2014 1 QTR predictions/results

[vgrinshpun]

The stock is priced for 5 years of perfect execution, a successful launch and ramp of the Model X, the launch of the giga factory, the launch of Model E, as well as handily beating the guidance.
It would be rather naive to think otherwise

I do not believe that the current stock price reflects 5 years of perfect execution, launch of giga factory and model E. Here is exercise to show it:

1. TM has two assembly lines for the production of MS/MX. Each production line has maximum capacity of 56,500 cars/year (Building out a real high volume next generation production line for the Model S and X)
2. Based on current worldwide demand for Model S and Model X reservations backlog, it is absolutely reasonable to expect that both lines will be maxed out in 2016.
3. During the last ER Elon indicated that net margins are expected to be in the mid-teen range. Let's conservatively assume 15% and do the math based on 113K yearly production of MX/MS at ASP of $110K: EBIT = 113K x $110K x 0.15 = $1.86B. Assuming effective tax rate of 20% earnings after income taxes will be $1.49B
4. TSLA has current market capitalization of $26.16B. So today's capitalization represent 2016 earnings with a very reasonable P/E of 26.16 / 1.49 = 17.56.

So current stock price reflects at most 3 years of successful execution of Model S/X ramp-up. If you would like to price in GF and Model E you would need to apply a MUCH higher P/E to this 2016 earnings. I would say at least 40 to 50. The corresponding stock price today (to price in all of what you think is already priced in) would be 2.2 - 2.8 times HIGHER than it is now.

Please share your basis for "The stock is priced for 5 years of perfect execution, a successful launch and ramp of the Model X, the launch of the giga factory, the launch of Model E, as well as handily beating the guidance" if you disagree with what is posted above.

 

[uselesslogin]

Please share your basis for "The stock is priced for 5 years of perfect execution, a successful launch and ramp of the Model X, the launch of the giga factory, the launch of Model E, as well as handily beating the guidance" if you disagree with what is posted above.

Thanks vgrinshpun, I don't think many people truly understand this and I can't express it as well as you. Most people believe the stock is overvalued because they are comparing it against other carmakers or just because it has run up over the last year. At some point in the next 2 years the market is going to realize Gen III execution is actually not priced in and will see higher stock prices still. Also, if US sales in fact start growing from here and China proves to be even stronger than the US 113k production will not be enough and they will have to try to supply more. I wonder if that may have to wait for the Gigafactory, however. The only bearish argument that makes sense is one where Elon is lying and/or extremely wrong about his expectations for the future of his business. I don't believe that is remotely the case.

 

[dirkhh]

I do not believe that the current stock price reflects 5 years of perfect execution, launch of giga factory and model E. Here is exercise to show it:

1. TM has two assembly lines for the production of MS/MX. Each production line has maximum capacity of 56,500 cars/year (Building out a real high volume next generation production line for the Model S and X)
2. Based on current worldwide demand for Model S and Model X reservations backlog, it is absolutely reasonable to expect that both lines will be maxed out in 2016.
3. During the last ER Elon indicated that net margins are expected to be in the mid-teen range. Let's conservatively assume 15% and do the math based on 113K yearly production of MX/MS at ASP of $110K: EBIT = 113K x $110K x 0.15 = $1.86B. Assuming effective tax rate of 20% earnings after income taxes will be $1.49B
4. TSLA has current market capitalization of $26.16B. So today's capitalization represent 2016 earnings with a very reasonable P/E of 26.16 / 1.49 = 17.56.

So current stock price reflects at most 3 years of successful execution of Model S/X ramp-up. If you would like to price in GF and Model E you would need to apply a MUCH higher P/E to this 2016 earnings. I would say at least 40 to 50. The corresponding stock price today (to price in all of what you think is already priced in) would be 2.2 - 2.8 times HIGHER than it is now.

Please share your basis for "The stock is priced for 5 years of perfect execution, a successful launch and ramp of the Model X, the launch of the giga factory, the launch of Model E, as well as handily beating the guidance" if you disagree with what is posted above.

