Hey, this is Tom Ash And let's do an objective no BS No hype, no hate DCF Real cash flow evaluation model on Tesla Intrinsic value without all the nonsense, all the noise I'm not going to be fanboying over the company I'm not going to be hating it. You're not going to see crazy 3 000 price targets. You're not going to see something silly like Gordon Johnson says like 50 a share. no actual intrinsic value.

the value of the cash flows of Tesla over the life cycle of the company this counted back to today by adjusting it for risk. Let's say that we play a game and in that game you get a coin and you can throw this coin in the air and wherever it lands will determine how much money you get. Plans on heads. you got a million dollars but if it lands on tails, you get zero dollars and there's no do-overs.

You do it once and that's it. So it's a 50 chance of winning a million bucks. I Mean it's a lot of money, but what would you say if I told you that I'm gonna give you a choice and that choice would be to take a certain amount of money not to play the game instead of having a 50 chance in a million I'm gonna give you 100 chance, 100 chance at something less. How much money would you take to walk away from this game? Now most people will say two hundred thousand, Three hundred thousand dollars.

Something in that range. They would walk away from this game unless they're super risk hungry. which Most of us hear not. So if 300 000 is your amount, you're essentially replacement value, then the risk adjustment you're putting on this game is seven hundred thousand dollars.

That's 700 is being adjusted for your risk because it's a lot of risk. It's 50 risk of getting nothing. So the risk adjustment here is seven hundred thousand out of a million. That's all it is.

That's literally what this kind of cash evaluations are. You tally up all the cash flows of the company and then you use a risk adjustment mechanic to figure out how much they're worth today when you eliminate all the risk simple as that, or rather, account for all the risk. So let me pull this up on the screen. I'm going to tell right away a lot of people going to be pissed at me for doing this because it's not going to make anybody specifically happy.

The Tesla Bulls are going to call it absolute nonsense. They're going to say it's bearish. The Tesla bears are going to call me a Tesla bull saying it's too bullish, but the idea of a good model. The idea of a good valuation is that we simply do not care.

Simple as that, we're gonna do something that serves us which is finding our own intrinsic value. If you want to learn how to do this, join our 4200 member Patent Community on Painting.com Nash That community in my opinion, is the best investing Community in existence. We have a lot of resources. We have Tesla rooms, palantir rooms and it's insanely active.

Discord An Academy for Stock Investing So much going on I urge you to check it out and I'm going to talk about the academy towards the end. This video I Don't want to bore you with this. So now I'm going to remove this little thing right here and let's go back to the data. So for us to perform uh DCF on the Tesla we need to be able to know how to adjust the amount of cash flows we're going to find in a second.

What's the risk adjustment here? Well, this is it. It's called The Weighted Average Cost of Capital and this is how you adjust for it. So number one, you essentially have a mixture of debt and equity and your debt cost and your Equity cost are being Blended And then you get something that is representative of your weighted average cost of capital and we use that as a discount rate for our DCF. So as you can see, Tesla accidentally does not have any debt so the whole debt side of the Y calculation doesn't exist.

So Tesla's whack weighted average cost of capital will be determined solely by its Equity because it doesn't have any debt. In that case, the calculation becomes very very simple. All we do is we look at the risk premium which is five percent which is S P 500 expected return this year minus 3.7 So I think it's very fair to say that this year we have a nine percent expectation from the stock market from the S P 500. So a five percent risk premium is totally okay.

So Tesla is operating at two beta. A beta is the amount of volatility of a company compared to the index. So two Two Beta is not low. Risky rate is 3.73 that's the 10-year Treasury And then the equity cost is a calculation by taking the risk-free rate and adding up to Beta multiplied by the risk premium.

And that's how we get 14 right here. So 14 is the discount rate for Tesla. Now before you celebrate, the higher the percent is the worse it is for the company. The higher the percent is, the lower the valuation will end up being.

So if 14 discount rate is considered very high, Very very conservative and it will work to the benefit of our model because it's going to make the model better. because we're not using something silly like seven or eight percent discount rate. It's actually higher than what it should be. And that's good.

So what I've made here essentially I've made some assumptions. You can go over them later. but as you can see, I'm focusing on Tesla auto. I'm not talking about the insurance business, the Optimus Prime the AI business, the robot taxi.

None of this is here. so I'm just looking at Tesla Auto and how close is Tesla Auto based on this valuation model to the price that I see in the market right now right? So basically as you can see here, you can check my my assumptions in a second. but that's the sales I see this year. So we have an ebitda of 23.5 billion dollars.

that's with a 19 margin. and then on the right hand side there's little adjustments to higher growth of revenue for the next five years. So 30, 40, 50 per year for the next five years. and then at the bottom we have the tinkering ebitda that's based on that new Revenue.

So here on the screen you have the ebitda. you have the effective tax rate of Tesla which is eight percent by the way. If you want to get this data simply like the tax rate, the ebitda numbers, and all the stuff, you can go to Stock MVP I'm going to put it on the screen now. Stock Dash M3.com and code last 50 is the code to get it 50 off.

