Tencent Holdings (HKSE:00700, Financial) was reported to have bought 5% of Tesla (TSLA, Financial)(STU:TL0, Financial) for $1.7 billion this week.
At the price of $277.45 per Tesla share, Tencent already gained $566 million.
Earnings performance
The $45 billion California-based automaker, energy storage company and solar panel manufacturer delivered its fourth quarter and full year fiscal 2016 results on Feb. 22.
Tesla logged an amazing 73% sales growth to $7 billion and recorded $674.9 million loss. In comparison, the carmaker delivered far worse in 2015 with $888.7 million.
As observed, Tesla saw outstanding increases in both of its automotive leasing and energy generation and storage divisions by 146% and 1,153%.
Outlook
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"We expect to deliver 47,000 to 50,000 Model S and Model X vehicles combined in the first half of 2017, representing vehicle delivery growth of 61% to 71% compared with the same period last year. In addition, both GAAP and non-GAAP automotive gross margin should recover in first-quarter to third-quarter 2016 levels and then continue to expand in second-quarter 2017.
"As for our energy generation and storage business, we plan to prioritize profitability and cash preservation over total MW deployed ahead of the solar roof launch. We are on track to generate $500 million in cash (including growth of nonrecourse project financing) by 2019 and achieve the cost synergies we committed to upon acquiring SolarCity. Specifically, we plan to reduce customer acquisition costs by cutting advertising spending, selling solar products in Tesla stores and shifting away from leasing solar systems.
"We expect to invest between $2 billion and $2.5 billion in capital expenditures ahead of the start of Model 3 production. We continue to focus on capital efficiency while also investing in battery cell, pack and energy storage production at Gigafactory 1."Â –”‹ Elon Musk, chairman and CEO, and Jason Wheeler, chief financial officer
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Valuations
Tesla does not have any earnings –”‹Â $675 million loss in fiscal 2016 –”‹Â thus leading to no price-earnings (P/E) multiple or forward earnings multiple comparison.
The visionary company led by Elon Musk traded 9.4 times its book value and 5.7 times its trailing sales –”‹Â making it richly valued compared to its peers’ median of 1.67 times and 0.81 times, according to GuruFocus data.
Tesla also had a forward price-sales (P/S) ratio of 4 times using average sales expectation for fiscal 2017.
Tesla also does not pay any dividends and had just finished diluting its shareholders by raising $250 million this month in equity.
Total returns
Tesla has rewarded its faithful shareholders bountifully in the past half decade. According to Morningstar data, Tesla gave a 48.9% total return to its shareholders compared with Standard & Poor's 500’s 13.3%.
This year, the self-driving visionary carmaker returned 5.1 times more than the broader S&P 500 index. These remarkable returns were made possible despite the absence of dividends and share repurchases.
Tesla
Tesla Inc. (formerly named Tesla Motors) was founded 13 years ago and is an American automaker, energy storage company and solar panel manufacturer based in Palo Alto, California.
According to filings, Tesla designs, develops, manufactures and sells high-performance fully electric vehicles and energy storage systems as well as install, operate and maintain solar and energy storage products.
Tesla is the world’s only vertically integrated energy company, offering end-to-end clean energy products, including generation, storage, and consumption.
Tesla, with a market value of $45.3 billion, produces and sells two fully electric vehicles, the Model S sedan and the Model X sport utility vehicle (SUV). Model S commenced deliveries in 2012; Model X deliveries began in the third quarter of 2015.
Nonetheless, Tesla is expecting to begin volume production and deliveries of Model 3 –”‹Â third commercial vehicle –”‹Â in the second half of 2017. Tesla also intends to bring additional vehicles to market in the future, according to filings.
Tesla’s $2.6 billion acquisition of Solar City in November 2016 allowed it to sell renewable energy to customers. Rates charged through renewable energy are typically below utility rates, according to filings.
In 2016, Tesla generated 60% or $4.2 billion of its total sales from the U.S., 20% from other countries, 15% from China and 5% from Norway.
Tesla experienced amazing sales growth in both China and the U.S. with 234.4% and 114.6% growth.
Tesla operated with two reportable segments: automotive and energy generation and storage.
(10-K)
Automotive
The automotive reportable segment includes the design, development, manufacturing and sales of electric vehicles.
In 2016, Tesla’s automotive sales grew 69% to $6.8 billion or 97% of total Tesla sales. The segment generated a gross profit margin of 23.4% vs. 22.9% in 2015.
(10-K)
Energy generation and storage
The energy generation and storage reportable segment included the design, manufacture, installation and sale or lease of stationary energy storage products and solar energy systems to residential and commercial customers or sale of electricity generated by our solar energy systems to customers.
In 2016, energy generation and storage sales grew 1,153% to $181.4 million and generated gross profit margin of 1.7% vs. 15.1% in 2015.
Sales and losses
(10-K)
Cash, debt and book value
As of December, Tesla had $3.39 billion in cash and cash equivalents and $7.12 billion in debt –”‹Â including capital leases –”‹Â having a debt-equity ratio of 1.2 times vs. 2.34 times in 2015.
Only 1.7% of Tesla’s $22.7 billion assets were labeled as intangible assets. For the recent fiscal year, the car company had a book value of $5.9 billion vs. $1.13 billion the year prior.
Cash flow
(Update Letter, Tesla)
In 2016, cash (out)flow from operations improved to $123.8 million from $524.5 million in 2015. Improved cash flow came from an increase in accounts payable and accrued liabilities and customer deposits.
Capital expenditures were $1.44 billion leaving Tesla with a free cash (out)flow of $1.56 billion. Tesla also paid $21.25 million to noncontrolling interests in subsidiaries.
(10-K)
*Market capitalization was derived from historical and trailing 12-month price-sales figures.
As observed, Tesla was able to raise a good amount of cash from issuing shares to the public mostly since 2015. Despite this increased dilution to existing shareholder ownership in the innovative company, Tesla’s market value climbed another $8 billion in response.
(10-K)
In addition to the $1.7 billion share issuance, Tesla also took in $1.7 billion in debt proceeds net costs and capital leases payments and debt repayments in 2016.
Conclusion
After nearly reaching Ford’s (F, Financial) market value of $46.4 billion recently, one should wonder whether Tesla has successfully shown incredible achievement in recent times financially speaking.
Reviewing the visionary company’s performance, though, induced a bit of disappointment, which supplanted such initial optimistic outlook in Tesla as a long-term investment.
Tesla’s balance sheet seemed to be acceptable leverage as an endeavoring innovative company and as its current cash pile could pay down half of the entire debt.
Tesla does seem to still have some runway in terms of market appreciation as investors pile in whenever the car company issues more shares.
(Tesla Share Price and Price-Sales Ratio, GuruFocus)
In March, Goldman Sachs reiterated a sell rating on Tesla but raised its price target to $187 a share from $185 –Â a 33% drop from the price of $277 share at the time of this writing. Bernstein, however, initiated a market perform on Tesla and had a $250 per share target price.
Seventeen analysts that cover the car company had an average price target of $250.94 a share –Â a 3.6 times P/S ratio basing on average sales expectation in 2017.
Going a bit wildly optimistic and using Tesla’s historical P/S ratio, asking a 40% margin, and applying average market expectations of 2017 sales would provide a value of $52.7 billion or $323 per share.
In summary, Tesla is a hold with $255 per share value.
Disclosure: I do not have shares in any of the companies mentioned.
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