Fundamental AnalysisGlobal

Is Tesla still a buy?

Overall Rating: Rocket 🚀

What is the national economic outlook?

  • How well are we recovering from the pandemic? [Medium🟠]
    • United States experienced two consecutive quarters of declines in GDP in 2020; it even recorded its steepest quarterly drop in economic output on record, a decrease of 9.1 per cent in the second quarter of 2020. But the recent numbers indicate a promising positive green move in GDP.
    • On another side, though employment numbers highlighted some promising recovery, the recent rise in delta variant have raised concern over a return to work and the US recently experienced the dip in employment uptrend.
  • Change in purchasing power [High 🟢]
    • Based on reports from Reuters, though the employment trend has been volatile recently, the demand for goods has been rising steadily showcasing strong purchasing power.

What is the industry outlook?

  • What is the current industry category for the company?
    • Automobile – Electric Vehicles
  • What are the growth prospects? [High 🟢] 
    • Concerns about a shift in environmental patterns and investors preference toward sustainable technologies, the shift to greener alternatives is inevitable.
    • The global electric vehicle market size is projected to grow from 4,093 thousand units in 2021 to 34,756 thousand units by 2030, at a CAGR of 26.8%
  • What is the competitor landscape? [Medium 🟠]
    • Though Tesla has enjoyed Monopoly for a very long time, change in industry demand has forced entry from automotive granddaddies.
    • Tesla is fighting off competition from legacy manufacturers such as Ford, Volkswagen, and General Motors as well as new entrants that include China-based companies including NIO and XPeng. The automotive industry is shifting towards electric vehicles (EV) at a frantic pace. But still, when it comes to luxury EVs, Tesla owns the top spot.

What is the company profile?

  • Business Overview
    • Tesla, Inc. designs, develops, manufactures, sells, and leases electric vehicles as well as renewable energy systems and energy storage systems, and offers services related to sustainable energy.
  • Financials
    • How are company financials changing? [High 🟢]
      • Tesla record a strong 100% increase in Y-oY revenue touching $12Bn. Tesla has managed to maintain growth on both top and bottom lines through the years
      • A total of 499,550 electric vehicles were sold by Tesla last year. Over the next few years, it expects an average annual growth rate of 50%. 
  • Future Deal and Plans  [High 🟢]
      • Presently, the company has two factories: one in California and one in China. Also, two new factories are being built, in Texas and Berlin. Its Berlin factory is now expected to begin production in early next year, but its Texas factory is on track to begin deliveries late this year.  
      • As part of its plan to expand its solar farm and build a desalination plant for water, the company is seeking permission from the FAA for an additional gas treatment plant and equipment to convert methane into its liquid form. 
      • Ratios and other numbers that matter [Low 🔴]
        • Tesla has a relatively very high P/E of ~200, setting it up at valuation far over its peer’s benchmark
        • The quick and current ratio for Tesla has deteriorated with respect to peers. The recent dynamic investment could be attributed to the decline in the ability to meet short term obligations.
  • Beyond the numbers – ProCapitas Think Tank 🧠
    • Let’s look beyond these numbers and try to answer – “What Matters”
      • Tesla poses a strong financial report on paper but what lies in the future is still fuzzy. Tesla has enjoyed a long due monopoly in the field but the future of this dominance is bleak.
      • Giants like Ford, making stronger than ever move in the sector and gathering higher than anticipated traction, pose a strong threat to Tesla.
      • On the other side, Tesla has relied heavily on the regulatory credits(100% profit margin) over the year. The recent upthrust of ~500Mn from the sale of regulatory credits was the key profit driver for the company.
      • Lets understand what there regulatory credits are?
        • Government mandates automobile manufacture to maintain a certain amount of green certificates or activities to promote a curb in carbon emission.
        • Tesla, producing a surplus to requirement, sell these to companies that are not able to fulfil the mandate from direct operations.
        • With multiple auto manufacturers entering the electric segment, the future of this stream seems weak.
        • It will be interesting to watch how Tesla would manage the numbers when revenue from these certificates start declining.

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