Valuation of Tesla by Damodaran

1. Revisiting Tesla
By Damodaran

2. The team
Syndicate 1
M.Shiddiq A
29116341
Faisal Aditya
29116508
Anisa Rizqia
29116455
Dita Novita
29116491
Mas Kahono R
29116477

3. $221
TESLA STOCK PRICE 2016
Whoa! That’s a big number!

4. Why Tesla’s
Stockholders so
passionate in
defending its
investment?

5. What is Tesla?

7. “ Tesla is not just an
automaker, but also a
technology and design
company with a focus on
energy innovation.

11. Tesla is The Leading American
Electrical Auto & Truck Industry
in The World
July 2003
Founded by Martin
Eberhand and Marc
Tarpenning
February 2004
Got $7.5 million Series
A funding, Elon Musk
become a CEO
March 2009
June 2010
April 2017
2003 2004 2009 2010 2017
Tesla had raises $187 million and
delivered 147 cars
Tesla launched initial public
offering (IPO)
Stock Price $308.71
Current Tesla’s

12. What’s the step
of company
valuation?
2 steps to estimates company
valuation :
1. The narrative as valuation
2. The numbers game

13. Damodaran
Valuation of
Tesla
The Key Input:
1. Revenue Growth
2. Operating Margin
3. Reinvestment
4. Risk

14. “
Tesla revenue growth continues on its path to double
its revenue from year to year.
The operating losses at the firm decreased over the
period
Quality of growth: Tesla reported improvement in the
last quarter of 2013 as the ratio improved from 0.66 in
the third quarter to 0.87 in the fourth quarter.

15. THE ASSUMPTIONS

16. The Assumptions
Probability of
failure
10%
3.
Return of capital
after year 10
9%
2.
Cost of Capital
after year 10
7.5%
1.

17. The Assumptions
The growth rate in perpetuity
will be equal to the risk free
rate
1.47%
6.
NOL we’re carrying over into
year 1
$341.17
5.
None of the cash is trapped
(in foreign countries)
4.

18. Revenue
● Revenue Base year : $ 4.253
● Revenue growth years 1 - 5 : 50% (the revenue in year 5 is $ 32.297,66)
● Revenue growth years 6 : The revenue in year 6 is $45.311,68 or
40,29% grows from year 5

19. Operating Margin
Base year operating margin : - 14,15% EBIT (Operating Income)
Revenue
($601,88) = -0,1415
$4253,19
-0,1415 x 100% = -14,15%

20. Reinvestment
Sales to capital ratio : 2,24
RIR (Reinvestment Rate) : 16,33%
: Revenue Growth Rate (Terminal Years)
ROIC (After 10 Years)
: 1,47%
9,00%
: 16,33%
we got this number from how
much you will reinvest to keep
your business growing in future
years

21. Return on Capital
ROC=
EAT
Invested Capital
=
$(601.88)
$4,543
Base year
=-13.25%
Expected ROC after year 10= 9%
US Industry Average
5.06%

22. Marginal ROC
Marginal ROC=
∆EAT
∆Invested Capital
=
$10.284,77
$34.123,91
=30.14%
10 year period

23. Cost of Capital
Year 1-5
Year
6
8.13%
Year
7
Year
8
Year
9
Year
10
8% 7.88% 7.75% 7.63% 7.5% US Industry
Average
4.7%
Decreasing 0.126% after 5 year period

24. The Cash Flow

25. Present Value (PV)
= PV Terminal Value +
= (Terminal value x cumulated discount factor) +
= (Terminal cash flow) x cumulated disc. Factor +
(Terminal cost of capital- terminal growth)
PV Cash Flow in 10 years
Present value (PV) is the current worth of a future sum of money or stream of cash flows given
a specified rate of return.
SUM of (FCFF x cumulated disc. factor)
SUM of (FCFF x cumulated disc. factor)

26. = (Terminal value x cumulated discount factor)
= (Terminal cash flow) x cumulated disc. Factor
(Terminal cost of capital- terminal growth)
PV (Terminal Value)
= ($5,754.31 / (7.5% - 1.47%)) x 0.468
= $95,428.02 x 0.468
= $44,454.43
PV (Terminal Value)