I think the difference is our perception of what "perfect execution" and "reality" might mean.
In your world, everything that Elon utters is reality and fact. In my world Tesla actually needs to prove that they can do that. For example, can they build the Gigafactory, launch and ramp the Model X, develop the Model E, prepare for another factory (where would they build the Model E?) and do all that while maintaining the net margins you so casually assume as true.
Add to that that in order to get a P/E of 17.5 there needs to be the assumption of continued growth of into the future. So they need to continue to execute at this trajectory.

I hope that you are right. My point was simply that the stock price today is so lofty compared to the ACTUAL performance based on "generally accepted accounting practices" that it's all about sentiment.

 

[Jack6591]

I think the difference is our perception of what "perfect execution" and "reality" might mean.
In your world, everything that Elon utters is reality and fact. In my world Tesla actually needs to prove that they can do that. For example, can they build the Gigafactory, launch and ramp the Model X, develop the Model E, prepare for another factory (where would they build the Model E?) and do all that while maintaining the net margins you so casually assume as true.
Add to that that in order to get a P/E of 17.5 there needs to be the assumption of continued growth of into the future. So they need to continue to execute at this trajectory.

I hope that you are right. My point was simply that the stock price today is so lofty compared to the ACTUAL performance based on "generally accepted accounting practices" that it's all about sentiment.

you're gonna hate what's coming.

 

[FluxCap]

I think the difference is our perception of what "perfect execution" and "reality" might mean.
In your world, everything that Elon utters is reality and fact. In my world Tesla actually needs to prove that they can do that. For example, can they build the Gigafactory, launch and ramp the Model X, develop the Model E, prepare for another factory (where would they build the Model E?) and do all that while maintaining the net margins you so casually assume as true.
Add to that that in order to get a P/E of 17.5 there needs to be the assumption of continued growth of into the future. So they need to continue to execute at this trajectory.

I hope that you are right. My point was simply that the stock price today is so lofty compared to the ACTUAL performance based on "generally accepted accounting practices" that it's all about sentiment.

GAAP means Generally Accepted Accounting Principles, not practices. Unless you have your own spreadsheet model like vgrin, your reference to "sentiment" and "lofty" are qualitative conjecture, not fundamentals analysis.

 

[dirkhh]

you're gonna hate what's coming.

No, I think you're trying to tell me that I'll love what's coming. After all I own quite a few Tesla shares...

- - - Updated - - -

GAAP means Generally Accepted Accounting Principles, not practices. Unless you have your own spreadsheet model like vgrin, your reference to "sentiment" and "lofty" are qualitative conjecture, not fundamentals analysis.

Thanks for the lecture. I'm tuning out here, I think.

 

[kenliles]

I think the difference is our perception of what "perfect execution" and "reality" might mean.
In your world, everything that Elon utters is reality and fact. In my world Tesla actually needs to prove that they can do that. For example, can they build the Gigafactory, launch and ramp the Model X, develop the Model E, prepare for another factory (where would they build the Model E?) and do all that while maintaining the net margins you so casually assume as true.
Add to that that in order to get a P/E of 17.5 there needs to be the assumption of continued growth of into the future. So they need to continue to execute at this trajectory.

I hope that you are right. My point was simply that the stock price today is so lofty compared to the ACTUAL performance based on "generally accepted accounting practices" that it's all about sentiment.

I think dirkhh has some decent points. A lot is priced in, and the main point is that the price of TSLA is in fact currently based on a belief of future execution. I think vgrin's analysis is excellent as it shows pretty clearly where the line has been drawn by the market currently. Namely, priced in a healthy SX execution over the next 2-3 years, but not much of the GF and E execution (a bit of those we're priced in at the $260 level though).

So I think dirkhh's point seems to have some validity, but may carry the wrong investment message (as he partially agrees with as a holder of shares). Namely, the hyperbole of 'In your world, everything that Elon utters is reality and fact'. I'm guessing here dirkhh, but I think you mean that to characterize some irrational exuberance applied to TSLA pricing of future intent as expressed by EM. Wouldn't disagree with you. Problem is that a healthy hunk of that has actually been earned. When EM made plans known in the very early days, virtually no one even listened (and many laughed).

The benefit of doubt registered by the market today is largely earned IMO as a near flawless execution to date of seemingly near impossible odds has been demonstrated (SpaceX included in some of that). dirkhh comment 'In my world Tesla actually needs to prove that they can do that' in the context of what has already been accomplished demonstrates a major investment issue. The market no longer believes they need to prove all of it.

