.84%

2 g2 3.87%

3 g3 9.59%

4 g4 15.30%

5 and thereafter g5 21.02%

where:

g1 is implied by PRAT model

g5 is implied by single-stage model

g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)

= -1.84% + (21.02% – -1.84%) × (2 – 1) ÷ (5 – 1)

= 3.87%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)

= -1.84% + (21.02% – -1.84%) × (3 – 1) ÷ (5 – 1)

= 9.59%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)

= -1.84% + (21.02% – -1.84%) × (4 – 1) ÷ (5 – 1)

= 15.30%

ii. Relative valuation – PE

Tesla Inc.
Price to Earnings (P/E)
Quarterly Data
	Mar 31, 2021	Dec 31, 2020	Sep 30, 2020	Jun 30, 2020
No. shares of common stock outstanding	963,330,448	959,853,504	947,900,733	931,808,630
Selected Financial Data (US$)
Net income (loss) attributable to common stockholders (in millions)	438	270	331	104
Earnings per share (EPS)	1.19	0.75	0.59	0.40
Share price	694.40	863.42	420.28	295.30
Valuation Ratio
P/E ratio	585.25	1,149.45	715.91	746.77
Benchmarks
P/E Ratio, Competitors
General Motors Co.	9.31	12.66	16.54	24.34

Q1 2021 Calculation P/E ratio = Share price ÷ EPS = 694.40 ÷ 1.19 = 585.25

The Price to Earnings actual is as $585.25. The current stock price is: $619.13

5. Risk factors:

Market risk,

Management risk- Tesla Company is known for managing technology and automobile-based business by Elon Musk. The food industry is completely unrelated to its existing business. It means Elon by entering into the food industry will take more responsibilities and burdens that could be out of his league. It would make the management of the business in both industries more difficult and complex.

Business cycles,

Risk of lacking coordination- There is always a risk of lacking coordination between its main business and new business. Since, the industry is unrelated so there is no synergy that Tesla can share and coordinate its current business resources, technology, or core competency in the new food industry business.

Political risk,

Risk of harming its main brand- By entering into the food industry, Tesla increases the risk of harming its main brand. For example- any bad event in the new industry occurs then people will start to associate the bad event with its main brand of EV and solar business as well. It is like a domino effect.

Credit risk

Risk of unknown- Risk of unknown means when you enter into a territory that you have no knowledge and experience. Tesla is known for its EVs and Solar products. The Food industry is completely new territory for Tesla with uncertain risks or events that could create difficulty in business operation in this new industry.

VAR

Financial risk- Entering into a new industry that is completely unrelated to its existing business requires a completely new investment in fixed assets, technology, and resources such as human resources. It can make investments of multi-million dollars that go out of the pocket of Tesla Company.

References:

https://www.tesla.com/about

https://www.tesla.com/blog

https://www.google.com/search?client=firefox-b-1-d&q=TESLA+Stock+report

Tesla Inc. (NASDAQ:TSLA) | Dividend Discount Model (stock-analysis-on.net)

Executive Summary | Tesla Motors: The Luxury of Electricity (psu.edu)

https://www.stock-analysis-on.net/