My first discounted cash flow valuation model attempts to determine the intrinsic value of Tesla. Tesla is one of the creations of serial entrepreneur Elon Musk and has been disrupting the automotive industry for years by eliminating the prejudice that owning an electric vehicle means compromising on speed, power or appearance of the car.
I felt that a DCF model was an appropriate measure to value Tesla, since in a DCF model most of the value is attributable to the terminal value. Since Tesla is projected to generate profits only after 3-5 years and has negative free cash flow before that time, a DCF valuation approach seemed plausible.
All my assumptions regarding growth and expenses are derived from company filings or Elon Musk’s statements. Since this is one of my first valuation models, there are some inputs that could have been calculated more precisely. For example: I obtained the Beta by regressing the weekly returns of Tesla on the weekly returns of the S&P 500 for the past 5 years. Since a simple regression is subject to variances, a more sound calculation of Tesla’s Beta would have been to calculate the average unlevered beta of comparable companies and then re-lever this Beta regarding Teslas targeted capital structure. However, I aim to try different methodologies in calculating inputs to see the effects of using different approaches.
See the following link for the valuation spreadsheet, and feel free to give any suggestions/feedback or improvements.
Tesla DCF Valuation
For a more holistic approach I have also created a company profile of Tesla, outlining the company’s historical performance as well as analysing the industry Tesla operates in.