Tesla Inc.

Company valuation
Input
Tesla valuation – Drivers

A “Drivers” sheet helps us organize some inputs we

will need when working on the valuation model.
Typically, the inputs we will have here are external
inputs (such as macroeconomic data) that are not
dependent on the company we are valuing.
Workings
Tesla valuation – Production sheet

The “Workings” sheet serves as a section divider in

our model. It helps us distinguish the “Inputs” section
and the calculation sheets we will need afterwards.
This makes things easier for other people working with
the model.
Tesla valuation – Production sheet

We analyzed Tesla’s historical production of three main groups of products:

• Model S and Model X – established models with strong market
performance
• Model 3 – the first mass market electric vehicle
• Other vehicles to be released in future (Tesla Semi, Model Y etc.)
Tesla valuation – Production sheet

Then, we used this data to project year-on-year growth

rates. For Model 3 and Other vehicles, we assumed a strong
initial growth and a gradual normalization throughout the
forecast period.
Tesla valuation – Production sheet

Using the Choose function to create different

scenarios:
(1) Best case
(2) Base case
(3) Worst case

3
Tesla valuation – Pricing sheet

$78,000 – the average price of Model S and Model X

$38,000 – Model 3 price ($35,000 starting price + $3,000 extras)
$65,000 – an assumption regarding the average price of the other
vehicles Tesla will introduce in the forecast period
Tesla valuation – Pricing sheet

Assuming prices will increase in line with

expected inflation
Tesla valuation – Revenues sheet

Calculate revenues per each group:

Production * Pricing
Tesla valuation – Revenues sheet

Add Solar City revenues to the Energy generation and

Storage figures and calculate historical revenue growth
of the combined units to account for the Solar City
merger. Then use these figures to project year on year
growth rate.
Tesla valuation – Margins automotive

Consider historical margins for Model S and Model X. Then,

work with hypothetical margins for the low-cost Model 3
(some believe it would have negative profitability) and
future models that will be introduced by the company.
Tesla valuation – Margins automotive

Margin (Modes and Model X) * Revenue

= Gross Profit
Tesla valuation – Margins other

As we did with revenues, add Solar City’s Gross profit

data and use historical figures to predict the margins of
the Energy generation and Storage division.
Tesla valuation – Cost of sales

Calculate Cost of sales of the three main categories:

Cost of Sales = - (Revenues – Margins)
Tesla valuation – Opex

Calculate Opex as a % of Revenues

We assume Tesla will improve its Opex efficiency once the “production
hell of 2017” gets resolved and they can focus on Opex efficiencies.
There is no reason their Opex spending shouldn’t be in line with the
percentage larger auto producers spend.
Tesla valuation – Fixed asset roll forward

Historical D&A figures taken from Tesla’s annual

reports (cash flow section)
Tesla valuation – Fixed asset roll forward

Calculate historical Capex as:

Ending PP&E – Beginning PP&E – D&A
(because we have the formula
Beginning PP&E + Capex – D&A = Ending PP&E)
Tesla valuation – Fixed asset roll forward

Use historical figures to calculate Capex as

a percentage of revenues

Create the three

scenarios assuming
different levels of
Capex spending
Tesla valuation – Fixed asset roll forward

Calculate annual depreciation in the following way:

Year 1: Ending PP&E 2017 / Useful life historical assets + Capex/Useful life Capex
Year 2-10: Capex/Useful life Capex
Tesla valuation – Working capital

Calculate historical DSO, DIO, and DPO (we

have done it in the Balance Sheet Input sheet)
Tesla valuation – Working capital

To calculate Trade receivables in the forecast period:

DSO * Revenues / 360
To calculate Inventory in the forecast period:
DIO * Cost of sales / 360
To calculate Trade payables in the forecast period:
DPO * Cost of sales / 360
Tesla valuation – Working capital

To calculate Trade receivables in the forecast period:

DSO * Revenues / 360
To calculate Inventory in the forecast period:
DIO * Cost of sales / 360
To calculate Trade payables in the forecast period:
DPO * Cost of sales / 360
Tesla valuation – Financing

Assume cost of debt remains constant

throughout the entire forecast period
Tesla valuation – Financing

Interest expense = Long-term debt * Interest rate

Tesla valuation – Financing

Given that the company produces negative cash flows, it will

need additional financing during the forecast period. Here (on the
left side), we assume such additional financing is covered with
50% debt and 50% equity. These percentages can be easily
changed to test different hypothesis.
Tesla valuation – WACC

Calculate cost of equity using the CAPM:

Risk-free + Beta * Market risk premium
Tesla valuation – WACC

Use Tesla’s current YTM as cost of debt

Tesla valuation – WACC

Calculate the portion of debt and

equity financing
Tesla valuation – WACC

WACC = E / (D+E) * Cost of equity + D / (D+E) * Cost of debt * (1-t)

Output
Tesla valuation – P&L

Fill in the P&L sheet with available information and calculate Taxes. We assume that
when EBT is negative, the company will pay 0 corporate income taxes.
Tesla valuation – Balance sheet

Fill in the Balance Sheet with the items we have

already forecasted. Model the rest of the Balance
Sheet as flat or as items growing in sync with
revenues. If we assume an item grows in sync with
revenues, then this means it is an essential part of the
firm’s operations and the company must increase it to
expand its business.
Tesla valuation – Cash flow

Start the cash flow calculation by

calculating Operating taxes, which would
allow us to calculate NOPAT
(Net Operating Profit After Tax)
Tesla valuation – Cash flow

Add-back D&A to obtain Gross Cash

Flow. D&A is a non-cash expense.
Tesla valuation – Cash flow

Unlevered Free Cash Flow = Gross Cash Flow +(-) Investments in Working capital –
Capex +(-) Change in Other assets +(-) Change in Other liabilities
Tesla valuation – Cash flow

To reconcile Unlevered Free Cash Flow and Net Cash Flow, we must consider all
items related to the financial structure of the firm (interest expenses, financial
liabilities, and equity) and adjust for the difference between taxes in the P&L and
Operating taxes we calculated here.
Tesla valuation – DCF

Assuming a 2% perpetuity growth rate

(growth rate after the explicit forecast period). Some
industry practitioners use 3% alternatively. This input
is easily changed and tested.
Tesla valuation – DCF

Calculating Continuing Value

(what the firm’s business is worth
after the explicit forecast period
Tesla valuation – DCF

Calculating present value of Continuing

Value (we are valuing the company
today, hence we must discount the
company’s Continuing Value)
Tesla valuation – DCF

Calculating the sum of all discounted cash

flows during the explicit forecast period
Tesla valuation – DCF

Enterprise Value = Present value of cash flows + Present value of Continuing value
Tesla valuation – DCF

Equity Value = Enterprise Value + Cash – Financial Liabilities

Tesla valuation – DCF

Divide Equity value by Total number of shares

outstanding to obtain Price per share
Tesla valuation – DCF

Prepare a sensitivity analysis to see the

company’s valuation using different perpetuity
growth and WACC figures