27. PV CF over next 10 years
Year FCFF Cumulated Discount Factor PV (FCFF) PV (CF over next
10 years)
1 $ (1,685.36) 0.9248 $ (1,558.69)
$ (14,963.45)
2 $ (2,277.78) 0.8553 $ (1,948.25)
3 $ (3,041.28) 0.7910 $ (2,405.79)
4 $ (3,998.83) 0.7316 $ (2,925.51)
5 $ (5,153.62) 0.6766 $ (3,486.97)
6 $ (5,112.28) 0.6265 $ (3,202.74)
7 $ (3,729.13) 0.5807 $ (2,165.66)
8 $ (1,879.92) 0.5390 $ (1,013.21)
9 $ 1,655.38 0.5008 $ 828.98
10 $ 6,256.16 0.4658 $ 2,914.39

28. = PV Terminal Value + PV Cash Flow Over next 10 years
= $ 44,454.43 + $ (14,963.45)
= $ 29,490.98
SUM OF PV (Company Valuation)

29. Value of Operating Assets
SUM of PV % probability of failure= x + x1- % probability of failure
proceeds if
firm fails
Assumption: the failure will tie to fair
value
Fair value of capital =
SUM of PV x % distress proceeds = $ 29,490.98 x 50% = $ 14,745.49

30. $ 28,016.43
= x + x
Value of Operating Assets
= $ 26,541.882 + $ 1,474.549
=
$ 29,490.98 10%1 - 10 % $ 14,745.49

31. ADJUSMENT
FOR DISTRESS
Life is not always in honeymoon phase
Financial Distress is a condition
where company cannot meet or has
difficulty to paying off its financial
obligation to creditors.
Cause of Financial Distress
● High Fix Cost
● Lack of Cashflow
● Low Sales High Expense
● High Employee Turnover

32. ADJUSMENT FOR DISTRESS
WE ADJUST THE VALUE FOR POSSIBILITY OF DISTRESS [1]
[1] The Cost of Distress: Survival, Truncation Risk and Valuation (Aswath Damodaran)

33. = PV Terminal Value + PV Cash Flow Over next 10 years
= $ 44,454.43 + $ (14,963.45)
= $ 29,490.98
SUM OF PV (Company Valuation)

34. = ( $29,490.98 * 90% ) + ( $14,745.49 * 10% )
= $28,016.43
VALUE FOR OPERATING ASSETS
SUM of PV % probability of failure= x + x1- % probability of failure
proceeds if
firm fails
Assumption: the failure will tie to fair
value
Fair value of capital =
SUM of PV x % distress proceeds
= $ 29,490.98 x 50% = $ 14,745.49

35. = SUM OF PV - Value of Operating Assets
= $29,490.98 + $ 28,016.43
= $1.475
ADJUSMENT FOR DISTRESS

36. DEBT & MINORITY INTEREST
Debt & Minority Interest
= Debt + Minority interest
= $3,647.93 + $0
= $3,647.93

37. CASH & OTHER OPERATING ASSETS
Cash & Other Operating Asset
= Cash + Other Operating Asset
= $1,441.79 + $0
= $1,441.79

38. Value of equity
Sum of PV
Adjustment for distress
Value of Operating Asset
Value of Tesla company by Damodaran is about 25,810
29,490.98
1,475
28,016.43
Value of Operating Asset - Debt & Minority Interest + Cash & Other Operating Assets
$28,016.43 - $3,648 + $1,442 = $25,810 Value of Equity

39. Value of Equity Options
$172.12 x 20.12 = $3,445.84 = $3,446
Value of equity Options = Value per Options x Number of Option Outstanding
value all options outstanding

40. Value per Share
(Value of Equity - Value of Equity Option)
Number of share
=
$25,810 - $3,446
$147.28
Value per share = $151.28
Stock was trading at
$221.00

41. Damodaran’s
$151.28
Trading
$221.00
TESLA
overvalued

42. “ My investment philosophy is built
on the foundation that you should
buy an asset only if trades at a
price less than your estimated
value for that asset.

43. CONCLUSION
● The Investor should no go because
the market price is higher than they
should be.
Conclusion
● Tesla’s overvalued can be caused
by an emotional buying spurt,
which inflates the stock’s market
price
● There are two fundamentals condition
to evaluate: first stocks are
undervalued or overvalued. In this
case Tesla is overvalued

44. Thank you!