TESLA Company Valuation

Tesla Investment Evaluation

2018 has been an eventful year for Elon Musk and Tesla to say the least. Here’s a short recap.

The past has shown that Elon Musk, current CEO of the company, has a knack for proving his doubters wrong with incredibly ambitious, yet feasible corporate targets. However, 2018 is proving to be quite the test for Tesla, with Elon Musk facing an increasing amount of criticism due to revisited production targets and poor quarterly results.

So how will Tesla cope during the final quarter of 2018? 

As mentioned, 2018 has been a crucial year for the electric car company Tesla. Missed production targets, financial health concerns and conflicts with the media lead to analysts reporting that this year could make or break the survival of the firm.

In 2003, Elon Musk estimated Tesla’s chance of success at 10%. Today its market capitalization, or market value of the firm, approaches that of General Motor and Ford. This incredible growth in such a short time horizon can undoubtedly be linked to the executive’s visionary competencies and increasingly ambitious targets. 

While a considerable number of analysts disagree, Musk informed that Tesla will be profitable by the end of Q3.

 

Here’s a month by month summary of the major events Tesla has been going through since the start of 2018:

January 2018:       

  • Tesla Model 3 production targets changed from 5000 per week to 2500 per week by the end of Q1 and Tesla postponed their initial target of 5000 cars per week to the end of Q2.

February 2018:   

  • Tesla’s amazon web services have been hacked to mine cryptocurrencies. Company data was exposed in the process but according to the management, the affected files were about internally used test cars only.                  

March 2018:   

  • Tesla recalls 123.000 Model S cars because of a power steering issue caused by misplaced bolts. The problem hits 0.02% of total Model S production.

  • Autopilot crash of Model X on highway, driver passes away.

  • Credit rating goes from B2 to B3, as the company is unable to meet the production targets of the Model 3. This leads to a considerable plunge in stock price, as can be viewed in the graph below. 

Drop in stock price following the drop in credit rating depicted by the blue arrow.

Drop in stock price following the drop in credit rating depicted by the blue arrow.

April 2018:

  • Analysts and investors criticize Musk’s April fool joke, which saw official bankruptcy of the firm being announced over Twitter.

  • Minor improvements in Model 3 production but still not reaching levels planned for Q4 2017.

  • Musk admits that automation of the Model 3 production process is too complex and slows down the process.

  • The Center for Investigative Reporting announces that Tesla has logged over 40 safety-violations since 2013. This leads to further criticism from investors, further fluctuating the stock price.

May 2018:

  • Musk refuses to respond to Wall Street analysts’ questions about future capital requirements.

  • Musk publicly slams an RBC (Royal Bank of Scotland) analyst’s questions as “boring and dry” when the latter questioned Model 3 reservations.

  • Stock is down 8% after the conference call with analysts, May 2nd, leads to more criticism. This drop can be viewed in the graph below. 

Drop in stock prices following the conference call on May 2, 2018. Depicted by blue arrow.

Drop in stock prices following the conference call on May 2, 2018. Depicted by blue arrow.

  • 2 additional autopilot crashes.

  • Tensions arise between popular media and Tesla. Having once acknowledge the media attention as an important sales-driving factor for Tesla, he now labels various media platforms “unreliable” and “ethically compromised” during the last week of May 2018.

 June 2018:

  • Tesla lays off 9% of employees, most of which production-line workers. This is caused by the automated production process of the Model 3 finally being realized.

  • Model S catches fire after drive in LA. Reasons not found.

August 2018:

  • Production unit catches fire in Fremont factory. 

  • Former employee counter sues Tesla for defamation reasons. The conflict started in June when whistleblower Martin Tripp notified Business Insider about the use of punctured batteries in consumer cars.

  • Tripp reveals that Tesla over-reported Model 3 production by 44%, forcing Tesla to sue the former employee.

  • Second whistle-blower, Karl Hansen informs that Tesla failed to disclose raw material theft to shareholders, hacked employee devices and conducted unauthorized surveillance. Additionally, Hareports drug trafficking at Gigafactory.

What is Wall Street saying?

  • Goldman Sachs’ position on Tesla was clearly short as they believed in a 30% drop in the next 6 months. However, as of August 16 they have become official adviser of Tesla and no longer disclose predictions.

  • JP Morgan is also short on Tesla as they predicted a 40% plunge during 2018. 

  • Morgan Stanley no longer halts coverage on TESLA, as they are their main financial adviser.

What is AMSA saying?

  • The high volatility in stock prices caused by unnecessarily irregular CEO attitudes and unclear production information & targets makes it very difficult to adopt a confident position. Hence, AMSA has reduced its stake in TESLA and are waiting for a more stable investment environment to materialize before including TESLA in the AMSA portfolio.

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