Tesla, Inc.

Summary

• Tesla is on a mission to accelerate the world's transition to sustainable energy.
• The Stockhub company estimates that the expected return of an investment in the company over the next five years is 4.4x. In other words, an £1,000 investment in the company is expected to return £4,400 in five years time.

Operations

What's the mission of the company?

Tesla is a company that's on a mission to accelerate the world's transition to sustainable energy.

What's the main offerings of the company?

Model S

What is the offering?

Model S is an electric car.

Model 3

What is the offering?

Model 3 is an electric car.

Model X

What is the offering?

Model X is an electric car.

Model Y

What is the offering?

Model Y is an electric car.

Powerwall

What is the offering?

Powerwall is a home energy storage system (i.e. a type of battery).

Market

Total Addressable Market

Here, the total addressable market (TAM) is defined as the global sustainable energy market, and based on a number of assumptions, it is estimated that the size of the market as of today (18th March 2022), in terms of revenue, is $890 billion.

Serviceable Available Market

Here, the serviceable available market (SAM) is defined as the global electric vehicle market, and based on a number of assumptions, it is estimated that the size of the market as of today (18th March 2022), in terms of revenue, is $200 billion.

Serviceable Obtainable Market

Here, the serviceable obtainable market (SOM) is defined as the US electric vehicle market, and based on a number of assumptions, it is estimated that the size of the market as of today (18th March 2022), in terms of revenue, is $16 billion.

Team

Leadership

Chief Executive Officer

Elon Musk is the Chief Executive Officer of Tesla and has served the position since October 2008 and as a member of the Board since April 2004. Elon has also served as Chief Executive Officer, Chief Technology Officer and Chairman of Space Exploration Technologies Corporation, an advanced rocket and spacecraft manufacturing and services company (“SpaceX ”), since May 2002, and served as Chairman of the Board of SolarCity Corporation, a solar installation company, from July 2006 until its acquisition by us in November 2016. Elon is also a founder of The Boring Company, an infrastructure company, and of Neuralink Corp., a company focused on developing brain-machine interfaces. Prior to SpaceX, Elon co-founded PayPal, an electronic payment system, which was acquired by eBay in October 2002, and Zip2 Corporation, a provider of Internet enterprise software and services, which was acquired by Compaq in March 1999. Elon has also served on the board of directors of Endeavor Group Holdings, Inc. since April 2021. Elon holds a B.A. in physics from the University of Pennsylvania and a B.S. in business from the Wharton School of the University of Pennsylvania.

Chief Financial Officer

Zachary Kirkhorn is Chief Financial Officer of Tesla and served the position since March 2019. Previously, Zach served in various finance positions continuously since joining Tesla in March 2010, other than between August 2011 and June 2013 during which he attended business school, including most recently as Vice President, Finance, Financial Planning and Business Operations from December 2018 to March 2019. Zach holds dual B.S.E. degrees in economics and mechanical engineering and applied mechanics from the University of Pennsylvania and an M.B.A. from Harvard University.

Senior Vice President

Andrew Baglino has served as Tesla's Senior Vice President, Powertrain and Energy Engineering since October 2019. Previously, Drew served in various engineering positions continuously since joining Tesla in March 2006. Drew holds a B.S. in electrical engineering from Stanford University.

Valuation

What's the expected return of an investment in Stockhub?

The Stockhub company estimates that the expected return of an investment in the company over the next five years is 55x. In other words, an £1,000 investment in the company is expected to return £55,000 in five years time. The assumptions used to estimate the return figure can be found in the table below.

Assuming that a suitable return level over five years is 10% per year and Stockhub achieves its expected return level (of 55x), then an investment in the Stockhub company is considered to be a 'suitable' one.

For those in the UK: Stockhub is SEIS and EIS eligible, a key benefit of which is that those who invest now can claim back up to 50% of the investment amount in income tax relief. Accordingly, the estimated expected return of investing in the business is even higher for UK-citizens (than non-UK citizens).

What are the assumptions used to estimate the return?

