Articles/megaposts by DaveT

[adiggs]

Thanks DaveT, this is a good episode...I agree that 3.0 is upon us and will be curious to see how you classify 3.0.
the shift from 1.0 to 2.0 I think was most easily evident to any of us who both own the car AND study the company/stock very carefully.

.

Both DaveT and TSLAopt make this point - that owning or at least driving the car - is an important component of this investment. Is it critical to every investment in any company that one samples the product onself? No.

But using Dave's terminology of Tesla 2.0 and Tesla 3.0, the difference in the underlying product is so striking and different from everything that people typically think of as coming from the same space, if you don't evaluate on the basis of it being so much different and better, then you'll always lag behind.


Sidebar - using Dave's terminology, I'm one of the folks here that qualifies as a Tesla 1.0 investor. Holding that investment through Tesla 2.0 was never difficult for me, primarily based on the cognitive dissonance I continue to see between what I experience driving the Roadster, and what investors and the investment community talk about as Tesla as a investment. Continuing to hold into and through Tesla 3.0 is also not an issue (I'm guessing at what Dave will have to say about Tesla 3.0) for the same reason - until I see analysts consistently understanding the paradigm shift that has happened, and then seeing that paradigm shift consistently incorporated into the media representations, then outside of Tesla starting to stumble badly all over the field, I hold forever.

That paradigm shift, to me, is a combination of the product itself and the business model with corresponding impact to inventory.

 

[SteveG3]

Dave, definitely agree with your 1.0 and 2.0 characterizations.

I didn't test drive the car until late spring 2013 (after the stock surged), but I wanted to toss in a few other points that helped us see the transition from 1.0 to 2.0,

I

within a week of Motor Trend Car of the Year,
a) Tesla had its Q3 2012 earnings call and a comically sleepy sounding Elon Musk said he saw no obstacles to getting up to 400 cars produced per week. IIRC, he literally said Tesla had crossed the startup company "Valley of Death" during this call. for those who found Elon's word reliable (see below), this meant Tesla was not going to go bankrupt before hitting 20K production as Tesla's detractors repeatedly tried and continued to try to suggest. Yet the stock barely moved.
b) Mitt Romney, who took swipes at Tesla in at least two of the three presidential debates, lost the election... hard to know how it would have played out, but some were concerned a Romney win would end the $7.5K tax credit.

that may have been the biggest week in Tesla's history... for those of us paying attention it was like a gift as the company was clearly more valuable, but the valuation of the market had hardly budged.

II

As you mentioned the Q1 2013 earnings call was huge... just as you said, from aspirations of 20K in global Model S sales to news of NA demand alone over 15K

I'm pretty sure it was that very same week that Consumer Reports gave Tesla the 99/100 rating. The stellar rating suggested a considerably wider audience would look into the car and news of the rating was a large part of the media surge that helped lift the price of the stock which in turn created more news coverage. The 5 part trilogy began around here too.

III

I'm putting this third, but it may be the number 1 reason I saw Tesla 1.0, and a big part of seeing Tesla 2.0... Tesla Motors Club

There was very well managed and informative VIN reporting by people with new reservations. At the time VINs clearly indicated orders. It was plain as day that reservations were steadily increasing from November forward. I kept a chart and could quite easily back into weekly reservations. This made it far easier to recognize the disingenuous nature of so much Tesla reporting.

In addition to VIN reporting, TMC was a great resource for understanding the underlying reasons that a well done EV like a Model S had it in it's genes to be better than an ICE car. Then there were the very strong reviews from the first TMC members to get their cars.

IV

Elon, "King of all Media" Okay, maybe that title belongs to Howard Stern, but the fact is Elon Musk does a tremendous amount of interviews and lays out very clearly what he thinks. This made it quite easy to back test his reliability and get a feel for his personality and manner of expressing himself. When he said in a tone of exhaustion in early November 2012 (he scheduled this earnings call around 5AM California time) that there were no obstacles to Tesla getting to 400 cars/week by the end of the year, I felt confident in assessing this as a credible statement.

