These are scary times. The market is the most volatile that it’s been since the crash in march 2020 during the first lockdown. Tesla is down over 25% from its high share price to below $660 as of this video. Friends keep asking me: Is it time to sell? Is this the end of the run?
Well, something big is happening and I want to share it with you.
Tesla is one of the most talked-about companies in the market and one of the most popular to trade. There are hundreds of YouTube channels dedicated to their cars and many dedicated to their stock.
So why should you listen to me?
Please don’t take it lightly when I say that I’m VERY familiar with Tesla. I’ve been following the company since they released the first roadster in 2008. I actually founded a company, InOrbis Intercity, that uses exclusively Tesla vehicles for city-to-city travel, in 2015. During that time I have owned several models of Tesla and have driven and ridden in virtually every model and trim that has been released to-date. We’ve had cars with upwards of 400,000km of use and we’ve driven nearly 3 million km in total with travelers in the past 5 years. We gather feedback from our drivers and our customers on the safety, comfort, maintenance, energy costs, and reliability of Teslas every single day.
I know a lot about these cars and about the company. Let me tell you, until about 5 days ago, I thought Tesla’s share price has been overvalued. And I’ve thought that since 2018.
This is not easy for me. But I’m here to tell you that I was wrong and that I’ve changed my mind about Tesla and also what I’m going to do about it.
Here’s how I changed my mind. And trust me, it wasn’t easy.
Full disclosure, I’ve been bullish on Tesla’s products for a long time. In my opinion, Tesla makes the best cars on the market. Full Stop. And they only get better every day. We’ve had nothing but positive feedback and experiences in our fleet with the vehicles. There certainly are downsides to owning a Tesla but the software and driving experience make up for any of the negative experiences with the company that we’ve had to this point.
Unfortunately for me (and my wallet), I’ve been bearish on their stock price until now, thinking that it was just the ‘popular kid on the block’ and eventually, the price would come back down to earth. I was sure that Tesla would eventually get bought up by Apple or another large auto-manufacturer and their cars would live on as a sub-brand. I even created an extremely detailed valuation model and wrote a 30-page report on why Tesla was overvalued back in January of 2018 when their stock price was $200 (pre-stock split).
I was absolutely positive that Tesla was not going to make it. They’d soon run out of money and that the only way for them to keep going was if they got bought out.
In my defence, I was almost right! Tesla almost went bankrupt. Apple ALMOST bought them. Elon almost had to give up leading his dream of electrification (twice).
But then they delivered; first on the Model 3, and then the Model Y. They’ve hit target after target and even delivered very nearly half a million cars in 2020, during one of the most difficult years in recent memory for many of us. Tesla has been on an absolute tear for so long that I finally bought in around the time that their stock split. I didn’t buy much though. I still thought they were overvalued and that the run would end.
To summarize, I’ve thought Tesla stock was overvalued for a LONG time.
Lots of people are saying that Tesla would have to have a 50% market share of the entire automotive industry to hit its current valuation. I believed them. Until now.
It turns out that’s just not true!
I won’t go into detail here but in future posts and videos on my YouTube channel, I’m going to show you how, even with an extremely conservative (high) discount rate, Tesla is actually undervalued. And it’s probably undervalued at $800 per share, too. You can check out my valuation by clicking this link.
I’ve changed my mind on Tesla. I’m now bullish on the product AND on the stock.
I am going to buy shares of Tesla, and keep buying until they hit my price target, and maybe even more after that depending on a few factors. I bought shares in after-hours today at a price of $651. If they keep dropping, I’ll keep buying.
As meet Kevin says, I’m throwing my money into the fireplace! As the price of Tesla falls I’ll be Buyin’… The… Dip…!!!
Numbers don’t lie, and I am confident in my numbers.
There’s also a move that Tesla could make that would double my price target. Sign up to my Patreon to find out what that is.
My targets are not based on any dreams of a full-autonomous revolution and of Tesla taking the MaaS (Mobility-as- a-Service) market over with their Tesla Network app (although that certainly wouldn’t hurt my valuation).
My targets are based solely on EV sales and on Tesla’s planned expansion of production. Not on a guess, but on their actual, stated manufacturing targets.
Before I tell you why I’m doing this. Please don’t JUST listen to what I’m saying and start buying because I said so!!! Do your homework! Make your own decisions! I am not a financial advisor so please don’t sue me if I’m wrong!
If you decide you want to buy too. Click this link to get Wealthsimple and get $10 to start trading on top of being able to make trades absolutely free!
OK, here’s what you CAN do and what I did: Make a valuation spreadsheet and understand what the intrinsic value of Tesla is. If you want to learn how to do this, I have a course that I’m building on how to value a company, get more info on that in my Patreon group.
To get a good head start today, though, just Google discounted cash flow statements and fundamental valuation.
Learn about the business you want to value. Learn what they do and how they do it. Learn about its competitors and the technology that they use. Learn everything you can because you need to know what you’re investing in if you want to be successful. Then, build your model. Predict how much they’re going to make over the next several years and decide if the company is worth investing in. Invest until the business hits your target valuation or until you get new information that changes your mind.
So why is Tesla undervalued?
For me, this all comes down to something that many people glossed over at the time it was announced back in September. The media barely talked about it, because, I think it was too abstract for most people. What is was is Tesla’s internal battery production goal. That’s right. The key factor is how many batteries Tesla is going to manufacture in-house. That number is 3-Terawatt-hours by 2030. That’s huge! It’s 3000x more than what they produced in 2020. And that’s purely for cars and energy storage.
Because that’s their internal production target, and they’ve stated that they’re going to buy every battery their existing partners can make for the foreseeable future. I think it’s fairly conservative to use that 3TWh/year production target as a benchmark for calculating Tesla’s share price. All I had to do from there is work backward to find the size of each car battery and divide to find the number of cars they plan to produce. If Tesla can keep selling as many cars as they can produce (and I think they can because the demand for autonomous EVs is enormous), then this tells me exactly what Tesla’s sales curve is going to look like over the next years. Peek over a few Elon tweets and stats on their expenses and margin targets and we’ve got our future cash flow statement.
Fundamentally, Tesla is leading the way in EVs and in autonomous tech. Those two technologies ARE the future of transportation. They have the technology, they have the manufacturing capacity and they have the talent and the plan to make it happen.
I now think that this will happen and that it’s a great bet. Whether you do is up to you.
Remember: Do your research. If you’re confident in what you’ve found. Take a deep breath and make your call. You can do this.
For now, that’s all.