FINANCIAL AND NON-FINANCIAL VALUATION OF A COMPANY WITH NEGATIVE EARNINGS: A CASE STUDY OF TESLA INC.

• Main Author: Agha Favianza Winartha, Muhammad
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/68106
• Institution: Institut Teknologi Bandung

Tesla, Inc. has been the world's leading electric vehicle manufacturer for many years, but it just started earning money in 2020. Despite the fact that profits were only reported two years ago, Tesla has always had a large number of investors who wanted to participate in the firm. It was reported that Tesla experienced 900% growth of common stock outstanding holders from 114,517,973 in 2013 to 1,033,507,611 in 2022. These investors are one of the primary reasons Tesla has grown to become the largest electric vehicles manufacturer in the world. As a result, learning how investors conduct and perceive the valuation of Tesla as an unprofitable company will be intriguing. The main research question of this paper is “How to determine the valuation of Tesla as a company with negative earnings?”. This paper aims to understand the valuation of a company with negative earnings such as Tesla, hence Investors are willing to put their money in unprofitable businesses. This paper wants to discover the methods used to value a company like Tesla, if financial valuation is adequate, or whether non-financial valuation must also be considered. As a result, the report determined Tesla's worth from both a financial and non-financial standpoint. The financial valuation employs the Discounted Cash Flow approach and Relative valuation using multiples such as price earnings ratio and enterprise value/earnings before interest, tax, depreciation, and amortization ratio respectively, whereas the non-financial valuation considers management quality, corporate social responsibility, and future plans. The financial valuation models are applied to the income statements of Tesla from 2012 to 2021, which are obtained from the company 10-K annual reports published by the United States Securities and Exchange Commission. As of January 31, 2022, The estimation of Tesla's share price, according to discounted cash flow method, is approximately $884.15, while the relative valuation estimates share prices of $1,017.70 & $935.33 based on price earnings ratio and enterprise value/earnings before interest, tax, depreciation, and amortization ratio respectively. Compared to Tesla's actual market share price of $936.33 on January 31, 2022, it can be said that Tesla's share price is slightly overvalued due to the fact that the value of two estimated share prices are under the market. On the other hand, from the non-financial perspectives, Tesla has been known for its quality of management by having highly experienced and specialized people as their top management. Moreover, Tesla, aligned with their mission to accelerate the world's shifting sustainable energy, have proved that the company has successfully reduced a significant number of carbon dioxide emissions while generating a great amount of electricity. Additionally, the upcoming electric trucks and sports car that will be released by Tesla indicate the company's market expansion. These indicators have driven investors' attention to invest their money in Tesla. The outcome of the research revealed that the results of a company's financial valuation is crucial when making investment decisions, yet it requires a lot of assumptions. Therefore, taking non-financial factors of a firm into account when valuing a company is beneficial to supplement the results produced by financial valuation methods such as discounted cash flow and relative valuation.