 

[adiggs]

I actually disagree with the capital constraint. I think Tesla can raise as much money as they want and the stock would only go higher. Here's my reasoning. The reason for Tesla to raise money would be basically for two reasons:
1. To build more gigafactories
2. To build more car factories (ie., Asia, Europe, Texas, etc)

So, if they raise more money for either of these purposes, it means that they're expanding supply aggressively which means that they are growing and growing fast (ie., faster revenue growth, earnings, etc). So, if/when Tesla needs to raise more money for more gigfactories/car-factories, I see investors only getting excited about it and not penalizing the stock at all. In fact, it makes Tesla even more sexy as a stock and gives more credence to their growth trajectory.

I haven't done my homework here, but I agree with this assessment of the capital constraint. I believe that the reason the car industry is usually so capital intensive isn't the factories themselves - it's the inventory that needs to be financed. For GM to double their sales, we're going to see a lot more GM dealerships with a lot more cars on those lots, around the neighborhood. Whether those cars are directly owned by GM, or whether they are owned by franchises, the basic problem remains - cars are built and then take weeks, months, or quarters to sell. Tesla will build a Model X for me, when the time comes, and at the 80%+ level, that's how Tesla's business operates.

Now, as Tesla grows, clearly there will be growth in inventory. There will be more showrooms and SCs, and therefore more test drive vehicles and service loaners. But that'll be slow growth compared to the growth of sales.

For me, this reminds me of a repeat of the Dell business model from the '90's. I didn't know much about business back then, but I remember being impressed with the way that Dell was taking in people's money for the computers they built them, shipping the computers out, and then paying suppliers. With 30 day terms from suppliers, it wasn't unreasonable for Dell to be paid in full for the computers they built, before paying for the parts that went into them. The rest of the computer industry was building for the shelf, and had weeks to months of inventory lying around somewhere (whether owned by the retailer or the manufacturer - somebody had to own it).

Am I seeing too much in the financials? Do I have a set of T shaped glasses I'm looking at the world through?

 

[bevguy]

There are all sorts of things that can go wrong with the rosy scenario.
Which might or might not happen.

So let's pick the one that will happen for sure. The next recession and the bear market associated with it. Which will not be kind to Tesla sales or TSLA stock.
Time wise it can't be too far off, this bull market is already old by historical standards.

 

[DaveT]

There are all sorts of things that can go wrong with the rosy scenario.
Which might or might not happen.

So let's pick the one that will happen for sure. The next recession and the bear market associated with it. Which will not be kind to Tesla sales or TSLA stock.
Time wise it can't be too far off, this bull market is already old by historical standards.

Actually, it's more complicated than just picking a scenario that will happen for sure. If you're to do that, you'd choose TSLA 1.0 and you'd be priced out of your holdings and have sold all your shares already.

Even TSLA 2.0 has major risks. And TSLA 3.0 (which I haven't outlined fully yet) has even more risks.

But the point of my series (which is just getting started btw), is not necessarily to convince people of one scenario (although I have clear convictions that I'll share) but more so to explain the dynamics of how the stock is being priced now and will be priced in the next few years.

 

[SteveG3]

So let's pick the one that will happen for sure. The next recession and the bear market associated with it. Which will not be kind to Tesla sales or TSLA stock.
Time wise it can't be too far off, this bull market is already old by historical standards.

I think this is one of the largest counter-intuitive points about Tesla. yes, initially a bear market might hit TSLA harder than other stocks... but I think it will rebound quicker and more substantially. Why? I think the underlying business will do better than most in a recession. Fair or not, the economic troubles we've seen in recent times are born more by those in the middle income and lower income groups. I suspect that underlying demand for Model S/X is far more than people realize (especially as the cars can be improved, i.e. more range, without raising prices). I think there may well be underlying demand of 200K+ globally for these cars. No one on Wall Street is modeling anything close to this. If there's a recession, and demand drops even 30% for S/X, 140K units per year will still vastly outpace Wall Street expectations.

As to the Gen III... if there is an economic downturn so intense that global demand for a well executed Gen III product falls below 400K vehicles/year, I think we'll be chatting about it via smoke signals used from the burned out remains of our former homes and possessions.

Tesla is on track to have the cash they need to get full capacity at Fremont going based on what they've already raised and what they'll be earning. Short of a massive recession starting imminently and Panasonic running from a deal on the Gigafactory, I'm not too concerned about the overall economy. I don't care if the market temporarily lumps Tesla with the rest of the bunch in a broad bear market selloff. I put several other risk factors ahead the overall state of the economy (and fwiw, I've heard Warren Buffett say repeatedly he and Charlie Munger do not spend any time on macro economics and the global economy... they buy good businesses at good prices).