So all the data I'm looking at here was taken from stock MVP which is my platform. So basically what we do here, we'll look at this as a 30 growth per year. It's the bear case for Tesla 73 billion dollars of Capex for the next five years if 14 discount rate, eight percent effective tax rate, and what we get here is a valuation of 526 billion dollars. That's the DCF valuation.

You can make it kind of a little bit more realistic by putting it side by side with the ebitda multiple evaluation which gives us 616 billion dollars and you can actually show us what's the blend. The blend here below is 166 194, so the blend is 180, So Bear Case for Tesla The floor for Tesla seems to be 180. Now the medium case. Everything that we did here is very, very fairly simple.

All we did here is we increased the growth rate for the company from 30 to 40 and again we use the same 10 multiple for the ebitda. Everything is the same. Everything is identical. So what we get here based on the multiple system is a value of 886 867 billion dollars sorry, and then a DCF value of 774 billion dollars.

Of course, you have to add up all these cash flows from the five years and this present value of terminal value of the long-term growth rate and then whatever's left out of cash and cash equivalence. Um, with the deduction of that obviously net of debt. So in this medium case, the value of the company ranges between 774 billion and eight Six seven. Which means one thing, the share price is ranging within 244 and 28 274.

so the average is 260 bucks. currently trading at 250. Not a lot of meat on the bone as far as you know, a trading opportunity. However, if you look at the 50 growth rate for revenues, then you get something completely different at a 50 growth rate for Tesla which is doable.

We're still at 14 discount rate still at eight percent effective tax rate. The number actually becomes 293 dollars to sixty four dollars. Because now we're looking at anywhere from 836 billion to 930 billion in valuation Again, 10 ebitda, multiple, and four percent long-term growth rate I Urge you not to change that four percent. It's gonna make your model absolutely berserk.

So basically on the bookcase test is currently worth 293 the high end and 264 on the low end. So it's not a massive upside eleven and a half percent upside. So as you can see here on the screen, Tesla is either overvalued or fairly valued. There's not a lot of opportunity here.

But here's the catch. We haven't talked on sales about Robo Taxi We haven't talked about AI We haven't talked about the Tesla bot. We haven't talked about a lot of stuff. the 25 000 car, the improvements in margins Tesla will do and all that good stuff.

and I think it has to be part of this model at some point, but this is a very cautious model. So what I would argue here is that what we get here is the value of Tesla Auto Business without the robo Taxi without all the stuff that's developing right now. Just the Auto business is fairly valued right now. And because the medium case right here with the 40 gives us literally 260, which is very close to where we are right now.

So if that is the case, what does it show us? It shows that Tesla is not a cheap company. It's showing us that Tesla is rightfully so. of course, trading at a premium. And now the question is right.

What do you do when the share price is ready 250 bucks and it's very, very close to your ceiling of 260.? What do you do? Do, stop, Do you wait? Well, here's what you do again, at least according to my system that we actually talk about every single day in the patient people fed up with me explaining it. so. Patreon forward slash Tom Nash We have a new feature called Palms Academy It's absolutely insane. Sign up.

Check it out. It's a one month free refund in case you don't like it for any reason. So what I'm teaching in Tom's Academy is this: Even at 260 bucks, it's still a good time to buy Tesla So there's two metrics here for evaluation. Either one is important.

So number one: do you have the stomach to dollar cost average when the share price drops below certain threshold and buy more even if the company keeps diving, right? So if you have the stomach for it, the more important question here is do you have a skill that allows you to pick a good company Because you can dollar cost average in the perfect way into a really bad company. So how is your company picking processes? Because if you're going to be this saying for three years into the wrong thing, well, you know it's not going to work out so well for you. So the question is very simple. How do you find these good companies? So if Tesla is a great company, we know that for a fact we know because there's so much information about this, right? So if Tesla is something that we can expect to see in 10 years, dominate and the current stock price is not cheap, do we wait on the sidelines for a dip and then buy all? Then no.

Now if you do think that Tesla is the real deal, here's what you do. You start buying. Now, you ignore the price and you buy every single week, little by little, piecemeal by piecemeal, slowly building up your position and as the price dips, you start to buy more and as the price climbs back to 270 to 80, you back to buying your original amount and you keep doing it again and again. every single week until the stock price and your crawl spaces they converge.

You get the average and because you bought more when it was down, you get way closer to the bottom of the stock in this entire time frame than anybody else. so it's not a bad time to buy. Tesla But I wanted to show you something really important which is a DCF model should not be a way for you to justify your biases. So I have personal biases about this I Think it's the best company except volunteer I Love it I think it has massive, rejected, etc etc.

but I didn't let it sink in into my DCF. As you can see, the DCF says well, this company is fairly valued. That means that the DCF is probably right. The company is probably fairly valued right now and it doesn't have a lot of room to run up like crazy, but it doesn't mean it can't do it.

That's the crazy part. So as long as you DCA and you don't play this gambling game, you should be over the Long Haul Quite okay. I Urge you to go to Patreon.com Check out every single tier we got there. See the one that works for you of course I Would love to see you in the academy, but join whatever tier you want.

It's risk-free because everybody gets a refund within the first 30 days if they're not happy for any reason. So as always, thank you so much I Hope this was helpful for you to see kind of the the way a real Tesla DCF would look like without all the hype and hoopla around it. Thank you so much I'll see you next video.