Raising my $TSLA PT to $830 from $720, reflecting increase in TSLA EV share from 22% to 25%.
Oct YTD TSLA share now 25% vs 17% in FY’19, despite slew of new EV offerings.
$830 PT over 6-12 mos reflects FY’25 EPS of $24 (was $21) @ 50x P/E = $1,200, disct’d back @ 9.5% = $830.
2/ At $590, $TSLA underpriced at 62x FY’22 EPS $9.50 (Street $5.40), and 40x FY’23 EPS $14.80 (Street $5.95) with 50%+ 5-yr vol and EPS growth. At 1.2x FY’22 PEG, only mega-cap growth name cheaper than TSLA is $FB at 1.1x PEG (avg R1G PEG 2.0x). At $830 PT, TSLA has +40% upside.
3/ My new $TSLA non-GAAP EPS:
FY’20: $2.50 (no chg)
FY’21: $4.80 (no chg)
FY’22: $9.50 (vs $8.70)
FY’23: $14.80 (vs $13.00)
FY’24: $19.70 (vs $16.60)
FY’25: $24.00 (vs $21.00)
My new TSLA FY’25 delivs are 4,000K vs 3,520K prior (equal to 5.0% overall SOM vs 4.4% prior)
4/ Despite slew of new ICE-brand EVs, $TSLA EV share continues to grow, from 17% in 2019 to 25% Oct YTD. This is the most misunderstood dynamic by TSLA skeptics. ICE EVs suffer from inferior range, power, FSD/software, and brand taint. TSLA TAM continues to expand behind Model Y.
5/ Other inputs to $TSLA model: 1) Incr Auto GM% from 24.3% to 25.0% by FY’25 for higher vols 2) 2x SG&A/R&D spending betw FY’20 & FY’25 (was +40%) 3) No Reg Credits after FY’22 (was FY’23). $10K FSD at 33%. 4) Changed tax rate to 20% (from 25%) b/c no Reg Credits 5) $0 Robotaxi
6/ In keeping with past methodology, my $TSLA price target is the PV of my FY’25 target, equal to FY’25 EPS $24 x 50 P/E (2x PEG FY’23-‘30 growth)= $1,200.
I discount $1,200 back 4 years at 9.5%, equal to 10-yr Treas yld of 0.9%, plus 6% equity risk prem x exp 1.45 TSLA beta.
7/ I expect $TSLA to peak between $650-$690 before S&P inclusion on 12/21, and retrace 10-20% on sell-the-news and profit taking after S&P inclusion. TSLA should resume rise in front of Biden inaugural speech (1/22) and 4Q EPS/FY’21 vol guide (1/27).
My $830 PT is over 6-12 mo.
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Here are 10 reasons why you should be buying $TSLA today at $560:
1/ Huge EV runway ahead, with global EV penetration now 3% likely to go to 20-25% by 2025 (6-8x increase).
2/ TSLA’s EV share continues to grow - not fall - as TAM expands, even as ICE competitors launch...
their own EVs. New EVs take from ICE vehicles, not other EVs. This is the biggest research flaw in $TSLAQ ‘s short thesis.
3/ $TSLA has several positive Dec/Jan catalysts to propel it higher, including wide FSD release (12/15), MIC Y production (12/15), CyTruck update (12/15).
4/ FY’21 vol guide of 800K+ will exceed Street ests of 774K (1/27). That will spark a fresh round of 2021 $TSLA earnings increases, pushing TSLA PTs higher.
5/ Biden’s 1/22 inaugural address will include clean energy, incl restoration of $7,500 credit on all EVs, incl TSLA.
$TSLA stock will likely continue to climb into the 12/21 S&P rebalance, as index mgrs complete much of their purchase of 120M TSLA shares by Fri 12/18. I’m not as optimistic as others about TSLA ‘s ultimate price rise, given TSLA’s 43% increase since 11/16 vs 16% float needed.
2/ It’s difficult to quantify how much front running has been by HFs and traders who have bought $TSLA in anticipation of index funds having to buy TSLA on the rebalance at the prevailing market price. Looking at trading volumes pre- and post-announcement...
3/ $TSLA has traded 51.5M shares per day (of 760M float) since 11/16 vs a 10-day avg of 26.6M shares per day prior to 11/16. That implies 250M excess shares traded since 11/16, which could just be multiple round-trips of algo- and day trading by all mkt participants.
Key debate: How many $TSLA shares are needed prior to 12/21 inclusion? 1/ Indexers only: 120M (16% float) 2/ Indexers + active mgrs: 120M + 180M=300M (40% float) at bm wt
My feeling: It’s closer to 120M since: 1/ Active mgrs with S&P bms could have bought TSLA all along, and..
2/ Most funds with S&P bms are core/value and will find $TSLA expensive at 150x 2021 Street EPS. Growth mgrs usually use R1000 growth as their bm. That said, with TSLA in their bm at a 1.4% wt, mgrs have to make a conscious decision to own or not own it. It’s too big to ignore.
3/ Here’s the math:
$TSLA wt: (760M float x $590)/ ($31.4T+$0.5T)=1.40%
Index mgrs: $5Tx1.4% /$590= 120M shares (16% float)
Active mgrs: $7.6T 1.4%/$590=
180M shares (24% float)
Index mgrs: 1.4% wt mandatory
Active mgrs: 1.4% wt optional
For those who are new followers, I went long $TSLA in Sept 2019, and hold it at 20-25% of my portfolio. It remains my largest position. My $720 TSLA PT has increased twelve times since Sept 2019 as fundamentals have steadily improved. I have never reduced my TSLA price target.
2/ I consider myself a disciplined growth investor. I like companies with best-in-class products, expanding TAM, brand leverage, and megatrend secular tailwinds. I always have a fair value that I think a stock is worth, calculated on present value of future earnings. $tsla
3/ Like many growth investors, I trade opportunistically around my positions - meaning, if I see a decline of 10-15% coming, I will lighten up and buy back at a lower price. Conversely, if $TSLA gets slammed for a reason I think is dumb (e.g., product recalls), I buy more.
I’m going to try explaining this again. $TSLA value can be calculated using a present value (PV) framework. Inputs:
Curr Yr EPS
EPS growth next 5 yrs
Div payout (if any)
10yr Treas yld
Equity risk prem (ERP)
Beta
Steady state P/E 5 yrs out based on proj EPS growth after Yr 5.
2/ I estimate $TSLA value using a 5-yr PV framework. Others use 10 or even 20 years. TSLA’s PT is the price at which I expect TSLA to trade in 6-12 mo. Mathematically, the PT is the PV of all dividends, plus the future price of TSLA in 5 yrs, disctd back at TSLA’s cost of equity.
3/ $TSLA pays no dividends, so all value is in the 2025 stock price, which is based on the P/E in 5 yrs, mult by the proj earnings in 5 years.The discount rate is the risk-free rate (10yr Treas yld), plus a risk premium equal to the mkt equity risk premium (ERP) ~6% x TSLA beta.
To understand why $TSLA rises or falls, it’s best to use a present value (PV) framework.
PV is based on Yr1 EPS, growth over next n years, dividends, 10yr Treas yld, equity risk prem (ERP), beta, and a “steady state” P/E at which a stock trades n yrs out, based on future growth.
2/ For growth stocks, it’s best to take earnings out a few years to compare P/Es, and P/Es should be measured vs exp growth (PEGs).
3/ When a company like $TSLA beats earnings ests, it rises because future earnings often get revised upward, and P/Es can be repriced if markets assume the acceleration in growth persists. Non-recurring items (e.g., one time tax credits, legal settlements) are normally excluded.