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Tesla, Inc. (TSLA)

September 13, 2024

Compared to: General Motors Co. (GM) | Uber Technologies, Inc. (UBER) | Consumer Discretionary Select Sector SPDR Fund (XLY)

Our reasoning

Tesla's current valuation appears moderately overvalued based on its significantly higher P/E and EV/EBITDA ratios compared to peers, declining profitability, and increasing debt levels. While the company has strong growth prospects in autonomous driving and energy storage, these opportunities seem to be overly reflected in the current stock price, not adequately accounting for increasing competition and regulatory risks.

Key takeaways
  • Tesla is a leading EV and clean energy company with a strong brand, innovative products, and aggressive growth strategy.
  • The company's financial performance has been strong, with record quarterly revenues and robust growth in the energy storage business. However, profitability is under pressure due to rising costs and investments in growth.
  • Tesla's operational efficiency is improving, but the company's high capital expenditures could potentially limit its ability to further improve efficiency.
  • Tesla's growth opportunities are significant, as the company is expanding its manufacturing capacity, developing new technologies, and exploring new markets. However, the company's management team has a history of making bold predictions and setting ambitious goals, and it has faced challenges in meeting its targets in the past.
  • Tesla's valuation metrics are significantly higher than those of its peers, suggesting that investors are placing a premium on the company's growth potential. However, the company's stock price has been volatile in recent years, with periods of both significant gains and losses.
  • Tesla's future outlook is uncertain, as the company faces several challenges. However, the company's strong brand, innovative products, and aggressive growth strategy could position it for continued success in the long term.
Overvalued
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Evaluation summary

  1. Company Overview:

    • Tesla, Inc. (TSLA) is a leading electric vehicle (EV) and clean energy company, operating in the automotive and energy generation and storage industries. The company designs, develops, manufactures, sells, and leases high-performance fully electric vehicles, solar energy generation systems, and energy storage products. Its key products include the Model 3, Model Y, Model S, Model X, Cybertruck, and energy storage products like Powerwall and Megapack. Tesla sells its vehicles directly to customers through an international network of company-owned stores and galleries. The company faces competition from established automakers like General Motors (GM) and new entrants in the EV and energy storage markets, such as Uber Technologies (UBER). We will be using GM and UBER as industry peers for comparative analysis, and the Consumer Discretionary Select Sector SPDR Fund (XLY) as a benchmark for price performance analysis.

  2. Financial Performance:

    • Tesla's revenue has been growing steadily, driven by strong demand for its EVs and energy storage products. The company reported record quarterly revenues of $25.5 billion in Q2 2024, with strong performance in the energy storage business. Automotive deliveries increased sequentially, though revenue per unit was impacted by the company's efforts to improve affordability through attractive financing options. Regulatory credit revenues reached a new high, though their future demand is dependent on other OEMs' plans and regulatory changes.
    • Tesla's profitability has been declining, reflecting the pressure on margins and the impact of non-recurring items. The company's profitability is under pressure due to rising costs and investments in growth. The company's profitability is expected to improve as it scales its operations and achieves greater efficiencies.
    • Tesla's return on assets (ROA), return on equity (ROE), and return on invested capital (ROIC) have been declining in recent quarters. This suggests that the company is facing challenges in generating returns on its assets and investments.
    • Compared to its peers, Tesla has underperformed both GM and UBER in terms of profitability and return on assets. However, Tesla's ROIC has been higher than both GM and UBER, indicating that the company is generating a higher return on its invested capital.

