2017 Investor Roundtable: TSLA Market Action

[DaveT]

Ok, I am a Tesla bull and believe we will see >$300 sometime, due to the M3. However, please give me the fleshed-out thesis for why it happens soon, or in the next few months. Here are the future scenarios I see playing out.

For all of these, my base assumption is that the M3 comes out in modest volumes in Q3 and better volumes in Q4. Call it a few k cars in Q3, and maybe 20-30k in Q4. With no major problems. In other words, a virtual home run in terms of market expectations. I further assume that the stock will revalue 3-6 months before the appropriate trigger actually occurs.

Stock price scenarios:

1) The mere reality of the M3 causes the jump. A reveal in July is essentially required, just before or concurrent with employees getting cars. So the final interior, specs, ordering page, and actual deliveries more than the Model X' embarrrassing 6 causes market euphoria. It is not important that the sales are not terribly accretive financially. The market loves it and the new valuation happens very soon, April, May or June of 2017.

2) The market isn't too excited about a few M3s, and wants the margin story. Most of the excitement of the M3 being a real thing is already priced in, and the market wants to see margins. The main bear argument at this point is that the M3 is a money loser, and Elon didn't help this by telling that ER story about how margins will be terrible at first. So basically the market does wait-and-see and there is a Q4 ER where they say the margins are say 25% and improving sharply. News arrives Feb of 2018, and maybe the market generally anticipates it and the new valuation happens end of 2017.

3) The Market isn't excited about a few M3s, or statements about margins or other stated successes. They want to see money. In this most bearish bull scenario the market isn't impressed by anything other than financial top and bottom line results. The volume of Q4 of 2017 or even Q1 of 2018 turns the profit story on its head (Tesla loses money, burning cash, M3 loses money on every car etc). In some ER there will be a step change in revenue and profit. That is the signal that the risk is essentially gone. The market anticipates this and is revalued in the first half of 2018, but maybe as late as March/April of next year.

Bonus wildcard scenario) Trump is called to testify in the Russia probe. Steps down complaining loudly that he is a victim promising to tear down the country behind him. Pence is president. A period of uncertainty follows, then stabilization as everyone realizes we are better off now with a sane politician with toxic policies over an unstable politician with toxic policies. This happens any time in the next 4 years. This could happen concurrently with the growth story above, causing havoc with otherwise smart option plays.


Trend trader for sure, and maybe others on this board seem to be putting a lot of faith in the first scenario. Aren't the others just as likely?

Most folks here are looking for some future catalyst to drive the stock higher. But there are four important de-risking events that recently just happened that shouldn't be ignored.

1. Q3 blowout earnings. First earnings to show Tesla at a 100k vehicle run rate.
2. Q4 earnings showing SCTY finances integrated and not big risk.
3. $1.2-1.4B raised to de-risk cap needs.
4. Repeated confirmations that production of M3 is on track for July deliveries.

Any one of these de-risking events are significant. Put them altogether and they could fuel a big run.

To $500 by Oct 2017? Not sure about that. But to $400, definitely.

Wait, has TrendTrader007 hacked DaveT's account? J/k.

 

[AlMc]

Most folks here are looking for some future catalyst to drive the stock higher. But there are four important de-risking events that recently just happened that shouldn't be ignored.

1. Q3 blowout earnings. First earnings to show Tesla at a 100k vehicle run rate.
2. Q4 earnings showing SCTY finances integrated and not big risk.
3. $1.2-1.4B raised to de-risk cap needs.
4. Repeated confirmations that production of M3 is on track for July deliveries.

Any one of these de-risking events are significant. Put them altogether and they could fuel a big run.

To $500 by Oct 2017? Not sure about that. But to $400, definitely.

Wait, has TrendTrader007 hacked DaveT's account? J/k.

For new to TMC people Dave T is well respected and not an Uber bull.

Still, While I hope for $400 by October 2017 I am still not so sure.

Dave, Beers on me if we hit and hold $400 by Oct 31, 2017.

