Hey guys it's sasha two days ago, tesla released their q2 2021 results and after going through the numbers, i have updated my valuation model for tesla. In this video. I will show you my whole model, i'll walk you through it, and i explain exactly why my target share price for tesla is what it is. I'll also share what i think about some of the most important bits in the q2 update for tesla and how those updates affect my numbers and don't worry.

I will make you wait 10 or 15 minutes for the result, uh, if you're just here for the answer. My target share price for tesla is three thousand dollars, which is slightly higher than my previous target of two thousand eight hundred dollars, but i actually think my model right now is more conservative. I actually think my three thousand dollar target price is conservative. I will show you exactly where i think my assumptions in the model are conservative so that you can make up your own minds and i do see the funny side.

Tesla's share price as i'm recording this video is about 645, so my target price has a 365 upside, which sounds ridiculous. It sounds stupid, but before you go and leave a comment saying that i am a complete idiot smash the dislike button and hit unsubscribe watch this video, you might find it pretty interesting. Just before i start i have to make a brief disclaimer. I am not a financial advisor.

I can't provide financial advice to you. This is purely an educational video. This is just me sharing my opinion, all right, so the q2 results came out and you probably already know that tesla knocked it out the park. The total revenue was just under 12 billion dollars, gap gross margin was 24 on the entire business, and the net income was 1.1 billion dollars.

All of these absolutely smashing previous records by tesla by some margin. The important point to note, though, is this is the first quarter where the net income was positive without accounting for regulatory credits, because previously some people would say the tesla is only profitable because of those credits, and although it was obvious before that, this is a completely Pointless argument for anyone who could do basic massive forecasting, it is now a fact that these credits don't really matter anyway. Let me mention some of the most important points from this report. From my perspective, as an investor and ones that affect my forecast.

The first point is that the energy business is growing really really fast faster than i expected, which is really good. Tesla deployed 1 274 megawatt hours of storage in q2. That's a 200 jump on the same quarter a year ago, but on the investor called elon. Musk did say something very important because of supply shortages, tesla will be prioritizing the production of cars over the next 18 months over their storage business.

So this has dampened my projections on energy growth in the model. The other number that i think will become really important in the future is the number of supercharger connectors. Those are growing at a very healthy rate of about 50 per year, but elon hinted that this rate will increase substantially on the call i'll talk about. Why that's important in just a bit? There were quite a few negative announcement on the earning call and in the q2 paper as well, it sounds like the production of tesla's new batteries.

The 4680s is going slow and there are a lot of hurdles to overcome, and it's not quite clear as to when they're going to be ready in their words. It is a matter of when, rather than if so, it is happening, but it is unlikely that it's going to be happening anytime soon and as a result, they have said that tesla semi will only arrive at some point in 2022 and the cyber truck according to Them will arrive after the texas factory is up and running with a model y and seeing as the model y is only expected right at the end of 2021. That also probably means that the cyber truck will come at some point during 2022.. Now the last important point from this quality result for me is the fact that tesla paid off a big chunk of their debt with spare cash they've been paying it down over the last year, but in the last quarter that reduced significantly from 9.05 billion dollars to 7.87 billion dollars it's almost 1.2 billion dollars paid off, which is really great for future cash flow prospects.

Anyway, let's jump right into the model, and i'm going to show you how i've got my target share price. Remember that this model is just a load of guesses by a random guy on the internet. By me, none of this is substantiated by anything. I might be very wrong.

So do your own research! I am just sharing my views in case. You find it interesting. So, first up i have a bunch of assumptions and the first tab is the most boring the constants. There are two assumptions here worth pointing out.

I am assuming the tesla's. Cars have an 8 churn rate per year. That's the number of cars that crash, get taken off the road sent to the breakers yards, etc, and i think that that assumption is probably on the conservative side, but there we go. I wanted to make sure that i put something in there that takes some of the cars out of my model over time.

I've also assumed relatively low growth in prices, only one to three percent for cars and energy and again that probably will actually fluctuate and on average will be higher. Now. I've also assumed that tesla's regulatory credits will start drying up after the end of this year and will be completely gone by 2025 again. I actually think this is conservative, as governments around the world are trying to push for a green agenda, including the united states.

The regulatory credits could actually grow in theory, but i'm not putting that into my model. If it happens, it happens. Next up is the automotive assumption sheet. This is where i am forecasting the number of cars that tesla will produce.

