MitchJi
Trying to learn kindness, patience & forgiveness
In 2018 when Tesla is producing 10k M3's per week it won't matter, at least the SP will be over $400 either way.
Plus it's highly unlikely that the Tesla AP isn't on track by the end of 2017.
-
Want to remove ads? Register an account and login to see fewer ads, and become a Supporting Member to remove almost all ads.
- Status
Plus it's highly unlikely that the Tesla AP isn't on track by the end of 2017.
I hope everyone is taking a DEEP BREATH and keeping perspective today.
We had a bear analyst drop his price target from $190 to $185. This is MINIMAL and no one was paying much attention to this analyst anyway or we would not have been at $280 last week.
We have some videos of Autopilot 2 not functioning correctly. It could be a sensor issue relating to that particular car or a small number of cars. It could be a more general software issue. Things like this will come up. Imagine if Elon went into a panic every time there was an issue with Tesla cars. We would be NOWHERE. Keep your head on straight and BE LIKE ELON. Be CALM, LOGICAL, and METHODICAL. Don't let your emotions get the better of you.
There are big players who want Tesla to succeed. We'll hear about the cap raise soon enough, sentiment will change, and you'll wonder what you were thinking when you sold.
BE STRONG. BE ELON.
We had a bear analyst drop his price target from $190 to $185. This is MINIMAL and no one was paying much attention to this analyst anyway or we would not have been at $280 last week.
We have some videos of Autopilot 2 not functioning correctly. It could be a sensor issue relating to that particular car or a small number of cars. It could be a more general software issue. Things like this will come up. Imagine if Elon went into a panic every time there was an issue with Tesla cars. We would be NOWHERE. Keep your head on straight and BE LIKE ELON. Be CALM, LOGICAL, and METHODICAL. Don't let your emotions get the better of you.
There are big players who want Tesla to succeed. We'll hear about the cap raise soon enough, sentiment will change, and you'll wonder what you were thinking when you sold.
BE STRONG. BE ELON.
Agreed - I think we've been on such an upward trend lately we've forgotten how this works. It's a slog - especially when there's really nothing new in the pipe for awhile.
Keeping things in perspective is always the way to ride this coaster. It's minimal. I'm still of the opinion GS is killing it to knock independents out and buy up later, but that's me/
Replied in the thread where this is on topic :
Honestly, that Tesla has to offer insurance is a weakness, not a strength. Tesla isn't in the insurance market because of choice but because it has to since some Chinese customers couldn't get reasonable insurance rates in the broader market. It's just patching a hole in the market that other manufacturers don't have to worry about.
Had Elon announced that Tesla will take on all liabilities for FSD malfunctioning so that customers don't have to insure that functionality, that would be a move out of strength : taking a competitive lead through your trust in technologically progress. Unfortunately Elon has indicated on the contrary that Tesla will NOT actively seek to do so unlike for example Volvo.
Why, or why AJ always have to be the most forward looking analyst in the room? Apparently MS issued a note today extolling Tesla entrance to the insurance market.
Somehow I think that this will not help the SP...
Tesla is expanding its total available market and value proposition by weighing offering insurance on its cars, Morgan Stanley analysts, led by Adam Jonas, said in a note Monday
Honestly, that Tesla has to offer insurance is a weakness, not a strength. Tesla isn't in the insurance market because of choice but because it has to since some Chinese customers couldn't get reasonable insurance rates in the broader market. It's just patching a hole in the market that other manufacturers don't have to worry about.
Had Elon announced that Tesla will take on all liabilities for FSD malfunctioning so that customers don't have to insure that functionality, that would be a move out of strength : taking a competitive lead through your trust in technologically progress. Unfortunately Elon has indicated on the contrary that Tesla will NOT actively seek to do so unlike for example Volvo.
I consider 10k as an exit rate for 2018. I don't think it's that simple.
You bring up a fair question about how much AP 2.0 progress can be booked in Q1. My guess is a fair amount of the basic autopilot charges. Here's why.
