Autonomous Ambitions, AI Innovations, And Battery Boost Confront Margin Pressure And Valuation Challenges

Key Takeaways

• Expansion into autonomous vehicles, energy storage, and robotics suggests diverse future revenue streams supporting optimistic stock valuations.
  
• Cost advantages from 4680 battery cells and affordable models boost production efficiency and market penetration, justifying higher future profitability.
  
• Tesla's diversification into energy storage and advancements in autonomous tech potentially enhance revenue, profitability, and financial stability through cost efficiency and high-margin software.

Catalysts

Designs, develops, manufactures, leases, and sells electric vehicles, and energy generation and storage systems in the United States, China, and internationally.

• Tesla's ambitious plans for autonomous vehicles and ride-hailing services, including the rollout of Cybercabs and fully autonomous vehicles, suggest potential future revenue streams that may underpin optimistic stock valuations. (Revenue)
  
• The ongoing development and potential cost advantages of the 4680 battery cells could significantly lower production costs and enhance net margins, hence justifying higher stock pricing based on future profitability. (Net Margins)
  
• Tesla's expansion of its energy storage business, with the forecasted increase in output from factories and the potential scaling to terawatt levels, anticipates substantial growth in this division, which might increase future earnings. (Earnings)
  
• The company's strategy to introduce more affordable models and offer advanced financing options, while maintaining an expectation of 20%-30% vehicle sales growth, could drive significant revenue growth and market penetration. (Revenue)
  
• The development of Optimus humanoid robots and Tesla's focus on cutting-edge AI technologies could open new revenue avenues and mark Tesla as a leader in robotics, potentially sustaining high valuations on the prospects of breakthrough innovations. (Revenue)

Tesla Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Tesla's revenue will grow by 15.3% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 13.1% today to 11.1% in 3 years time.
• Analysts expect earnings to reach $16.6 billion (and earnings per share of $4.22) by about November 2027, up from $12.7 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $7.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 70.2x on those 2027 earnings, down from 83.2x today. This future PE is greater than the current PE for the US Auto industry at 15.8x.
• Analysts expect the number of shares outstanding to grow by 6.87% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.54%, as per the Simply Wall St company report.

Tesla Future Earnings Per Share Growth

Risks

• Tesla's record deliveries and profitability in a challenging automotive environment indicate strong operational resilience, which may result in sustained or increasing revenue and earnings.
  
• The growth of Tesla's energy storage business, with strong demand for Megapack and Powerwall, suggests potential diversification and revenue growth, impacting overall financial stability.
  
• Advancements in autonomous driving technology and the anticipated ability for Tesla Full Self-Driving (FSD) to surpass human safety levels could lead to increased adoption and revenue from software services. This could improve net margins due to software's high-profit potential.
  
• The planned rollout of the Cybercab with mass production aimed for 2026 targets high-volume growth, which may significantly boost revenue through increased vehicle sales.
  
• The internal production and cost competitiveness of Tesla's 4680 battery cells could lead to reduced cost of goods sold, potentially improving overall net margins and financial efficiency.

Valuation

• The analysts have a consensus price target of $225.77 for Tesla based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $400.0, and the most bearish reporting a price target of just $85.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $149.1 billion, earnings will come to $16.6 billion, and it would be trading on a PE ratio of 70.2x, assuming you use a discount rate of 9.5%.
  
• Given the current share price of $330.24, the analyst's price target of $225.77 is 46.3% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.