I have made an adjustment here and based on the fact that giga, texas and gigabiling will produce a total of 20 000 cars between them in 2021. I think that's probably a bit more accurate, so i am assuming that those factories turn on at some point in december, or maybe only one of them does anyway, i'm forecasting very low volumes, and you can see that in here i have a yearly production estimate for The different cars by factory now for quite a while tesla, has been talking about this mysterious future product in their quarterly reports, but they never really mentioned what it was and i'm assuming that it's going to be the rumored model 2 or whatever. It's called a small city car that would be probably very popular in europe and asia who, like those kind of cars, i'm assuming that the model 2 will arrive at some point in 2023 and will be manufactured in berlin and shanghai to start with europe and asia. Then i'm also assuming that tesla optimizes their factories over the next 10 years and in 2030 texas is making 880 000 cars per year.

Berlin is making 830 000 cars per year, shanghai is making 850 000 cars and fremont is up to 750 000.. I've also gone quite conservative on the prices in q2, the average tesla car sold for 52 800. If i take the total automotive sales revenue number and divided by the total number of deliveries, excluding the leased cars and 99 of those cars were model three and model y, the cheaper ones, and in my model i have an average price of only about forty. Four thousand dollars per one of those cars, so that assumption is about eighteen percent conservative at the moment, another conservative one and on top of those four factories that i've already mentioned, that already exist or are being currently built.

I have added three more to be added over the next 10 years. I don't know the details of where there would be. It makes a lot of sense that they would be adding once these ones are constructed. So i made some guesstimates.

I've got another factory in asia, another one on the us east coast and one in somewhere in central south america. Now i have scheduled two of them to come online in late 2024, which kind of works for me, because if they start the work next year, that probably is a reasonable timeline which matches the timeline of the two that they're currently building. And then i have another one at the end of 2026, another two years after which i think is pretty sensible and i stopped at seven car factories over here again. Possibly they could go further than that now.

You'll notice that i have pushed the cyber truck right to the end of 2022, with just 5 000 cyber trucks being made next year and i've actually pushed the semi not into 2022 but into 2023, because i'm actually suspecting it's going to take them some time to Get the production going because it's very different to what they've been doing so far. So i have a target of 909 500 cars for 2021.. I think q3 this year might hit around 240 000 cars. Maybe slightly higher and q4 might go for 280.

000.. Now q4. Is usually the biggest quarter for tesla, so that makes sense for me. So in 10 years time i have tesla making about 5.5 million cars per year.

That's a lot less than the 10 million cars that toyota and volkswagen are making until the recent dip, and this might actually be another conservative assumption. I am not saying tesla's going to be dominating making 20 or 30 million cars here um. I i think this actually makes sense and it's sort of a base expectation. I think that could do far more than that in 10 years, but i've gone with a number that seems sensible.

The next tab is the car related assumptions, but not the car manufacturing. This is insurance charger network and full self driving. Now the insurance assumptions are not very interesting, and insurance contributes very little to my p l. So, let's not waste any time on that.

The supercharger network is, however, quiet. Interesting. I've made some assumptions here on how the network will grow and i'm assuming a very aggressive growth age over the next two years, which will then slow down. Now elon musk has said that tesla are planning to start offering the supercharged network to other car manufacturers over time, so they will have to increase the rate of deployment to meet that demand and i'm assuming that the other car manufacturers will start being able to use It at the end of next year, so that's quite a long way away and that's only the very start and then that number will gradually increase, as other car makers start making more electric cars, but without having their own existing charging network.

Now, i'm assuming that in 2029 there will actually be less tesla's using the supercharger than the sum of all the other car manufacturers. That's just that's just the assumption i'm making as that network opens up, and i'm also assuming that the battery sizes will increase over time and the charging times will reduce as a result of more power going in, which means people will actually get more kilowatt hours per Charge that's the model. I've also put in a cheeky assumption in here, which i think is actually probably reasonable, that the markup on retail electricity prices will be higher for non-tesla cars. I have no idea, but i've added an extra 30 on there now for full self driving.

I've been pretty conservative because i didn't want the numbers to look ridiculous, because this one can run away very quickly. I've assumed that in the first few years, very few people actually take other subscriptions only one to two percent of tesla owners over the next few years. The section only deals with the subscription part of the business. I am assuming that this will be the more popular option over time and i'm just going to ignore the outright purchases in my model.

Maybe they can be absorbed into the car price part or i'm just going to ignore them. If they happen, that's just going to be a big extra and i'm assuming that only 12 percent of all tesla car owners will have have this full self driving subscription by 2030 in 10 years time now. I know that this assumption may seem conservative to some or maybe to some it doesn't, but i think it's probably not too optimistic. Either 10 years is a long time, and i think this technology will come on a lot in that period.

I'm also assuming that from 2023 tesla will open that full self-driving capability to other car manufacturers as a software that their customers can buy, because many of those other car manufacturers are not developing their own version by 2030. I'm assuming that 3.2 million non-tesla cars will be having an fsd subscription, which will probably be about not 0.2 percent of all the cars at that point in time in the world. So i actually think that's quite reasonable. Maybe it's a little bit conservative, but i don't think that is going too far at all.

