2017 Investor Roundtable: TSLA Market Action

[Irishjugg]

So much higher than current price that I expect to hold the stock even through a short squeeze.

Any advice on calculating it? I've never really studied the concept before. I did a really shitty and naive analysis like 3 years ago when I first started buying TSLA and even then it was pretty clear to me that it was under valued. Since then I've never REALLY dug in and done a proper one.

 

[TheTalkingMule]

Speculation:

Considering Elon's meeting last week with Chinese Vice Premier Wang Yang, I'm wondering if tomorrow's ER will have a surprise announcement regarding Tesla's business in China?

Link: Why is Elon Musk's surprise trip this week to China so important?

He was also in Australia last week potentially negotiating a massive grid storage solution.

 

[Starno]

If there is those kind of expansions surprise, the stock is going to boom hard

 

[ValueAnalyst]

Any advice on calculating it? I've never really studied the concept before. I did a really shitty and naive analysis like 3 years ago when I first started buying TSLA and even then it was pretty clear to me that it was under valued. Since then I've never REALLY dug in and done a proper one.

It would be difficult to run an integrated DCF without the necessary investment research, finance, accounting, and economics education/experience, and a lot of time.

Just to give you some perspective (very generally speaking), at $55B market cap, I estimate using my DCF analysis that the stock is priced for 500,000 cars/year deliveries in 2020 with 10% net income margin, with minimal value assigned for Tesla Energy (likely because some investors have concerns around its long-term profitability).

If you think Tesla can ramp up to more than 500,000 cars/year by 2020 and sustain double-digit growth beyond 2020, then your estimate of intrinsic value is likely to be higher than the current market capitalization of ~$55 billion.

There are numerous other factors that play into a fully integrated Discount Cash Flow analysis, but this is a very slimmed down version, and I hope it is helpful.

 

[Starno]

Elon bases his $700 billion valuation estimate on this :

First, he thinks that the company can continue to report sales increases of 50% a year for the next decade.
50% a year would get Tesla to annual revenue of more than $350 billion by 2025.

Musk added that he thinks Tesla's profit margins could be 10%. That works out to $35,0 B.

He then said that Tesla could merit a valuation of 20 times its annual profits. That gets you to a $700 billion market value.

 

[racer26]

Elon bases his $700 billion valuation estimate on this :

First, he thinks that the company can continue to report sales increases of 50% a year for the next decade.
50% a year would get Tesla to annual revenue of more than $350 billion by 2025.

Musk added that he thinks Tesla's profit margins could be 10%. That works out to $35,0 B.

He then said that Tesla could merit a valuation of 20 times its annual profits. That gets you to a $700 billion market value.

Elon's CEO Grant has a vesting tranch which requires Tesla to achieve Gross Margins > 30% for 4 consecutive quarters. If they only achieve 10% margins, he's doing something wrong.

 

[Starno]

Strong start

 

[ValueAnalyst]

Elon's CEO Grant has a vesting tranch which requires Tesla to achieve Gross Margins > 30% for 4 consecutive quarters. If they only achieve 10% margins, he's doing something wrong.

This objective was set by the board many years ago.

Your statement assumes the company will continue to target 30% gross margins for the next decade.

I do not think this is the case. The recent very large price reduction for Model S, as well as lower than 30% gross margin targeted for the Model 3, tells me Tesla is prioritizing quickly capturing market share from ICE manufacturers.

This is also in-line with their mission to "to accelerate the world’s transition to sustainable energy."

Having said that, there is a chance that the long-term profit margin may be slightly above 10% for reasons other than the automative gross margins on the hardware.

 

[T3slaTulips]

Strong start

Momentarily touched a new ATH at 327.66

 

[Starno]

I think uncertainty rule the day, so I still expect a 320 Wednesday close.

 

[austinEV]

I think reaction to ER will be positive as well, given that we have received so much positive news in the last few weeks (last few years really) and the stock hasn't moved enough. Elon seems optimistic as well, at least about the longer term prospects of Tesla, in his recent e-mails/letters to employees.

The only thing that gives me a bit of a pause is the extreme bullish sentiment without exception with some traders heavily buying OTM calls.

