Tesla and the CEO Reputation Premium: A Valuation-based Approach

Lars Harald Hartzen

Student thesis: Master thesis

Abstract

The modern economy has in recent decades witnessed a profound shift from being one where the primary driver of value for companies were their tangible assets to one where value is increasingly derived from intangible assets. Within the various types of intangible assets, one of the hardest to value is reputation. As such, this thesis will examine the degree to which Tesla was selling at a premium as of January 1, 2019, and the degree to which this can reasonably be attributed to a hypothesized CEO reputation premium. Existing literature and empirical findings on the subjects how that there is a theoretical case to be made for the existence of such a premium, but also show a dearth of valuation-based studies quantifying said premium. The thesis thus sets out to quantify Tesla’s CEO reputation premium by conducting thorough valuation of Tesla based on the enterprise discounted cash flow method, grounded in strategic and financial analyses, and corroborated with supporting analyses, such as multiples, a regression and a (limited)survey.
The estimated enterprise value of Tesla is 60,242 million USD, which results in a share price of 248.59 USD. Comparing this valuation to Tesla’s current share price shows that Tesla is currently selling at a 33.9 percent premium. A combination of regression and survey analyses found that the CEO reputation premium for Tesla likely exists and that it is more likely than not to lie within a range of 33 to 37 percent of Tesla’s current market value.
The results have important implications for both investors and managers by highlighting the need to further develop valuation approaches when it comes to intangible assets and the importance of corporate governance and risk management to take CEO reputation into account from a shareholder value perspective.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2019
Number of pages92
SupervisorsCaspar Rose