2017 Investor Roundtable:General Discussion

[myusername]

I know you don't care but this response is for those who do. It's not the total number of cars that matters as much as it is the market in which those cars are behind sold and the competition they are displacing. In the US, the 7 series and S class Mercedes have been decimated by the model S which now has roughly 40% share of the large luxury sedan market. I shouldn't need to explain this but those vehicles are the most profitable that MB and BMW make. The next most profitable are the larger SUVs which are being assaulted by the model X. Tesla cannot sell cars in every class because they are production constrained as they build out capacity, so they smartly target the most profitable classes first and then work down from the top. This top down approach has caused an almost instantaneous response from VW, BMW and Daimler. It was enough to threaten there top 3-4 models in terms of margin to get them to commit to investing a combined $100B in EVs. But how much market share are they going to take from Tesla that has 1-2%? How much from each other and their own profitable models? If I'm a die hard BMW guy I'm only going to buy an EV if it's a BMW. So BMW will be converting loyal profitable ICE customers to EV customers at a massive loss while they build out capacity. Those companies must invest in compete drive train and battery production. But only if they actually want to sell them. They are probably better off just seeding market share to model 3 because they really have no ability to match it, even with $100B investment. How do I know this? Because if they could do it, they would have done it rather then sitting in their hands until they were forced to do it. If they could make a better car, it would already exist for the exact reasons the op alludes to, they are huge and powerful companies with massive amounts of money. But just like the old adage that money can't buy you love, it also can't buy you a clue. It they could do it, they wouldn't have allowed Tesla to consume 40% of the large luxury sedan market. They have no response. You would know if they did, because you would see 10GWh battery factories opening soon. They just flat out cannot match Tesla without the batteries. It's like saying that GM makes really good cars so it would be easy for them to make really good helocopters because both have motors. Those companies are full of mechanical geniuses who couldn't build you an EV if they had to save their own lives. It's just completely foreign to them. The motors are simple but everything else requires a ton of testing and a long history of working with the tech. There just are not armies of EV engineers with experience running around. That's why ex Tesla people are so chased.

The model 3 ramp will happen soon enough to cause a tremendous amount of pain to those Germain luxury brands. Yes BMW will still sell a lot of Mini Coopers, but they are going to be absolutely mauled in the mid and small lux sedan market. I think they already have been. And what do they get when they finally invest billions in EVs? They can seed the rest of their ICE market share to their EV brands at massive losses (think GM bolt losses). Can you imagine how painful it will be for BMW, Daimler and VW with no fed tax credit in the US? They waited to long, or was it lack of ability? I still can't wait to see who is going to sell the cars for then, because their dealers won't willing sell them. They will need to be incentivized or strong-armed somehow. 2019/2020 is going to be a very entertaining time.

what is your point?... Tesla will destroy all other auto manufacturers by producing 200k cars in 2018?...

BMW + MB deliveries exceeded 5 million in 2016... Tesla sold 100k in 2017... so what the F are you talking about?

 

[anticitizen13.7]

no... Tesla does not just have to do well... they have to EXCEED a % of "the most profitable high margin segments"... if that's all they did... then the market cap would not move in 3 to 5 years... because THAT'S ALREADY BAKED IN... if THAT'S ALL THEY DID...

the current market cap is betting that Tesla not only overtakes BMW... but it also takes out Toyota... that's if you expect the SP to rise from here... and they're already having a hard time scaling to 5k/week... Toyota delivers 200,000 per week.

TWO HUNDRED THOUSAND PER WEEK.

One observation I feel is relevant is that there is still an extreme amount of skepticism of Tesla, not just in the Financial media, but among the general public.

For example, I monitor tech news website Arstechnica on a weekly basis, because their articles have comments sections, and their readership is generally tech savvy. Even among the tech savvy audience, articles Arstechnica articles about Tesla attract what I estimate to be 66-75% negative comments from readers, mostly expressing doubt about Tesla's viability as a business and doubt about the viability of EVs in general. A minority of the readership supports Tesla and and even smaller minority owns Tesla product.

Given this level of general public skepticism, I don't sense that there is any "baked in" certainty that is buoying Tesla's share price. People are piling in to NVDA and AAPL as "sure wins" (from what I see on reddit subs like /r/investing and /r/wallstreetbets), and many are even buying Bitcoin when they don't fully understand it. That is IMO evidence of "baked in" market cap because there is, at least in the case of nVidia and Apple, a degree of certainty about the near term performance of those companies.

Anytime I read about Tesla elsewhere or talk to people about Tesla outside this forum, the overwhelming majority of what I encounter is that people just don't know what to make of the company.

That doesn't mean TSLA won't drop further on technicals or concerns about production so long as "production hell" for Model 3 is ongoing. I just don't see the kind of buying fever and FOMO I associate with "baked in" stock pricing.