So the last set of assumptions is energy in this model, and this one is really important, because i think energy will be tesla's biggest business in 2030. because of the announcements in the last update. I've actually slowed down my energy deployment assumptions by about 18 months and i'm assuming a ramp up to 804 gigawatt hours of energy storage. Now that might sound like a lot that would probably be around 8 to 9 of the total global electricity consumption routing through that storage in 10 years time, which is ridiculous if that storage was operating at 100, full pelt all the time, but i'm forecasting a huge Increase in global power demand over the next decade, i'm also putting in a 40 utilization of those uh facilities.

Um transport, i think, is going to move very fast towards running on electricity instead of oil, home heating and other things like that will probably move from gas and oil to electric very heavily, certainly in the uk, europe and other countries. That is beginning to happen already. The u.n predicts that the global population will grow by 700 million people, and developing countries like india are rapidly increasing the electricity consumption as they develop so based on all of those factors, i'm actually assuming that tesla will probably only have a low single digit share of That market, so i i think it's somewhat bullish, but i don't think it is crazy and tesla's energy storage solution is green, which is super important. It means countries can build less polluting power stations.

The storage can load up on electricity generated by wind, tidal, hydro and nuclear at night when the electricity is pretty much free and then dispense it back out into the grid during the day. So anyway, that's the assumptions done. The next tab is the calculator all it does is just multiply a bunch of numbers together and it really isn't very interesting. There isn't anything specific happening in there and then i have the output tab.

So, let's look at what all these assumptions mean now, at the top of this tab, i have the individual business lines split up with their revenue and gross profit, to make it really easy to go and have a look, i'm expecting tesla to make 47.8 billion dollars In revenue in, i actually think they might beat that, but i think it's not far off and in 2030 that total revenue grows to one trillion dollars, which sounds absolutely crazy, but that number is based purely on adding up all the assumptions that i've just walked. You through and showed you on the screen, that's what they add up to now. Today, the highest revenue in the world is made by walmart and they only make 524 billion dollars, while toyota earns 280 billion dollars in revenue. So one trillion sounds crazy.

It is two times the size of walmart and it is four times the size of toyota, but we are talking in 10 years time, by which point these other companies will probably also grow their revenues and may also be at roughly the same levels and we're also Talking about company that has multiple different, highly profitable potential business lines. In fact, the automotive revenue in 2030 for tesla in my model is 372 billion dollars, which probably puts them roughly in line at that point with other largest car manufacturers. So i think it's probably somewhat part - i have another 76 billion dollars coming from supercharging, basically tesla's, stealing a small cut of today's petrol companies and replacing those petrol stations with superchargers. If you like, i only have 11 billion dollars per year from fsd and some might think.

That's very conservative. I've certainly seen a lot of models which make fsd the biggest business and make robo taxis that. But i wanted to wait and see how the technology develops before relying on it too heavily in my valuation. I actually think right now, i'm kind of happy with that number and the biggest money maker in my model is the energy business, specifically the energy storage.

Now i forecast energy to actually overtake tesla's automotive business in 2029. In this model, i've got 539 billion dollars worth of revenue for the energy business, with a gross profit of 206 billion dollars in 2030.. So then there's a load of numbers further down. I have annual income before tax ebitda and free cash flow, they're all sitting on around 300 billion dollars worth per year in 2030, which does look pretty crazy.

But that's what my numbers are telling me and then assuming a five percent growth rate for perpetual growth or a 20 times multiple in ebitda. I get a target share price of about 3 000 and this is a lot. This is a really big number, but here is the really cool thing. Let's say you don't believe that tesla will build that energy business.

Let's say you don't believe any of the numbers. You don't think fsd will ever take off. Let's say you don't think that the supercharging will ever earn any real revenue. Let's say the tesla only sell cars and nothing else for the next decade and get to that 5.5 million cars per year.

Roughly half of what toyota makes today if i go and just delete all of that other stuff, i still get a target share price of 970 to 1 340 around double. What the share price is today and remember that these target prices are not the price. I would expect the share price to be in 10 years time or at any point in the future. This is my estimate for what the fair value on that share price is today.

So the car business alone for me has an upside of about a hundred percent. With these somewhat conservative assumptions and my total evaluation has a baseline 365 upside now, i can make these assumptions way way more conservative and still have a ridiculously undervalued stock. So on the back of that, i am at the moment buying more tesla shares i bought some more today. I think the price is massively undervalued, but i might be very wrong.

So, let's see what happens if you found this useful, don't forget to smash the like button for the youtube algorithm. Thank you so much for doing it. Thank you so much for watching. I really really appreciate it and, as always i'll see you guys later,.