Tesla, inc.

NYSE TICKER: TSLA

COMPANY DESCRIPTION

Tesla, Inc. designs, develops, manufactures, leases, and sells electric vehicles, and energy generation and storage systems in the United States, China, and internationally.

The company operates in two segments, Automotive, and Energy Generation and Storage. The Automotive segment offers electric vehicles, as well as sells automotive regulatory credits; and non-warranty after-sales vehicle, used vehicles, body shop and parts, supercharging, retail merchandise, and vehicle insurance services.

This segment also provides sedans and sport utility vehicles through direct and used vehicle sales, a network of Tesla Superchargers, and in-app upgrades; purchase financing and leasing services; services for electric vehicles through its company-owned service locations and Tesla mobile service technicians; and vehicle limited warranties and extended service plans.

The Energy Generation and Storage segment engages in the design, manufacture, installation, sale, and leasing of solar energy generation and energy storage products, and related services to residential, commercial, and industrial customers and utilities through its website, stores, and galleries, as well as through a network of channel partners; and provision of service and repairs to its energy product customers, including under warranty, as well as various financing options to its solar customers.

The company was formerly known as Tesla Motors, Inc. and changed its name to Tesla, Inc. in February 2017.

Tesla, Inc. was incorporated in 2003 and is headquartered in Austin, Texas.

EARNINGS YIELD

This is how much money we receive back in a year relative to the price we pay. What we could receive back from the company is called the Net Income, it's the cash left after all costs and taxes. The company may wish to distribute it as dividends, reinvest it on its business or buy back the shares that it once issue (good news for the shareholder because there will be less shares available to distribute future incomes). Any of these resolutions that the company may wish to make, should have similar effects on its stock price. We will give importance to the Net Income, necessary source of money previous to make any of these decisions.

Earnings Yield = (Earnings Per Share / Stock Price) * 100%

Earnings per share (EPS) is the portion of a company's profit that is allocated to each individual stock.

EPS is calculated by dividing Net Income by Shares Outstanding.

Earnings Per Share = Net Income / Shares Outstanding

So, the Earnings Yield is a valuation metric that measures a company's profits relative to stock price, expressed as a percentage yield. Intuitively, how much money we receive on a given year, expressed as a percentage of what we pay for that wright.

This metric is positive form 2020 balance to the date. Prior to that year, Tesla had negative Net Income.

This is a key indicator to justify a long term investment on any stock. We as investors look at this yield to compare to other investments because we have a comparable annual Rent.

2,31% is the Earning Yield for the data considering last 12 months (TTM).

We have to look also to the term Risk, and then we can have the balance Rent vs Risk ready.

Book value

In the Book Value per Share graphic at our left, we instinctively see how the Shareholder Equity is growing. This is a result of the retained positive Net Incomes of the last years.

The Shareholder Equity seen as a percentage of the Market Capitalization is our measure of Risk. It is the percentage of what we are paying that is covered with companys net assets in case of a company liquidation for bankruptcy. In this case around 9% for the last data considering last 12 months (TTM).

Badano´s Adjusted Yield by Equity Risk (BAYER)

We designed an adjusted Yield interpretation that incorporates the Equity-Liability structure of the company, in this way ponderating also the risk of bankruptcy on that Yield.

Please see next Bond example:

Bond A, has a 5% annual interest coupon on its face value of $100.
Bond B has same 5% annual interest coupon and the same face value but it has a high likelihood of 80% defaut of its principal payment at maturity.
We assume we buy both bonds at face value price of $100.
Both make amortization of principal only at maturity, so annual payments correspond only to interests.

At this 5% interest rate to the face value, on 20 years we would receive back what we invested, with only the interest payments.

So if the maturity of the bonds was 20 years, the cash balance would be:

Bond A: $100 on interest + $100 devolution of principal invested = $200.

Bond B: $100 on interests + $20 devolution of principal considering 80% defaut = $120.

So what we need to ask to bond B to get out of the investment with the same amount of money that A ($200), is 16 more years of interest payments, in that way receiving $80 more on interests.

Now we can compare with BAYER both Bonds with same maturity, same interest coupon but different risk.

20 years in Bond A vs 36 years on Bond B to duplicate money.
This is equivalent to 5% vs 2,78% annual yield.
By BAYER concept Bond B yield is only 55,56% of bond A.
So if we ask 80% more interest to compensate for this risk, 5% plus 80% = 9% interest coupon, Bond B will be equivalent in an investment choice to Bond A. On the table is seen as Bond C.

Conclusion

When we adventure ourselves to consider that the Shareholders Equity proportion of any company over its Assets can be compared to the default proportion of a bond's face value, then we can adapt the same reasoning of BAYER construction but to evaluate within stocks.

BAYER for tsla

We erase form this analysis years before 2020 because we need positive Net Incomes for the BAYER to have sense.

Looking at BAYER we can conclude that this company is expensive taking on account its capacity of generating income compared with its risk structure.

On today's market conditions we can achieve yields on BAYER of around 5% with US Treasuries like Bond A example.

At the moment of this analysis the Stock Price is USD180, for the BAYER of this stock to be 5%, at 2023 balance Equity/Liability structure and last Net Income, the Earning Yield must be 9,5% that gives a Stock price of around USD49,7.

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