 

[myusername]

One observation I feel is relevant is that there is still an extreme amount of skepticism of Tesla, not just in the Financial media, but among the general public.

For example, I monitor tech news website Arstechnica on a weekly basis, because their articles have comments sections, and their readership is generally tech savvy. Even among the tech savvy audience, articles Arstechnica articles about Tesla attract what I estimate to be 66-75% negative comments from readers, mostly expressing doubt about Tesla's viability as a business and doubt about the viability of EVs in general. A minority of the readership supports Tesla and and even smaller minority owns Tesla product.

Given this level of general public skepticism, I don't sense that there is any "baked in" certainty that is buoying Tesla's share price. People are piling in to NVDA and AAPL as "sure wins" (from what I see on reddit subs like /r/investing and /r/wallstreetbets), and many are even buying Bitcoin when they don't fully understand it. That is IMO evidence of "baked in" market cap because there is, at least in the case of nVidia and Apple, a degree of certainty about the near term performance of those companies.

Anytime I read about Tesla elsewhere or talk to people about Tesla outside this forum, the overwhelming majority of what I encounter is that people just don't know what to make of the company.

That doesn't mean TSLA won't drop further on technicals or concerns about production so long as "production hell" for Model 3 is ongoing. I just don't see the kind of buying fever and FOMO I associate with "baked in" stock pricing.

the skepticism is because of the share price... will Tesla succeed?... I would argue it already has... will Tesla replace BMW and Toyota... in the next 10 years... NO... that's the skepticism... TSLA is valued too high for reality... and the skepticism is that the SP will not rise from here and it's totally warranted.

 

[anticitizen13.7]

Note: I am starting to ignore people who respond to trolls, just to keep the signal noise high.

This is a bit OT, but trolls by definition exist to purposely cause disharmony for the purpose of collecting entertainment (lulz). The person I am debating is clearly not getting any entertainment whatsoever out of this.

 

[Reciprocity]

Tesla must maintain a cash balance of a critical level relative to accounts payable and other factors... $3.5b does not mean they can spend $3b and then raise capital... they're burning $1b+ per quarter... and it takes time to raise capital... so if they burn another quarter's worth of that $3.5b... then they'll be less than one quarter away from the critical level... and what will they do then? make cars?... they will need to raise capital anywhere from now to Feb in order to maintain reasonable cash levels for a company that spends like it does and not be considered just about to fold.

Math is hard for this guy.. they only have to spend $1B a quarter on capex until the capital expenses are paid. It's not like they are committed to anything past $XB in total capex for model 3. Meaning they will be done paying for the equipment required to build model 3 before the equipment is fully utilized at capacity. It will not be an endless flow of $1B/qtr for model 3. Also, current non model 3 activities are cash flow positive so the $1B is really like $500M per quarter but only for a couple more quarters per Depak. At that point the current expansion to support 5k/w model 3 will be paid for, with the only minor exceptions. Tesla will only need more capital for model 3 if they can't ramp to 5K/w by the end of Q2-2018. And maybe still won't as long as they are close.

 

[myusername]

Math is hard for this guy.. they only have to spend $1B a quarter on capex until the capital expenses are paid. It's not like they are committed to anything past $XB in total capex for model 3. Meaning they will be done paying for the equipment required to build model 3 before the equipment is fully utilized at capacity. It will not be an endless flow of $1B/qtr for model 3. Also, current non model 3 activities are cash flow positive so the $1B is really like $500M per quarter but only for a couple more quarters per Depak. At that point the current expansion to support 5k/w model 3 will be paid for, with the only minor exceptions. Tesla will only need more capital for model 3 if they can't ramp to 5K/w by the end of Q2-2018. And maybe still won't as long as they are close.

are you suggesting you really believe Tesla will never raise cash again?... come on man. how many freaking times do we have to do this.

 

[Yuri_G]

This is a bit OT, but trolls by definition exist to purposely cause disharmony for the purpose of collecting entertainment (lulz). The person I am debating is clearly not getting any entertainment whatsoever out of this.

Should we respond to the person (I am guilty, too) that can't differentiate between the old guard car companies and the new kid that obviously has more IP than all of them combined? At this point it's basically like arguing with a bot programmed to say the same thing regardless of how you respond. I know it's tempting to set the record straight, but many times do we have to have the valuation/cars sold per year argument?

 

[myusername]

Should we respond to the person (I am guilty, too) that can't differentiate between the old guard car companies and the new kid that obviously has more IP than all of them combined? At this point it's basically like arguing with a bot programmed to say the same thing regardless of how you respond. I know it's tempting to set the record straight, but many times do we have to have the valuation/cars sold per year argument?

until you finally get it... when Tesla scales... the financials will finally reflect a traditional auto company... and TSLA will then trade as such. because Tesla is an auto company.

