Stock Analysis on Net
Stock Analysis on Net
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Tesla Inc. (NASDAQ:TSLA)

Present Value of Free Cash Flow to Equity (FCFE)

Intermediate level

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company’s asset base.


Intrinsic Stock Value (Valuation Summary)

Tesla Inc., free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

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Year Value FCFEt or Terminal value (TVt) Calculation Present value at 22.37%
01 FCFE0 282
1 FCFE1 232 = 282 × (1 + -17.80%) 189
2 FCFE2 214 = 232 × (1 + -7.77%) 143
3 FCFE3 219 = 214 × (1 + 2.26%) 119
4 FCFE4 246 = 219 × (1 + 12.29%) 109
5 FCFE5 300 = 246 × (1 + 22.32%) 109
5 Terminal value (TV5) 756,153 = 300 × (1 + 22.32%) ÷ (22.37%22.32%) 275,580
Intrinsic value of Tesla Inc.’s common stock 276,251
 
Intrinsic value of Tesla Inc.’s common stock (per share) $287.80
Current share price $739.78

Based on: 10-K (filing date: 2021-02-08).

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.


Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 2.15%
Expected rate of return on market portfolio2 E(RM) 11.70%
Systematic risk of Tesla Inc.’s common stock βTSLA 2.12
 
Required rate of return on Tesla Inc.’s common stock3 rTSLA 22.37%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rTSLA = RF + βTSLA [E(RM) – RF]
= 2.15% + 2.12 [11.70%2.15%]
= 22.37%


FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Tesla Inc., PRAT model

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Average Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016
Selected Financial Data (US$ in millions)
Net income (loss) attributable to common stockholders 721  (862) (976) (1,961) (675)
Revenues 31,536  24,578  21,461  11,759  7,000 
Total assets 52,148  34,309  29,740  28,655  22,664 
Stockholders’ equity 22,225  6,618  4,923  4,237  4,753 
Financial Ratios
Retention rate1 1.00 1.00 1.00 1.00 1.00
Profit margin2 2.29% -3.51% -4.55% -16.68% -9.64%
Asset turnover3 0.60 0.72 0.72 0.41 0.31
Financial leverage4 2.35 5.18 6.04 6.76 4.77
Averages
Retention rate 1.00
Profit margin -6.42%
Asset turnover 0.55
Financial leverage 5.02
 
FCFE growth rate (g)5 -17.80%

Based on: 10-K (filing date: 2021-02-08), 10-K (filing date: 2020-02-13), 10-K (filing date: 2019-02-19), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-03-01).

2020 Calculations

1 Company does not pay dividends

2 Profit margin = 100 × Net income (loss) attributable to common stockholders ÷ Revenues
= 100 × 721 ÷ 31,536
= 2.29%

3 Asset turnover = Revenues ÷ Total assets
= 31,536 ÷ 52,148
= 0.60

4 Financial leverage = Total assets ÷ Stockholders’ equity
= 52,148 ÷ 22,225
= 2.35

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 1.00 × -6.42% × 0.55 × 5.02
= -17.80%


FCFE growth rate (g) implied by single-stage model

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (710,080 × 22.37%282) ÷ (710,080 + 282)
= 22.32%

where:
Equity market value0 = current market value of Tesla Inc.’s common stock (US$ in millions)
FCFE0 = the last year Tesla Inc.’s free cash flow to equity (US$ in millions)
r = required rate of return on Tesla Inc.’s common stock


FCFE growth rate (g) forecast

Tesla Inc., H-model

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Year Value gt
1 g1 -17.80%
2 g2 -7.77%
3 g3 2.26%
4 g4 12.29%
5 and thereafter g5 22.32%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= -17.80% + (22.32%-17.80%) × (2 – 1) ÷ (5 – 1)
= -7.77%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= -17.80% + (22.32%-17.80%) × (3 – 1) ÷ (5 – 1)
= 2.26%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= -17.80% + (22.32%-17.80%) × (4 – 1) ÷ (5 – 1)
= 12.29%