 

[DaveT]

#3 The Three Stages - Understanding 2013 (The Case for TSLA at $2000-3000 by 2030)

(This is post #3 in a series explaining my long-term investment thesis on TSLA.)

In my last 2 posts (Post #1, Post #2) I introduced the concept of a TSLA 1.0 company (as outlined by the Elon Musk CEO incentive plan to reach $43 billion market cap by 2020-2022) and the TSLA 2.0 company (kind of like a TSLA 1.0 but on steroids with double the demand and double the growth trajectory as TSLA 1.0).

In this post I'd like to take a few minutes to share how I view what happened in 2012 and 2013. This will hopefully shed light into the present and future.

2012: The battle between TSLA 0.0 vs TSLA 1.0
In 2012, the big battle was between the shorts who thought TSLA would go bankrupt and become TSLA 0.0, and the longs who believed that TSLA would become TSLA 1.0 and a $43 billion company within 8-10 years. However, if you follow TSLA's trajectory for a TSLA 1.0 growth, you can see by 2012 TSLA's stock price should have been higher than the $30/share that it was. But TSLA had some missteps in the eyes of analysts (ie., not delivering on 2012 numbers) and there was a lot of fear about Tesla's viability as a company.

In May of 2013, Tesla reported a profitable quarter and basically killed the hopes of TSLA 0.0 that the shorts were banking on. What should have happened is a bounce back to normal TSLA 1.0 levels (as shown in the chart above). Instead, TSLA kept going up and up well beyond the TSLA 1.0 trajectory. I shared in my last post that one of the main reasons was because not only did Tesla confirm strong demand but they confirmed demand that was much higher than initial expectations by the company and others. In the Q1 2013 shareholder letter, Tesla shares "U.S. demand expected to exceed 15,000/year; global demand likely above 30,000/year". This introduced a whole new company, I'm calling TSLA 2.0.

TSLA 2.0 is not just TSLA as a more mature company. Rather, what I mean by TSLA 2.0 is that TSLA became really a different company. It's growth trajectory was steeper, demand greater, and it's aspirations higher. (I shared earlier how TSLA 2.0 was brewing ever since Tesla released the Model S and how early owners and test-drivers could have seen it coming. The car was better than expected and the stellar product would drive demand that was far greater than Tesla's initial 20k units/year projections.)

2013: The battle between TSLA 1.0 and TSLA 2.0
2013 was a super volatile year for TSLA. And while there were many reasons for it (ie., high short interest, etc), there was an underlying battle of perception that was swaying the stock. People were confused as to how to value TSLA, and I think the main reason was because people were still trying to decide whether Tesla was TSLA 1.0 or TSLA 2.0.

TSLA 1.0 is a company with smaller ambitions, namely to show an example of how a mass market electric vehicle can be successful and let the other bigger manufacturers take the lead. However, TSLA 2.0 is much more ambitious as it's trajectory places it as one of the major auto manufacturers. The key to distinguish between the two companies is how fast the company is growing and how much demand there is for future products. If TSLA is growing fast (ie., there's demand for 100k Model S/X annually), then this means that Gen3 demand is likely also going to be higher than initial expectations and could be 1 million units/year or more. In that case future projections of revenue/earnings/etc must be adjusted and TSLA is able to command a much higher valuation.

While the May 8, 2013 Q1 earnings kicked off TSLA 2.0 in a very public fashion, TSLA 2.0 gained momentum throughout the year as well. On August 7, 2013 in their Q2 shareholder letter, they share "If demonstrated demand in North America and Europe is matched by similar demand in Asia, annualized sales for Model S could exceed 40,000 units per year by late 2014." Also, in the Q2 2013 conference call Elon Musk shared, "long-term demand in North America is greater than 20,000 units a year." Just a few months earlier in May, Elon Musk shared North America demand to be in excess of 15,000 units/year and now he's saying North America demand is 20,000 units/year. Remember, Tesla's initial forecast for worldwide sales for the Model S was 20,000 units/year (this was TSLA 1.0). And now they're saying demand is at least 2x greater at "greater than 20,000 units a year."

