Elon Musk’s Master Plan Was Short on Details. That Makes It Hard to Value Tesla Stock.
Tesla TSLA +3.61% is trading “more like just another car maker,” wrote Bespoke Investment Group this past week. I don’t think it was a compliment. On Wednesday evening, the company held a new investor day at its equally new Texas Gigafactory. On Thursday, shares sagged 6%.
That’s not how these things are supposed to work. Investor days aren’t a must, like filing an annual report. Companies do it to generate enthusiasm for their strategies and products. Rapturous applause in the moment is good, but a pop in the stock price is better.
In the decade through 2021, most days for Tesla (ticker: TSLA) felt like investor days. The stock gained 18,000%. The company stuck to shareholder meetings and events themed around technology—like a battery day and an AI day. Then, last year, rising interest rates shook frothy stocks, and Tesla dropped 65%. So, on Jan. 2, the company announced a day just for equity enthusiasts.
Speculation began immediately that Tesla would give details on a new, cheap car—maybe not Honda Civic cheap, but Accord-ish, say $30,000. That didn’t happen—hence the disappointment. In February, CEO Elon Musk tweet-promised to share his Master Plan 3, and he did just that. Sort of.
Tesla will help create a sustainable energy economy using 240 terawatt hours of power storage and 30 TWh of renewable generation, which will need $10 trillion in investment, equal to 10% of the world’s economy, which is a bargain, Tesla says, compared with what the gasoline-chugging economy costs. Also, there will be robots—lots of them. Tesla showed a video of its humanoid Optimus, but didn’t offer a live demonstration. Eventually, “I think we might exceed a 1-to-1 ratio of robots to humans,” said Musk. “It’s not even clear what an economy means at that point.”
It’s unclear, all right.
If robots and cars seem an odd fit, Musk points out that robots will work in the factories and be sold for home use, and he calls cars robots with wheels. Speaking of wheels, Tesla said its long-delayed Cybertruck is coming later this year. It said that its new, broader vehicle-production platform will cut costs by 50%.
One investment bank said that “details were limited.” Did it not hear the part about robots outnumbering humans? Another called the presentation “short on specifics.” A third used the word “letdown.”
Tesla shared its first master plan in 2006 and its second in 2016, the year it bought home solar player SolarCity. The second plan called for a flourishing solar business, a vast menu of new vehicles, and fully autonomous driving, with a cash-generating network of robotaxis. So far, the solar business has looked uneven; two vehicle models make up the bulk of sales, which are nonetheless growing quickly; and the other stuff hasn’t happened yet.
Bespoke’s point on Tesla trading like a regular car maker is that statistically, its average rolling one-year correlation to the share prices of Ford Motor F +4.22% (F), General Motors GM +3.74% (GM), Stellantis STLA +2.62% (STLA), and Toyota Motor TM +1.86% (TM) has hit its highest level since 2016. But investors can’t spend their rolling correlations, and Tesla’s 55% gain so far this year, even after Thursday’s dip, easily beats those other stocks.
The question now is how to put a price on Master Plan 3, and how much of it is already reflected in the shares. Adam Jonas at Morgan Stanley is bullish. The most important part of the new plan is immense vertical integration and vast scale that will give Tesla an edge on production costs. “In a race to the bottom, we seriously question how the competition can keep up,” Jonas writes. His price-target math is based on—deep breath now—six parts.
The car business is worth $117 a share, reckons Jonas. That’s based in part on deliveries rising to 7.2 million units in 2030, from 1.3 million last year. Margins, based on earnings before interest, taxes, depreciation, and amortization, or Ebitda, will hit 20%, versus 11% or so now for Toyota. The second part is robotaxis, valued at $9 a share, based on 425,000 vehicles earning $1.70 a mile by 2030. Then, there’s $29 for Tesla as a supplier to other manufacturers, and $26 for the energy business, and $8 for insurance. Finally, there’s $32 for network services, or subscriptions generating an average of $80 a month by 2030 from 18.9 million users.
Added up and rounded down, that’s $220, suggesting near-term upside of another 15% for the stock.
My own valuation model consists of 32 parts starting with having no idea and ending with wondering whether Optimus will carry me out to my robotaxi. I don’t pretend that pricing such futuristic upheaval is easy. One prognosticator called Tesla stock “too high” less than three years ago, then six months ago said the company would pass the combined value of Apple (AAPL) and oil monopoly Saudi Arabian Oil (ARAMCO.Saudi Arabia), implying that Tesla’s stock price will multiply seven times. Some turnabout—and that guy runs the company.
Let’s turn to nuts. Hormel Foods stock (HRL) has fallen for nine straight days. It’s down 12% year to date, versus a rise of a few percent for the broad market. On Thursday, J.P. Morgan cut the meatpacker to Underweight from Neutral. Hormel has said it’s overstocked on Bacon Bits, Spam, Compleats microwave meals, ribs, and products from the Planters business that it bought from Kraft Heinz in 2021.
The nut business has suffered a double whammy, says JPM. Shoppers have been trading down from lucrative cashews and fancy mixes to workaday peanuts. And in peanuts, Planters hasn’t been holding its own. Hormel is expanding production of Spam and Planters to add packaging options. JPM wonders whether this is wise. It points out that while Hormel has relatively low leverage, it isn’t as low as it used to be, and years of dividend hikes have left payouts as a percentage of profits well above the group average.
This all comes after Mr. Peanut starred in his own Super Bowl ad. If you can’t persuade today’s consumers with an anthropomorphic legume in top hat and monocle, I’m out of ideas.