Tesla Valuation: $3,000 Share Price By 2025?

In this post, we’ll go over everything you need to know about Tesla’s valuation.

Some estimates predicted that Tesla’s share price would hit $7,000 by 2024 — although that has recently been adjusted to $3,000 by 2025. Here are some factors influencing Tesla’s valuation and the recent stock price prediction adjustment:

The Rise of The Electric Vehicle

Since the 2024 ARK analysis, the assumption for Tesla’s capital efficiency has increased. Previously, it was estimated that by 2024, Tesla would spend $11,000-$16,000 per incremental unit of capacity.

In 2019, the electric car manufacturer spent $1.33 billion on capital expenditures, also called “CAPEX,” and produced nearly 510,000 vehicles — that’s an increase of about 144,505 vehicles from the prior year.

This suggests that Tesla’s CAPEX per incremental vehicle produced was about $9,200. Figures show that Tesla spent $3.16 billion on CAPEX in 2020, which put capital efficiency for 2021 at $10,330 — assuming a 60% increase in vehicle production.

Tesla recently announced an updated cell chemistry and manufacturing process that will reduce investment costs by 75%. Given these updated estimates, it’s expected that Tesla will sell between 5 and 10 million vehicles in 2025.

Insurance: $23 Billion Business Yearly?

Some estimates weigh the fact that Tesla could achieve above-average insurance margins because of the highly detailed driving data it collects from its customers. In 2019, Tesla partnered with underwriters and introduced its first insurance product, which is only available in California and Texas, with an expansion into more states expected.

Since Teslas have above-average safety profiles, the company has the advantage of using real-time data to offer insurance to its customers with dynamic prices, which will ultimately lower customer acquisition costs and increase margins.

Some estimates show that Tesla could achieve insurance margins close to 40%. If Tesla sells 40% of its vehicles with insurance by 2025, the company’s insurance revenues could easily approach $23 billion per year.

After debuting in Australia and Hong Kong, Tesla’s insurance program is offered domestically and abroad and offers rates up to 30% cheaper than the competition.

A Tesla Human-Driven Ride Hail App

Tesla’s valuation is also based on Musk’s announcement about plans to launch a ride-hail service. ARK estimates a human-driven ride-hailing service could add an additional $20 billion to Tesla’s operating profit by the year 2025. It is widely believed that a human-driven ridesharing service would give Tesla multiple advantages over the competition, including Lyft (LYFT) and Uber (UBER), particularly surrounding financial and insurance efficiency.

As Uber and Lyft struggle to turn a profit, Tesla is proactively planning its own margins. While a self-driving ride railing app was already projected to disrupt the market, a human-driven rideshare network from Tesla is an even greater threat to Uber and Lyft.

It’s also believed that by launching a human-driven ride-sharing network before autonomy is fully perfected and accepted, Tesla would significantly lower its risks while increasing its margins.

Another significant advantage over Uber and Lyft is that it’s been estimated that Tesla’s human-driven app could launch for as low as $4 per mile and eventually be knocked down to $1 per mile when the service goes driverless.

Tesla drivers will save significantly on operating costs compared to Uber and Lyft drivers. What’s more, Teslas won’t depreciate as fast as the average vehicle allowing the drivers to make the most of their investment. This is because of Tesla’s OTA updates that actually improve the vehicles’ performance as time goes on.

This innovation allows Teslas to maintain up nearly 95% of their original value after one year, where the average car used by an Uber or Lyft driver develops more and more wear and tear, leading to faster depreciation and more maintenance needed.

The most ambitious thing about Tesla’s insurance program is that it’s being built from scratch, with the company aiming to offer insurance to customers across the nation and especially to car owners who drive for Tesla’s rideshare app. With Tesla’s ability to collect data in real-time from its vehicles thanks to Autopilot and offer safe driver discounts, Tesla can undercut traditional rideshare insurance companies’ premiums by offering lower insurance costs and fees.

