Tesla Wears Many Hats: Does It Justify The Valuation?

Tesla Motors Inc TSLA's business scope is quite expansive, and as a Jack o' All Trades, it has managed to pull of impressive valuation multiples, well above its comparable direct business model. However, Devonshire Research Group questions whether the valuations are justified as the firm delves into the question, "What kind of company is TSLA really?"

Devonshire began its investigation by pointing out three elements of Tesla:

• 1. Tesla's attempt at vertical integration exceeds any other auto company as of late.
• 2. Tesla's revenue multiple exceeds any related tech company
• 3. Tesla's "only comparables in terms of multiple are business models that TSLA is not," including software companies, social media companies or biotech/oil E&P companies

Related Link: Electric Vehicles Will Hit 50% Market "Inflection Point" By 2040

Regarding Tesla's multiple "hats" worn, Devonshire provided the following figure:

According to Devonshire, "Tesla is not, and will not grow like, a software company – it is an automotive company, and the automotive industry is mature and famously difficult to disrupt."

In elaborating upon Tesla's 7.0x revenue multiple, which Devonshire iterated as being "far above any comparable except, at the extreme, a high-flying software company," the firm included the below chart.

Devonshire then compared Tesla's valuation multiples to social media, emphasizing Tesla's lack of "network effects or serious user traction."

Finally, the reserch firm wrapped up its analysis of Tesla's valuation by stating, "Broadly speaking, Tesla's multiple places it among industries that rely on speculative future windfalls; true comparables lie far below."

All images courtesy of Devonshire Research Group.