Sluggish Competitors are Driving Extra Value into Tesla's Future Growth

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The electric vehicle market is actively developing. Thanks in large part to Tesla, owning an EV is not only about supporting the environment; EVs are also highly desirable to drive, they are fun and fast, high-tech and extremely safe, and now increasingly affordable. Teslas, in particular, also hold incredible resale value.

The California-based company is working with an important goal: to help expedite the move from a mine-and-burn hydrocarbon economy towards a solar electric economy. This is why it is essential to drastically alter how the world views electric cars. EVs must be more desirable to own than fossil fuel dependent cars, and on a on a global level.

After just 17 years, Tesla has already achieved immense success, creating some of the most coveted cars in the world. The company's efforts are now focused on making them as affordable as possible. While other automakers are trying to figure out how they can create an EV that can surpass Tesla, the Californian company has already already lapped its "rivals" several times.

@jpr007/Twitter, did an analysis to show how competitors are driving extra value into Tesla's future growth. Let's dive into his analysis.

In all of his analyses, @jpr007 uses a volume projection for Tesla that deserves further examination. It is driven by observing the company’s historical growth.

This translates into a current ~ 50% per annum growth rate.



@jpr007 has extended that + 50% per annum growth rate through 2027.



Assuming the rest of the industry keeps up with Tesla's growth, overall projected industry BEV penetration would be depicted by this S-Curve:



After 2027, the industry growth rate would start to reverse as the market became increasingly saturated.



This approach gives a steady 20% BEV Global Market Share GMS for Tesla, far out into the future, as illustrated here:



The problem here, though, is that other automakers are already failing to keep up with Tesla's growth:

• Tesla GMS for 2019 was already reaching 22.5%
• Tesla GMS for 2020 H1 has now risen to 28.2%

The other industry participants are not projecting the necessary volumes in either their vehicle planning nor their Battery Supplies.

• They are moving too slowly
• The Market Leader is continuing to outdistance them

This means that industry volumes from players other than Tesla will not be at the levels of market development that previously had been assumed. And therefore, it will not be necessary to assume the slowdown in Tesla’s growth that @jpr007 used for the Blue bars in this diagram.



Consequently, @jpr007 revised projections for Tesla volumes at a constant + 50% per annum rate of growth:

• This shows the clear potential for Tesla to be delivering more than 20 million vehicles by 2028
• Even as much as 50 million vehicles by 2030

These numbers are not driven by some “let’s gain market share” strategy but are simply a practical response to compensate for the failure of other participants to supply the market with sufficient volume.

Just taking it at the simplest level, he reworks this 2031 chart for 2028:

• With 20 million units at the same $40,000 ASP, we would see $800 billion of Revenue
• With the same 26% Gross Margin we would see $208 billion of Gross Profit (note, this is the updated @jpr007 projection, after a correction was made)
• With the same 5% R&D and 2.5% SG&A we would see the same 18.5% Operating Margin, yielding $148 billion of Operating Profit
• With the same 20% Income Tax rate we would see $118.4 billion of Net Income.

Applying the same Price / Sales Ratio of 1.5x would give us a 2028 Valuation of $1,200 billion. Applying the same Price / Earnings Ratio of 10x would give us a 2028 Valuation of $1,184 billion. And most importantly this is happening 3 years earlier than @jpr007's current 2031 Base Case. If we assume the same 25% dilution this would give us a 2028 Stock Price of $1,053.20 per share (Pre-Split $5,266) or + 21.7% above the Base Case of $865.60 per share (Pre-Split $4,328).



Furthermore, @jpr007 uses a fairly conservative P/E Multiple of 10x, representing the historical low end of S&P Valuations.



If he takes instead a reasonable historical upper end of 20x for the S&P, @jpr007 can simply double the above valuations and get $3,442 per share in 2020.

Tesla's value continues to grow in part thanks to--unfortunately--the lethargy of its competitors. While it may be positive for the company's growth, the world needs faster EV adoption, which is Tesla's and Elon Musk's very mission.

In that sense, Tesla's competitors ought to really be considered its allies. Yet, thus far, instead of other automakers accelerating efforts to achieve this critical goal, they continue to be bogged down in a quest for the Holy Grail: The "Tesla Killer." Here's the thing: Automakers don't have to outdo Tesla to make compelling EVs. But they do need to make compelling EVs, if they wish to weather the solar-electric storm that is charging their way.

© 2020, Eva Fox. All rights reserved.

Legal Disclaimer --

This article is for informational purposes only. You should not construe any such information or other material as an investment, financial, or other advice. Nothing contained in this article constitutes a solicitation, recommendation, endorsement, or offer by Eva Fox, Tesmanian, or any third party service provider to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction.

Eva Fox holds zero shares of Tesla, Inc., and currently (at the time of this article's publishing) holds zero options or securities in Tesla Inc. and/or its affiliates.

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