We've seen two extreme case videos. On the one hand, we had the best case scenario, which is Tesla's "Paint it Black" video of the Tesla tooling safely around Palo Alto streets. Today, we saw the other extreme, a video taken on a winding road that contains too abrupt of turns for the current Tesla 2.0 software to adequately handle. That video was intended to make the AP 2.0 looks as bad as possible, just as the Tesla video was intended to make it look as good as possible. Clearly, reality lies somewhere in between.
What I'm curious about is whether driving on local streets will allow Tesla to claim some of the self-driving revenue in Q1. Local streets was not available on AP 1.0, and so it is an enhanced capability. Perhaps some small percentage of that additional autopilot revenue will be claimed in Q1. You need to see videos of the AP 2.0 operating on local streets that are not excessively sharply turning to judge the current level of local street autonomy that Tesla's AP 2.0 software is capable of. Let's look forward to a more realistic video on AP 2.0 capabilities to help us figure out the answer for Q1.
Maybe someone with AP 2.0 hardware can answer this question. If you did not pay extra for the self-driving capability of AP, are you able to use your AP 2.0 hardware on local streets in a manner in which the vehicle identifies stop signs, stop lights, etc.? A "Yes" answer to that question would suggest that we would not see any self-driving portion of the AP 2.0 charges available in Q1.
Last edited:
Hogfighter
Professional Lurker
Here's my opinion on the GS letter. My thoughts are in red. Peruse or ignore to your heart's content.
We downgrade shares of Tesla from Neutral to Sell with 28% downside to our 6-month price target of $185. We expect to see pressure on shares as we progress through the year, as cash burn intensifies and the ramp of Model 3 volumes proves to be slower and flatter than assumed in guidance/consensus. Model 3 volumes haven’t been proven at all. The GS assumption is that model 3 will be late and ramp slower than Tesla is guiding. I bet that Tesla knows more than GS. Further, the acquisition of SolarCity – which is undergoing its own business model transition – comes at a time when we believe Tesla should be singularly focused on becoming a mass automobile manufacturer. Lastly, while we see Tesla as a net beneficiary of potential tax reform, we believe the net present value of those benefits would remain effectively unchanged from the current tax system given the increased time it would require to utilize increased NOLs. Tesla doesn’t receive tax breaks (other than ZEV credits)…their customers do. This infers that demand will be lower if the tax breaks are taken away, which has not been the case in countries that don’t offer tax breaks. Demand is not a concern right now. Our key concerns are as follows:
We would become more positive on the stock if the company were able to demonstrate improved manufacturing execution by driving more rapid quarterly production growth in its current vehicle offerings than we model (70% annual growth rate is not enough for Goldman Sachs? Tough crowd!), demonstrate key milestones implying its Model 3 launch remains on track for mass volume in 2H17, drive down the cost of its battery packs faster than expected, demonstrate considerable market demand for the cross-selling between Tesla products and SolarCity products, and deploy capital more efficiently – driving reduced incremental capital requirements. If (and when) Tesla accomplishes these things, the stock price will already be a lot higher than it is now.
We continue to view Tesla as a disruptor in the electric vehicle and alternative energy segments – with a clear lead relative to its peers with respect to vehicle technology adoption (increasing advanced driver assist features, revolutionary over-the-air update capabilities, infotainment capabilities, and general consumer-desired features), electric vehicle architecture, and (potentially) battery scale with the build-out of its gigafactory. However, over time we do not see competitive barriers to entry (other than ease of raising capital and achievement of scale) that traditional OEMs, new entrants into the space, and other battery manufacturers could not duplicate. I do not share this opinion. It’s a crucial point to decide whether OEMs will be truly competitive or not in the next 3-5 years…I’ve been hearing about the next “Tesla Killer’ since I bought my car in 2012. In 2017 we are no closer to seeing a true competitor. As a result while we do believe the company has at least one product cycle lead on its competitors, there ultimately could be a Samsung to this Apple (think smartphones), with incremental competition on the horizon as we have detailed in past reports. That being said, this is still an unprofitable Apple at present and pushing growth out and to the right would drive present value down. With that as a backdrop, we see valuation as appropriate at $185, and anticipate downside to shares as we progress through what we believe will be a choppy Model 3 launch that is slower than anticipated.
