I teach finance on a professional basis. The last two lessons of my "Beginner's Finance Course" are dedicated to the discounted cash flow model (DCF). A discounted cash flow model is very powerful tool for valuation. However, it has a big drawback in that it is only useful to value companies that actually produce free cash flows (or at least expect to in the nearest future). A free cash flow (FCFF) is essentially a leftover cash that belongs to a company after it met all of its obligations during a period of time. This cash can then be used to pay dividends, buy back stock, pay down debt, or simply left in to earn interest in the bank. You can learn more about FCFF derivation here. In order to draw students' attention, I decided to value Tesla Motors (TSLA) with a DCF model. That turned out to be a very good experience. On the one hand, students learned how a DCF model works and gained valuable technical skills. On the other hand, they saw the limitation of the model. They also learned that, fundamentally, Tesla is not worth anything. This is because not only the company fails to produce profits, it also fails to produce operating cash flows and continuously relies on external financing, as its historical cash flow statements show: (Source: Capital IQ) The data show that the company quickly burns through cash. Most money over the past twelve month went into financing inventories (i.e. cars). Although the company's patient customers offset the cash outflows by paying for their cars in advance, as the growing Unearned Revenue balance over the last three years shows, Tesla is absolutely in need of external financing: (Source: Capital IQ) A quick calculation shows that Tesla Motors raised over $5.5B in cash from investors: mostly from debt holders. After subtracting cash losses, we also have to account for the company's investing activities: (Source: Capital IQ) When add up the numbers, we see that Tesla has already spent almost $3.5B on CapEx and acquisitions. Keep in mind that in the last twelve months, the company spend almost as much money on investments as it did that prior years cumulatively. I am not saying investing in new technologies is bad. But how long do you want to wait before your investment pays back? If you are a current shareholder, be sure that Tesla will keep on raising money at least in the medium-term and will be diluting your share in its assets. Let us not call buying Tesla's shares "investing". Let us call it "sponsoring" because this is exactly what is going on with this company right now. By the way, if you own the stock, good luck with it: make sure you can liquidate your position quickly, if (or when, rather) the music stops.