July 20 2020 - Tesla's Frothy 0 Billion Valuation: The Correction Approaches

Summary

Tesla has skyrocketed into the stratosphere in recent months and is now trading at around 300 times 2020's consensus estimate EPS figures.

Also, Tesla's 5 billion market cap makes it by far the most valuable "car" company in the world.

We provide Q2 estimates and expect a small profit in the quarter, unless the company produces substantially more regulatory credit revenue than we anticipate.

However, I am not chasing the stock here, and a broad market correction is likely later this summer or in the fall in my view.

This will likely provide a much better entry point at ,200 or lower in Tesla shares.

This idea was discussed in more depth with members of my private investing community, Albright Investment Group . Get started today »

Tesla

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Is Tesla Worth Paying 300 Times 2020's Projected EPS for?

Since going public at  a share roughly 10 years ago, Tesla (NASDAQ:TSLA) has appreciated by an astonishing 8,841%, easily making it one of the best performing stocks over the last decade. The company's market cap is now NEARLY 0 BILLION, making it by far the most valuable "automaker" in the world (nearly double Toyota's (NYSE:TM) market cap), as well as one of the most valuable corporations in America.

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Tesla shares have essentially skyrocketed into the stratosphere, but is the company worth paying 300 times 2020's consensus EPS estimates for now?

We owned Tesla for years, since autumn 2013 to be exact. This is now my 47th article about Tesla on Seeking Alpha, and in the first piece I ever wrote on SA back in early 2017, I mentioned that "a ,000 price target for Tesla stock in 2020-2021 is not only extremely fair, but appears highly attainable".

However, we recently exited our position, because of the uncertainty regarding the coronavirus situation, and the stock just appears to be extremely overbought on a short to intermediate-term basis. Nevertheless, I believe Tesla is a buy on a "nice pullback" (20% or more), as the company has enormous long-term potential, and its shares are likely to appreciate substantially over the next 2-5 years.

Q2 2020 Projections

Despite coronavirus-related shutdowns and a slew of uncertainties, Tesla delivered 10,600 Model S/X vehicles in Q2, with an estimated average selling price/ASP of roughly 4,000. Now, this is a 13% QoQ decline, but given the situation with the coronavirus, factory shutdowns, and other variables, things could have been much worse. In fact, analysts (consensus) were expecting Tesla to deliver just 72,000 total vehicles in the quarter, but Tesla crushed those estimates by over 25%, as the company delivered 90,650 total vehicles in Q2.

In addition to the 10,600 Model S/X vehicles, Tesla also delivered 80,050 Model 3/Ys in Q2. While it is difficult to predict exactly how many of the 80,050 Model 3/Y sales were Model Y's, I suspect that Tesla delivered roughly 10,000 Model Ys in the quarter, with an ASP of around ,000. This implies that Tesla delivered around 70,050 Model 3s in Q2 with an estimated ASP of roughly ,500.

Now, 14% of Model S/X deliveries were subject to lease accounting, which brings us to an automotive sales figure of 9,116 Model S/X vehicles. 4% of Model 3/Y sales were also subject to lease accounting, which brings the automotive sales figure in the Model 3/Y segment to around 77,280 automobiles.

Therefore, we can presume that Tesla's automotive sales revenues in the Model S/X segment were roughly .039 billion (9,116 x 4,000). Model Y leasing began recently, so we can presume that all (or at least most) of the leasing from the Model 3/Y segment in Q2 were Model 3 vehicles. Thus, automotive sales revenues for the Model Y were likely around 0 million. Once we subtract 4% for lease accounting from the Model 3 deliveries, we are likely looking at around 67,248 Model 3s sold in the quarter, which brings our likely Model 3 automotive sales revenue figure to roughly .194 billion.

Total Revenue Estimates

  • Model S/X segment: .039 billion
  • Model 3/Y segment: .744 billion
  • Regulatory credits: 0 million
  • Automotive leasing: 0 million
  • Energy generation and storage: 0 million
  • Services and other: 0 million

Total revenue estimates for Q2: .103 billion

Q2 Estimates Vs Prior Quarter Results

Tesla estimates

Source: Author's Material - All estimates are based on previous analyses, and available public information.

As our projections indicate, we expect Tesla to earn a small (7 cents EPS) non-GAAP profit in Q2, unless the company produces substantially more regulatory credit revenue than we anticipate. Naturally, this could enable the company to earn more. Nevertheless, our 7 cent EPS figure is a bit higher than the consensus estimate for a loss of 28 cents per share. Moreover, we expect revenues to come in towards higher-end estimates at roughly .1 billion, vs consensus estimates for just .23 billion in Q2.

The Bottom Line: Is Tesla a Good Buy Here?

Despite our projections being higher than consensus estimates indicate, we believe Tesla's stock has gotten ahead of itself in the short to intermediate term. The coronavirus is likely to plague the economy and consumer spending for some time. Thus, there is quite a bit of uncertainty about H2 for Tesla, as for the economy in general.

I believe that there will be a correction later this summer, or sometime in the fall. As the broader market corrects, so should Tesla's shares. I expect at least a 20% correction to occur concerning Tesla. From current levels, this would bring the stock down to around ,200. It is plausible that the correction in Tesla could be more severe, but unless the economy begins to seriously unravel, we will likely begin to reenter the stock at ,200 - ,000 or lower if possible.

I continue to believe that Tesla has enormous potential long term and should substantially increase revenues as well as EPS in future years. This should enable the company's stock price to rise significantly as well over the next 2-5 years, in my view.

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