When Aswath Damodaran talks about the valuations of companies, people listen, and now he’s talking about Tesla Motors Inc (NASDAQ:TSLA). He believes the automaker is worth just a fraction of what it’s trading at.

aswath-damodaran

His valuation of the EV automaker comes a little over a month after he posted that it might be time to sell Facebook Inc (NASDAQ:FB) shares. The social network’s stock has risen dramatically after Damodaran made his remarks, but we all know what happened to Apple Inc. (NASDAQ:AAPL) after he started to get worried about the company.

Damodaran nailed Apple

You may remember that last year Damodaran sold Apple Inc. (NASDAQ:AAPL) last year ahead of the company’s peak and subsequent decline. At that time, he said he sold his shares because he was concerned about the new type of investors the company was attracting. He said momentum investors were changing the game of investing in Apple, so he decided that it was time to sell.

Needless to say, he was right because as soon as Apple Inc. (NASDAQ:AAPL) lost its momentum, investors started selling. He was out before the company peaked and well before its stock began to deflate.

Tesla’s valuation is troubling

Now Damodaran has just posted on his blog what he believes is a fair valuation for Tesla Motors Inc (NASDAQ:TSLA). He believes that it’s only worth about $67.12 per share—far below the current market value of almost $170 a share. He noted that he used standard metrics in his valuation, although he said whenever talking about companies as new as Tesla is, value should be derived not from the company’s current earnings and revenue but from expectations of its earnings and revenue in the future.

He predicts that Tesla Motors Inc (NASDAQ:TSLA) will post $65.42 billion in revenue in 2022, emphasizing that this is an optimistic view because the automaker specializes in electric vehicles. He said he’s measuring its potential revenues by examining those of the biggest automakers today.

Possibilities for Tesla, in Damodaran’s view

He said if the company keeps focusing on high-end vehicles, it should be able to record pre-tax operating margins of 12.5 percent in steady state. He said this will make it possible for the company to generate over $8 billion in operating income by the 10th year, which would make it more profitable than every other automaker except BMW, Volkswagen and Toyota.

Damodaran estimates that Tesla Motors Inc (NASDAQ:TSLA) will have to invest about $1 in capital for every $1.41 in revenue, which still puts it toward the top of the auto industry in terms of invested capital returns. He notes that the company faces risks in terms of the economy’s strength, interest rates and other areas.

He said in order for a company like Tesla to mature, it has to begin growing revenues, posting profits and generating money for reinvestment. He said even though he assumes that all of these things go on at Tesla, he just can’t get past $70 a share.