Application and Feasibility Analysis of DCF Model in Corporate Valuation: A Case Study of Tesla, Inc

Jiayi Pan ()
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Jiayi Pan: University of Illinois at Urbana-Champaign

A chapter in Proceedings of the 2022 International Conference on Economics, Smart Finance and Contemporary Trade (ESFCT 2022), 2022, pp 1005-1023 from Springer

Abstract: Abstract Although in the past two years, the COVID-19 pandemic and the resulting rise in global raw materials and labor costs have had a more serious adverse impact on the entire automotive industry, the new energy vehicle industry has shown a strong momentum of development in the past two years, with significant improvement in both the scale and speed of development. Therefore, given the rapid growth of the electric vehicle industry in the past two years, it is necessary to evaluate companies in some related fields from the aspects of business scope and development policies in early 2022 to rejudge the value they can generate in the future. This paper adopts the Discounted Cash Flow (DCF) model, a classical capital pricing model, to discount all cash flows of Tesla in the future, thus obtaining the current corporate value of Tesla. It turns out that the final estimation of Tesla’s enterprise value is about $900 billion. Compared with the public valuation of Tesla, there is a risk that the corporate value of Tesla may be overvalued by the public. Through analysis, it can be concluded that although the DCF valuation model has certain inevitable restrictions, it is still practical to evaluate large-scale companies. For the future development of new energy electric vehicles, although the far-reaching impact of the epidemic may continue for several more years, it can be argued that the development potential of the electric vehicle industry cannot be underrated, especially for new energy electric vehicle companies represented by Tesla.

Keywords: Tesla; Corporate Valuation; Capital; Discounted Cash Flow (DCF); Weighted Average Cost of Capital (WACC); Capital Asset Pricing Model (CAPM) (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:spr:advbcp:978-94-6463-052-7_114

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DOI: 10.2991/978-94-6463-052-7_114

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