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I had a little back and forth with a well-known Tesla bull on Twitter, and wanted to share our perspective.
It started off as a response to an article in the FT in which I stated that Tesla’s auto business may be worth “between $70 and $100 billion”. FWIW, I was careful not to make any political comment about Musk and his leanings one way or the other (although the folks at the FT would have loved if I had), but I did discuss something more generic.
This is a link to the overall piece on Musk, and below I attach the excerpt that came from us.
Gary Black, a Tesla bull with whom I have had a reasonably cordial debate over the past few years, responded with this:
This was my response to Gary:
“We’ll know a little more next week Gary, but as it stands right now, Tesla’s auto business has stopped growing.
YoY automotive revenues through 2Q, even including ZEV credits and leasing, were down 6.5%. If we exclude the leasing revs and the (huge) regulatory credits, then automotive sales were down 9.3% YoY.
Meanwhile, automotive gross margins, excluding the regulatory credits, have shrunken to 15.9% in the recent quarter, down from 18.1% last year, which itself was down from 26.2% in the prior year.
Consequently, GAAP net income margins (ex reg credits) have collapsed from 11.9% in 2022 to 9.8% last year and just 2.7% this year. I believe this is incredibly important, especially with CT about to put further pressure on margins.
So. an automotive business going backwards in sales and seeing collapsing gross margins isn’t going to command a huge multiple.
As we get down to the earnings line, I expect EPS in 2024 of $2.11 per share. The Street isn’t much higher at $2.27.
Using our numbers, if we were to actually use the industry peer multiple of 5.1x, then Tesla would be worth about $10.50 per share. Based on the current diluted shares, this would be a market cap of about $37 billion.
This is not what I do. I give Musk some credit here, and give Tesla 250% of the industry multiple. That means that we think that Tesla’s automotive business (excluding the regulatory credits, and leasing) is worth about $90 billion, or a shade over $25 per share.
So we are miles apart here Gary, literally a factor of ten away from each other.
And that’s what makes a market!”
