How Tesla’s Valuation Multiples Are Trending in January 2018




Previously in this series, we saw how Wall Street reacted to Tesla’s (TSLA) 4Q17 vehicle deliveries and production data. Despite being under pressure in the final quarter of 2017, Tesla stock has risen ~8.0% in January so far. 

Investors’ high expectations from the company could be one of the reasons for these early gains in 2018. Now, let’s look at some key factors that could drive Tesla’s valuation multiples in the coming months.

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Forward valuation multiples

On January 8, 2018, Tesla’s forward EV-to-EBITDA[1. enterprise value to earnings before interest, taxes, depreciation, and amortization] multiple was 33.8x. This multiple was based on the company’s estimated EBITDA for the next 12 months. About three months ago, the company’s EV-to-EBITDA was much lower at 31.7x.

Tesla’s forward EV-to-sales multiple was 3.3x on January 8. Tesla’s valuation multiples are notably higher than those of mainstream auto companies General Motors (GM), Ford (F), and Toyota (TM). GM, Ford, and Toyota had EV-to-sales multiples of 1.0x, 1.1x, and 1.2x, respectively.

Tesla’s significantly higher valuation has been questioned by several experts on several occasions. However, Tesla shouldn’t be valued using the same metrics as in the case of other legacy auto companies (XLY).

What could affect valuation?

Tesla is still a fairly new growth company, unlike other mainstream auto industry giants. This explains why growth matters the most in Tesla’s case. While Tesla’s 4Q17 Model 3 production increase reflected optimism, it’s important for the company to progress toward its high volume production target going forward.

Consistent improvement in Model 3 production and better-than-estimated 4Q17 earnings results could raise Tesla’s future earnings estimates. These higher earnings estimates could have a positive impact on the company’s valuation multiples going forward.

In the final part of this series, we’ll see what Wall Street analysts are recommending for Tesla stock after its 4Q17 data release.


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