2017 Investor Roundtable:General Discussion

[DragonWatch]

Tesla/Elon have always been the spark of challenge, this spark has been absent for a long, long time in the auto industry. Autopilot is on the waterfall of bleeding edge of technology/AI. Other competitors have toyed with Autopilot, and dropped their edge; just like Chevy did with the electric car.

Elon is a tough guy to work for from what I have seen and read. He has a vision and sets and enforces very high standards. His sleeping on the assembly floor during peek times is an example of his commitment to the company, the product and customers. He is one of a kind.

Couple that with being on the spearheaded of bleeding technology it should be no wonder that technological employees, no matter how great will fall by the wayside be it money or challenging work environment in this extremely high profile company. Finding the right fit in a high demand and very high profile environment is extremely tough.

My MX has not been uploaded with the newest like silk driving package, but am eager to test it out.

Now, couple that with the fact that the M3 is about to hit the road in mass ~ literally within days. That anticipated event alone is nerve racking and very, very high profile. Oh, and there is the vision of the MY along with a semi dangling out there, so if you think the stock is going to continue climbing, stalling or falling on Elon's Ladder then think again. Every time there is a speed bump, Tesla/Elon come out ahead.

Me, if I were climbing high altitudes I would rest occasionally to catch my breath before reaching for the next rung. When the rubber of the M3 hits the road be prepared. When the newest version of Autopilot is downloaded, test it out and be prepared

 

[EinSV]

If you have a detailed DCF on TSLA, please PM me so we can compare and contrast our assumptions and together reach better understanding.

I don't have a detailed DCF, but in early November 2016 (when the SP was ~$190) I posted in another thread a simplified valuation analysis that I developed for my own investment purposes, copied below (Not "an advice," -- I have no particular valuation expertise) 3 Year Tesla Valuation Model

That led to a valuation of $1228/share by the end of 2019.

At the time I said that "I would expect that as time goes on and TE ramps and Tesla Network, and Tesla Semi ... come online it is more likely that this number will go up rather than down." I do think the intrinsic valuation has already gone up significantly since that time as Tesla Semi and Solar Roof have become much more concrete and potentially near term opportunities, and Tesla has hinted at growth plans for 10-20 GFs that could send the valuation even higher over the longer term.

Also given where growth is likely to be in 2019 I believe the P/E of 40 that I used at the time is much too conservative. On the other hand, OpEx is very difficult to estimate, and there is quite a bit of room for error in many important aspects of this, so including conservative elements seems reasonable.

Since I posted this, AP2 has rolled out more slowly than expected and Tesla Minibus has gone away, but I did not include them in my valuation at the time anyway (TN obviously has significant value, but it was difficult for me to quantify with any meaningful precision).

Bottom line, IMO, the SP has a long way to run before I personally consider it anywhere close to reaching its intrinsic value.

@dennis, I have put together models for my own investing decisions based on projected sales in 2020 rather than 2019, but can make some adjustments to make it work for 2019.

For the automotive business, my estimate is based on Tesla's guidance of 1M cars in 2020, 800K 3/Y and 200K S/X, 27.5% GM for S/X, 22.5% for 3/Y, ASPs of 87.5 for S/X and 45 for 3/Y (these are conservative IMO). Although I recognize I am in the minority, I believe Tesla is likely to meet its 1M vehicle in 2020 goal, and in fact is more likely to substantially exceed that goal than to fall short of it. So I prefer to stick with what I think is a reasonable estimate for valuation purposes.

In addition, I think the assumption that Model S/X sales will peak any time soon is very likely to turn out to be wrong so I am sticking with my estimate of 200,000 vehicles. There is not space here to discuss but I explain my thinking in post #51 in the "Prediction" thread: Prediction Thread - "You Called It"

The numbers above result in the following for TA in 2020:

Revenue: $53.5B
GM: $12.9B

With these figures, I estimate $5.4B in OpEx, $100M in interest and a 22% tax rate resulting in earnings of $5.8B.