Key inputs

Description	Value	Commentary
Which valuation model do you want to use?	Discounted cash flow	There are two main approaches to estimate the value of an investment: By calculating the present value of the investment's expected future cash flows (i.e. discounted cash flow valuation); and By comparing the investment to other similar investments (i.e. relative valuation). Research suggests that in terms of estimating the expected return of an investment over a period of 12-months or more, the approach that is more accurate is the discounted cash flow approach, so that's the approach that Stockhub suggests to use here; nevertheless, for completeness purposes, separately, the valuation of the company is also estimated using the using the relative valuation approach (the valuation based on the relative approach can be found in the appendix of this report).
Which financial forecasts to use?	Stockhub	The only available forecasts are the ones that are supplied by the Stockhub company (the forecasts can be found in the financials section of this report), so Stockhub suggests using those.
Growth stage 1
Discount rate (%)	25%	There are two key risk parameters for a firm that need to be estimated: its cost of equity and its cost of debt. A key way to estimate the cost of equity is by looking at the beta (or betas) of the company in question, the cost of debt from a measure of default risk (an actual or synthetic rating) and apply the market value weights for debt and equity to come up with the cost of capital. Research indicates that companies in the first stage of the business lifecycle are often held by either undiversified owners or by partially diversified venture capitalists. Consequently, it does not make sense to assume that the only risk that should be priced in is the market risk; the cost of equity has to incorporate some (in the case of venture capitalists) or maybe even all (for completely undiversified owners) of the firm specific risk.
Probability of success (%)	20%	Research suggests that a suitable rate for a company in this growth stage (i.e. stage 1) is 20%.
Growth stage 2
Discount rate (%)	15%	There are two key risk parameters for a firm that need to be estimated: its cost of equity and its cost of debt. A key way to estimate the cost of equity by looking at the beta (or betas) of the company in question, the cost of debt from a measure of default risk (an actual or synthetic rating) and apply the market value weights for debt and equity to come up with the cost of capital.
Probability of success (%)	50%	Research suggests that a suitable rate for a company in this growth stage (i.e. stage 2) is 50%.
Growth stage 3
Discount rate (%)	10%	There are two key risk parameters for a firm that need to be estimated: its cost of equity and its cost of debt. A key way to estimate the cost of equity by looking at the beta (or betas) of the company in question, the cost of debt from a measure of default risk (an actual or synthetic rating) and apply the market value weights for debt and equity to come up with the cost of capital.
Probability of success (%)	100%	Research suggests that a suitable rate for a company in this growth stage (i.e. stage 3) is 100%.
Growth stage 4
Discount rate (%)	10%	There are two key risk parameters for a firm that need to be estimated: its cost of equity and its cost of debt. A key way to estimate the cost of equity by looking at the beta (or betas) of the company in question, the cost of debt from a measure of default risk (an actual or synthetic rating) and apply the market value weights for debt and equity to come up with the cost of capital.
Probability of success (%)	100%	Research suggests that a suitable rate for a company in this growth stage (i.e. stage 4) is 100%.
Other key inputs
What's the current value of the company?	£4,000,000	As at 23rd February 2022, the Stockhub company estimates the current value of its company at £4 million.
Which time period do you want to use to estimate the expected return?	Between now and five years time	Stockhub suggests that to account for general market cyclicity, it's best to estimate the expected return of the company between now and five years time.

Sensitive analysis

The main inputs that result in the greatest change in the expected return of the Stockhub investment are, in order of importance (from highest to lowest):

1. The discount rate (the default time-weighted average rate is 15%);
2. The probability of success rate (the default time-weighted average rate is 71%); and
3. Stockhub peak market share (the default share is 2%)

The impact of a 50% change in those main inputs to the expected return of the Stockhub investment is shown in the table below.

Stockhub investment expected return sensitive analysis

Main input	50% worse	Unchanged	50% better
The discount rate	10x	55x	412x
The probability of success rate	14x	55x	88x
Stockhub peak market share	27x	55x	82x

Appendix

Relative valuation approach

What's the expected return of an investment in Tesla?

Accordingly, Stockhub estimates that the expected return of an investment in Tesla Inc over the next five years is 4.4x. In other words, an £1,000 investment in the company is expected to return £4,400 in five years time.

The return figure estimate is based on the following key assumptions: an industry (online advertising) standard growth-adjusted enterprise value/sales multiple of 89x, Stockhub's year-5 revenue estimate (of $82.8 billion), Stockhub's year-6 to year-8 compound annual growth rate estimate (of 53.80%), net cash of ccc and the current estimated company valuation (of $900.80 billion).

The calculation is as follows: (89 x $82.8 billion x 0.538) / $900.80 billion = 4.4x.

What are the assumptions used to estimate the return figure?

Key inputs

Description	Value	Commentary
Which type of multiple do you want to use?	Growth-adjusted EV/sales	For the numerator, Stockhub believes that to account for the different financial leverage levels of its peers, it's best to use enterprise value (EV), rather than price. For the denominator, Stockhub believes that because it expects Tesla to reinvest almost all of its revenue back into the business over the five year forecast period and therefore its earnings are expected to be abnormally low over the period, it's best to use sales. Accordingly, Stockhub suggests valuing its company using the EV/sales ratio. However, Stockhub feels that to take into account the different business lifecycle stages of its peers, the most suitable valuation multiple to use is the growth-adjusted EV/sales multiple, rather than the EV/sales multiple.
In regards to the growth-adjusted EV/sales multiple, for the sales figure, which year to you want to use?	Year 5	Stockhub suggests that with sales forecast to grow exponential over the five year forecast period, it's best to use forward-looking data, rather than historic data. In regards to the growth-adjusted EV/sales multiple, for the sales figure, Stockhub suggests that in order to account for the forecasted exponential growth of the business, it's best to use one at the end of the forecast period (i.e. Year 5).
In regards to the growth-adjusted EV/sales multiple, for the sales growth figure, which year(s) do you want to use?	Year 6 to 8, from now	Stockhub suggests that for the sales growth figure, it's best to use Year 6 to 8.
In regards to the growth-adjusted EV/sales multiple, what multiple figure do you want to use?	89x	In Stockhub's view, Tesla closest peer is Apple. Apple trades on a multiple of 89x.
Which financial forecasts to use?	Stockhub	The only available forecasts are the ones that are supplied by the Stockhub company (the forecasts can be found in the financials section of this report), so Stockhub suggests using those.
What's the current value of the Stockhub company?	$688 billion	As at 21st May 2022, the current value of its company at $688 billion.
Which time period do you want to use to estimate the expected return?	Between now and five years time	Stockhub suggests that to account for general market cyclicity, it's best to estimate the expected return of the company between now and five years time.

Tesla peer(s)

Valuation table

Investments	Industry	Enterprise value/sales	1-year forward revenue growth rates (%)	Growth-adjusted enterprise value/sales ratio
Apple Inc.	Internet content & communication	7.27x	8.20%	89x

Actions

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