 

[Reciprocity]

what is your point?... Tesla will destroy all other auto manufacturers by producing 200k cars in 2018?...

BMW + MB deliveries exceeded 5 million in 2016... Tesla sold 100k in 2017... so what the F are you talking about?

Again, math is not your strong suit. If you are BMW and sell 2m cars per year. You might make 50% of your profit from 5 models. Let's say, 3,5,7 series and X5 and X6. Those 5 models are only roughly 400,000 per year in sales. They sell 500,000 mini Coopers with less total profit then the 7 series generates alone. My point is that Tesla has chopped 30% off the top margin cars. So BMWs response will be to make more EVs, but who is going to buy them? BMW customers who were due to but ICE versions of the same cars. these EV versions will be money losers instead of positive margin cars built in decades old platforms and manufacturing capacity. What part don't you get? Explain why the huge investments in EVs from German lux brands lately and explain why that is not cash burn?

 

[anticitizen13.7]

the skepticism is because of the share price... will Tesla succeed?... I would argue it already has... will Tesla replace BMW and Toyota... in the next 10 years... NO... that's the skepticism... TSLA is valued too high for reality... and the skepticism is that the SP will not rise from here and it's totally warranted.

Going by what I read on Arstechnica and Reddit, a majority of tech savvy people and individual stock traders believe that Tesla will go to 0 (zero).

I actually do not know how TSLA should be valued, because there are too many unknowns, mostly related to industry shifts related not just to EVs, but autonomous driving, AI, and energy systems. There may be other factors that are unforeseen. Conventional valuation metrics tend to break down because there is just too much fog and chaos when approaching an inflection point. What I do know is that Tesla has stolen lucrative market share from top tier product lines of competing companies, and that it has defied what conventional wisdom says should have killed it years ago. That's worth a gamble. Especially when most of the people on Ars and Reddit are too flummoxed by the company to even consider buying shares.

10 years ago, nVidia was on its way down, and its stock was stuck in a rut for years. Few people could have predicted in 2007 that GPU technology (and remember at this time, integrated chipset graphics were displacing discrete GPUs, simply because most people didn't need nVidia's high performance product) would have massive new application in the late 2010's in Deep Learning.

 

[myusername]

Again, math is not your strong suit. If you are BMW and sell 2m cars per year. You might make 50% of your profit from 5 models. Let's say, 3,5,7 series and X5 and X6. Those 5 models are only roughly 400,000 per year in sales. They sell 500,000 mini Coopers with less total profit then the 7 series generates alone. My point is that Tesla has chopped 30% off the top margin cars. So BMWs response will be to make more EVs, but who is going to buy them? BMW customers who were due to but ICE versions of the same cars. these EV versions will be money losers instead of positive margin cars built in decades old platforms and manufacturing capacity. What part don't you get? Explain why the huge investments in EVs from German lux brands lately and explain why that is not cash burn?

dude... look:

BMW:
all about cars: BMW Global Sales By Model : 2016 (Chart)

so what are you talking about when you say "Those 5 models are only roughly 400,000 per year in sales"?

the 3 series alone was 400k+ in 2016... so what are you talking about?... are you seriously just talking about US sales numbers?

 

[Menifeer]

Again, math is not your strong suit. If you are BMW and sell 2m cars per year. You might make 50% of your profit from 5 models. Let's say, 3,5,7 series and X5 and X6. Those 5 models are only roughly 400,000 per year in sales. They sell 500,000 mini Coopers with less total profit then the 7 series generates alone. My point is that Tesla has chopped 30% off the top margin cars. So BMWs response will be to make more EVs, but who is going to buy them? BMW customers who were due to but ICE versions of the same cars. these EV versions will be money losers instead of positive margin cars built in decades old platforms and manufacturing capacity. What part don't you get? Explain why the huge investments in EVs from German lux brands lately and explain why that is not cash burn?

The underlying bullish argument always seems to be that Tesla, and only Tesla, can profitably build EVs. I don't accept that as fact. I believe those other old dogs will learn new tricks and by the early 2020s the landscape will be very different with dozens of credible choices. Until then, of course, Tesla will dominate. It will make for a fun ride on TSLA.

 

[sundaymorning]

Going by what I read on Arstechnica and Reddit, a majority of tech savvy people and individual stock traders believe that Tesla will go to 0 (zero).

Redditors don’t strike me as savvy investors. I like my chances with Tesla. The fact that they think Tesla will go to zero tells me a lot about how much they don’t know about stocks. Giants like google, Apple, etc will likely buy Tesla out at $100 per share before it goes to zero. Their IP alone is worth that much...

I think a company like Tesla is currently fairly valued, once they prove M3 can ramp, then the currently price is way undervalued. A lot depends on this ramp, and I doubt they will just roll over. Elon is not that type of guy... he has an entire legacy to protect, and it starts with his brand. This all will soon pass imo, just ignore the noise and let Tesla work.

