Cedar Grove Capital Management

Share this post

Uh, Tesla is Worth How Much Now?

www.cedargrovecm.com
Opinions/Thoughts

Uh, Tesla is Worth How Much Now?

Why Tesla's size makes absolutely no sense but betting against it would be crazy

Paul Cerro
Nov 12, 2021
1
Share this post

Uh, Tesla is Worth How Much Now?

www.cedargrovecm.com

*This is not a deep dive on the company but rather visually showing you just how ridiculous Tesla’s business is in comparison to other automakers*

Quick Note

I love Tesla. I love everything that they’re doing to the point where I even have Tesla merch (t-shirt and a mug). Hell, Tesla TSLA 0.00 was the first stock I ever bought back in January of 2014 for $172 a share (~$30 a share now post splits) which I sold not too long later because of me being a college kid needed money for food.

I also am an Elon fanboy and respect this guy so much for risking it all in order to build things with the premise of changing the traditional way of life for many.

Even as Tesla stock has minted millionaires and billionaires, this company’s valuation makes zero, let me repeat that, zero sense.

Here’s why in five, easy to understanding charts.

1️⃣ Total vehicles produced

In 2020, Tesla was able to produce 510,000 vehicles across all the models that it offers (Model X, S, Y, and 3). Though this might seem like a lot, other American automakers such as Ford and GM produced ~4.2 million and ~6.8 million respectively.

Source: Company filings.

This equates to about 8.2x and 13.4x the amount that Tesla produced within the same given year.

Tesla only produced 1.07% of the total 47.7 million cars out of all the aforementioned companies you see above.

2️⃣ It is the youngest car company, comparatively

Tesla made headlines back in 2003 when Elon decided to throw a massive amount of his wealth after his Paypal sale into a new electric vehicle company. However, though this was in a new class of its own, these days Tesla now competes with a lot of legacy automakers looking to try and monetize the future of EVs for themselves.

Source: Company websites.

Though Tesla was able to gain notoriety and fame from breaking with traditional combustion engine cars, a lot of the other competitors that he’s now having to face have been in the business for quite a while, some even more than 5x longer than it has been around.

They have been able to successfully work out supply chains, massive economic recessions (some depressions), wars, etc. Tesla has worked through its own problems, even potential bankruptcy, though don’t expect it to know everything just yet.

3️⃣ Its market cap is the biggest

With the COVID stock run-up and announcements that Tesla will be holding Bitcoin, investors all over have poured money into Tesla with the hopes that it will continue to skyrocket to the moon. Elon is Tesla, and Tesla is Elon. If you were to look at the market caps (equity values) of all the publicly traded car companies that I have shown you thus far, Tesla makes up more than 53% of the total 2 trillion (trillion with a “t”) market value.

Source: Seeking Alpha.

Even the top five companies that aren’t Tesla, make up 32.9% of the market value (Toyota, Volkswagon, GM, Ford, and Daimler).

4️⃣ Valuation using forward EV/Sales

Valuation plays a key part in what convinces you to buy a stock. Perhaps it’s too low and you think a re-rating of the multiple will lift it up or perhaps it’s too high and you choose to pass or possibly short.

In Tesla’s case, it doesn’t even make sense.

Using an EV to sales multiple generally provides you will the lowest (without going negative) multiple for valuation as the denominator is a much bigger number, thus showing a more contracted multiple. In Tesla’s case, despite only selling 510,000 cars last year, the company is trading for a mind-boggling 20.9x forward EV/Sales multiple.

Source: Seeking Alpha.

Investors are pricing in a lot of future upside at these levels more so than the future prospects of other legacy players launching their own EVs.

It really doesn’t get better using the next metric either.

5️⃣ Valuation using forward EV/EBITDA

If you thought that metric was bad, its forward EV/EBITDA multiple is even worse.

Trading for a cool 99.6x forward EBITDA, you too can become an owner of Tesla stock.

Source: Seeking Alpha.

Final thoughts

There actually isn’t any metric at face value that warrants Tesla being this high despite thousands of loyal investors swearing on their mother’s life that it’s only going to keep going up.

I personally want to short the stock because fundamentally it makes no sense but you’d have to be either crazy or an idiot to do so. With that, I leave it alone and will watch from the sidelines.

There are others that don’t feel the same way, publicly. Michael Burry, the famous investment manager that shorted the housing market back in 2006 has Tesla on its shit list.

'The Big Short' investor Michael Burry says Tesla stock could plunge 90% - and notes Elon Musk said it was overpriced at $160 last year

He’s been very vocal on the absurd valuation of the stock, even having taken a short position via puts at the beginning of this year.

Twitter avatar for @BurryArchive
Michael Burry Archive @BurryArchive
Image
3:26 PM ∙ Nov 12, 2021
284Likes36Retweets

Maybe he just hates Elon? Maybe just Tesla? Or both? Either way, Tesla makes no sense but bravo to everyone that risked holding it all these years and continues holding it at these levels.


Until next time,

Paul Cerro | Cedar Grove Capital

Twitter: @paulcerro

New here? Sign up below to never miss out.


Disclosure: All information provided herein by Cedar Grove Capital Management, LLC (“Cedar Grove Capital”) is for informational purposes only and does not constitute investment advice or an offer or solicitation to buy or sell an interest in a private fund or any other security. An offer or solicitation of an investment in a private fund will only be made to accredited investors pursuant to a private placement memorandum and associated documents.
Cedar Grove Capital may change its views about or its investment positions in any of the securities mentioned in this document at any time, for any reason or no reason. Cedar Grove Capital may buy, sell, or otherwise change the form or substance of any of its investments. Cedar Grove Capital disclaims any obligation to notify the market of any such changes.
The enclosed material is confidential and not to be reproduced or redistributed in whole or in part without the prior written consent of Cedar Grove Capital. The information in this material is only current as of the date indicated and may be superseded by subsequent market events or for other reasons. Statements concerning financial market trends are based on current market conditions, which will fluctuate. Any statements of opinion constitute only current opinions of Cedar Grove Capital which are subject to change and which Cedar Grove Capital does not undertake to update. Due to, among other things, the volatile nature of the markets, and an investment in the fund/partnership may only be suitable for certain investors. Parties should independently investigate any investment strategy or manager, and should consult with qualified investment, legal and tax professionals before making any investment.
Share this post

Uh, Tesla is Worth How Much Now?

www.cedargrovecm.com
Previous
Next
Comments
TopNewCommunity

No posts

Ready for more?

© 2023 Paul Cerro
Market data by Intrinio
Privacy ∙ Terms ∙ Collection notice
Start WritingGet the app
Substack is the home for great writing