Tesla, Inc. (NASDAQ: TSLA) has been perhaps the face of the impressive bull run in the stock market over the past five weeks, a period over which the S&P 500 and the NASDAQ Composite have jumped 7% and 12%, respectively. Tesla makes these moves look pedestrian by comparison; the stock has soared 54% since May 9. At one point, the stock gained ground on 14 successive trading days.
What was the basis for this extraordinary move? Many believe the decision by CEO Elon Musk to devote less attention to Twitter, freeing him up to spend more time on automotive issues, has helped the stock. Another constructive factor was the deals reached with Ford Motor Company (NYSE: F) and General Motors Company (NYSE: GM) that granted the owners of electric vehicles (EV’s) produced by the two legacy auto makers access to Tesla’s Supercharging stations. In addition, Tesla’s charging technology will eventually be integrated into the future design of Ford and GM EV models.
These accords, and likely additional deals Tesla will make with other automakers, will almost certainly cause a quicker and broader adoption of EVs in the United States. Musk is said to have recently offered a similar deal to Toyota Motor Corporation (NYSE: TM).
The question that Tesla investors should consider is: did these developments justify a US$285 billion increase in its stock market valuation in five weeks? For example, the Supercharging network news is clearly a positive, but Tesla’s revenue from that business is fairly small – and it also implies that the company will be losing a moat, which is the vast charging network that other automakers did not yet have. Supercharging revenue is included in a revenue category termed “Services and Other.”
Other elements included in this revenue line are Tesla’s service and parts, used car sales, and other ongoing services-related charges.
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Over the last twelve months, Tesla’s Services and Other revenue totaled US$6.6 billion, some of which includes Supercharging revenue. If we assume that Supercharging revenue is 60% of this figure, or around US$4 billion, and if we further assume that the deals with Ford and GM and possibly other carmakers cause this revenue to double, this implies Tesla might realize US$4 billion in incremental Supercharging revenue (and a far lesser amount of incremental profits) over time. An extra US$4 billion of revenue seems wildly inconsistent with a US$285 billion increase in Tesla’s stock market value.
TESLA, INC. — Selected Financial Statistics
| (in millions of U.S. dollars, except per share and vehicle production data) | 1Q 2023 | 4Q 2022 | 3Q 2022 | 2Q 2022 | 1Q 2022 |
| Automotive Revenue | $19,963 | $21,307 | $18,692 | $14,602 | $16,861 |
| Automotive Gross Profit | $4,208 | $5,522 | $5,212 | $4,081 | $5,539 |
| Automotive Gross Margin | 21.1% | 25.9% | 27.9% | 27.9% | 32.9% |
| Services and Other Revenue | $1,837 | $1,701 | $1,645 | $1,466 | $1,279 |
| Services and Other Revenue Gross Profit | $135 | $96 | $66 | $56 | ($7) |
| Recurring EPS – Fully Diluted | $0.85 | $1.19 | $1.05 | $0.76 | $1.07 |
| Operating Cash Flow | $2,513 | $3,278 | $5,100 | $2,351 | $3,995 |
| Adjusted EBITDA | $4,267 | $5,404 | $4,968 | $3,791 | $5,023 |
| Cash – Period End | $22,402 | $22,185 | $21,107 | $18,915 | $18,013 |
| Debt – Period End | $2,676 | $3,099 | $3,553 | $4,430 | $4,812 |
| Shares Outstanding (millions) | 3,166 | 3,160 | 3,146 | 3,111 | 3,103 |
| Vehicles Produced | 440,808 | 439,701 | 365,923 | 258,850 | 305,407 |
Looking at Tesla stock based more on hard data than assigning valuation based on “good headline news” suggests the stock could be well ahead of itself. Its automotive gross margin is far lower than it was just twelve months ago (21.1% in 1Q 2023 versus 32.9% in 1Q 2022), reflecting much greater competition in the global EV industry. However, Tesla trades at a remarkable 43x enterprise value-to-trailing 12 months adjusted EBITDA multiple.
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While Tesla is a stock market darling — primarily because of its great products and Elon Musk’s outsized persona despite some deterioration in fundamentals — Tesla’s greatly stretched valuation suggests that investors might consider taking profits.
Tesla, Inc. last traded at US$260.54 on the NASDAQ.
Information for this story was found via Edgar and the sources and companies mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