Autopilot is a system of advanced hardware, including a number of cameras and sensors that guide the vehicle’s A.I. system and partially self-drive. Although this is just the beginning of self-driving, it still creates a car that is less likely to get into an accident with lower insurance costs.

In 2019, Uber’s short-term insurance reserves totaled $941 million — amounting to about 13% of the cost of goods sold for the fiscal year. Lyft’s insurance costs were 19% in total across all of the company’s vehicles, scooters, and bikes.

As Musk has noted, the majority of people’s costs to own a car are insurance. You can lease a Model 3 for $400 a month, with Tesla insurance for about $100-$200 per month. The main reason insurance runs so high is because traditional insurance companies lack the data about drivers. But, Tesla’s plan could change all of that and disrupt the insurance industry forever.

Tesla Valuation: $1 Trillion In 18 Years

Tesla became the first carmaker to be valued at $1 trillion + just 11 years after becoming a publicly-traded company and overtaking Toyota as the most valuable carmaker by market value.

Tesla now joins other heavy hitters such as Facebook, Google, and Amazon — all of which have market caps above $1 trillion. Tesla is the second-fastest company in history to hit the $1 trillion valuation mark (18 years), just behind Facebook (17 years), and ahead of Alphabet (21 years), Amazon (24 years), Apple (44 years), and Microsoft (46 years).

In late October, Tesla met the $1 trillion market cap when its shares hit $998.22. Shortly after hovering below $1,000, Tesla shares shot up above $1,000, another first for the company. That same day, several news stories, including rental giant Hertz’s commitment to buying 100,000 electric vehicles from Tesla, increased Tesla’s stock price even further (as of publishing time, CEO Elon Musk has not signed the Hertz contract).

Other factors that continued to the valuation explosion include a report that found the Tesla Model 3 was the top-selling vehicle in Europe in September. This milestone marks the first time a fully-electric car has outsold its combustion engine counterparts. The popped share price also built off momentum from the prior week when Tesla reported a net income of $1.62 billion in the third quarter — a near five-time increase from the $331 million it earned in Q3 last year.

This record-setting profit came thanks to record-breaking sales despite global chip shortages and supply chain issues that have impacted the entire auto industry. Tesla also made $13.67 billion in revenue in Q3 — a 56% increase from the $8.77 billion it reported for 2020’s third-quarter earnings. 

Musk says he anticipates building 20 million electric cars per year by 2030 — that’s double what leaders like Volkswagen and Toyota produce currently.

Tesla Business Model

Part of the reason electric vehicles have become more mainstream and Tesla is having so much success is its unique business model that has a simple mission at its core: “to accelerate the advent of sustainable transport by bringing compelling mass-market electric cars to market as soon as possible.” 

The uniqueness of Tesla’s business model lies in its approach to selling cars. Instead of focusing on franchised dealerships, Tesla’s business model is based on direct sales and service. The company has taken a unique approach since day one — instead of building a relatively affordable car that could be mass-produced, Musk and his team took the opposite approach and focused on creating a compelling car that would lead to a demand for electric vehicles.

In Tesla’s mission, Musk elaborated, saying, “our first product was going to be expensive no matter what it looked like, so we decided to build a sports car, as that seemed like it had the best chance of being competitive with its gasoline alternatives.”

Tesla delivered its first fully electric high-performance electric luxury sports car, the ‘Roadster,’ to the market in 2008. The Roadster achieved 245 miles on one single charge in company tests, an unprecedented range for an electric car at the time. Tesla sold about 2,500 Roadsters before stopping production in 2012.

Once Tesla established its brand and showed the world it could deliver on its promise, it worked to reinforce its business model. Tesla’s business model as we know it today is based on a three-pronged approach:

Tesla is focused on direct sales to consumers and has created an international network of company-owned showrooms.

By owning the sales channel, the company believes it gains the advantage of speed when it comes to product development.

Direct selling also creates an improved customer buying experience — no bartering with cheesy car salespeople who have potentially ulterior motives or conflicts of interest required.

