What Could Affect Tesla’s Valuation Multiples in Q1 2019?



Tesla’s valuation

As of January 31, Tesla’s forward EV-to-EBITDA (earnings before interest, tax, depreciation, and amortization) multiple was at 16.9x, which was calculated on the company’s estimated EBITDA for the next 12 months. In the last six months, TSLA’s forward EV-to-EBITDA multiple has fallen to 25.7x, and about a year ago it was much higher at 33.7x.

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EV-to-sales multiples

Similarly, Tesla’s forward EV-to-sales multiple was 2.2x as of January 31, lower than 2.5x about six months ago and 3.3x a year ago. Despite the recent drop, Tesla’s valuation multiples were still much higher than mainstream automakers such as General Motors’ (GM) 0.9x and Ford’s (F) 1.1x. However, Tesla’s multiples were lower than tech giants (QQQ) Apple (AAPL) and Amazon (AMZN). Apple’s and Amazon’s EV-to-sales ratios were at 3.0x. It’s important to note that TSLA shouldn’t be valued using the same metrics as these legacy auto companies due to differences in their business models and sizes.

Key factors to watch in Q1 2019

In the last couple of quarters, Tesla has managed to remain profitable. However, it is important for the company to sustain profitability by improving its manufacturing efficiencies and cutting costs. The company might continue to need investments to maintain high volume vehicle production and to start production in its Shanghai-based (MCHI) Gigafactory. The slower-than-expected car production rate at this stage could take a toll on its financial figures and also it could become an obstacle to Tesla’s goal to be profitable in the near term.

Thus, it is important for Tesla to achieve better economies of scale that could reduce its manufacturing costs and help it improve its gross margin further. A consistent improvement in the company’s margins could boost its future earnings estimates and drive its valuation multiples upward.

Other external factors such as higher raw material costs, tariffs, and currency headwinds are also expected to affect its margin in the medium term negatively.

Continue to the next part to learn about Wall Street analysts’ recommendations on Tesla stock after its fourth-quarter earnings event.


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