Now the equation has been somewhat reversed, and without some sort of significant failure, the market will presume success based on experience, and so by the time Tesla actually PROVES execution of GF and ModE, the investment opportunity is long gone. IMO from now on (and for 5 years hence) any investment in Tesla will be forced by the market to include a healthy dose of unproven value. If that's not your cup o' tea, then consideration of a different investment path might be warranted. Actually Apple comes to mind, proven execution, but undervalued by most market measures

 

[dirkhh]

Thanks, kenliles - you summarized it extremely well. Yes, I own TSLA at this price and have no intention of talking the price down or anything. If they execute well over the next three to five years, stock holders will reap the rewards. I don't think there are a lot of credible reasons why the stock should double in the next six months. Maybe that explains my sentiment better.
Basically, as someone who has been around long enough to remember 99/00 I am getting nervous when people get a little too excited and too positive about an already rather richly valued stock. And yes "rather richly valued" is a purely subjective measure based on my personal assessment of risk / opportunity right now.

 

[Auzie]

I think dirkhh has some decent points. A lot is priced in, and the main point is that the price of TSLA is in fact currently based on a belief of future execution. I think vgrin's analysis is excellent as it shows pretty clearly where the line has been drawn by the market currently. Namely, priced in a healthy SX execution over the next 2-3 years, but not much of the GF and E execution (a bit of those we're priced in at the $260 level though).

So I think dirkhh's point seems to have some validity, but may carry the wrong investment message (as he partially agrees with as a holder of shares). Namely, the hyperbole of 'In your world, everything that Elon utters is reality and fact'. I'm guessing here dirkhh, but I think you mean that to characterize some irrational exuberance applied to TSLA pricing of future intent as expressed by EM. Wouldn't disagree with you. Problem is that a healthy hunk of that has actually been earned. When EM made plans known in the very early days, virtually no one even listened (and many laughed).

The benefit of doubt registered by the market today is largely earned IMO as a near flawless execution to date of seemingly near impossible odds has been demonstrated (SpaceX included in some of that). dirkhh comment 'In my world Tesla actually needs to prove that they can do that' in the context of what has already been accomplished demonstrates a major investment issue. The market no longer believes they need to prove all of it.

Now the equation has been somewhat reversed, and without some sort of significant failure, the market will presume success based on experience, and so by the time Tesla actually PROVES execution of GF and ModE, the investment opportunity is long gone. IMO from now on (and for 5 years hence) any investment in Tesla will be forced by the market to include a healthy dose of unproven value. If that's not your cup o' tea, then consideration of a different investment path might be warranted. Actually Apple comes to mind, proven execution, but undervalued by most market measures

Thank you for good summary kenliles, your thoughts reflect my thinking as well. I would expect TSLA price fluctuation to shrink correspondingly with the shrinking doubt in the execution. I see the strong doubt in the execution that is currently present in the market as a good arbitrage opportunity. It is a risky bet as TMC has very difficult tasks ahead.

Once the stock creates the trend as expected by fundamental analysis, I will be out.

 

[DaveT]

Gotta agree with this as much as I would like to see delivery numbers north of 7K. Our only Tesla data points pointed out by DaveT and others refers to production rates of 600+/week to start Q1 and 700/week leaving Q1. TM has a history of beating guidance numbers. They did so in Q3 2013. However, the whisper number picked up on TMC by several publications/analysts based on VIN assignments was priced into the stock pre ER and despite beating TM guidance the share price went down and cost many TMC members a few $$.

For Q1, I do agree that the best data points are as follows:
1. Q1 production started at 600 cars/week (from Q4 shareholder letter).
2. Q1 production ended at slightly below 700 cars/week (Tesla IR confirmed via email on 4/10/14, "If one tours our factory - production boards indicate a production level approaching 700/wk”)

Assuming 12 weeks in Q1 at roughly 650/week, we get 7,800 cars produced.

I talked with several store employees at the end of March about inventory cars and none of them mentioned a strong push by Tesla to sell lots of inventory cars before quarter end (this is in contrast to Q4 where Tesla was pushing hard to sell as many inventory cars as possible).