 

[anticitizen13.7]

Should we respond to the person (I am guilty, too) that can't differentiate between the old guard car companies and the new kid that obviously has more IP than all of them combined? At this point it's basically like arguing with a bot programmed to say the same thing regardless of how you respond. I know it's tempting to set the record straight, but many times do we have to have the valuation/cars sold per year argument?

You may have a point.

A lot of the back and forth I see here has to do with people's cognition and the diverse ways people manage threat and uncertainty. Fundamentally, this is not a whole lot different than Liberals and Conservatives arguing an issue. Neither is likely to convince the other, because their moral foundations are different. Indeed, there is research that shows that their brain function is usually different: Study Predicts Political Beliefs With 83 Percent Accuracy | Science | Smithsonian It would be interesting to see how differences in brain structure affect investment philosophy rather than politics.

I am comfortable pushing a small boat of $$$ into the fog of the future and seeing what happens. My retirement assets are all in index funds, so I can afford to do this.

 

[TradingInvest]

No one knows what is "baked in". Tesla should have a brutal Q4. M3 production will be low, and they seem to equipment payables in north of 2 billion. Is that baked in? It's not new news.

How does Tesla Semi affect SP?

Stock price is determined by the expected future earnings. Many long investors understand how big the future earnings will be. That's why Ron Baron is predicting 20 fold in the next 10~15 years. Gene Munster said Tesla will be the best performing large tech company in the next 5 years. ARK explained why each Model 3 could bring in $60,000 profit for Tesla through Tesla network. The understanding of the future potential will help create a floor for the stock price.

On the potential downside, shorts want to create a fear that "Tesla is running out of cash, it will bankrupt", so they can push it down really hard, then they can cover. My understanding is a company is not pure math. Many years ago when Steve Jobs went back to Apple the second time, Wall Street was so sure Apple will bankrupt because of the debt burden. Then Steve asked Bill Gates to get cash and gave Microsoft some Apple Stock. The rest is history. Bean counters had a hard time to understand why Apple's debt problem suddenly went away. If Tesla has to pay a lot of money for parts and robots, Elon will find a way to pay. The forward payment for parts will turn into profit when the cars are produced. In the worst case, I have no doubt Elon himself can lend a few billion dollars to Tesla. But he doesn't need to. Shorts don't understand how strongly investors support Tesla. There are many ways that Tesla can handle the cash requirement.

2020 LEAP will be available next week. I look forward to add some, and add more if the stock drops more. In my view TSLA is a rare investment opportunity at this time and this price level. I will be happy to see even better entry.

 

[dha]

The underlying bullish argument always seems to be that Tesla, and only Tesla, can profitably build EVs. I don't accept that as fact. I believe those other old dogs will learn new tricks and by the early 2020s the landscape will be very different with dozens of credible choices. Until then, of course, Tesla will dominate. It will make for a fun ride on TSLA.

Until those “old dogs” secure battery supplies in excess of 50-100 GWh / yr, Tesla will be the only automaker on earth capable of building EV’s in significant volume. Factories are not built overnight.

 

[anticitizen13.7]

Redditors don’t strike me as savvy investors.

In aggregate, I would say this is true.

That being said, I believe Reddit is a very valuable gauge of market sentiment at the individual/retail level. When certain stocks have numerous threads that are being upvoted into the sky, that's a good indicator that the ship has sailed.

When I look for potential, I look at the stocks or industry areas that generate Reddit threads with only a handful of upvotes. Sometimes when I investigate an interesting, potentially gamechanging stock, I find that nobody on REddit is discussing it at all...

 

[TradingInvest]

Guys. This is a big week for tesla and tsla. If you see any crazy short attacks, lawsuits or folks on here posting Long and/or silly posts - just take it with a grain of salt. They have to work a bit harder this week to keep the negative sentiment burning

One of the law firms already asked 4 times for someone to step forward as the lead plaintiff. Apparently they can't get any.

 

[30seconds]

Part of the problem with valuation is that there is no good way to estimate how far Tesla is ahead in vehicle design.

At this point we still have zero actual or even announced competitors for S or X.

The launch of the 3 will help estimate the gap between the most recent Tesla and the most recent clean sheet design from big auto (the Bolt).

I think this is going to really shown how far behind the business & technology model is for big auto. Integrating a series of subcontractor components seems to be pretty far from what Tesla is able to deliver.

 

[anticitizen13.7]

Note: I am starting to ignore people who respond to trolls, just to keep the signal noise high.

Now this is the kind of stuff that people should not respond to: 2017 Investor Roundtable: TSLA Market Action. Posts that are (1) devoid of substance and (2) aggressive and/or taunting in nature are calculatingly created to cause disharmony for the purpose of entertainment.

The true nature of such people is revealed in their own words when called out on their tactics: Degradation of the Community...