"Be Fearful When Others Are Greedy and Greedy When Others Are Fearful" - Warren Buffett

I am very bullish on TSLA in the longer term, and I think there is a 51% chance of a short-squeeze in the shorter term, but for the specific reason mentioned above, I am sticking with all stock with some, but not excessive, very low-cost margin. I also have a number of investments in other industries that provide me with diversification and lower volatility of daily portfolio returns. This strategy allows me to participate in the long-term upside in TSLA fully with flexibility to buy the dips, if the dips are not supported by fundamental reasons.

I ask those who have loaded up on OTM calls: what happens to your position if any country suddenly launches a nuclear missile? What if another 9/11 happens and everything sells off? What if Elon or JB gets hit by a bus? What if the Fed makes a policy mistake and raises rates more than warranted tomorrow? What if news come out that EV tax credit are to be scrapped? What if a supplier is late by three months? What if OPEC decides not to extend cuts on May 25, and oil prices dive? What if T.Rowe announces in the next 13F on May 15 that they sold all of their position? What if Chinese government decides they don't want any American companies selling to their prized market? What if Grohmann or Fremont employees decide to strike? What if Apple buys an ICE manufacturer and advanced battery tech? The list goes on.

In my opinion, NONE of the events I listed above would hurt Tesla's long-term intrinsic value enough to lower it below its current price of ~$55 billion, but they may cause the stock price to remain depressed for a period that extends beyond the expiration date of any calls. Given the large open interest in OTM calls, you can bet your pina colada that market makers and shorts will be reaching for any reason to keep the stock price down.

I am in no way saying that I know the best way to invest or that I am never wrong. I have come to my position on options above, because I was wrong. And I know I will be wrong again at some point. If someone is never wrong, it's likely because they haven't taken many risks.

All I'm saying is, if you decide to invest one way or another, make sure you have thought through the downside risk as diligently as the upside potential.

I wish all the longs the best of luck going into Wednesday's earnings. I think the future is bright for us and the storms in Shortville are just getting started.

This crap drives me crazy. A person following your advice would put $10 on black and $10 on red just to be safe. You CAN'T invest in such a way that you participate in upside while also being protected against downsides. They are a tradeoff. You can diversify, fine and that is safe but you will have lower yields. Many of us are pursuing a strategy of being overweight in TSLA because it should outperform the market in general. That is a fine thing and I despise concern trolling like this. We are not children.

Also, I cannot begin to estimate how many people worried about what would happen if something happened to Steve Jobs. That was about the worst case scenario in a list of Apple investor black swans and it worked out fine.

Let's just exchange information, theories and hold the moralizing.

Here is a quote for you:

The concerns which fail are those which have scattered their capital, which means that they have scattered their brains also. They have investments in this, or that, or the other, here, there and everywhere. “Don’t put all your eggs in one basket” is all wrong. I tell you “put all your eggs in one basket, and then watch that basket.” Look round you and take notice; men who do that do not often fail. It is easy to watch and carry the one basket. It is trying to carry too many baskets that breaks most eggs in this country. He who carries three baskets must put one on his head, which is apt to tumble and trip him up. One fault of the American business man is lack of concentration. -Andrew Carnegie​

 

[Richgoogol]

wth is going on with GM today? Dropped 3%

 

[Starno]

Macro

 

[ValueAnalyst]

This crap drives me crazy. A person following your advice would put $10 on black and $10 on red just to be safe. You CAN'T invest in such a way that you participate in upside while also being protected against downsides. They are a tradeoff. You can diversify, fine and that is safe but you will have lower yields. Many of us are pursuing a strategy of being overweight in TSLA because it should outperform the market in general. That is a fine thing and I despise concern trolling like this. We are not children.

Also, I cannot begin to estimate how many people worried about what would happen if something happened to Steve Jobs. That was about the worst case scenario in a list of Apple investor black swans and it worked out fine.

Let's just exchange information, theories and hold the moralizing.

