As Tesla ($TSLA) continues to dominate headlines with its electric vehicles, AI ambitions, and autonomous driving dreams, its stock price of $308.58 (as of June 9, 2025) raises a critical question: is it worth the hype? Using the Buffett and McGrew Valuation Methods, I’ve crunched the numbers to estimate Tesla’s intrinsic value based on five years of financial data (2020–2024). Spoiler alert: the results suggest Tesla is significantly overvalued. Let’s break it down.
The Data Behind the Analysis
Using financial data from Tesla’s annual cash flow and balance sheet (sourced from SEC filings and validated via Yahoo Finance and Google Finance), I focused on:
- Free Cash Flow (FCF): 2020: $2.70B, 2021: $3.48B, 2022: $7.55B, 2023: $4.36B, 2024: $3.58B.
- Shares Outstanding: 3.216 billion (2024).
- Last Closing Price: $308.58, confirmed via DeepSearch on Yahoo Finance and Google Finance for June 9, 2025.
- Growth Rate: Calculated a 5-year FCF CAGR of 7.28% (2020–2024), classifying Tesla as a “stable stock” (CAGR ≤ 10%).
Buffett Valuation Method
The Buffett Valuation Method uses a Discounted Cash Flow (DCF) approach:
- Parameters: 5% growth rate for Years 1–10 (stable stock), 2.5% perpetual growth, 8% discount rate (4% Treasury + 4% premium).
- FCF Projections: Starting from $3.58B (2024), FCF grows to $5.83B by Year 10.
- Terminal Value: $108.71B in Year 10.
- Present Value: Discounted FCFs and terminal value sum to $80.43B.
- Intrinsic Value per Share: $80.43B ÷ 3.216B shares = $25.01.
- Price with 25% Margin of Safety: $25.01 × 0.75 = $18.76.
McGrew Valuation Method
The McGrew Valuation Method adjusts growth rates for high-growth stocks but mirrors Buffett for stable ones like Tesla:
- Since Tesla’s 5-year FCF CAGR (7.28%) is ≤ 10%, it uses the same 5% growth rate, 2.5% perpetual growth, and 8% discount rate.
- Result: Identical to Buffett—$25.01 intrinsic value per share, $18.76 with a 25% margin of safety.
Why McGrew Could Be Higher: For growth stocks (CAGR > 10%), McGrew starts with the historical CAGR, declining linearly to 10% by Year 7, capturing early high growth. Tesla’s stable classification limits this, aligning both models.
Valuation Status
Comparing the closing price ($308.58) to the intrinsic value ($25.01):
- Percentage Difference: ($308.58 – $25.01) ÷ $25.01 × 100 = 1133.67%.
- Status: Overvalued (closing price >36% above intrinsic value).
| Stock Ticker | Valuation Method | Intrinsic Value per Share | Price with 25% Margin of Safety | Last Closing Price | Valuation Status |
|---|---|---|---|---|---|
| TSLA | Buffett Valuation | $25.01 | $18.76 | $308.58 | Overvalued |
| TSLA | McGrew Valuation | $25.01 | $18.76 | $308.58 | Overvalued |
Why the Disconnect?
Tesla’s market price reflects investor optimism about its future—think AI, self-driving tech, and energy storage. However, the conservative 5% growth rate used in both models (due to a 7.28% CAGR) may undervalue these prospects. The fixed 8% discount rate also ignores Tesla’s unique risk profile, and FCF volatility (e.g., $7.55B in 2022 vs. $3.58B in 2024) complicates projections.
Limitations
- FCF Volatility: Tesla’s inconsistent FCF challenges the 5% growth assumption.
- Growth Assumptions: The binary 5% or 10% growth rates oversimplify Tesla’s potential.
- Discount Rate: 8% may not reflect 2025 market conditions or Tesla’s risks.
- Data: Relied on historical data without forward-looking analyst estimates.
Final Thoughts
At $308.58, Tesla’s stock price is 1133.67% above its intrinsic value of $25.01, signaling it’s overvalued based on fundamentals. Investors banking on Tesla’s innovation must weigh this against the models’ conservative outlook. Is it time to hold, sell, or wait for a dip? Share your thoughts below!
Sources: SEC EDGAR, Yahoo Finance, Google Finance, provided financial CSVs.
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