Valuation of Tesla Motors Inc.

Nicoline Eeg Praem

Student thesis: Master thesis

Abstract

Tesla Motors, Inc. The purpose of this thesis is to determine value of one Tesla Motors share as of March 31st 2014. An analysis of external and industry specific factors will be followed by an internal analysis of the company, in order to identify the determinants of value creation. The thesis moves on to a financial analysis to determine the historical profitability of the company. The analysis is based on a reclassification and thorough assessment of financial statements. Based on the findings from the analysis, Tesla’s financial performance will be forecasted. A discounted cash flow model is used to determine the equity value, accompanied by a multiples and sensitivity analysis, to support the estimated value. Tesla Motors is an innovative manufacturer of premium electric vehicles and electric vehicle powertrains, with the characteristics of a disruptive company. Their current product portfolio includes the Model S luxury sedan. Upcoming products include the Model X in mid-2015 and the Gen 3, a lower priced vehicle in 2017. Tesla’s growth will depend on factors within the company’s control: project execution, store and infrastructure expansion, and quality, as well as external factors: economic development, gasoline prices and the development of battery costs. A key hurdle for Tesla is battery costs. For Tesla to drive electric vehicle adoption and become a mass-market player, battery costs must be reduced from the current estimated cost of USD 320 per kWh. As a young player in a competitive and capital-intensive industry, much of Tesla’s growth depends on proper execution of upcoming projects. In 2020, Tesla expects to produce at full capacity of 500,000 vehicles. I estimate unit sales of 398,000 and an EBITDA-margin of 14.5% in 2020. Based on my estimated value of USD 184.01, I see the current market price as expensive, supported by industry multiples. My estimate is lower than the current market value, indicating that most of the future profit potential is already priced in by the market.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2014
Number of pages130