Trading the TSLA hype cycle: TSLA shares have mostly traded in a $180 to $280 range over the past couple years (Exhibit 1), and we again see room for downside toward the bottom of this band. Historically, (1) the stock takes an average 3 months to move significantly higher driven by “hype” around incremental product launches, new business lines, and delivery growth is priced in; (2) post these runs, TSLA takes approx. 7 months to de-rate as launches are pushed out, deliveries miss expectations, and gross margin percentage disappoints. This has occurred three times over the past three years. And as laid out above, we believe the drivers behind the most recent stock surge (beneficiary of potential tax changes, Model 3 launch/delivery timing, and gigafactory investor tour) are baking in benefits that will take longer to materialize and we expect the stock to de-rate as a result. In my opinion, Model 3 production will look quite different than past vehicles for Tesla. This is the first car that Tesla has built that was designed with ‘ease of manufacturing’ as the #1 priority. Additionally, this is the first car that Tesla is working with 1st tier suppliers eager to work with them. Right now, most analysts are pessimistic on Tesla producing volume production of Model 3 by the end of this year. If that occurs, we will see plenty of analyst upgrades and the SP will follow accordingly.
We downgrade shares of Tesla from Neutral to Sell with 28% downside to our 6-month price target of $185. We expect to see pressure on shares as we progress through the year, as cash burn intensifies and the ramp of Model 3 volumes proves to be slower and flatter than assumed in guidance/consensus. Model 3 volumes haven’t been proven at all. The GS assumption is that model 3 will be late and ramp slower than Tesla is guiding. I bet that Tesla knows more than GS. Further, the acquisition of SolarCity – which is undergoing its own business model transition – comes at a time when we believe Tesla should be singularly focused on becoming a mass automobile manufacturer. Lastly, while we see Tesla as a net beneficiary of potential tax reform, we believe the net present value of those benefits would remain effectively unchanged from the current tax system given the increased time it would require to utilize increased NOLs. Tesla doesn’t receive tax breaks (other than ZEV credits)…their customers do. This infers that demand will be lower if the tax breaks are taken away, which has not been the case in countries that don’t offer tax breaks. Demand is not a concern right now. Our key concerns are as follows:
- Model 3: Launch curve a concern, operating margin dilutive at current cost, and reservation conversion may be hindered by higher selling prices. We believe the Model 3 will have a more subdued launch curve than the company is targeting as some suppliers have expressed concern around final designs not being locked down. As a result, we expect the company to achieve mass market volumes (i.e., above 100k annualized run-rate) in 4Q18 vs. Tesla’s target of 4Q17. That would be a really big miss, and is a very pessimistic view considering Model 3 production is scheduled to start in only 5 months.
- SolarCity business model unproven and acquisition comes at a pivotal point in Automotive product cycle. We believe the recent acquisition of SolarCity increased the risk profile of Tesla amidst a business model transition – from company-owned equipment installation and lease/PPA contracts to customer purchased equipment on cash/loan sales – and provides limited synergies. Ultimately, the acquisition raised the net leverage of Tesla while creating EBITDA and FCF drag that requires incremental non-recourse debt to be raised. All true except for the synergies part. Clearly GS is not viewing Tesla Energy as anything but a distraction, while Elon has stated that Tesla Energy will ramp faster than the automotive side with similar profit margins.
- Capex ramping significantly, driving incremental capital raise: We forecast a significant increase in near-term capex levels required to bring both the Fremont, CA factory and TSLA’s gigafactory to scale. Overall this drives our forecast for $3bn of automotive capex in 2017 and FCF burn of $2.8bn in 2017. Ultimately we see another equity raise needed before 4Q17. This is further exacerbated by the addition of SolarCity, whose business would continue to be a FCF drag and requires an equal amount of sale of project level debt and tax equity financing to maintain cash balances. All true.