Tesla takes the pain out of car servicing by deploying its team of mobile technicians known as Tesla Rangers. The Rangers make house calls, and when possible, the service is even delivered remotely.

For example, the Tesla Model S can wireless upload data, enabling technicians to view and fix some issues without even needing to physically touch or be in the same location as the vehicle — if that’s not 21st-century service, what is?

 3. Charging

Tesla has even created its own network of “supercharger stations” that allow drivers to charge their Teslas in about a half-hour free of charge. The purpose of this charging network is to speed up the rate of adoption of electric cars by making them as cheap and easy as possible to maintain.

Tesla’s Wide Range of Product Offerings

It is evident in Tesla’s unique business model — and beyond — that Tesla aims to be far more than simply a car manufacturer. In fact, the reason Tesla combines many of its sales centers with service centers, including charging stations, is that the company believes that opening a service center in a new location corresponds with an increase in demand.  

Tesla also produces a fully electric semi that boasts less than 2kWh per mile and can go 400 miles on each 30-minute charge. Recently, Musk has announced Tesla is working on stretching that range to more than 600 miles. UPS has already put in pre-orders for the Tesla truck.

On its mission to ‘accelerate the advent of sustainable transport,’ Tesla also sells powertrain systems and components to other car manufacturers. In 2015, Tesla introduced a line of home batteries known as the Powerwall that serves as energy storage for homes and businesses. These batteries connect with a solar energy system and can therefore be used as backup power in the event of power outages. Tesla also sells solar roofing and panels.

Similar to most automakers, Tesla offers financial services, such as vehicle loans, leasing, and other financing options. 

Some people venture as far as to call Tesla a ‘tech company’ rather than just a car manufacturer. Of course, Tesla has adopted many of the same strategies that tech companies do, perhaps most explicitly changing existing business models within the car industry by selling directly to consumers. Of course, there are also plenty of similarities between Musk and founders of iconic tech companies, like Steve Jobs and Bill Gates. 

Although Tesla did not invent the electric car, it certainly did invent a successful business model for bringing electric cars that inspire, compel, and invoke curiosity to the mainstream market. Part of that strategy included creating a system of charging stations in order to solve one of the biggest obstacles to choosing electric vehicles: refueling on long trips. Tesla’s unique business model is one main reason its stock has soared as of late.

Tesla’s Competitive Advantage 

Emerging as a leader in the fully electric vehicle field, Tesla obviously has some serious competitive advantages over its competition, including a massive software advantage that is expected to bring in billions in deferred revenue in the years to come.

In fact, Tesla is three to five years ahead of its competition when it comes to offering over-the-air software updates. This competitive advantage is thanks to Tesla building electrocution, connectivity, and autonomy capabilities into its vehicles from the very beginning with its over-the-air (OTA) software updates that allow Tesla to beam out system upgrades regularly.

The company unveiled this technology back in 2012 — something that was unheard of during that time, while other automakers are still trying to play catch-up.

These legacy automakers have started to introduce their own OTA updates, but these are generally more focused on infotainment features, including maps and Bluetooth, where Tesla’s OTA updates are miles ahead and can improve vital functions, including range, power, braking, safety, and, driver-assistance features — things that other manufacturers are three to five years away from offering.

A Loup Ventures estimate projects that Tesla will recognize $1.1 billion worth of deferred software revenue this year and $1.5 billion in 2022 from over-the-air updates, its Supercharger network, and most importantly, the adoption of full self-driving. Although customers have purchased the fully self-driving feature, Tesla has not fully released it and therefore does not yet recognize that revenue on its balance sheet.

The price of Tesla’s full self-driving add-on ($10,000) has increased consistently and will only continue to grow as the technology matures, with Musk asserting that the ultimate value could eventually exceed $100,000. He also said the feature might ultimately move to a subscription model, spreading its revenue out past a one-time upfront payment.

U.S. Revenue Growth & Earnings

In 2020, Tesla’s revenue grew to around $31.5 billion, a 28% increase from 2019. The United States is Tesla’s largest sales market.

