Third Quarter Review — with Aswath Damodaran | Prof G Markets

Business Narratives

Aswath Damodaran evaluates Tesla's business narratives, distinguishing between possibilities, plausibilities, and probabilities. He explains that while some ventures like robotaxis are becoming plausible, others may fade away. Damodaran notes that Tesla's side businesses, such as auto software, significantly contribute to its valuation beyond being just an automobile company 1.

Each time you hit a business that Tesla is in, they come up with three other businesses. Two out of the three will never make it out.

Tesla's strategy of cutting car prices to boost other business areas reflects its belief in these side ventures 2.

   

Intangible Assets

Intangible assets, such as leadership from Elon Musk, play a crucial role in Tesla's valuation. Damodaran argues that these intangibles, while not on the balance sheet, are reflected in the company's earnings power and market perception 3. He uses Birkenstock as an example of how intangibles like brand name and management changes can drive value 4.

The biggest intangible is a man, right? Elon Musk. And that intangible brings good things and bad things to Tesla, depending on the day.

This highlights the complexity of valuing companies where intangibles significantly impact their market standing.

   

Market Impact

Emerging business areas like AI and robotaxis could significantly impact Tesla's market value. Damodaran emphasizes that while these areas are nascent, they hold substantial potential value 5. He projects that Tesla's software and robotaxi businesses could be worth billions, despite current technological and regulatory challenges 2.

The reality is, it's the only automobile company that seems to be taking FSD seriously as a business model.

This forward-looking approach underscores Tesla's strategy to leverage emerging technologies for future growth.