- Potential tax benefits significant, but would be recognized over a longer period of time – driving net present value lower. While we would expect TSLA to be a net beneficiary of potential US tax changes (i.e., scenario including destination-based tax with border adjustment as well as full capex expensing and elimination of net interest expense) and forecast its NOLs to grow under a potential tax change scenario, based on our model we find that the net present value of these higher NOLs is slightly worse than the status quo given a longer time period to achieve (the company is not currently a cash tax payer and a lower corporate tax rate would push out recognition of NOL benefits). Not relevant, in my opinion.
- Estimates now include SolarCity; we are well below the Street: We update our 2017 through 2020 estimates following 4Q16 results and further layer on our SolarCity forecast. Overall, our EBITDA estimates fall by an average 12% (SolarCity inclusion, lower Automotive gross margin, pushed out Tesla Energy volume ramp) and are on average approx. 30% below the Street.
We would become more positive on the stock if the company were able to demonstrate improved manufacturing execution by driving more rapid quarterly production growth in its current vehicle offerings than we model (70% annual growth rate is not enough for Goldman Sachs? Tough crowd!), demonstrate key milestones implying its Model 3 launch remains on track for mass volume in 2H17, drive down the cost of its battery packs faster than expected, demonstrate considerable market demand for the cross-selling between Tesla products and SolarCity products, and deploy capital more efficiently – driving reduced incremental capital requirements. If (and when) Tesla accomplishes these things, the stock price will already be a lot higher than it is now.
We continue to view Tesla as a disruptor in the electric vehicle and alternative energy segments – with a clear lead relative to its peers with respect to vehicle technology adoption (increasing advanced driver assist features, revolutionary over-the-air update capabilities, infotainment capabilities, and general consumer-desired features), electric vehicle architecture, and (potentially) battery scale with the build-out of its gigafactory. However, over time we do not see competitive barriers to entry (other than ease of raising capital and achievement of scale) that traditional OEMs, new entrants into the space, and other battery manufacturers could not duplicate. I do not share this opinion. It’s a crucial point to decide whether OEMs will be truly competitive or not in the next 3-5 years…I’ve been hearing about the next “Tesla Killer’ since I bought my car in 2012. In 2017 we are no closer to seeing a true competitor. As a result while we do believe the company has at least one product cycle lead on its competitors, there ultimately could be a Samsung to this Apple (think smartphones), with incremental competition on the horizon as we have detailed in past reports. That being said, this is still an unprofitable Apple at present and pushing growth out and to the right would drive present value down. With that as a backdrop, we see valuation as appropriate at $185, and anticipate downside to shares as we progress through what we believe will be a choppy Model 3 launch that is slower than anticipated.
- Share move opens entry point: Since 12/2/16, TSLA shares have risen 42% (vs. S&P500 +8% and Auto coverage average +9%) driven by a mixture of positive news flow (potential beneficiary from tax proposals, gigafactory investor tour, Model 3 pre-production). However, fundamental operations have not exhibited a material improvement and we estimate potential tax benefits are a wash looking at the net present value of NOLs generated.
- Operational execution still unproven: We see room for shares to de-rate as the Model 3 production launch likely disappoints and as an unproven SolarCity business model likely weighs on the company’s focus/results.
- Capex ramping, see capital raise in 3Q17: We forecast $3bn of automotive capex in 2017 and FCF burn of $2.8bn, necessitating a $1.7bn equity raise.
- Valuation: Our 6-month price target becomes $185 (from $190), now adding SolarCity ($9) to Tesla Energy ($31 from $34 on slower ramp) and probability-weighted automotive segment ($145 from $156 on lower margins) valuations.
