The ugly things in Tesla's Q3 results
$Tesla(TSLA.US$Tesla is by far not a bad company, but there could still be trouble ahead. This is due to two key factors - its valuation and its problems when it comes to delivering on growth promises.
Tesla has generated a net profit of $1.86 per share during the third quarter - the highest quarterly profit ever. If we annualize that, we get to EPS of $7.44 - shares trade at around 120x that amount today. That is an absolutely outrageous valuation for an automobile company, but even when we compare Tesla to other high-growth mega-caps such as $Amazon(AMZN.US$, $Alphabet-C(GOOG.US$, $Facebook(FB.US$, $NVIDIA(NVDA.US$or $Netflix(NFLX.US$, its valuation is by far the highest in that group. Amazon, the second-most expensive company in that group, trades at roughly half of Tesla's valuation, while others, such as Facebook, trade at less than one-quarter of Tesla's valuation - despite delivering huge growth of around 40% this year as well.
Looking at Tesla's valuation relative to the free cash flow the company generates, the picture worsens further. Tesla has generated around $4 billion in free cash over the last year, which means that shares are valued at a free cash flow multiple of more than 200 right now - which pencils out to a measly free cash flow yield of less than 0.5%. This holds true, surprisingly, despite the fact that Tesla has continued to issue massive amounts of shares. Over the last year alone, the diluted share count has risen by 18 million - which pencils out to a $16 billion increase in the company's market capitalization, all else equal.
Stock-based compensation has totaled around $2.2 billion over the last four quarters, and yet, free cash flow stood at just around $4 billion. Adjusted for SBC, free cash flows would have totaled around $2 billion over the last year, which pencils out to a free cash flow multiple north of 400 - which is way too expensive, I believe.
Tesla bulls oftentimes ascribe a lot of value to future business units, such as Tesla's upcoming entry in the electric pick-up market (Cybertruck), or its self-driving project. Both of these future growth projects are feeling some headwinds, however. Tesla has recently taken the pricing for the Cybertruck off its website, along with some specs:
The reasoning for that has not been publicized, but it seems possible that Tesla is realizing that the truck can't be profitably sold at a price of less than $40,000. Possibly, manufacturing headwinds or commodity price increases will force Tesla to sell the truck at higher prices, which would be a reasonable explanation for why the company has taken pricing information off its website. This, in turn, would worsen the Cybertruck's attractiveness versus competitors' offers, such as $Ford Motor(F.US$ F-150 Lightning. The fact that mass production for the Cybertruck has been delayed to late 2023 further pressures the outlook for this model.
Likewise, Tesla has not had too much success with its robo-car approach in recent weeks. Official probes into Tesla's Autopilot, along with a less-than-stellar performance of the latest FSD Beta version threaten the thesis that this will be a huge value driver in the foreseeable future. Some analysts and commenters also believe that the newly-appointed NHTSA Senior Advisor for Safety, Missy Cummings, who is a known Tesla critic, could put more pressure on Tesla and its self-driving claims.
To me, it looks like two of the most important potential growth drivers over the coming years, Tesla's Cybertruck and its self-driving project, are running into headwinds, which could pressure shares in the future, as they are currently priced for perfection.
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Teddy Willson : You seem to not quite understand
Tesla is supply constrained
They announced they were surprised at the very large demand for vehicles
All the vehicles need _batteries_
All the energy storage needs _batteries_
They have months, 1/2 year of back orders for vehicles
They have demand for storage
There are only so many batteries
The energy portion will accelerate when more batteries come online, such as the 4680’s.
Tesla is not just an automotive company.
Lee JessieOP Teddy Willson: So they don't have enough batteries, while bulls oftentimes tout their battery manufacturing/supply as a key advantage?
Leoi : Tesla is a great company-- I never owned the stock and I kick myself for not taking the risk a few years back. That being said--the valuation is a joke--it has become a cult stock among the teslaraties. They have had no competition in the past--but that is changing rapidly. Their stock will eventually come back down to earth--probably in the $200-250 range.
"for an automobile company" - says it all. One that happens to offer solar, grid-scale energy storage, car insurance, home-batteries, etc.
NeedSomeAnswer Lee JessieOP: Both are true
Lee JessieOP Leoi: Yes, and all of these are unprofitable and make up a small portion of overall revenue only
Stonksalltheway : "Tesla is a battleground stock."
No, it is not. Not anymore. No shorts left. The battle is over. Bears lost spectacularly with the biggest losses in the history of stock market.
As for the valuation; TSLA at $1K might look like a bargain in 2023.
Lee JessieOP Stonksalltheway: There are many that are bearish on Tesla, even if not shorting
nanachanart Stonksalltheway: $1K in 2023 is a PE of about 50 how that is not a bargain would take some real convincing given Tesla's dominant position in the very fast growing BEV market.
RG7083 : Should hit 1k end of year as Q4 will be huge! Tesla is a long term play so investors should buy with the intentions of holding at least 5 years IMO
wither rose circus : Stay long! New highs achieved! Next stop $1k/share!
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