Tesla also had to replenish their inventory stock (showroom and loaners) that got depleted by the Q4 inventory “mad rush” sale. And on top of this, they said in the Q4 ER call that they didn’t want to play games any more and would put 1000 cars in transit to Europe/Asia.

Putting this altogether, I’m expecting something around 6,600 cars and 7,000 cars sold in Q1.

I don't think they will update guidance on this report as they are ultra conservative in updating guidance historically based on the past 5-6 earnings reports and I think they will wait for Q2 to play out and update it in the Q2 earnings call.

I agree that I don’t think Tesla will come out with a big guidance update for 2014 and I don’t think Q2 guidance will be blowout either.

It appears from the job fair that Tesla is in the hiring process right now and probably most of the new hires will be fully acclimated on the production line beginning of Q3.

Seems like Q3 will be the blowout quarter.

But news leaks and people project forward, so speculation of a Q3 ramp up might be brought up in the Q2 earnings call and Elon might reveal some juicy numbers but it would be for later on in the year and not for Q2.

For Q2 guidance, if Tesla expects to produce 750 cars/week (for 12 weeks in Q3), then that’s 9000 cars. But they might have more cars in transit and they might replenish their loaner fleet with more cars as well. So, guidance would be lower than 9000 cars, maybe 8500 cars delivered.

I do not believe that the current stock price reflects 5 years of perfect execution, launch of giga factory and model E. Here is exercise to show it:
1. TM has two assembly lines for the production of MS/MX. Each production line has maximum capacity of 56,500 cars/year (Building out a real high volume next generation production line for the Model S and X)
2. Based on current worldwide demand for Model S and Model X reservations backlog, it is absolutely reasonable to expect that both lines will be maxed out in 2016.
3. During the last ER Elon indicated that net margins are expected to be in the mid-teen range. Let's conservatively assume 15% and do the math based on 113K yearly production of MX/MS at ASP of $110K: EBIT = 113K x $110K x 0.15 = $1.86B. Assuming effective tax rate of 20% earnings after income taxes will be $1.49B
4. TSLA has current market capitalization of $26.16B. So today's capitalization represent 2016 earnings with a very reasonable P/E of 26.16 / 1.49 = 17.56.

So current stock price reflects at most 3 years of successful execution of Model S/X ramp-up. If you would like to price in GF and Model E you would need to apply a MUCH higher P/E to this 2016 earnings. I would say at least 40 to 50. The corresponding stock price today (to price in all of what you think is already priced in) would be 2.2 - 2.8 times HIGHER than it is now.

I agree with vgrinshpun’s thoughts here, and it’s a big reason why I’m bullish on TSLA (currently valued at $25 billion).

Elon said in the last ER call that they’re looking to build at least 1000 Model S cars/week by the end of the year. That’s a 50,000 Model S annual run rate. And he’s mentioned several times that he thinks the Model X will sell better than the Model S. In 2015, they’ll be ramping up Model X so they won’t realize a full year of Model X sales. But in 2016, they’ll be able to sell at least 100,000 Model S/X cars. This is $10 billion revenue (100k cars x $100k asp) and they’ll likely achieve a 30%+ gross margin, leaving room for healthy profits.

 

[Benz]

Thank you for posting.

The total for Europe in Q1 2014 per country:
Norway: 2056
Germany: 239
Netherlands: 207
Belgium: 136
Switzerland: 133
Denmark: 111
France: 58
Austria: 38
Sweden: 33
Italy: 20
Finland: 13
Spain: 8
Estonia: 4

Total = 3,056

That's great.

The total for Europe is 3,056.
The total for Canada is 80.
Europe and Canada added together = 3,136

That means that we will be able to do the math on May 7th:
(Total deliveries mentioned in the shareholder letter ER Q1 2014) minus 3,136 = Total Tesla Model S deliveries in the US in Q1 2014

Would that be correct? Or does anybody still have any numbers to add to the total figures of Europe and Canada?

 

[dirkhh]

The total for Europe is 3,056.
The total for Canada is 80.
Europe and Canada added together = 3,136

That means that we will be able to do the math on May 7th:
(Total deliveries mentioned in the shareholder letter ER Q1 2014) minus 3,136 = Total Tesla Model S deliveries in the US in Q1 2014

Would that be correct? Or does anybody still have any numbers to add to the total figures of Europe and Canada?