People started to realize that this new Tesla Motors was not the same company from 2011-2012. Rather, demand was going to be at least double initial projections and this changed the story. Tesla became a much more sexy company to investors as they had to readjust their expectations and valuations.

Then came the fires.

Through the Fire: Nov/Dec 2013
It was a perfect storm of sorts. TSLA had skyrocketed to an ATH of $194/share. And shortly after, news of a car fire broke. Then TSLA reported Q3 2013 earnings with soft guidance. And right after another car fire story broke. The downtrend was in full force.

One of the forces behind the downtrend (of course there was super high short interest as well) was people started to doubt the TSLA 2.0 story. Maybe demand wasn't going to be as high as Elon had claimed (ie., approaching 50k units/year). Maybe the Model S wasn't as good of a car as every owner says it is. Maybe the Model S is inherently less safe than an ICE. Questions abounded. And people started to think that it would take a long time for the stock price to recover. But there were still many believers of TSLA 2.0 who thought that the fires were a passing event that Tesla could overcome and solve. And while TSLA remained in a funk (ie., in the 120s) investors (maybe more institutions, funds, wealthy investors) bought up the stock and it formed a bottom.

Tesla was eventually able to come out of this funk by announcing stellar Q4 earnings and also they eventually released an underbody armor reinforcement retrofit that seemed to make the car impressively even more safe than it already was.

As Tesla firmed up its TSLA 2.0 story what should have happened is a return to a TSLA 2.0 stock price trajectory (see chart above). TSLA did break through the ATHs of $194 before Q4 2013 earnings on Feb 19, 2014. At the earnings, Elon Musk briefly shared about the Gigafactory and a week later Tesla released more Gigafactory details and decided to raise money. Morgan Stanley came out with a super bullish report and the stock went bezerk, eventually hitting an ATH of $265.

But when I studied and pondered the Gigafactory plans, I realized that the underlining ambition behind the plans were far greater than even TSLA 2.0. The Gigafactory was laying the foundation for many more Gigafactories to come. In other words, the path was being paved for Tesla to selling many millions of cars by 2030 (far more than TSLA 1.0 or 2.0 had forecasted/expected).

Currently, I think we're still mainly at a place where most TSLA investors have grasped TSLA 2.0. They no longer see Tesla's potential as a niche auto-maker (ie., TSLA 1.0). But rather they see Tesla's potential as become a major auto manufacturer, but not the leading auto manufacturer. What the Gigafactory does is bring up the idea that Tesla and Elon Musk have far greater plans than TSLA 2.0. In my later posts, I'll go more into detail on what I think TSLA 3.0 will look like.

And one point of clarification. I think these three concepts (TSLA 1.0, 2.0, 3.0) will likely battle each other for the next couple years. The TSLA 1.0 concept will gain strength if there are execution blunders (ie., major recall), if demand for the Model S/X softens, or if we hit a major recession. If TSLA 1.0 gains strength, the stock price will suffer (from where it's at now). TSLA 2.0 will likely gain the most strength in the next couple years as Tesla keeps executing and delivering on growing Model S/X demand. However, as Gen3 gets released (ie., prototype sometime in 2015?) this might trigger more people to think about TSLA 3.0 and how the most revolutionary car in our generation could propel Tesla to the top of the auto industry.

(edit: fixed typo in 1.0 vs 2.0 chart)

 

[clmason]

Another good read, Dave.
I think you have an extra "0" in your 1.0 vs 2.0 chart. On the S/X 2015 Sales row for 1.0. I think you meant 30,000, not 300,000.

 

[DaveT]

Another good read, Dave.
I think you have an extra "0" in your 1.0 vs 2.0 chart. On the S/X 2015 Sales row for 1.0. I think you meant 30,000, not 300,000.

Thanks, just fixed it.

 

[Vger]

This is a really interesting and plausible conceptual foundation. I think it is a good way to frame what is happening. I think it is also quite possible to see that Elon and Tesla's ambitions are evolving in real-time. Even though they have always planned the three steps to a "mass-market" vehicle, now, as you point out, the scale of those steps is extending upward. Elon is realizing that the world needs his indomitable push to make this transition to sustainable transportation.