  3. Operational Efficiency:

    • Tesla's asset utilization efficiency appears to be improving, as evidenced by the increasing return on assets and return on equity. However, the company's high capital expenditures could potentially limit its ability to further improve efficiency.
    • Tesla's working capital management has been inconsistent, with fluctuations in its current ratio and quick ratio. This suggests that the company may face challenges in managing its short-term liquidity.
    • Tesla's cash flow from operations has been declining, which could be attributed to factors such as increased competition, rising costs, and macroeconomic headwinds. The company's capital expenditures have been increasing at a faster rate than depreciation, indicating a significant investment in growth.
    • Tesla's free cash flow margin has been increasing, indicating that it is generating more free cash flow relative to its sales. However, the company's free cash flow to equity has been fluctuating, suggesting potential volatility in its cash flow performance.
    • Tesla's debt-to-equity ratio has been increasing, indicating that the company is relying more heavily on debt financing. This could pose a risk to its financial stability, especially if interest rates rise or economic conditions deteriorate.
    • Compared to its peers, Tesla has a higher debt-to-equity ratio and a lower current ratio than both GM and UBER. This suggests that Tesla has a higher level of financial leverage and a lower level of short-term liquidity than its peers.

  4. Growth Opportunities:

    • Tesla is aggressively expanding its manufacturing capacity and product lineup, including new models like the Cybertruck, while also investing heavily in autonomous driving and AI technologies. The company is also expanding its Supercharger network and exploring new markets, such as the Chinese market.
    • Tesla is investing heavily in R&D, AI, and autonomous driving capabilities. The company is confident in its ability to achieve unsupervised full self-driving capability, potentially by the end of 2024 or early 2025.
    • Tesla's strategic focus areas include expanding its global manufacturing capacity, developing new technologies, and increasing its market share in the EV and energy storage markets. The company is also exploring new opportunities, such as the development of Optimus, a humanoid robot.
    • Tesla's management team has a history of making bold predictions and setting ambitious goals. However, the company has also faced challenges in meeting its targets in the past.

  5. Risks and Threats:

    • Tesla faces several risks, including competition, supply chain disruptions, regulatory changes, cybersecurity risks, and macroeconomic conditions.
    • The company's reliance on suppliers, including single-source suppliers, could expose it to supply chain disruptions.
    • The regulatory environment for electric vehicles and self-driving technology continues to evolve, creating both opportunities and challenges for Tesla.
    • Tesla's high capital expenditures could potentially limit its ability to further improve efficiency and profitability.
    • The company's increasing debt levels could pose a risk to its financial stability, especially if interest rates rise or economic conditions deteriorate.

  6. Valuation Analysis:

    • Tesla's valuation metrics, such as its price-to-earnings (P/E) ratio and enterprise value-to-EBITDA (EV/EBITDA) ratio, are significantly higher than those of its peers. This suggests that investors are placing a premium on Tesla's growth potential and its position as a leader in the EV market.
    • Compared to its peers, Tesla's valuation metrics are significantly higher than those of both GM and UBER. This suggests that investors are willing to pay a higher price for Tesla's growth potential and its position as a leader in the EV market.

  7. Price Performance:

    • Tesla's stock price has been volatile in recent years, with periods of both significant gains and losses. The company's stock price has underperformed both GM and UBER over the past three years, with significantly lower returns in most periods. However, TSLA has outperformed both companies in the 3-month period.
    • Tesla's stock price has also underperformed the Consumer Discretionary Select Sector SPDR Fund (XLY) over the past three years, with particularly significant underperformance in the 1-year, 2-year, and 3-year periods. This suggests that TSLA has struggled to keep pace with the broader consumer discretionary sector.
    • Tesla's beta value has consistently been higher than both GM and UBER, indicating that it is more sensitive to market movements and has a higher risk profile.

  8. Future Outlook:

    • Tesla's management team is confident in the company's ability to achieve unsupervised full self-driving capability, potentially by the end of 2024 or early 2025. The company is also investing heavily in AI infrastructure, including a new 50,000 GPU cluster, to support its autonomous driving and Optimus humanoid robot initiatives.
    • Tesla's future outlook is uncertain, as the company faces several challenges, including competition, regulatory changes, and macroeconomic conditions. However, the company's strong brand, innovative products, and aggressive growth strategy could position it for continued success in the long term.