I saw anecdotal evidence (postings either here or on the company forum, I don't remember and search did help) of a Tesla bought in Germany and then shipped to Russia. But I think we are scraping the bottom of the barrel here - yes, there may be single digit outliers missing, but this should be pretty darn close.

 

[jra]

As May 7 draws near, wondering what people think Wall Street is looking at most closely in the ER/ER call. For fun, how would you rank the following in terms of what Analysts are looking for?

-cars delivered
-current/projected production capacity updates
-GF partners/plans
-Chinese demand
-model X updates/delays
-ASP
-EPS
-other?

Of course the answer is nuanced, as an unexpected announcement in any of these areas could make it most important, so the question is really about uncertainty, the weight probabilities of outcomes and their proportionate impact.

Would love to hear how everyone here would rank these in terms of short term impact. I think which factors impact longer term growth is perhaps easier to answer (but correct me if I'm wrong).

 

[Robert.Boston]

The stock is priced for 5 years of perfect execution, a successful launch and ramp of the Model X, the launch of the giga factory, the launch of Model E, as well as handily beating the guidance.
It would be rather naive to think otherwise

I appreciate that others have commented on this post already, but...

If one believes in "efficient market theory," then @dirkhh's statement is clearly false. The current stock price should (under EMT) reflect the consensus view on Tesla's future performance. I think it highly unlikely that the consensus is that everything goes perfectly. More to the point, a individual doesn't have to expect that Tesla will execute perfectly to believe that TSLA is under-valued; all that is required is to have a (personal) expectation of Tesla's corporate performance than the consensus view.

To prove this point, take a look at some of the valuations done by extreme optimists here on this forum: I've seen numbers suggesting the stock should be trading at multiples of its current price. The difference between the current TSLA price and those rosy forecasts shows a substantial discount for under-performance.

 

[DaveT]

As May 7 draws near, wondering what people think Wall Street is looking at most closely in the ER/ER call. For fun, how would you rank the following in terms of what Analysts are looking for?

-cars delivered
-current/projected production capacity updates
-GF partners/plans
-Chinese demand
-model X updates/delays
-ASP
-EPS
-other?

Of course the answer is nuanced, as an unexpected announcement in any of these areas could make it most important, so the question is really about uncertainty, the weight probabilities of outcomes and their proportionate impact.

Would love to hear how everyone here would rank these in terms of short term impact. I think which factors impact longer term growth is perhaps easier to answer (but correct me if I'm wrong).

Analyst consensus appears to be $699m revenue and $0.10 eps (non-GAAP).

Here's an excerpt from this Barron article referring to Wedbush's expectations:
"We expect Tesla to report 1Q14 financial results and vehicle deliveries essentially in line to modestly ahead of investor expectations. We model NGrev/ adj-EPS of 684m/$0.08 versus consensus at $699m/$0.10. We expect Tesla to meet deliveries guidance of 6,400 units, with potential 1Q14 unit upside unlikely exceed more than 100-200 units. We model 1Q14 adjusted gross margins of 25.3%, compared to 24.9% in 4Q13, and 17.1% in 1Q13…"

 

[dirkhh]

I appreciate that others have commented on this post already, but...

If one believes in "efficient market theory," then @dirkhh's statement is clearly false. The current stock price should (under EMT) reflect the consensus view on Tesla's future performance. I think it highly unlikely that the consensus is that everything goes perfectly. More to the point, a individual doesn't have to expect that Tesla will execute perfectly to believe that TSLA is under-valued; all that is required is to have a (personal) expectation of Tesla's corporate performance than the consensus view.

To prove this point, take a look at some of the valuations done by extreme optimists here on this forum: I've seen numbers suggesting the stock should be trading at multiples of its current price. The difference between the current TSLA price and those rosy forecasts shows a substantial discount for under-performance.

I'm not sure that you are really "proving the point", though. When VA Linux was trading at $230 there were lots of people with models that showed how the company was going to go to $500. That doesn't mean that it wasn't vastly overvalued at $230 (and six months later it traded at $7).
And to avoid being flamed to a crisp: no, I don't think TSLA is worth $7, no I don't think it is vastly overvalued at $214.98. But yes, I do believe that the current stock price is making extremely positive and optimistic assumptions.