- Key risks: Stronger Model S/Model X demand and/or production, positive free cash flow generation, and incremental new product announcements
Trading the TSLA hype cycle: TSLA shares have mostly traded in a $180 to $280 range over the past couple years (Exhibit 1), and we again see room for downside toward the bottom of this band. Historically, (1) the stock takes an average 3 months to move significantly higher driven by “hype” around incremental product launches, new business lines, and delivery growth is priced in; (2) post these runs, TSLA takes approx. 7 months to de-rate as launches are pushed out, deliveries miss expectations, and gross margin percentage disappoints. This has occurred three times over the past three years. And as laid out above, we believe the drivers behind the most recent stock surge (beneficiary of potential tax changes, Model 3 launch/delivery timing, and gigafactory investor tour) are baking in benefits that will take longer to materialize and we expect the stock to de-rate as a result. In my opinion, Model 3 production will look quite different than past vehicles for Tesla. This is the first car that Tesla has built that was designed with ‘ease of manufacturing’ as the #1 priority. Additionally, this is the first car that Tesla is working with 1st tier suppliers eager to work with them. Right now, most analysts are pessimistic on Tesla producing volume production of Model 3 by the end of this year. If that occurs, we will see plenty of analyst upgrades and the SP will follow accordingly.
You have to admit that Tesla taking on responsibility for self-driving accidents or incidents would be unrealistic if it is not also making revenue from selling insurance for the feature. Elon has repeated said that self-driving will not be accident-free, it will just be much better than with a driver behind the wheel.
I see Tesla's willingness to enter the insurance market as a positive. My insurance company has given me no discount after it was announced that Teslas with AP 1.0 hardware were 40% less likely to be involved in an accident than a non-autopilot-equipped vehicle. I think Tesla correctly understands that it can offer insurance at a rate that will reduce premiums for most Tesla drivers while simultaneously turning the insurance program into a cash-generating entity. One consequence of Tesla offering insurance for its cars would be that other insurance companies would likely offer better prices on their Tesla insurance, which by itself would make the program a very positive program for Tesla owners.
Yeah, I do believe that there is a wide dichotomy between what Tesla can recognize as revenue from EAP 2.0 and what owners would feel about it. I suspect that the majority of EAP 2.0 revenue will land in Q1 from vehicles sold since October 2016 and there will be the customary hold back for ongoing updates.
Solid responses Hogfighter, I generally agree with most of them.
Why, or why AJ always have to be the most forward looking analyst in the room? Apparently MS issued a note today extolling Tesla entrance to the insurance market.
Tesla is expanding its total available market and value proposition by weighing offering insurance on its cars, Morgan Stanley analysts, led by Adam Jonas, said in a note Monday
Related opinion from someone heavily invested in Insurance
Buffett has an interesting theory about why self-driving cars will hurt the insurance industry
Not sure if this has been posted before, but it's a long and thoughtful read:
What Will Drive The rEVolution?
What Will Drive The rEVolution?
Here's what Elon claimed in his company e-mail:
"The chart below contrasts the total comp received by a Tesla production team member who started on January 1, 2013 against the total comp received over the same period at GM, Ford, and Fiat Chrysler. A four year period is used because that’s the vesting length of a new hire equity grant. I believe the equity gain over the next four years will be similar."
You disparage the intelligence of the employees by conflating my re-wording as a guarantee of better compensation. That's like saying these people shouldn't invest in stocks, because they don't understand that stocks can drop in value? They participate in the hopes of increased value, but in the case of company stock, they actually can contribute to increasing the value of the stock.
Looked at another way. Do you have the same disdain for 401k's? Afterall, the government (with the participating companies) is incentivizing people to gamble with their hard-earned dollars on a potential gain in value as well! Choose poorly and inflatuation (and a possible higher income tax bracket) would eat away at the value of their investment. At least with the stock options, the employee only has to spend money to exercise the options, when they know the stock value is higher. There's no such guarantee with the mutual funds in ones 401k that you have to put dollars into first!
Did Tesla put its Middle East Headquarters in Dubai?
World's first driverless Tesla taxis to arrive in Dubai | Daily Mail Online
World's first driverless Tesla taxis to arrive in Dubai | Daily Mail Online
USA Today's link for SpaceX announcement livestream (waiting for the event to go live...):
Watch Live: Elon Musk makes mystery SpaceX announcement
Watch Live: Elon Musk makes mystery SpaceX announcement
I wouldn't really call that a best case scenario. We all know how many times they've failed before capturing that video to show-off. And to sell a product, one needs to be consistent. And arguably the product is as good as the worst one to potential customers.
- Status
Similar threads
- Sticky
- Locked