  9. Summary:

    • Tesla is a leading EV and clean energy company with a strong brand, innovative products, and aggressive growth strategy. However, the company faces several challenges, including competition, regulatory changes, and macroeconomic conditions.
    • Tesla's financial performance has been strong, with record quarterly revenues and robust growth in the energy storage business. However, the company's profitability has been declining, reflecting the pressure on margins and the impact of non-recurring items.
    • Tesla's operational efficiency is improving, but the company's high capital expenditures could potentially limit its ability to further improve efficiency.
    • Tesla's growth opportunities are significant, as the company is expanding its manufacturing capacity, developing new technologies, and exploring new markets. However, the company's management team has a history of making bold predictions and setting ambitious goals, and it has faced challenges in meeting its targets in the past.
    • Tesla's valuation metrics are significantly higher than those of its peers, suggesting that investors are placing a premium on the company's growth potential. However, the company's stock price has been volatile in recent years, with periods of both significant gains and losses.
    • Tesla's future outlook is uncertain, as the company faces several challenges. However, the company's strong brand, innovative products, and aggressive growth strategy could position it for continued success in the long term.
Peer fundamentals 

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Fundamentals
Insights
  • Tesla's revenue growth is strong, but it is facing increasing competition in both its automotive and energy storage businesses.
  • The company's profitability is under pressure due to rising costs and investments in growth.
  • Tesla's liquidity position appears strong, with a significant amount of cash and short-term investments. However, the company's increasing reliance on debt financing could potentially strain its liquidity in the future.
  • The company's long-term solvency appears healthy, with a strong equity base and a growing asset base. However, the company's increasing debt levels could pose a risk to its financial stability, especially if interest rates rise or economic conditions deteriorate.
  • Tesla's cash flow from operations has been declining, which could be attributed to factors such as increased competition, rising costs, and macroeconomic headwinds.
  • The company's capital expenditures have been increasing at a faster rate than depreciation, indicating a significant investment in growth.
  • The company's free cash flow is expected to remain positive, which could provide it with the financial flexibility to repay debt, invest in growth opportunities, and potentially return value to shareholders.
  • The company's announced strategic initiatives, such as the development of Optimus and the expansion of its Supercharger network, are likely to have a significant impact on its future cash flows and earnings.
Analysis
  • Revenue - Tesla's revenue has been growing steadily, driven by strong demand for its electric vehicles and energy storage products. - The company's revenue growth is being driven by the increasing demand for electric vehicles and energy storage products, as well as the company's expansion into new markets. - The company's revenue growth is expected to continue, driven by the increasing demand for electric vehicles and energy storage products.
    • Profitability
      • Tesla's profitability has been declining, reflecting the pressure on margins and the impact of non-recurring items.
      • The company's profitability is under pressure due to rising costs and investments in growth.
      • The company's profitability is expected to improve as it scales its operations and achieves greater efficiencies.
    • Liquidity
      • Tesla's liquidity position appears strong, with a significant amount of cash and short-term investments.
      • The company's increasing reliance on debt financing could potentially strain its liquidity in the future.
      • The company's short-term liquidity position appears strong, with a significant amount of cash and short-term investments.
    • Solvency
      • Tesla's long-term solvency appears healthy, with a strong equity base and a growing asset base.
      • The company's increasing debt levels could pose a risk to its financial stability, especially if interest rates rise or economic conditions deteriorate.
      • The company's long-term solvency appears healthy, with a strong equity base and a growing asset base.
    • Operational Efficiency
      • Tesla's asset utilization efficiency appears to be improving, as evidenced by the increasing return on assets and return on equity.
      • The company's high capital expenditures could potentially limit its ability to further improve efficiency.
      • The company's free cash flow margin has been increasing, indicating that it is generating more free cash flow relative to its sales.
    • Cash Flow Analysis
      • Tesla's cash flow from operations has been declining, which could be attributed to factors such as increased competition, rising costs, and macroeconomic headwinds.
      • The company's capital expenditures have been increasing at a faster rate than depreciation, indicating a significant investment in growth.
      • The company's free cash flow is expected to remain positive, which could provide it with the financial flexibility to repay debt, invest in growth opportunities, and potentially return value to shareholders.
    • Risk Factors
      • The company's increasing reliance on debt financing could potentially strain its liquidity in the future.
      • The company's increasing debt levels could pose a risk to its financial stability, especially if interest rates rise or economic conditions deteriorate.
      • The company's high capital expenditures could potentially limit its ability to further improve efficiency.
      • The company's net income growth has been outpaced by its operating cash flow growth, suggesting that its earnings may not be fully reflective of its underlying cash flow performance.
      • The company's cash flow to net income ratio has been fluctuating, indicating potential volatility in its earnings quality.
      • The company's tax rate has been volatile, which could be a cause for concern.
    • Future Outlook
      • Tesla's balance sheet is likely to continue to grow in the coming quarters, driven by its expansion plans and investments in new technologies.
      • The company's financial flexibility will be impacted by its ability to manage its debt levels and generate sufficient cash flow to cover its capital expenditures.
      • The company's profitability is expected to improve as it scales its operations and achieves greater efficiencies.
      • The company's revenue growth is expected to continue, driven by the increasing demand for electric vehicles and energy storage products.
      • The company's announced strategic initiatives, such as the development of Optimus and the expansion of its Supercharger network, are likely to have a significant impact on its future cash flows and earnings.
Most recent earnings report
Financial statements 