Here is a quote for you:

The concerns which fail are those which have scattered their capital, which means that they have scattered their brains also. They have investments in this, or that, or the other, here, there and everywhere. “Don’t put all your eggs in one basket” is all wrong. I tell you “put all your eggs in one basket, and then watch that basket.” Look round you and take notice; men who do that do not often fail. It is easy to watch and carry the one basket. It is trying to carry too many baskets that breaks most eggs in this country. He who carries three baskets must put one on his head, which is apt to tumble and trip him up. One fault of the American business man is lack of concentration. -Andrew Carnegie​

Sounds like you may have misinterpreted my message.

I am very overweight TSLA as well, with some leverage. The only difference between me and traders who purchase OTM calls is that I have "staying power" as stocks don't have an expiration date, but options do. This allows me to sit through any short-term volatility.

 

[Nate the Great]

Any thoughts on close?

 

[Jonathan Hewitt]

Inside EV Estimates out

Monthly Plug-In Sales Scorecard

 

[Reciprocity]

Elon's CEO Grant has a vesting tranch which requires Tesla to achieve Gross Margins > 30% for 4 consecutive quarters. If they only achieve 10% margins, he's doing something wrong.

Pretty sure he means net, not gross as it relates to the 10% NET vs 30% gross.

 

[austinEV]

Sounds like you may have misinterpreted my message.

I am very overweight TSLA as well, with some leverage. The only difference between me and traders who purchase OTM calls is that I have "staying power" as stocks don't have an expiration date, but options do. This allows me to sit through any short-term volatility.

Fine. Agree don't go all in on short term options.

 

[Gerardf]

wth is going on with GM today? Dropped 3%

F also down 3-4 %

 

[jbcarioca]

Sounds like you may have misinterpreted my message.

I am very overweight TSLA as well, with some leverage. The only difference between me and traders who purchase OTM calls is that I have "staying power" as stocks don't have an expiration date, but options do. This allows me to sit through any short-term volatility.

Many prudent investors follow that practice. Generally day traders and options traders tend to be gambling rather than investing. I do not object to gambling, but I want to be the house if I do it. Frankly I admit to inordinate belief in Ben Graham principles, updated. I have normally followed Warren Buffet for the same reason. I admit to studying, studying and studying more when I choose to invest. When I do I watch carefully but tend to wait out volatility unless I find a reason why my original judgement was wrong.

I've been quite long TSLA for a long time, based on my evaluation of long term trends, and willingness to wait. I would sell quickly if I though anything fundamental argued against my position. In TSLA, without question, the story and the technological position are the reasons, not being in a very strong financial position.

FWIW, I bought AAPL a long time ago too, but that one was simple. With all that cash and a strong dividend yield it is hard to make a big error. That there is still opportunity to grow is additional benefit.

With those being my extremes in positions, but adhering to my principles I have managed a compounded annual return of 21% for the last decade. Most of that I attribute to being quite lucky. That I have not lost much, I attribute mostly to prudence.

We will see what happens in the next decade because the geopolitical situation, the weakening of multi-lateral trade agreements and the growth of autocratic, jingoistic, 'populist' political leadership in several crucially important countries make anything long term questionable.

In Market Action terms I expect substantially greater volatility and much higher politically-centered emotions. That presents unusually good opportunities for short term traders. Thus, I am sorely tempted, but frankly I am now too conservative to do that again.

FWIW, I had soem seminars with, among others, the head of the FOMC during some very exciting times. I also worked for some years as head of a trading desk. Those were exciting times and profitable ones. That makes me a bit envious of those of you who are active traders today.

FWIW, in the auto industry I am certain that FCA will be a spectacular short in another couple of quarters. I'll also expect some great opportunities with several industry suppliers, too many to name. All of those will have some serious volatility as the transition to more sustainable transport accelerates.

TSLA ought to have some astounding volatility as the transition to high volume and new markets continues. The first major snafu in Model 3 deployment will be a great opportunity. When that happens I'll buy more TSLA, but I will not quite have the appetite to play the volatility. That said, with TSLA is is not really too hard to figure out roughly when such events will happen, since the supplier, workforce and internal data are not really secrets. All it takes is a lot of work.

Just like most you you I expect a good rise around the upcoming earnings reports and the following Model 3 reveals. However this develops there will be snafus. Finding those before everyone does probably requires proximity. I wish I were half my age so I could play that myself.

(I apologize if this seems not to be Market Action. It is about that in my mind)