Tesla delivered 57% more vehicles for the fiscal year 2021 compared to 2020. The company’s third-quarter revenue was reported at $13.8 billion, and third-quarter earnings per share hit $1.86, compared to projects of $1.57.

Record deliveries are fueling this turbo-charged growth in the third quarter despite supply chain disruptions that have significantly slowed down sales for global automakers this year. 

In the third quarter, Tesla produced or created:

• 237,823 vehicles — up 64% year-over-year
• 630 retail stores and service locations
• 3,254 Supercharger locations
• 29,281 Supercharger connectors

Tesla Competitors

Despite Tesla’s impressive growth, some investors are searching for the next E.V. to buy in to. Here are Tesla’s biggest competitors:

General Motors

G.M. has committed to offering 30 new electric vehicles by 2025. Given GM’s production capabilities, name recognition, available capital, and distribution network, we expect G.M. to emerge as a viable competitor in the E.V. market.

Ford

Another solid option for electric vehicles comes from America’s original car manufacturer, Ford.

In 2020, Ford’s new CEO committed to refocusing Ford’s efforts on expanding and building its electric vehicle offerings.

As part of an $11.4 billion investment in E.V.s and batteries, the carmaker also partnered with a South Korean energy firm to build new manufacturing centers in Tennessee and Kentucky.

Li Auto

Chinese automaker Li Auto is one of Tesla’s newest competitors. Li’s offerings include a range-extending generator — a small onboard generator that recharges Li’s flagship SUV, the One. 

The generator gives the One an impressive range of 500 miles. The One is a hybrid model, perfect for introducing electric vehicles in China as charging station infrastructure and networks have not yet been built, causing many consumers to feel too anxious about running out of charge to invest in an E.V.

Canoo

In an increasingly crowded market, Canoo aims to set itself apart by offering a subscription-based charging service, insurance, and recharging stations.

The automaker also plans to market to young professionals with its unique offerings.

Nio

Nio is another Chinese automaker that recently entered the E.V. race. In 2020, It started selling its battery-powered cars without batteries, a move that reduced the price of their cheapest model by 25% — a significant difference for consumers who may be hesitant to buy an E.V. because of the upfront cost.

Consumers who opt for this choice have access to Nio’s battery-swapping stations, where they exchange their old, used batteries for fresh ones. With more than 300 battery stations in China, the plan is working.

In Q3, Nio’s vehicle sales were up 100% year over year, causing the company to raise its target from 500 battery swap stations across China by the end of 2021 to 700. They’re also planning to deploy more than 4,000 stations around the world by the end of 2025.

Nikola Corp.

Nikola — one of Tesla’s fiercest competitors — has already taken Tesla to the courtroom alleging Tesla stole patented designs from them for Tesla’s E.V. semi-truck.

Nikola’s focus is on big rigs and its proprietary formula that combines electric battery power with hydrogen fuel cells to give its cars an incredible 900-mile range — an impressive distance that few E.V. competitors can beat!

Tesla’s International Growth

Tesla nearly doubled its global workforce in 2020 as the company expanded operations in China and Germany. In fact, 2020 marked the first time the majority of Tesla’s revenue came from outside of the United States. In 2021, Tesla became the fasting growing brand worldwide with a growth rate of over 157%. 

The automaker’s factory outside of Shanghai has been incremental in building up its Chinese presence. Sales in China jumped 124% to $6.74 billion in 2020. China started delivering Model Ys in January 2020 and started selling the Model 3 a few months before that. 

49% of Tesla’s U.S. revenues, or $3.11 billion, come from China, the world’s largest automobile market. As for the percentage of overall sales, China has grown from less than 20% of 2020’s total to 22.6% in Q3 of 2021 as Tesla continues to meet strong demand in China.

In fact, both the Tesla Model 3 and Model Y rank among the top three electric vehicles sold in China. Tesla’s growth in the Chinese market is a source for future growth.