 

[MitchJi]

2) The market isn't too excited about a few M3s, and wants the margin story. Most of the excitement of the M3 being a real thing is already priced in, and the market wants to see margins. The main bear argument at this point is that the M3 is a money loser, and Elon didn't help this by telling that ER story about how margins will be terrible at first. So basically the market does wait-and-see and there is a Q4 ER where they say the margins are say 25% and improving sharply. News arrives Feb of 2018, and maybe the market generally anticipates it and the new valuation happens end of 2017.

What he said was when you start a large production line it's impossible to not have terribly negative margins at the beginning. That's really obvious that they are spending over a billion dollars preparing a line to build 10k cars per week, that the first few thousand cars will have terribly negative margins.

It's a little hard for me to believe that there are that many people who are dumb enough to believe that statement is relevant, that they will impact the SP, but I guess if there are people who believe that Tesla is losing money on every car they sell or that the Gigafactory is a Potemkin village, anything is possible.

 

[kenliles]

For new to TMC people Dave T is well respected and not an Uber bull.

I thought he liked Uber -

 

[cranker2k]

I have long Tesla (stocks and call options) and am thinking about putting in more. But before putting significant portions into the future where SP > $300, I would like to play a little devil's advocate and hope can get some input from folks on this thread.

Assumption: Tesla stock can go to $300 easily and even get to $500 or $1000 in 3-5 years, because

• The 370K+ orders of Model 3 will be filled and Model Y will be a hit too
• Auto line of business become profitable
• Other lines of business being invested will take off (battery, solar, and even say ride sharing)
• Machine Learning on biggest and continuously accumulated driving data will achieve real results for self driving and truly instilled as a clear leader

Now, the stock has been oscillating between $180 - $280. While folks here pointed to rise in Mar 2013, we can equally point to the less-than-stellar launch of Model X. So playing devil's advocate, can the SP be "stuck" in the $180 - $280 range if:

• Model 3 rollout less than stellar, either less cars than promised by Elon due to its factory problems or suppliers problems (likely), or quality issues still exist (likely if skipping beta and going to release candidates is cutting corners with not-so-legit reasons)
• Battery systems are slow to take off (long sale cycles and slow adoptions for utility companies, in home units, etc)
• Solar sales does not increase tangibly despite being "vertically integrated" or the beautiful solar tiles not translate to greater sales than standard panels.

While many of us are so bullish, there are also too many that are bearish, so a wild swing (and therefore a wild ride) will continue to happen.

The reason I'm asking all these is, doing a call at $300 strike price seem risky if the stock can't get out of the $180-$280 range due to missing expectations or other lines of businesses not taking off. Thoughts?

 

[MitchJi]

9 Key Metrics From Tesla, Inc.'s Annual Report -- The Motley Fool

9 Key Metrics From Tesla, Inc.'s Annual Report

1,153%: Tesla's energy-generation and storage revenue catapulted last year, rising from $14.5 million in 2015 to $181 million in 2016. While $84.1 million of this increase is due to the inclusion of SolarCity revenue from the acquisition date of Nov. 21, a good chunk of the increase was driven by higher energy-storage revenue as the company ramped up energy-storage production and sales.

For new to TMC people Dave T is well respected and not an Uber bull.

Still, While I hope for $400 by October 2017 I am still not so sure.

Dave, Beers on me if we hit and hold $400 by Oct 31, 2017.

Dave left out TE, and he said it could, not that it would, and that's definitely a possibility.

 

[LoL Rick]

Dave, Beers on me if we hit and hold $400 by Oct 31, 2017.

At $400 sp all you can afford is beer? What do you have, like 2 shares?

 

[dennis]

Ok, I am a Tesla bull and believe we will see >$300 sometime, due to the M3. However, please give me the fleshed-out thesis for why it happens soon, or in the next few months. Here are the future scenarios I see playing out.

For all of these, my base assumption is that the M3 comes out in modest volumes in Q3 and better volumes in Q4. Call it a few k cars in Q3, and maybe 20-30k in Q4. With no major problems. In other words, a virtual home run in terms of market expectations. I further assume that the stock will revalue 3-6 months before the appropriate trigger actually occurs.

