Are you applying a 0% discount rate to future outcomes above?
No sane investor will pay $45 for a 40% chance of $45 and 15% chance of $180 in 8 or 10 years.
(I agree with your premise, but the numbers need to be larger such that their present value, not future value solves.)
Re:Poaching Tesla
by AnthonyMouse on Sunday September 09, 2018 @04:10PM
(#17947509)
Yes, of course, it's all back of the envelope. Assume the future numbers are in net present value. Or assign some non-zero value to the 45% probability that they "fail" in the sense of losing value, since it presumably wouldn't be a 100% write off even then.
I'm less sure about that. They have risk, certainly, but they could stumble somewhat or have to raise more funding and still ultimately end up doing as much business as Ford or GM.
Their valuation is slightly higher than that because if everything really goes their way they could end up as the electric version of Toyota at more than three times their current market cap. With higher margins because of the simpler powertrain, which reduces both manufacturing costs for Tesla and maintenance costs for customers who are correspondingly more willing to pay a higher purchase price.
Or they could fail outright or become a small irrelevant electric supercar company.
The efficient market hypothesis says their valuation should approximate their risk-adjusted actual value. Which is always wrong by a little, usually not by a lot.
The interesting thing here is that they're a rather large company that nonetheless has potentially high volatility, which is actually pretty unusual, and invites speculation (and therefore drama). And if a $45B valuation is a result of a 40% chance at a continued $45B valuation and a 15% chance at a $180B valuation, the valuation is correct even though some people may lose their shirts. We just don't know which people yet.