Tesla is also building a new vehicle assembly plant outside of Berlin that could eventually produce up to 500,000 cars per year. But, there’s a bit more skepticism surrounding Tesla’s expansion to Germany — home of leading brands such as BMW, Porsche, and Volkswagen.

Not to mention the fact that the auto market in Europe is flooded. In fact, Europe could completely abandon internal combustion and still have 20% of its car factories operating below full capacity.

Tesla is also expanding across Canada, building its first location in Singapore and significantly expanding its retail footprint in China. The automaker also has its eyes on France, a market historically dominated by Renault and Peugeot.

Tesla Adds Bitcoin To Balance Sheet

Tesla’s foray into Bitcoin is paying off. In fact, the automaker’s Bitcoin gains this year may exceed its 2020 global research and development spend of $969 million.

When Tesla submitted its 2021 quarter three earnings, people were holding their breath after the previous purchase of 43,200 Bitcoins — about 0.3% of the available supply. This investment cost Tesla $1.5 billion.

You can even pay for your Tesla with Bitcoin! In a series of tweets, Musk said that any Bitcoin paid to Tesla would be retained as the cryptocurrency instead of converted to U.S. dollars to add to Tesla’s $1.5 billion Bitcoin stockpile.

The price of Bitcoin, already up by almost double so far in 2021, shot up to over $55,000 after Musk’s announcement. Currently, only U.S. customers can pay for their Teslas in Bitcoin. But, Musk plans to expand the crypto payment option “later this year.”

Musk added that in order to accept payment, Tesla uses only internal and open source software for all of its Bitcoin transactions and operates Bitcoin nodes directly.

In 2021, Tesla has held most of its Bitcoin, which has had a limited impact on the premier electrical vehicle manufacturer’s profitability. There was one slight deviation in the holding strategy — in March 2021, Tesla sold $270 million Bitcoin to “test the liquidity of the market.” This disposal generated a gain of $128 million, compared to losses of $101 million in regards to the remaining Bitcoin held by Tesla.

Recently, Bitcoin has gone back up, reaching 50% of the U.S. dollar, meaning Tesla is likely sitting on unrealized gains of about $600 million for the month of October alone. Therefore, it is perhaps unsurprising that Tesla continues to be cautiously optimistic about Bitcoin’s future and holds the cryptocurrency as a treasury reserve asset.

Tesla’s environmentally-friendly persona sits at odds with Bitcoin as the network is reported to have a colossal carbon footprint. University of Cambridge researchers found that Bitcoin uses more electricity each year than the entire country of Argentina. What’s more, separate research published in Nature found that bitcoin emissions could push global warming above two degrees Celsius.

Despite these environmental concerns, Musk publicly embraces Bitcoin more than all other major tech CEOs. 

Tesla Discounted Cash Flow Forecast 

Tesla shares DCF-based target price is ~$663 (-12%).

Discounted Cash Flow (DCF) is a valuation method that uses an investment’s anticipated future cash flows to estimate the investment’s value. In a nutshell, DCF analyses try to figure out an investment’s value today based on future projects of how much money it will generate.

This applies to decisions made by investors or securities, like acquiring a company or buying stock, as well as for business owners and managers who are looking to make decisions surrounding capital budgeting or operating expenditure. 

The biggest advantage of DCF analyses is that they reduce investments to a single figure — making it easy to determine what investments are worth it. For example, if the net present value is positive, it’s a good investment. If it’s negative, it’s a bad investment. 

There are also some disadvantages associated with DCF analyses, including the fact that they are rather prone to errors and overcomplexity. They are also extremely sensitive to changes in assumptions.

Intrinsic Value measures a stock’s value based on its company’s cash flows. Market value tells you the price that other people are willing to pay for an asset, whereas intrinsic value shows you the asset’s value based on an analysis of its actual financial performance.

Whether or not you’re excited about EV and the future of sustainable driving, it’s hard to not be compelled by the performance of cutting-edge companies like Tesla. The months and years ahead will no doubt provide more of this excitement.

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