Since Tesla should still be growing at 60% per year or more and have penetrated only a small portion of the market, a P/E of 40 seems reasonable if not conservative. This results in a market cap of $231B for the automotive business.

TE is much harder to estimate since we know little about growth rates or margins. Elon has said that he expects TE will eventually be about the same size as TA and will grow much faster. But we don't yet know how quickly it will ramp, how quickly Tesla will be able to build the multiple Gigafactories necessary to build sufficient production or what margins will be.

Assuming what I think will turn out to be a conservative $2B TE revenue in 2017 and 80% CAGR (higher than the automotive business but not by much) results in 2020 TE revenue of $11.6B. I believe this will very likely turn out to be too low. Assuming GM of 22.5% (which I believe is conservative) results in GP of $2.574B. Estimating OpEx at $1.2B, $25M in interest and 22% tax rate results in another $1.0B in earnings. Applying the same P/E of 40 (low for a company growing this fast) results in an additional market cap of $40B.

I have not done any projections for Tesla Solar, so for sake of simplicity and as a conservative element will estimate a market cap of $2B.

Tesla Network, Tesla Semi and Tesla Minibus are also likely to contribute substantial value by 2020 but will ignore them for present purposes.

So total market cap is $231B+$40B+$2B=$273B. Discounting 10% to 2019 results in a valuation of $245.7B.

After the SCTY merger I believe there will be approximately 163M shares outstanding (149M X 1.091). Assuming 7% additional dilution per year for cap raises, option exercises and other stock based compensation, convertible bond conversions not paid in cash, equals 200M shares outstanding at the end of 2019, or a share price of $1228.

Obviously, this would be a very nice number. I would expect that as time goes on and TE ramps and Tesla Network, Tesla Semi and Tesla Minibus come online it is more likely that this number will go up rather than down.

I should be clear that I am not predicting the share price will be this high in 2019 (or 2020). A major countervailing factor that needs to be taken into consideration is that Tesla is disrupting multiple powerful industries. The resulting PR/FUD campaign therefore may continue even after Model 3 launches successfully and profitably, and even if TE and Tesla Solar surpass the market's expectations. In addition, as long as Tesla is growing 60-80% per year, the capital investment, R&D and other expenses associated with growing the business will mask the underlying profitability of its core businesses, and provide ammunition to naysayers. The effect should lessen after Model 3, but it may not go away entirely. As a long-term investor, I will take 60-80% growth over short term profits any time, although that may mean that Tesla SP may not realize its full potential for a while yet.

 

[ValueAnalyst]

I don't have a detailed DCF, but in early November 2016 (when the SP was ~$190) I posted in another thread a simplified valuation analysis that I developed for my own investment purposes, copied below (Not "an advice," -- I have no particular valuation expertise) 3 Year Tesla Valuation Model

That led to a valuation of $1228/share by the end of 2019.

At the time I said that "I would expect that as time goes on and TE ramps and Tesla Network, and Tesla Semi ... come online it is more likely that this number will go up rather than down." I do think the intrinsic valuation has already gone up significantly since that time as Tesla Semi and Solar Roof have become much more concrete and potentially near term opportunities, and Tesla has hinted at growth plans for 10-20 GFs that could send the valuation even higher over the longer term.

Also given where growth is likely to be in 2019 I believe the P/E of 40 that I used at the time is much too conservative. On the other hand, OpEx is very difficult to estimate, and there is quite a bit of room for error in many important aspects of this, so including conservative elements seems reasonable.

Since I posted this, AP2 has rolled out more slowly than expected and Tesla Minibus has gone away, but I did not include them in my valuation at the time anyway (TN obviously has significant value, but it was difficult for me to quantify with any meaningful precision).

Bottom line, IMO, the SP has a long way to run before I personally consider it anywhere close to reaching its intrinsic value.

Thank you for this. I agree with everything you said, except for:

1. 40 P/E is too conservative, given the growth rate you mentioned. I'm a fan of some conservatism, but too much conservatism is just as harmful to investment returns as too much optimism.
2. 7% annual dilution is also too conservative.

