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1\ A short primer for all the bulls taking about a $TSLA acquisition at "low prices" without understanding the concept of "enterprise value"...
2\ When you buy a house, you buy the entire thing, including any mortgage on it. If the house is $300K with a $200K mortgage, it doesn't matter to you that the owner has $100K of equity in the house. As the buyer, you pay $300K.
Buying a business is the same thing.
Buying a business is the same thing.
3\ $TSLA has $8B in net debt + $2B in negative working cap = $10B of non-equity liabilities. In 2020, that # will be $12B+. Let's ignore the $17B in purchase obligations for obsolete cylindrical cells from Pana, as well as billions in eventual fraud and AutoPilot death liability
4\ $TSLA auto sales are $15B/yr and falling rapidly. The auto biz is global and brutally competitive; net margins are mid single digits. So a ~10x multiple on unlevered earnings means an enterprise value of less than 1x sales
5\ *If* someone wanted to own the Theranos of cars, they might justify paying $10B for the $TSLA enterprise, leaving the equity and much of the debt worthless (and requiring bankruptcy proceedings to impair the debt). So, $TSLA equity is worth nothing.
6\6 But let's imagine a tech-besotted acquirer pays a rich enterprise multiple of 2x auto sales, or $30B. Subtract $12B for liabilities, and you have $18B of equity value. $TSLA has around 180M fully diluted shares, giving a stock price of $100. Not very exciting.
