Valuation of Tesla: A Strategic and Financial Analysis of Tesla Based on Fundamentals

Abstract

This thesis estimates the intrinsic value of Tesla as of February 14th, 2023, following the release of the company's annual report for the fiscal year of 2022. Here, the intrinsic value denotes a fundamental value that is independent from the market’s estimate. This value is estimated by the combination of a strategic and financial analysis. The strategic analysis examines the company from a macro, industry and company level as to incorporate all facets of the firm and what is likely impact its true value. The financial analysis includes a profitability analysis by decomposing the financial value drivers within the last five years. In addition, it also includes an examination the development of key accounting items’ development in the period. The strategic and financial analysis are combined to forecast the company’s expected future performance via the construction of pro forma statements. The pro forma statements are then utilized for a valuation. This thesis conducts net present value approach by applying the discounted cash flow model and the economic value added model. The two models, along with other assessment approaches are employed to ensure consistency and articulation in the valuation. Finally, this thesis reexamines the presented findings by discussing topics that might have pushed the historical share price away from its intrinsic value.
The thesis finds that multiple external strategic factors are likely to affect the company’s value, such as developments in economies, trends in the populations and governments as they show increasing interests in sustainability and the automotive industry. Within the industry, suppliers and incumbent competing firms are the most likely to negative impact Tesla’s future prospects due to habits of consolidation and an expected lack of access to crucial inputs for the automakers. However, this thesis illustrates important competitive advantages that are essential to be capitalized upon in order to combat potential the negative factors impacting the automotive industry. Tesla’s financial performance from 2018-2022 shows an incredibly impressive development, as the companies manages to become profitable for the first time, strong utilization of invested capital and stellar revenue growth rates. The strategic and financial analysis are combined to produce a favorable forecast, which is then used to conduct a valuation. This valuation concludes in a value per share of 191,14 dollars as of February 14th, 2023, while the historical share price was 209,25, which showcases that the share was overvalued. Finally, this thesis presents multiple topics such topics within behavioral finance that are likely to have affected the price and push it too high compared to the intrinsic value.