Most of Tesla's values comes from cash flows beyond 2020, so I would highly encourage you to build a detailed DCF.

 

[EinSV]

Thank you for this. I agree with everything you said, except for:

1. 40 P/E is too conservative, given the growth rate you mentioned. I'm a fan of some conservatism, but too much conservatism is just as harmful to investment returns as too much optimism.
2. 7% annual dilution is also too conservative.

Most of Tesla's values comes from cash flows beyond 2020, so I would highly encourage you to build a detailed DCF.

Item 1 -- I agree with you.
Item 2 -- I don't agree with you (at least between now and 2020).

I put together some valuation models for 2025 last year. Wake me up when the SP hits $1000 and maybe it will be worth updating them.

 

[EinSV]

Thank you for this. I agree with everything you said, except for:

1. 40 P/E is too conservative, given the growth rate you mentioned. I'm a fan of some conservatism, but too much conservatism is just as harmful to investment returns as too much optimism.
2. 7% annual dilution is also too conservative.

Most of Tesla's values comes from cash flows beyond 2020, so I would highly encourage you to build a detailed DCF.

Item 1 -- I agree with you.
Item 2 -- I don't agree with you.

I put together some valuation models for 2025 last year. Wake me up when the SP hits $1000 and maybe it will be worth updating them.

 

[JRP3]

Now, couple that with the fact that the M3 is about to hit the road in mass ~ literally within days.

I hope you don't think that's true.

 

[ValueAnalyst]

Item 1 -- I agree with you.
Item 2 -- I don't agree with you.

I put together some valuation models for 2025 last year. Wake me up when the SP hits $1000 and maybe it will be worth updating them.

Glad we agree on Item 1.

Here's my thought process on Item 2:

7% annual dilution means more than $1T+ cap-ex over the next ten years when combined with Tesla's improving access to debt markets as well as heavy internal cash flow generation following Model 3 ramp up to 10,000 units per week. Even if Tesla had to build all 100 Gigafactories needed, 7% dilution would still be a very conservative assumption.

Past dilution is never an indicator of future dilution, especially in terms of percentages. This is why you need a detailed fully integrated DCF (am I really the only one here with a detailed DCF?!). If you want to assume some dilution, I would encourage you to look at it in absolute terms. How much did Tesla raise in the last twelve months? How much did it raise in 2016? How much in 2015? THEN look at it as a percentage of what that would be in today's, next year's etc. market cap. I'm confident that if you think through this, you will agree with me.

So don't sleep too tight; I'll have to wake you up sooner than you think.

 

[SBenson]

Panasonic Joins Push to Put Photovoltaics on More Car Roofs

 

[winfield100]

I'm out of his league.

as he will be out of his league also, after 1/18/2019, after seppu coo coo ka joo

 

[DurandalAI]

Panasonic Joins Push to Put Photovoltaics on More Car Roofs

People say, "It will only add 2-3 miles per day" which may be true, but that is 730 miles a year of "free" driving at 2 miles a day. If I could pay an extra $1,500 for a 150 watt panel embedded into the roof of my Model 3, I would certainly do it, even if all it did was run a fan to keep the internal temperature lower on hot summer days...

 

[ValueAnalyst]

Panasonic Joins Push to Put Photovoltaics on More Car Roofs

The article mentions solar panels for the model 3, which Elon mentioned previously. I'm surprised that we haven't heard more about this.

 

[DragonWatch]

I hope you don't think that's true.

Thanks for the tweet. After reading my copy of the Tesla Weekly that arrived this morning, the impression I came away with is that Tesla is pre-positioning for a big splash which tactically is a good move. Will the big splash occur Monday, no, we would have heard by now. Will it happen at the end of July ~ I do not know since I am not on the in-crowd. However, unlike the launch of the MX, no delays have been stated publicly that I have read. Will there be a ramp up, I assume so since Tesla/Elon have stated so along the way.

