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Is Tesla Really Worth $800 Billion?

By Matthew Frankel, CFP® and Jason Hall - Feb 8, 2021 at 6:41AM

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The innovative EV leader is clearly a great company, but it isn't cheap.

Tesla (TSLA -6.42%) has quite a bit for investors to be excited about. The company is the clear leader in electric vehicles, recently was added to the S&P 500, and has tons of cash to ramp up its operations. But even some of the most bullish Tesla investors think an $800 billion valuation is high. In this Fool Live video clip, recorded on Jan. 25, Fool.com contributors Matt Frankel, CFP, and Jason Hall discuss Tesla's progress, competitive advantages, and that lofty valuation.

Jason Hall: All right, let's talk about Tesla talking about divisive stocks. There's no doubt about it. Tesla has had a pretty great decade over the past year, with the stock up absolutely enormously, but here's the thing about it. I think it's pretty easy to see that and to miss if you're not already a Tesla bull and you haven't been rewarded with that. It's pretty easy to miss. This is the company that has easily been the biggest disruptor in the automotive industry since the automotive industry disrupted the horse and buggy.

It's not just forcing every major automaker to make fully electric vehicles a priority, with the vertical integration changing the way people buy and service cars and think about who they have to deal with to get a car. Tesla also accomplished a pretty major goal last year. Getting into the S&P 500 is a big deal. This is the fifth largest company in the S&P 500, valued at more than $800 billion.

What's next? Tesla has got a lot of money to spend. It's going to have to spend billions and billions of dollars to grow its manufacturing footprint, whether you're talking about its international expansion to build more vehicles. You're talking about more battery capacity for its EVs and also for its energy storage business. You have to remember this is a company that has its Powerwall, not just in people's houses, but also commercial and also utility scale. There's a lot of irons in the fire here. Tesla still has the solar roof business that it's trying to develop and trying to turn into the next disruptor for residential solar that it still has to spend a lot of money on. That's the challenging news.

The good news is Tesla has about $15 billion in cash, has more cash than debt. It's proven that it has the ability to raise capital. Elon Musk, as much as he gets credit for being so innovative, I don't think he gets enough credit for his financial savvy for being willing to issue equity to raise a ton of cash. That's so, so smart, because the company is going to spend every bit of that and more to develop its infrastructure in the next couple of years.

But here's the other thing. It generated $4 billion in operating cash over the past 12 months. The business can live within its own means. I think that's really, really important. What after that? A big part of Tesla's bullish future is vehicle automation. That's the big thing. That's the thing that the idea is. We've changed automobiles. We've disrupted the industry. We've disrupted the buy and service side of the industry with vertical integration. Now we want to disrupt vehicle ownership and participate in the future of how people even utilized vehicles and participate in those future cash flows as people use a vehicle that they don't even own and we manage the fleet as Tesla and we get a share of that.

If it all pans out, even at today's valuation, Tesla's future could be very, very bright, but we'll have to see how it goes, guys, right?

Matt Frankel: Yeah. Well, I think Tesla would be crazy to not raise money at these valuations.

Hall: Agreed. Yeah.

Frankel: In my mind, their biggest competitive advantage right now is that valuation.

Hall: Yeah.

Frankel: They can raise $5 billion, I think is what they just announced recently, and they're doing that with less than 1% dilution.

Hall: Right.

Frankel: That's crazy. There's no other automakers that could even do anything close to that. That is a huge advantage. I'm not ready to jump into Tesla at this valuation. I'm a value investor at heart. I just am, more so than most people at the Fool. So I tend to try to hunt for bargains. Even the Tesla bulls, no one can really make the case that it's a bargain right now. [laughs].

Hall: Yeah. But it's a great business. I still think it's a wonderful business, and I would never bet against Elon Musk.

Frankel: Sure. I'm not about to open a short position in it.

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