Analyzing the Trends in Tesla’s Valuation Multiples in Q1
Forward valuation multiples
Valuation multiples are widely used in highly capital intensive sectors, including the automotive (XLY) sector. However, it’s important to use these valuation multiples only to compare companies that are similar in size or that have similar business models. No other publicly listed automaker’s business model is similar enough to Tesla’s (TSLA) to draw a comparison.
As of February 20, Tesla’s forward EV-to-EBITDA (enterprise value-to-EBITDA) multiple is 16.4x. About three months ago, this multiple was higher at 19.7x. The valuation multiple has been calculated based on TSLA’s estimated EBITDA for the next 12 months.
The company’s forward PE multiple is 50.6x. Note that Tesla’s valuation multiples are significantly higher than those of legacy auto companies General Motors (GM), Toyota Motor (TM), and Ford Motor Company (F). GM, TM, and F have forward PE multiples of 6.1x, 7.7x, and 7.3x, respectively.
Many notable analysts have questioned Tesla’s high valuation multiples. However, Tesla shouldn’t be valued using the same metrics as those used for legacy car manufacturers.
Factors to watch
TSLA is still a growth company, unlike other legacy auto companies, which have proven track records spanning decades. In the last couple of quarters, Tesla has managed to report profitability, and its vehicle production rate has also exponentially improved in the last three quarters.
Nonetheless, Tesla still hasn’t been able to achieve its high-volume production goal of producing 500,000 car units per year. In 2019, analysts will likely continue to focus on Tesla’s progress toward increasing its car production. The company’s growth in the world’s largest electric vehicle market, China, is also likely to remain in focus.