Tesla’s intrinsic value

    An Introduction to Tesla

    Martin Eberhard and Marc Tarpenning formed Tesla, originally Tesla Motors, in 2003 in California. Elon Musk, who did not start the original Tesla but as CEO (beginning in 2008), turned the firm into the version we know today. The firm's mission is to help "expedite the move to sustainable transport and energy, obtained through electric vehicles and solar power." To achieve that mission, the firm offers the following products and services: Automotive: Models S, 3, X, and Y; Energy: powerpack, power wall, megapack; Tesla Insurance in nine states. In the future, the firm will offer 25-30K EV, Insurance to the rest of the USA and beyond, Dojo, AGI thru Optimus bots, and lightning network node operations.

    Tesla is an AI firm that uses said AI network to sell and run EVs and move generated electrons from point A to point B. The firm will use AGI to dynamically move particles from point A to point B in the future.

    An Introduction to the Book Value plus DCF model

    I plan to value the firm how Benjamin Graham would, and that's the sum of the firm's net worth (or book value (assets minus liabilities)) plus the firm's future profits discounted to the present. The first part of this model is the firm's book value or what will be left over if the firm sold everything to pay off debts; if positive, it has value. In the second part, I will present my probability-weighted estimate of the next twenty years of earnings for Tesla. The reasonable discount rate would be the sum of the 40-year average real yield for the 30-year treasury and the current depreciation rate for the US capital stock.

    Todays and future business opportunities over the next twenty years

    I will cover the following business operations that Tesla is or will begin to exploit in the next twenty years. Those lines of operations include automotive sales and leasing, robotaxis, supercharger network, energy infrastructure, tesla insurance, Dojo, AGI- Optimus bot, and bitcoin-lighting network node operator. I will present how each line of business contributes to my estimate of the firm's intrinsic value (the value God would give to the firm using perfect foresight.)


    Most of today's business is from the automotive sector, but a small fraction of the firm's valuation. Other lines of enterprise will become more significant than the automotive operation. Even during the next 8-20 years, Tesla will go from producing 1.5 million vehicles to 20 million by 2030.

    Suppose Tesla can produce 26 million cars by 2031, remain fixed at that level till 2040, and earn 10 thousand dollars each. Suppose we discount each of those annual earnings by six percent. In that case, my estimate for the margin contribution to the estimated value of Tesla's intrinsic value is around 2.33 trillion dollars ($2.24 thousand per share).

    To achieve the estimated 26 million automotive units, Tesla will have to operate 13 gigafactories with a full-year ramp capacity of two million each. I expect Tesla to announce that gigafactories are approaching a 3 million unit production capacity. So the required production plants will go down but not the amount of capital needed to produce those vehicles.

    Robotaxis and other services

    The ability to drive cars will provide various benefits to customers that I estimate customers would be able to pay around 5,000 dollars per year on average. Suppose we average those earnings for the next 20 years (50% after-tax profit) and discount those at six percent. In that case, one gets a marginal contribution to Tesla's implied market capitalization of nearly 2.7 trillion dollars or $2,600 per share.

    Energy Infrastructure

    Tesla Energy is poised to generate 2.5 billion dollars in revenue for 2022 and grow those revenues for the next twenty years at 50 percent per annum. On average, I expect Tesla Energy to maintain an 80 percent rate for operating income and face a taxable rate of 20 percent. I can generate a table of expected earnings per year with that information. Suppose we discount each year's earnings by six percent. In that case, I arrive at an implied valuation of Tesla Energy at 2.8 trillion or 2,700 dollars per share.

    Tesla Insurance

    The small but rapidly growing division within Tesla, known as Tesla Insurance, can cover around 93 percent of the total Tesla fleet of 398 million in 2042. Suppose we add the additional assumptions of 600 dollars annual premium and 30 percent of revenue hitting the bottom line. In that case, we can calculate that Tesla could generate around 66 - ⅔ billion dollars of after-tax profits annually in 2042. Suppose Tesla's fleet remained at 398 million or 400 million cars for the next twenty years. In that case, the firm could grow earnings at the same rate as the six percent discount rate. The present value of Tesla Insurance in 2042 would be the product of 20 years, times 66 - ⅔ billion dollars or 1.33 trillion dollars or 1,325 dollars per share. Today's value of 1.33 trillion dollars would be 415 billion or 413 dollars per share.