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All public filings
Comparative Analysis
Benchmarks (as of 2024-08-29)
Consumer Discretionary Select Sector SPDR Fund (XLY)
  • Performance Comparison:
    • TSLA has generally underperformed XLY over the past three years, with particularly significant underperformance in the 1-year, 2-year, and 3-year periods. This suggests that TSLA has struggled to keep pace with the broader consumer discretionary sector.
    • TSLA's performance has been inconsistent relative to XLY, with periods of outperformance and underperformance. This suggests that TSLA's performance is more volatile and less predictable than XLY's.
  • Risk and Return Analysis:
    • TSLA has provided lower annualized returns than XLY over the past three years. This suggests that TSLA has not been as profitable as XLY.
    • TSLA has exhibited significantly higher annualized volatility than XLY, indicating that TSLA is a riskier investment.
    • TSLA has experienced significantly larger drawdowns than XLY, with its maximum drawdown exceeding XLY's by a significant margin. This further reinforces the notion that TSLA is a riskier investment than XLY.
  • Risk-Adjusted Performance:
    • XLY has consistently offered a better risk-adjusted return than TSLA, as evidenced by its higher Sharpe ratio. This suggests that XLY has been more efficient at generating returns relative to its risk.
    • TSLA's beta value has consistently been higher than XLY's, indicating that TSLA is more sensitive to market movements. This suggests that TSLA is a riskier investment than XLY.
  • Overall Assessment:
    • TSLA has underperformed XLY in terms of both absolute and risk-adjusted returns over the past three years. This suggests that TSLA has not been as profitable as XLY and has been more volatile.
    • TSLA's higher volatility and larger drawdowns indicate that it is a riskier investment than XLY.
    • While TSLA has experienced periods of outperformance, its overall performance has been inconsistent, making it a less predictable investment than XLY.
    • Investors considering TSLA should be aware of its higher risk profile and its potential for significant drawdowns.
Peers Price History(as of 2024-08-29)
General Motors Co. (GM)Uber Technologies, Inc. (UBER)
  • Performance Comparison:
    • TSLA has generally underperformed both GM and UBER over the past three years, with significantly lower returns in most periods. However, TSLA has outperformed both companies in the 3-month period.
    • TSLA's performance has been inconsistent relative to its peers, with periods of both outperformance and underperformance.
  • Risk and Return Analysis:
    • TSLA has provided lower annualized returns than both GM and UBER over the past three years.
    • TSLA has been significantly more volatile than both GM and UBER, with higher annualized volatility values.
    • TSLA has experienced the largest maximum drawdown of 73.63% in Q1 2023, compared to GM's 58.96% in Q4 2023 and UBER's 67.62% in Q2 2022. This indicates that TSLA has a higher risk profile than both GM and UBER.
  • Risk-Adjusted Performance:
    • TSLA's Sharpe Ratio has been consistently lower than both GM and UBER, indicating that it has offered a lower risk-adjusted return.
    • TSLA's beta value has been consistently higher than both GM and UBER, indicating that it is more sensitive to market movements and has a higher risk profile.
  • Overall Assessment:
    • TSLA has underperformed both GM and UBER in terms of returns, but it has also been significantly more volatile and has experienced larger drawdowns. This suggests that TSLA is a higher-risk investment than both GM and UBER.
    • TSLA's Sharpe Ratio has been consistently lower than both GM and UBER, indicating that it has offered a lower risk-adjusted return.
    • TSLA's beta value has been consistently higher than both GM and UBER, indicating that it is more sensitive to market movements and has a higher risk profile.
    • Overall, TSLA's performance, risk, and risk-adjusted performance have been less favorable than those of GM and UBER. Investors should carefully consider these factors before making any investment decisions.
