Hey guys it's sasha last week, tesla released their q1 results and after taking a look through them, i have gone and updated my model for tesla and my target price. Tesla's q1 results were spectacular and the numbers in there were very strong with profits. Far exceeding most people's expectations, mine included. However, when i read through the presentation, the 10k that tesla later filed the sec and having listened to the investicle i covered it live on my channel as it happened.

I saw a number of issues in there that have made me make a few adjustments to the assumptions in the model and as a result of those adjustments, my target price has dropped from three thousand three hundred dollars to just three thousand two hundred dollars. A relatively small drop but a drop. Nonetheless, i'm going to explain exactly what made me reduce my target price and show you what the changes and the assumptions in the model have been and why i made them, and i'll also show you a few interesting things about my valuation. What tesla's business worth, for example, is worth on car sales alone without anything else.

Now, before i dive into the details, i want to highlight that i build my valuations based on probable outcome likelihoods, and i only value business lines that have a reasonable level of probability, and this is a really important thing to talk about. This means that my model does not have ai robots in them or a multi-million fleet of robo taxis and a lot of tesla fans will point fingers saying that i am a bear and i just don't get it. But here is the simple fact of which i am working: tesla's full self-driving has moved along massively just in the last year, absolutely huge level of progress and the development from just processing static images to analyzing video to build full vector space models of surrounding objects. Is astounding there are now 100 000 cars out there using fsd beta.

However, if you watch the videos and study them carefully, there are still a lot of small edge cases, a lot of polishing to do a lot of cases where the car just doesn't know what to do doesn't do the right thing doesn't do what you would expect It to do elon musk announced at the cyber radio event when giga texas opened the tesla is working on now on a robo taxi that will have no steering wheel and no pedals, and everyone got massively excited, there's going to be a dedicated, robo taxi. It's going to look quite futuristic now i completely admire the intent and the direction here. In fact, i think this is going to be one of the biggest innovations in our lifetimes, but as an investor, i have to determine what the probability and timeline of each of the companies business lines is and from where i'm sitting to get fsd to a place. Where a steering wheel and pedals are fundamentally not required in a car and where the robo taxi is not geofenced in any way following a prescribed route, i think we are still some way away from that point now getting the neural net to a point where all The edge cases and fine-tuning are good enough for that, i think, is probably two to three years away at best.

That is my estimation and then once the software is close, the design of the robo taxi. Then, from that point once they know exactly what the setup has to be before they finalize the design is also going to take time. This will be a fundamentally new class of car that doesn't have to adhere to existing car standards. It doesn't have to be designed in the same way that a car today has to be designed now look at the timeline for how long it took to develop the cyber truck, the core design and then the path to building a production line for it.

The first cybertruck prototype was unveiled back in 2019 and we're now looking at production, maybe in 2023, possibly in 2024. So realistically i would place at least a two to three year: lead time on the robo taxi getting out of the door from when we actually get it unveiled for the first time, and even at that point, when the final product is ready, there's going to be A huge number of regulatory hurdles to overcome nothing like just releasing a regular car out there. I don't know exactly what and how. But i imagine that the process to let fully automated cars that don't even have pedals or steering out onto the public roads is going to have to battle some bureaucracy.

So i place another two to three year timeline on that at best again, unfortunately, this one will be to a large degree out of tesla's hands on how long it's going to take. So here i am looking a timeline that i think is probably gon na. Be more like eight to nine years before robo taxis may have a meaningful impact on tesla's commercials before we know that it is definitely going to happen and maybe in the meantime there will be some prototypes for some specific cities or counties that will allow a limited Number for testing or whatever, but that doesn't really affect my valuation and if there are hiccups along the way it might take even longer and over that amount of time many other unforeseen things can happen that will affect that timeline. There may be a very credible competitor that turns up out of nowhere, just like tesla turned up out of nowhere itself in the first place, elon musk may, for whatever reason not be there, driving tesla's development in 10 years time.

Maybe his priorities shift. Maybe something else happens. My point is that placing a huge weight of my valuation under the theoretical future potential of robo taxis and attributing a very large proportion of my total business value to that business in just say, four or five years time doesn't seem to make sense, and i saw That arc and many other people do exactly this and unfortunately i just don't see the same light and i don't have robot taxis in my model. For that reason, and given the timeline i just described for just robo taxis, i think i'd take elon's estimate of optimus being in actual commercial production next year with a pinch of salt as well.