Since I have been watching Tesla before the IPO, and as an armchair analysts ~ yes, for me it is a matter of days and the mass, well 100 is a mass compared with the five MXs at the very end of the year. Therefore, any number higher than my 100 is massive and $$$$$ stock wise. When told to jump, I do not ask how high, I aim higher

Am I right or left ~ hell no ~ I am flying under the radar right up the center Always have and always will. Just like when I accelerate my MX and all the ICE car drivers look at me and cry. My wife chews my butt out though:-(

 

[DurandalAI]

The article mentions solar panels for the model 3, which Elon mentioned previously. I'm surprised that we haven't heard more about this.

My guess is simplicity as the first reason, secondarily I don't expect solar roof options until Tesla Solar Roof is going full-bore. So probably not until 2019 would be my wild guess.

 

[ValueAnalyst]

My guess is simplicity as the first reason, secondarily I don't expect solar roof options until Tesla Solar Roof is going full-bore. So probably not until 2019 would be my wild guess.

I agree with you. I was surprised Elon even brought this up given the incremental benefit vs cost as well as increasing geographical coverage of Supercharger network and the upcoming v3 power rate.

 

[EnzoXYZ]

I'm pretty sure someone like EM wouldn't mind being the richest person in the world. I know this isn't his primary goal. Any one with better math skills than I can come up with TSLA valuations to make him #1 with a conservative SpaceX value?

 

[EinSV]

Glad we agree on Item 1.

Here's my thought process on Item 2:

7% annual dilution means more than $1T+ cap-ex over the next ten years when combined with Tesla's improving access to debt markets as well as heavy internal cash flow generation following Model 3 ramp up to 10,000 units per week. Even if Tesla had to build all 100 Gigafactories needed, 7% dilution would still be a very conservative assumption.

Past dilution is never an indicator of future dilution, especially in terms of percentages. This is why you need a detailed fully integrated DCF (am I really the only one here with a detailed DCF?!). If you want to assume some dilution, I would encourage you to look at it in absolute terms. How much did Tesla raise in the last twelve months? How much did it raise in 2016? How much in 2015? THEN look at it as a percentage of what that would be in today's, next year's etc. market cap. I'm confident that if you think through this, you will agree with me..

So don't sleep too tight; I'll have to wake you up sooner than you think

I stand behind 7% dilution between now and 2020 as a reasonable guesstimate, although it could turn out to be too low or too high. I would not want to go lower between now and 2020, given the massive capital and OpEx needs over the next three years, including:

• Finishing GF1 and 2
• Ramping Model 3 to 500K/year by end of 2018 and then probably more
• At least beginning construction on GFs 3, 4 and 5
• Possibly beginning construction of addl GFs
• Building out fast charging network, sales and service for automotive business
• Alien Dreadnaught R&D
• AP2/FSD R&D
• Model Y R&D and production buildout
• Semi R&D, production ramp
• Buildout of entire Semi business, including fast charging, sales and service networks
• More speculative but new music streaming service is probably first step in providing a media solution for FSD (so possible R&D or acquisition for things like video/interactive media/gaming)
• Tesla Pickup R&D and production ramp
• Solar Roof R&D, production ramp and development of sales, installation and service network
• Development of TE sales, installation and service networks

With this ambitious agenda, I personally have no problem with dilution of 7% or even higher for the next three years.

Of course, if Tesla can get TE, Tesla Semi, Tesla Pickup, Model Y, Solar Roof and FSD up and running between now and 2020 (a very tall order), the SP could easily be a multiple of $1200, and dilution could be less than 7% afterwards since Tesla should be generating cash hand over fist. In the past 4.5 years since I first invested, the market cap has gone up 20X but the SP a "mere" 12X due to dilution. If that happens again, it wouldn't bother me one little bit!

