OPINION: The attempted Twitter takeover is yet another example of Musk bullying his way into what he wants and underscores how his superstar status cannot always convince people to overlook his irreverent, reckless and potentially illegal behavior.
For years, Elon Musk has used hype to prop up Tesla’s stock. It’s worked so well that other companies have followed his lead. But now we think the world has seen that the emperor has no clothes.
End of the road for Musk Most investors are keenly aware of Musk’s long history of making grand promises that don’t come true – such as the Roadster, the Semi, the Cybertruck, full-self driving – and at times are blatantly unethical, such as tweeting “funding secured” to go private and pumping Dogecoin.
The rising competition from incumbents means the days of Tesla’s rising profitability could be numbered. For starters, 26% of the company’s GAAP earnings in 2021 were from the sale of regulatory credits, not from the underlying economics of making and selling vehicles and other ancillary services. Tesla’s share of the U.S. EV market fell from 79% in 2020 to 70% in 2021. With light truck sales comprising more than three out of every four vehicles sold in the U.S. in January 2022, Tesla falling behind in truck EVs means its share of the U.S. market could fall further.
Even if Tesla increases the average selling price per vehicle to $55,000 vs. $49,000 in 2021, Tesla’s stock price around $1,100 a share implies the firm will sell 15 million vehicles in 2030 versus around 936,000 in 2021. That figure represents 57% of the projected base case global EV passenger vehicle market in 2030, and the implied vehicle sales based on a lower ASP looks even more unrealistic.
If, on the other hand, NOPAT margin improves to 14% and revenue grows 27% compounded annually over the next decade, then the stock is worth just $547 today – a 50% downside to the current price. See the math behind this reverse DCF scenario.
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