Remember the semi and roaster were also apparently going to be produced next year back in 2018 and the ai that tesla's developing for cars is great, but there are orders of magnitude, more complexity for developing the same neural net for a robot, a car operates in a Relatively simple, pretty much two-dimensional space in terms of its decision making it can decide to go forwards, it can decide to go backwards, it can turn left and right and that's about it. It operates on a prescribed set of paths that have a limited number of nodes and features. These paths are roads, a robot has to function in a much more complex, completely unpredictable 3d space that has a considerably more complex set of features. A robot also has a significantly more complex set of movement decisions that it has to make in order to interact with its surroundings and to navigate through it.

Decisions on how to move legs and arms and other body parts using multiple different joints and robot also has to be able to interact and liaise with, and maybe you know not affect other users like people in a much more complex way than just clicking something. On a screen or pressing the brake pedal, so for me the timeline on optimus having a meaningful impact on my tesla valuation is also significantly longer than what everyone seems to expect. So i don't have it in my model for now either, but here is the model that i just updated and the first set of changes from the last version of it is on the timelines for car production. I've made some minor adjustments to this year's numbers and a few other things, but in terms of some of the bigger pieces, i have kept the compact car in this model, although tesla is apparently not currently working on one and doesn't have any immediate plans to, and This is because, as tesla scales to produce millions of cars per year, they will naturally have to produce cars that are tailored to different consumer needs and ones.

There are fundamental reasons why a smaller form factor for a car is more appropriate for people who live in large busy cities, and particularly in some european or asian countries, maybe some people who prefer a smaller car people who don't need to lug around a 400 mile Battery for their daily 10 miles of driving, so i think some type of compact car will have to arrive at some point whether robo taxis come or not, because as cool as robo taxis are theoretically for anyone who doesn't live in a city for anyone who has Specific use cases where people will still need a car with controls over a robo taxi, we're still a long way away from regular cars not being on the roads. So i've kept the compact car in the model here, but i've pushed out the timeline and i have them arriving in 2025 at the earliest. Based on my projections, tesla should be hitting over 4 million cars a year in 2025 and that i think, is gon na. Be big enough where they're really gon na have to have the compact come in i've also pushed back my cyber truck and semi forecast.

I have the cyber truck now launching somewhere in the middle of 2024. I know elon said next year and i know that everyone's just gotten pencil that into their models, but the timelines just keep moving every quarter and with the ongoing issues in shanghai that don't seem to be easing as fast as people expected and the ramps and billing And austin are under pressure because 4680 cells are not ramping fast enough. I have a feeling we might have to wait a bit longer. I am guessing.

Tesla will want to wait until the 4680 production is at full speed, so they don't have to go and design a redundant version of the cyber truck working on 2170 sales before that ram ramp. Is there and we're not hearing very much at all about the semi? So again i have pushed that right to the back of 2024, with only 500 semis made that year. I then have the same additional three factories that i've had before in this plan that i expect tesla to maybe and start announcing or announce all three. At some point in the second half of this year, with one of them maybe opening within two years, which is roughly the timeline that we've had for shanghai and slightly shorter than the timeline that we've had for berlin, the other two will be coming in 2025 and 2026., i've also added this bit on the right here, where i calculate the number of cars manufactured so far this year, so that i can exclude them from my calculations of future cash flows by subtracting them from the yearly total forecast and in this model i expect Shanghai, berlin and austin to gradually become some of the biggest car factories in the world.

You can already tell by the sheer size of those things that that is the objective and as they build additional factory phases, because there is space for many more buildings on those sites, i think gigatex particularly will become the biggest car factory in the world by production. It's certainly looking that way. My total production across the four existing factories and the three new factories in this model takes tesla to ten and a half million cars a year in 2031.. That would make tesla the biggest car manufacturer in the world.

According to today's numbers - and some would say that that is unlikely, but they are currently on course, making around one and a half to 1.6 million cars just this year and the two new factories have barely got going and we are seeing demand continue to far outpace Supply, even though tesla is now making over 300 000 cars a quarter, the time of available supply is still dropping in every single quarterly report and the wait times for new cars on the website are the longest they have ever been. So i don't think this is an unreasonable assumption for a company that is making more electric cars than the rest of the entire global production put together with 30 gross margins and net profit margins that are way way way ahead of any of the incumbent manufacturers. And then i have also got some assumptions on car related parts of tesla's business that are not cars themselves. I'm expecting insurance sold through tesla to become a very popular product where it is far easier and in many cases cheaper to buy through tesla than sourcing your own, and my assumption is that half of tesla's in 10 years time will be using tesla's insurance a bit Like how most people using apple handsets will be spending a lot of money with apple's, apps and everything else.

If you think that that is a tad optimistic, you might be right, but insurance is a tiny, tiny part of the valuation contribution. It contributes only about one and a half percent of tesla's gross profit in 2031 in this model, so it's kind of irrelevant anyway. I then have some assumptions about supercharger revenue. I presume that these will also start opening up to non-tesla cars following recent tests in the future.