 

[DaveT]

This is a really interesting and plausible conceptual foundation. I think it is a good way to frame what is happening. I think it is also quite possible to see that Elon and Tesla's ambitions are evolving in real-time. Even though they have always planned the three steps to a "mass-market" vehicle, now, as you point out, the scale of those steps is extending upward. Elon is realizing that the world needs his indomitable push to make this transition to sustainable transportation.

Yeah I agree it's an interesting conceptual foundation, and one that's helped me understand the volatility and also current price levels.

I also agree that Elon/Tesla's ambitions are/were revolving in real-time. I think the high demand for the Model S (ie., over 50k units/year) really surprised Tesla and it allowed them to think on a bigger scale for Gen3. In fact, it's allowed them to think on a bigger scale for almost everything - stores, service centers, superchargers, battery supply issues (ie., gigafactory, multiple sites), factory expansion plans into Asia/Europe, new parts factories (ie., Lathrop), opening up patents, capital raising, hiring employees, etc.

And we've been watching real-time (sort of) as Tesla adjusts their expectation and expands their plans. First it was 20k Model S demand (2012 and before), then over 30k demand (May 2013), then over 40k demand (August 2013), then over 50k demand (current).

 

[Auzie]

I'm not too concerned about the overall economy. I don't care if the market temporarily lumps Tesla with the rest of the bunch in a broad bear market selloff. I put several other risk factors ahead the overall state of the economy.

I am curious about what you see as risk factors

 

[erha]

Thanks DaveT for all the great insight! The last couple of days I've started to wonder what will happen to the global economy, not just the car industry, because of Tesla Motors. I'm wondering if I should spend some time doing some research and maybe publish a short post like you do either here or on the norwegian forum. I would love to hear your views on this if you have given it any thoughts as I learn a lot from your research!

I might be biased because I'm from Norway and therefore overestimate the importance of the oil industry for the economy. (52 % of our export revenue is from the oil industry). Globally, 72 % of all petroleum products are used for transportation, which really makes me wonder what would happen if all cars would run on electricity produced by solar, wind, hydro and so on. (Transportation here probably includes ships, which accounts for a major part of the consumption. I will try to find some more detailed information).

Just writing this now makes me pretty worried for the Norwegian economy at least (even though a change towards renewable energy ultimately would be to the best of everybody). (Doesn't help that I study marine engineering either, and that Norways oil production is really expensive compared to eg. the middle east and needs a high oil price to be profitable....)

However, I was actually just wondering if you would share some of your thoughts regarding the broader economy and Teslas impact on it if you have any thoughts about it at all. I really appreciate your analysis!!!

 

[DaveT]

Thanks DaveT for all the great insight! The last couple of days I've started to wonder what will happen to the global economy, not just the car industry, because of Tesla Motors. I'm wondering if I should spend some time doing some research and maybe publish a short post like you do either here or on the norwegian forum. I would love to hear your views on this if you have given it any thoughts as I learn a lot from your research!

I might be biased because I'm from Norway and therefore overestimate the importance of the oil industry for the economy. (52 % of our export revenue is from the oil industry). Globally, 72 % of all petroleum products are used for transportation, which really makes me wonder what would happen if all cars would run on electricity produced by solar, wind, hydro and so on. (Transportation here probably includes ships, which accounts for a major part of the consumption. I will try to find some more detailed information).

Just writing this now makes me pretty worried for the Norwegian economy at least (even though a change towards renewable energy ultimately would be to the best of everybody). (Doesn't help that I study marine engineering either, and that Norways oil production is really expensive compared to eg. the middle east and needs a high oil price to be profitable....)

However, I was actually just wondering if you would share some of your thoughts regarding the broader economy and Teslas impact on it if you have any thoughts about it at all. I really appreciate your analysis!!!

Erha, I thought your question was a question deserving it's own thread so I created one, What will Tesla Motors' long-term impact on the global economy be? .

 

[DaveT]

#4 Why I'm Writing This Series (The Case for TSLA at $2000-3000 by 2030)

(This is post #4 in a series outlining my long-term TSLA investment thesis. For earlier posts, see Articles/megaposts by DaveT)

So I thought I’d take a quick break in this series to share a background as to why I’m writing this series and the benefit of having a conceptual framework when investing in TSLA (or any stock for the matter). Hopefully it will help folks understand the content of this series better as well.