Peers Fundamentals(as of 2024-06-30)
General Motors Co. (GM)Uber Technologies, Inc. (UBER)
  1. Market Position and Size:
    • TSLA holds a dominant market position within its peer group, with a market capitalization significantly larger than both GM and UBER. This dominance is further emphasized by its relatively smaller revenue and profitability compared to GM, suggesting that the market is placing a high value on TSLA's future potential and its position as a leader in the electric vehicle market.
  2. Profitability and Efficiency:
    • TSLA's profitability metrics are mixed compared to its peers and industry averages. While its operating efficiency is relatively strong, its cost structure and expenses are relatively high, resulting in lower profitability margins compared to its peers. However, TSLA's high ROA, ROE, and ROIC indicate that it is effectively utilizing its assets, shareholders' equity, and invested capital to generate profits.
  3. Financial Health and Stability:
    • TSLA's liquidity position is relatively strong, but its debt position is relatively high compared to its peers and industry averages. While its debt burden is manageable, its high debt level could increase its financial risk.
  4. Valuation and Market Perception:
    • TSLA's valuation metrics are significantly higher than its peers and industry averages, reflecting the market's high expectations for its future growth and profitability. This premium valuation suggests that investors are optimistic about TSLA's long-term prospects and its ability to maintain its market leadership in the electric vehicle sector.
  5. Cash Flow and Capital Management:
    • TSLA's cash flow generation strength is relatively strong compared to its size and peers. Its positive free cash flow indicates that TSLA is generating sufficient cash to fund its operations and investments, but its lower capital expenditure compared to its peers suggests a more conservative approach to capital allocation.
  6. Growth and Future Prospect:
    • TSLA's growth trends are mixed compared to its peers and industry averages. While it shows consistently higher growth in sales/revenue, EBITDA, net income, and basic earnings per share compared to the peer group average, its growth rates have been volatile, with significant year-to-year fluctuations. Additionally, its profitability and cash flow generation have been decelerating in recent years, which could be a potential red flag.
  7. Potential for Investment:
    • TSLA's investment attractiveness is a complex issue, with both potential advantages and disadvantages. Its strong growth potential, dominant market position, and high valuation suggest a compelling investment opportunity. However, its volatile growth rates, declining profitability and cash flow generation, and high debt level raise concerns about the sustainability of its growth and its financial risk profile.
  8. Key Risks and Considerations:
    • Investors should be aware of the following key risks and considerations:
      • Volatile Growth Rates: TSLA's growth has been inconsistent, and its future growth may be subject to external factors or changes in its business strategy.
      • Declining Profitability and Cash Flow Generation: TSLA's profitability and cash flow generation have been decelerating in recent years, which could impact its ability to fund future growth and investments.
      • High Debt Level: TSLA's high debt level could increase its financial risk and limit its flexibility in responding to market changes.
      • Competition: TSLA faces increasing competition from both established and emerging players in the electric vehicle market, which could impact its market share and profitability.
  9. Overall Assessment:
    • TSLA's overall financial position, performance, and outlook are characterized by a mix of strengths and weaknesses. While its strong growth and efficiency in generating returns are positive indicators, its volatile growth, declining profitability, and high debt level require careful monitoring and consideration. Its ability to maintain its market leadership and profitability will depend on its ability to innovate, expand its production capacity, and manage its costs effectively.