Read Our Unpopular Opinion Of Why Tesla Is Going To $ 1000
Tesla designs, develops, manufactures, and sells high-performance fully electric vehicles and components, as well as a full suite of renewable energy products
The Business
We estimate TSLA’s revenue will rise by about 57% in 2021 and 39% in 2022 after an increase of 28% in 2020. The primary catalysts of the anticipated volume increase are planned capacity additions and the ongoing ramp-up of its China factory. Much of Tesla’s capacity has shifted from producing the Model 3 to producing the Model Y, which debuted in March 2020. We see TSLA’s vehicle sales rising 62% in 2021 after a 36% jump in 2020. Capex will likely increase as TSLA continues to expand with the completion of new factories in Germany and Texas, both of which are targeting first production and sales in late 2021. We think TSLA will then build a plant in India. TSLA’s 2020 vehicle sales of 499,647 units fell just short of its target of 500K units, but volume was up from 367,656 units sold in 2019. Deliveries will likely ramp when the Germany and Texas factories are complete, and after the Semi, Cybertruck, and Roadster become available. TSLA’s balance sheet has improved materially over the last couple of years, and it possessed cash of $17.1 billion versus total debt of $9.4 billon as of March 31, 2021.
On November 16, 2020, the S&P Dow Jones Index Committee announced that TSLA would be added to the S&P 500 Index effective prior to the open on December 21. TSLA was the largest company ever added to the S&P 500 by a wide margin (the second largest was Facebook), prompting significant index fund buying in order to mimic the index. TSLA expects first deliveries of two new vehicle models in the coming quarters: the Semi (late 2021), the Cybertruck (early 2022), and the Roadster (2022). TSLA’s long-term goal is to grow their annual vehicle sales volumes from roughly 500,000 units in 2020 to 20 million units by 2020, which would represent an increase of 40x.
Investment Case
Our Buy opinion reflects our view that TSLA’s risk/reward is balanced at current levels after a meteoric 2020 run-up for the shares in which it rose 743%. At its September 2020 Battery Day, TSLA outlined a plan to reduce battery costs on a $/kWh basis by 56% and boost vehicle range by 54%, which we think will help widen the competitive gap between Tesla vehicles and other EVs. TSLA is currently constructing new factories in Germany and Texas, both of which should be completed in 2021. Risks to our opinion and target price include fasterthan-expected sales growth, greater-thanexpected cost efficiencies, and potential capital raises, as well as regulatory risks related to autopilot.
Our 12-month price target of $1000 is based on EV / Sales 14.7x our 2022 estimate . We expect TSLA to trade at a significant premium to other automakers given its growth prospects. We expect an acceleration of profits as TSLA ramps production and aims to deliver on its goal of increasing annual auto volumes by 40x over the next decade (from ~500K units in 2020 to 20M by 2030). This price target gives us an implied return of +47%.
Our risk assessment is High. Reflects the highly competitive nature of the auto industry and potential execution risk for the company, partly offset by potential dramatic volume growth we expect for the company.
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