My Tesla investment research took place in largely three time periods.

1. Early-mid 2012
I first spent several months in early 2012 (20-30 hours/week) mostly focused on learning about Elon Musk. The motivation was for several reasons. First, I love learning from entrepreneurs and Elon caught my attention with his business insights. Second, I had been looking for a stellar investment opportunity since 2010 (I’ll share more about this and my overall investment philosophy in another post). So, I became fascinated by Elon’s interviews and I spent weeks on end reading every single interview I could find, watching every video interview I could find as well, and reading every story I could find about Elon, Tesla and SpaceX. The next several months in 2012 I focused on the Model S and how early owners were receiving it. I started purchasing TSLA stock in August 2012 and finished my buying in November 2012 as I wrapped up my research period with a test drive of the Model S.

During this first period of research, I started to become convinced that Elon’s plan was going to come to reality and that the company would reach a minimum $43 billion market cap within 8-10 years (ie., TSLA 1.0 concept). But I actually expected Tesla to surprise people and grow much faster because the product was so much better than anything out there and I had concluded that it would be difficult to copy. My reasoning was that Tesla had put so much thought into so many parts of the Model S that most people were underestimating the complexity and advanced engineering in the car. While I didn’t articulate it as “TSLA 2.0”, my original investment thesis was TSLA would reach at least TSLA 1.0 levels (ie., $43 billion in 8-10 years) but would probably reach TSLA 2.0 levels (ie., $80 billion in 8-10 years). This gave me even the confidence I needed and became the foundation of my investment thesis.

2. April 2013-December 2013
As TSLA started to make it’s dramatic move up, I started to feel like I needed to become more sure that TSLA was on track to TSLA 2.0 levels (ie., $80 market cap in 8-10 years). So, I started to invest a lot of time into understanding Tesla’s future plans and I also started to research the overall auto industry by looking at the major players carefully (ie., reading annual reports, watching ceo interviews, etc). I latched on to two things: 1) demand for the Model S was super strong and owners loved their cars, and 2) Elon kept on raising his Model S demand estimates. This gave me confidence to make some bold moves when the stock was down and the mood/sentiment was very poor.

I like to have something more powerful than emotions or feeling or gut with my investment decisions, and that’s why I started to form a conceptual foundation where I saw a battle going on between TSLA 1.0 and TSLA 2.0 concepts. When sentiment was down (ie., fires) people tended to think Tesla would become TSLA 1.0, and that was a great time to buy/accumulate because in reality TSLA was still on track for a TSLA 2.0 trajectory and just needed to overcome some temporary hurdles.

My conviction that Tesla was on a strong TSLA 2.0 path also encouraged me to hold on and accumulate, since I believed the future value of the company in a few years would be far higher than now.

3. January 2014-June 2014
Starting the beginning of this year (ie., Jan 2014), I started to ask myself if I had the confidence in TSLA to hold for the next 15 years (or at least to plan to hold for the next 15 years because anything can happen during that time). Originally, my plan was to hold at least until Gen3 volume production and then make a decision at that time on what to do. However, as TSLA share prices skyrocketed, I started to ask myself at what price would/should I exit (or at least sell some).

It seemed like the market was pricing TSLA as if it was going to be more valuable than BMW or Honda within 5 years. And while I believed that was reasonable, I started to think what if the stock price goes even higher. Do I believe that TSLA has a chance/opportunity to become as big as Toyota (since at a certain stock price that will be the expectation)? For example, if the stock price hit $500 ($70 billion market cap) in 2015, the expectation for Tesla would be huge. Pricing TSLA at $70 billion in 2015 (I’m not saying it will happen, I’m just giving an example) would really be expecting Tesla to grow to Toyota’s market cap (i.e.., $190 billion) within 10-12 years. So, I started asking, “Do I really believe Tesla can become more valuable than Toyota in 10-12 years?” If I did, then I could/would probably hold even if TSLA went to $500/share in 2015 (especially since I’d have to pay more taxes if I sold my entire position at once vs selling slowly over many years).

But how does one determine or assess the chances/probability of Tesla becoming more valuable than Toyota in 10-12 years? Tesla doesn’t have to necessarily sell as many cars as Toyota in 10-12 years to become more valuable. They could sell less cars but they would need to be making more on each car (higher margin) and also be growing at a fast rate to command a higher multiple. But there is still the question can Tesla ultimately sell more cars than Toyota and become the leading auto manufacturer.