 

[ValueAnalyst]

I stand behind 7% dilution between now and 2020 as a reasonable guesstimate, although it could turn out to be too low or too high. I would not want to go lower between now and 2020, given the massive capital and OpEx needs over the next three years, including:

• Finishing GF1 and 2
• Ramping Model 3 to 500K/year by end of 2018 and then probably more
• At least beginning construction on GFs 3, 4 and 5
• Possibly beginning construction of addl GFs
• Building out fast charging network, sales and service for automotive business
• Alien Dreadnaught R&D
• AP2/FSD R&D
• Model Y R&D and production buildout
• Semi R&D, production ramp
• Buildout of entire Semi business, including fast charging, sales and service networks
• More speculative but new music streaming service is probably first step in providing a media solution for FSD (so possible R&D or acquisition for things like video/interactive media/gaming)
• Tesla Pickup R&D and production ramp
• Solar Roof R&D, production ramp and development of sales, installation and service network
• Development of TE sales, installation and service networks

With this ambitious agenda, I personally have no problem with dilution of 7% or even higher for the next three years.

Of course, if Tesla can get TE, Tesla Semi, Tesla Pickup, Model Y, Solar Roof and FSD up and running between now and 2020 (a very tall order), the SP could easily be a multiple of $1200, and dilution could be less than 7% afterwards since Tesla should be generating cash hand over fist. In the past 4.5 years since I first invested, the market cap has gone up 20X but the SP a "mere" 12X due to dilution. If that happens again, it wouldn't bother me one little bit!

What is the total cap-ex need for everything you listed? Do you have a ballpark figure in mind?

 

[Reciprocity]

The article mentions solar panels for the model 3, which Elon mentioned previously. I'm surprised that we haven't heard more about this.

These would more then likely not be used to power the cars main battery but to power things like battery cooling, air conditioning/heating and pre-conditioning overhead protection. Things like that. The battery in a Tesla is just way to big for this to have an impact in a way that is measurable, but it could certainly help lower the amount of power used by non-driving functions.

Edit: I would get this for conditioning the car and battery in hot and cold weather alone.

 

[winfield100]

I'm pretty sure someone like EM wouldn't mind being the richest person in the world. I know this isn't his primary goal. Any one with better math skills than I can come up with TSLA valuations to make him #1 with a conservative SpaceX value?

what is the cost to do this?

 

[generalenthu]

I stand behind 7% dilution between now and 2020 as a reasonable guesstimate, although it could turn out to be too low or too high. I would not want to go lower between now and 2020, given the massive capital and OpEx needs over the next three years, including:

• Finishing GF1 and 2
• Ramping Model 3 to 500K/year by end of 2018 and then probably more
• At least beginning construction on GFs 3, 4 and 5
• Possibly beginning construction of addl GFs
• Building out fast charging network, sales and service for automotive business
• Alien Dreadnaught R&D
• AP2/FSD R&D
• Model Y R&D and production buildout
• Semi R&D, production ramp
• Buildout of entire Semi business, including fast charging, sales and service networks
• More speculative but new music streaming service is probably first step in providing a media solution for FSD (so possible R&D or acquisition for things like video/interactive media/gaming)
• Tesla Pickup R&D and production ramp
• Solar Roof R&D, production ramp and development of sales, installation and service network
• Development of TE sales, installation and service networks

With this ambitious agenda, I personally have no problem with dilution of 7% or even higher for the next three years.

Of course, if Tesla can get TE, Tesla Semi, Tesla Pickup, Model Y, Solar Roof and FSD up and running between now and 2020 (a very tall order), the SP could easily be a multiple of $1200, and dilution could be less than 7% afterwards since Tesla should be generating cash hand over fist. In the past 4.5 years since I first invested, the market cap has gone up 20X but the SP a "mere" 12X due to dilution. If that happens again, it wouldn't bother me one little bit!

Once Tesla becomes GAAP profitable, gets added to SP500, and becomes substantially cashflow positive from operations, towards the end of 2018, it can easily raise lots of non-dilutive debt. I'll take the under on annual 7% dilution from here on out.