Stock price scenarios:

1) The mere reality of the M3 causes the jump. A reveal in July is essentially required, just before or concurrent with employees getting cars. So the final interior, specs, ordering page, and actual deliveries more than the Model X' embarrrassing 6 causes market euphoria. It is not important that the sales are not terribly accretive financially. The market loves it and the new valuation happens very soon, April, May or June of 2017.

2) The market isn't too excited about a few M3s, and wants the margin story. Most of the excitement of the M3 being a real thing is already priced in, and the market wants to see margins. The main bear argument at this point is that the M3 is a money loser, and Elon didn't help this by telling that ER story about how margins will be terrible at first. So basically the market does wait-and-see and there is a Q4 ER where they say the margins are say 25% and improving sharply. News arrives Feb of 2018, and maybe the market generally anticipates it and the new valuation happens end of 2017.

3) The Market isn't excited about a few M3s, or statements about margins or other stated successes. They want to see money. In this most bearish bull scenario the market isn't impressed by anything other than financial top and bottom line results. The volume of Q4 of 2017 or even Q1 of 2018 turns the profit story on its head (Tesla loses money, burning cash, M3 loses money on every car etc). In some ER there will be a step change in revenue and profit. That is the signal that the risk is essentially gone. The market anticipates this and is revalued in the first half of 2018, but maybe as late as March/April of next year.

Bonus wildcard scenario) Trump is called to testify in the Russia probe. Steps down complaining loudly that he is a victim promising to tear down the country behind him. Pence is president. A period of uncertainty follows, then stabilization as everyone realizes we are better off now with a sane politician with toxic policies over an unstable politician with toxic policies. This happens any time in the next 4 years. This could happen concurrently with the growth story above, causing havoc with otherwise smart option plays.


Trend trader for sure, and maybe others on this board seem to be putting a lot of faith in the first scenario. Aren't the others just as likely?

IMO the most likely scenario is a middle ground between your scenarios 1) and 2). At the point that Tesla achieves any appreciable M3 volume during 2017, all of the analysts will be forced to revisit their models for 2018 and raise revenue estimates. Yes the more bearish ones will predict GM issues, but the biggest concerns about M3 quality and ramp will have been mitigated. By Q4 there will be more visibility on TE revenues and margins and the angst over Solar City as a cash vacuum will have dissipated. So overall sentiment will be much more bullish and the stock will run!

 

[Xorbit]

The reason I'm asking all these is, doing a call at $300 strike price seem risky if the stock can't get out of the $180-$280 range due to missing expectations or other lines of businesses not taking off. Thoughts?

Options are always riskier because you have to get price and time right. I think we break out to the upside soonish, but prefer to play that through leverage (1.5X equity) than options. The reason I think we break out, is that price has been in a range ($130 - $280) since mid 2015, and traders have got used to that. As I also believe that 'the market teaches then punishes', I think many people have concluded this last rally into February was another failed attempt to break out. So, down we go right? Well, wouldn't it wrong-foot a lot of traders (and most traders lose money) if we reversed and broke out in the near term?

 

[hobbes]

At $400 sp all you can afford is beer? What do you have, like 2 shares?

Wow, seems beer is expensive in the US...

 

[AlMc]

At $400 sp all you can afford is beer? What do you have, like 2 shares?

Only 1 share so I can attend the shareholder meetings AND I have no idea how many beers Dave will want

 

[MitchJi]

Now, the stock has been oscillating between $180 - $280. While folks here pointed to rise in Mar 2013, we can equally point to the less-than-stellar launch of Model X. So playing devil's advocate, can the SP be "stuck" in the $180 - $280 range if:

• Model 3 rollout less than stellar, either less cars than promised by Elon due to its factory problems or suppliers problems (likely), or quality issues still exist (likely if skipping beta and going to release candidates is cutting corners with not-so-legit reasons)
• Battery systems are slow to take off (long sale cycles and slow adoptions for utility companies, in home units, etc)
• Solar sales does not increase tangibly despite being "vertically integrated" or the beautiful solar tiles not translate to greater sales than standard panels.

