To say that the future of Tesla is depending on a successful Model 3 launch is putting things lightly; regardless of any future plans to make a Tesla pickup or a Tesla semi, Tesla has very clearly, at least for the time being, put all their eggs into the Model 3’s basket. Where Tesla goes next depends on how smoothly the Model 3 launch goes.
Today, Baird’s Ben Kallo made a surprising claim, stating that a successful Model 3 launch could do wonders for Tesla’s valuation, potentially seeing a surge to over $80 billion, roughly $500 per share.
If production targets are achieved, Kallo estimates that Tesla should be worth $566 per share (according to his blue sky valuation which can be seen below):
Additionally, Kallo provides the math to arrive at his $566 target:
“Our blue-sky valuation indicates a potential share price of $566, a ~86% upside based on the May 23 closing price of $303.86. We model 1M units sold in 2020 (including a combination of Model S, 3, X, and Y), in line with TSLA’s target of 1M vehicles in 2020, at an ASP of ~$52k. Additionally, we model ~15 GWh of battery production sold at an average ASP of $500/kWh and 800 MW sold and deployed by Solar City at a 20% gross margin, and arrive at total revenue of ~$62.4B and total gross margin of ~$15.8B (equal to 25%). We assume OpEx of ~$8.4B (~14% of sales), which we believe is feasible as TSLA improves manufacturing efficiency and streamlines production, and provides an operating margin of ~11% (below TSLA’s long-term target of mid-teens). Additionally, we model ~190M shares, which allows for ~25M shares of potential future equity raises and/or the impact of convertible debt. We apply a 32x multiple to our 2020 EPS estimate of ~$30, discounted to YE:17 at a 20% rate, to arrive at a $566 price target.”
The Model 3 is expected to begin production in July and increase to 5,000 units per week by the end of 2017. Tesla is aiming to produce 400,000 units in 2018. Baird’s estimate seems like a reach, but stranger things have happened, and quite honestly, no one thought $300 per share was going to happen either!
SOURCE | Barron’s