But again supercharging is not a very big component of my evaluation and then here i have fsd as a service. Now we know there were about 2.1 to 2.2 million tesla cars on the road in total. As of the end of 2021 and at the giga texas, opening elon musk said that there are currently a hundred thousand cars using fsd beta, so that lines up pretty well, with my assumption that on average this year, four percent of all existing tesla cars have fsd Beta on them and as fsd beta improves over the next decade, i have that going up to 50 percent. Now this one might be conservative if you believe that fsd will fundamentally replace the need for driving altogether, but then again it might not for a while, and it might be optimistic.

According to some other people, i even have tesla starting to offer fsd as a service to some other car manufacturers out there, because i believe there'll be a number of them. That won't have their own version and i think it will be far easier and make far more sense for them to go and license tesla software, and i see that starting somewhere in 2024 or 2025.. And then i have this energy section. The solar parts of the assumptions here are pretty much irrelevant, so i'm not going to talk about them, because solar doesn't really have any meaningful impact on the valuation at all.

But then i have the storage deployment. The cumulatively goes up to over 300 gigawatt hours by 2031.. Now, over the last two years, tesla's energy storage has really been pretty much put on ice, as batteries are being prioritized into cars. While we have supply chain constraints, but elon alluded multiple times to his point of view being that energy will probably be a bigger component of tesla's future business model than cars.

And i share that thinking, especially when you go and look at the total addressable markets. For both of those opportunities and those two businesses, but every quarter at the moment, the energy business continues to stall. In fact, in the last quarter it fell considerably and timelines continue to just be pushed further and further out and we're not hearing any real updates on this whatsoever. Nobody's even asking questions, and for me it sounds like the 4680 sales are going to take a while to ramp, and they will be the underpinning for the future of their business.

Now the q1 presentation said the giga texas is actually going to start producing cars with 2170 cells later this year, presumably because 4680 cells are not being produced fast enough, and my assumption here is that tesla's commercial model with energy storage works primarily as an energy supplier And these numbers remember are cumulative, so, for example, in 2026 tesla only add about 12 gigawatt hours of storage from 20 going to 32 and they added four last year. So i don't think the assumptions here are completely out of whack now, based on all of these factors. This is the assumption that i have reduced considerably, so the energy part of tesla's business here has reduced for me and that has contributed to the valuation dropping as well. Then i have this calculator sheet that multiplies and adds all these assumptions together and adds a whole bunch of financial overlays, and some people might say that the numbers in here are ridiculous and completely impossible, because i have tesla making one trillion dollars of revenue in 2031 And that is way more than any company has ever made.

But if you go and look at some of the other biggest companies in the world apple made 124 billion in just the last quarter alone. So 1 billion revenue in a year for tesla in 10 years is only roughly 2 times. The current run rate for apple today and tesla's last quarter had almost 19 billion dollars of revenue, so about 76 billion. If you just go multiply by four to get an annualized figure, so at the end of the day it is baking in quite a substantial amount of growth.

But i don't think that that revenue is necessarily implausible and it is just a product of the assumptions that i just shared with you. So if you feel that that particular total is unreasonable, it must follow that some of the assumptions are completely unreasonable and have to be considerably lower as well. The majority of it actually comes from car sales, so all the other things that you may disagree with more are not even that much of a factor in terms of getting to that total number and remember tesla in this model only gets to 10 million roughly car Sales in 2031 and to me that sounds like somewhat reasonable as an assumption. By the way my patreon team members get access to all of my models, including this one.

So if you want to see all of the details, maybe play around with the data and have a look in a bit more detail, you are free to join and get full access if you want to so when i do all the calculations, i get a target Share price of three thousand one hundred dollars using the perpetual growth model and three thousand two hundred dollars using an ebitda, multiple and i'm happy to stick with the 3200 for this one for now, but here is an interesting trick. Let's say that you're! Okay with my assumptions on tesla making cars - and you think that they are maybe somewhere roughly reasonable, but you are not okay with any of the other things in this model. Well, we can just go and delete insurance. Supercharging, fsd and energy completely above here delete the revenues, delete the profits and delete the cost as well, and then, let's be generous and not even adjust the r d or admin cost down as a result of that, and when we do that.

My target price for tesla on pure car sales alone is still 1900 after i delete every other revenue stream and that's of tesla just getting roughly to toyota's current production levels in 10 years time, and i'm pretty happy with that, and this is why tesla for me Is the biggest position in my portfolio? If you found this video useful, please don't forget to smash the like button for the youtube algorithm. Thank you so much for watching and as always i'll see you guys later.