While many of us are so bullish, there are also too many that are bearish, so a wild swing (and therefore a wild ride) will continue to happen.

The reason I'm asking all these is, doing a call at $300 strike price seem risky if the stock can't get out of the $180-$280 range due to missing expectations or other lines of businesses not taking off. Thoughts?

This is a bear fantasy:
skipping beta and going to release candidates is cutting corners

J18 calls or J19 calls? IMO the J18's are very risky and I **think** that the J19's are pretty safe.

You know that if the SP hits $280 (an arbitrary number) you could make a nice profit on either of those calls (if you sell when the SP hits $280)? The differences are a how much time you have for that to happen, and the amount of potential profit (check a horizontal line):
Long call calculator: Purchase call options

J18 purchased today, SP $256.40 for $16.85 you have until ~Aug 8 2017, to make a slight profit with SP $280:

J19 purchased today, SP $256.40 for $31.98 you have until ~Dec 24, 2017 to make a slight profit with SP $280:

2017:

 

[MitchJi]

Options are always riskier because you have to get price and time right. I think we break out to the upside soonish, but prefer to play that through leverage (1.5X equity) than options. The reason I think we break out, is that price has been in a range ($130 - $280) since mid 2015, and traders have got used to that. As I also believe that 'the market teaches then punishes', I think many people have concluded this last rally into February was another failed attempt to break out. So, down we go right? Well, wouldn't it wrong-foot a lot of traders (and most traders lose money) if we reversed and broke out in the near term?

That seems like an extremely risky reason to buy on margin or to buy calls to me!

 

[kenliles]

oops

GOP health care bill in limbo after White House meeting - CNNPolitics.com

AP
BREAKING: House Freedom Caucus chairman says "no deal" reached on health bill after meeting with Trump, putting vote in doubt.
3/23/17, 1:30 PM

 

[Xorbit]

That seems like an extremely risky reason to buy on margin or to buy calls to me!

Perhaps, though I'm not sure I follow. I think the market 'trains' traders to act in a certain way (buy the dips, play the range etc) because that's what's been working recently. Playing the range, has been what's been working for traders since mid 2015. Easy money, right? That's why I think it stops working. So in essence, I feel the risky thing is to assume we stay in this range.

 

[Starno]

Analysts have no problem valuing Netflix at 60B, but Tesla is worth less than 30B for a lot of them....
I think the fact that most work for banks that have huge interests put in automakers and oil industries, is something that might tell a lot.

 

[kenliles]

more detail:

GOP health care bill in limbo after White House meeting - CNNPolitics.com

 

[Starno]

300 dollars : October 15 - December 15 (2017)
400 dollars : February 15 - May 15 (2018)
500 dollars : May 15 - September 15 (2018)
700 dollars : February 15 - May 15 (2019)
1000 dollars : October 15 (2019) - April 15 (2020).

_________

That's my bet, will see how it will play out.
-------
Note that's a pure thinking bet, and that even if I had more money to invest I wouldn't, at that point, act on those.

 

[racer26]

more detail:

GOP health care bill in limbo after White House meeting - CNNPolitics.com

Sounds to me like unless they can convince 4 of the 25 GOP no voters, this bill is as it should be - dead on arrival.

I'm not sure what that means to TSLA and the market as a whole, but for the American people, its a good thing. ACA is far from perfect, but this bill is measurably worse for most of the public.

Its still staggering to me how many Americans hate 'Obamacare' but love the 'ACA', without realizing that they are one and the same.

 

[racer26]

Analysts have no problem valuing Netflix at 60B, but Tesla is worth less than 30B for a lot of them....
I think the fact that most work for banks that have huge interests put in automakers and oil industries, is something that might tell a lot.

Honestly - its Uber and SNAP's valuations in comparison to TSLA that bother me so much more than NFLX. NFLX is at least providing a popular service and making money without breaking the law.