    What would be the valuation of the next twenty years of Tesla's insurance cash flow? I will assume the following: That adoption by Tesla's fleet owners of Tesla Insurance will grow from one percent to 93% over the next twenty years. At the same time, the firm continues to expand at 50 percent annually, logistically, plus the additional assumptions used in the last paragraph. One gets a present value of Tesla Insurance at 173 billion dollars or 167 dollars per share. I can estimate the intrinsic value of Tesla Insurance using 40 years of earnings (discounted at six percent per annum) at 588 billion dollars or 580 dollars per share.

    The Optimus bot and AGI

    Elon Musk has made it clear that GDP is the product of GDP per capita times capita, and if there's no limit to capita, there's no limit to GDP. The Optimus bot will allow us to transform our available resources into the necessary capital to change our landed resources into the goods we want without limit. It should note that the real key to the ability of the Optimus bot to expand GDP will be the use of the soon-to-be-solved Artificial General Intelligence (AGI).

    The Optimus bot should be able to work around 22.5 hours per day, 365 days a year, without being stressed out, tired, with complaints, strikes, and subsequently with, 2-3 times faster than the average human. If the past is actual, then the bot should be able to generate 8-12 times the output of that same human. Using the average output per capita (US GDP per capita) of 65,000, that bot could generate 650 thousand dollars annually. Then our ability to consume would increase in proportion to increases in Optimus bot productivity vs. human productivity.

    Tesla should produce a total of 197 million of these bots with the ability to generate 28.5 trillion dollars using the average cost of 10 thousand per bot and a marginal tax rate of 20 percent. The total marginal net income of the bot division of Tesla would generate 21.2 trillion dollars twenty years from today. If we discount the expected net income (profits) to the present using a six percent rate. Then the present value of this stream of profits would be 26 - ⅓ trillion dollars or 25,300 dollars per share. The marginal contribution to the firm's intrinsic valuation of this bot is 26 - ⅓ trillion dollars or 25 - 3/10 thousand per share.

    Bitcoin and Lighting network node operator

    Tesla can generate additional income by running a node on the lighting network generating a two percent risk-free rate on their ten thousand bitcoin holdings. Two percent of 10,000 bitcoins is 200 bitcoins. Fast forward to 2042, Tesla's bitcoin holdings will increase to 14,860, potentially worth 300 billion dollars (20 M USDT). Discounting this princely sum of 300 billion dollars back to the present at a six percent rate gives you a present value of 93.5 billion dollars for the marginal contribution to the firm's valuation from the side hustle of lighting network node operations using the company's bitcoin holdings. This line of operations would add 89.9 dollars per share to the intrinsic value of each firm share.

    Today's probability-adjusted book value of Tesla's AGI network

    What is the value of the AI owned by Tesla? Currently, other firms hold zero of these networks on their balance sheets. Tesla now has the firm's AI at zero on the balance sheet. If this asset generates earnings, why is it listed with a zero value on the balance sheet? Let's start with the estimate of per unit FSD (an approximate for AGI) that Farzad Mesbahi provides at 675 thousand dollars. Then if we multiply that figure by 64 billion bots that Tesla could produce from today to the end of the century and then discount that extremely large figure by six percent to the present. We can arrive at the true value of AGI today. That estimate is 408 trillion dollars or 393 thousand dollars per share. The key assumption is that Tesla has a 100 percent probability of solving the AGI problem. One can use different possibilities to arrive at different probability-weighted values of Tesla's AI (AGI in the future). Even at one percent of achieving AGI, the probability-weighted intrinsic value of Tesla AI at 4.08 trillion dollars or 3.9 thousand dollars.

    Risks and other considerations

    Nothing I just listed in this report may happen on this matrix side. I hold a long position in the equity securities of Tesla, and nothing in this report is an endorsement of any security or financial advice.


    Tesla will have a bright future over the next couple of decades, but as investors, we need to be able to value the firm using what that future might look like. I estimate that the per-share intrinsic value of Tesla is around 33 thousand dollars (a premium to Friday's closing price of 900 dollars). Seventy-eight percent of the inherent value of Tesla comes from the still-in-development Optimus bot. Less than seven percent of the calculated value of the stock comes from the largest driver of revenue today (the automotive division).

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