And as a side node, no, I don't believe AT ALL in "efficient market theory". I am much more a follower of the "behavioral market theory". Which is what is influencing my posts here.

Oh, and just for fun, let's keep in mind that Elon himself made it rather clear that he felt that TSLA right now was rather richly valued...

 

[kenliles]

And to avoid being flamed to a crisp....

Haha! Heat from flames or no, stay in the kitchen! We need all perspectives around here.

moving to today's action- It was good to see TSLA holding up during this mornings market sell off. They weren't the only ones either, some of the Solars held in better than recent-normals.

 

[ggr]

I appreciate that others have commented on this post already, but...

If one believes in "efficient market theory," then @dirkhh's statement is clearly false. The current stock price should (under EMT) reflect the consensus view on Tesla's future performance. I think it highly unlikely that the consensus is that everything goes perfectly. More to the point, a individual doesn't have to expect that Tesla will execute perfectly to believe that TSLA is under-valued; all that is required is to have a (personal) expectation of Tesla's corporate performance than the consensus view.

To prove this point, take a look at some of the valuations done by extreme optimists here on this forum: I've seen numbers suggesting the stock should be trading at multiples of its current price. The difference between the current TSLA price and those rosy forecasts shows a substantial discount for under-performance.

I concur exactly. If we assume that Elon's master plan works exactly as we currently understand it, TSLA shares will be worth over $1000 in 5 years, which means on a discounted basis they are worth about $800 now. Of course we've already experienced the fact that the predictions from Elon usually need to be discounted a little, but not nearly as much as the rest of the market does.

- - - Updated - - -

Oh, and just for fun, let's keep in mind that Elon himself made it rather clear that he felt that TSLA right now was rather richly valued...

Unless he's reiterated it recently (which I haven't heard), that statement was made at the end of Q3 2013, and it was indeed correct, at that time. Personally, I think he saw the group-think happening here, and was speaking directly to us. Now, either he doesn't think that now, or he's thinking "... I told you once!". A lot has changed in those six months, so rightly or wrongly, I choose to believe the former.

 

[Benz]

The total for Europe in Q1 2014 per country:
Norway: 2056
Germany: 239
Netherlands: 207
Belgium: 136
Switzerland: 133
Denmark: 111
France: 58
Austria: 38
Sweden: 33
Italy: 20
Finland: 13
Spain: 8
Estonia: 4

Total = 3,056

In The Netherlands there were 5 more Tesla Model S deliveries in Q1 2014 than we thought we had so far. These 5 Tesla Model S deliveries in Q1 2014 have been overlooked somehow, meaning that they have not been taken into calculation in the total we had so far (January + February + March = 207). The only problem is that we don't know in which month these 5 Tesla Model S deliveries in Q1 2014 have been made. But it is sure that they had been delivered in Q1 2014. Therefore I suggest we add those 5 extra Tesla Model S deliveries in Q1 2014 to the total of March 2014, which was 190, but now is 190 + 5 = 195. That brings us to a new total for The Netherlands in Q1 2014 of 7 + 10 + 195 = 212. Which is obviously 5 more than the previous total of 207. The total for Europe in Q1 2014 then becomes 3,056 + 5 = 3,061.

These 5 extra Tesla Model S deliveries in Q1 2014 have been found because in April 2014 there were only 49 Tesla Model S deliveries in The Netherlands, but the total of January + February + March + April is 262. The previous total for Q1 2014 was 207. And 207 + 49 = 256. That's 5 less than 262. In other Dutch publications they also mention the 49 for April and the 262 for the four months total of 2014. Meaning that both the 49 and the 262 numbers must be correct. The error is somewhere in Q1 2014.

This has been explained to me by Matt Gasnier from the Best Selling Cars Blog. Here is a link: http://bestsellingcarsblog.com/2014...l-2014-outlander-leads-peugeot-2008-in-top10/


Conclusion:

Europe = 3,061

Canada = 80

Europe + Canada = 3,141

 

[LST]

According to Auto Schweiz the sales numbers are higher (auto-schweiz: Statistiken)
Jan = 16
Feb 28
March 133
April: not yet published

So we have Jan-March 177 MS delivered, my guesstimate for Q1/14 for Switzerland is 200-250 MS delivered