Tesla: Boom or Bust?

With Tesla’s stock price approaching its fifth straight monthly gain, it seems to be that the sky is the limit for the electric car maker, with a stock price of $1,523 as of the writing of this article. With the exception of its cash flow, Tesla has been going strong in spite of the Covid- 19 situation that has sent shockwaves around the world, sending businesses into bankruptcy all over the world. Its revenue for the second quarter has increased over from the first quarter of 2020 to a total of $6.0 billion, while its net profit has increased from $68 million to $129 million in the last two quarters.

However, with the success come the haters: big-name hedge fund managers like David Einhorn and Andrew Left are well known for their criticisms against Tesla, citing market inefficiencies that affected the stock price, as well as saying the price increase is driven by irrational buying that does not reflect the actual value of Tesla itself. We shall see the results through monetary gain: Tesla’s total market capitalization has increased 4-fold since March: $60 billion to $270 billion in a matter of months. On the other hand, short sellers have lost $18 billion this year alone.

This also brings up the main question: Is Tesla overvalued? At Tesla’s current price of $1,523, a DCF model will only generate that equity value if the model is discounting Tesla’s cash flows to the year 2030 and beyond, which is very difficult to project.

Autore: Abdul Jalil Chamsi Bacha ,M&A Junior Associate