As I started to think/research about 2020-2030, I started to realize that the questions I was asking would be asked by other investors sooner or later. And the believers of this TSLA 3.0 concept (TSLA eventually becoming the leading auto maker) would also factor into the stock price, eventually… but probably sooner than later.

Recently, I’ve concluded my researching/thought process for this TSLA 3.0 concept and I think it will be an important concept for many years to come. I realize that currently the stock price is largely still driven by TSLA 2.0 vs TSLA 1.0. But I already am starting to see influences of TSLA 3.0 creeping into the valuation.

It’s going to be a wild ride ahead for TSLA investors. IMHO it will be a battle between TSLA 1.0 vs TSLA 2.0 vs TSLA 3.0 expectations. In exuberant times, we’ll see more and more of the TSLA 3.0 concept/expectations come out. In times of depression, we’ll see TSLA 1.0 concept/expectations be reinforced. What will largely drive the story for the next year or two will probably be TSLA 2.0. And as TSLA 2.0 gains strength, then the strength of TSLA 1.0 to pull down the stock during depressed times will weaken. However, at some point I think it’s possible for Gen3 to unleash TSLA 3.0 expectations and for us to see quite a big push in the stock price. I’m not sure if or when this might happen. Perhaps after the prototype is shown, or maybe after reservations are taken and are higher than anybody’s expectations, or maybe after it’s debut and it’s been test-driven by people. I really don’t know. But by understanding these three concepts, it provides a conceptual foundation to understand what will/can move the stock price.

It also might give insight to some to make some bold moves during times of depression. It’s a tough thing to buy when people are scared. Most people tend to buy when they feel good about the company, and usually that’s during times of exuberance. But for me, I like a good buy and that’s why I like opportunity. However, if one doesn’t have a solid conceptual foundation to judge if the stock is undervalued or not, then they can become easily influenced by the emotions of others (and also their own). Just seeing people scared (and vocalizing it) has a profound effect on one own’s sentiment. So, this is another reason why I’m writing this series.

In the past, I’ve received a lot of benefit from having a TSLA 1.0 vs TSLA 2.0 conceptual framework, and I think I’ll probably benefit (hopefully) a lot from this newer TSLA 1.0 vs TSLA 2.0 vs TSLA 3.0 framework as well. I figured I’d share it with others so that I can give back to this community and we can all benefit. I also think that this TSLA 1.0 vs 2.0 vs. 3.0 conceptual framework can last a very, very long time. It marks the end of another chapter of TSLA investment research for me, and perhaps my last major chapter as well.

ps., for those confused about what TSLA 3.0 is, don't worry. I still haven't gotten to that post yet.

 

[AlMc]

Dave. Great series. I am looking forward to your other planned posts. Will you be discussing your thoughts on EV competition in the 3.0 post? You know mine. I suspect there will be compelling vehicles made by the BMW/MB's of the world within the time frame ( up to 2020-30 ) that you are framing your most research.

 

[chickensevil]

Actually my illustration above for 21 giga and 21 car factories in 2028 is only using capital raised via convertible notes. This does not include money Tesla can use from their own profits/earnings to invest into factories, which obviously they will. So, the number of factories they can open by 2028 is much larger than the illustration above. Also, if EVs pick up like Elon is forecasting (1/2 of new car sales will be electric by 2030) then I don't see Toyota growing the car sales (ie, to 20 million/year) unless they become one of the leaders in EV sales because by 2030 their ICE sales will suffer big time.

Thanks Dave, I was just implying that 21 factories isn't really as high of a volume as was being questioned. Regarding Toyota, it seems to me, that Toyota would be fine with going full EV, but because of a lack of batteries and the cost, it was better for them to push to HFCV. I am making this guess based on the back and forth we have seen between Toyota and Tesla regarding their recent change in the RAV 4 EV. So instead, they can get away with a smaller battery in the HFCV because the hydrogen will be replenishing the electricity in the battery allowing for a hybrid HFCEV (Hydrogen Fuel Cell Electric Vehicle... totally trademarking that! haha).

Anyway, Toyota is not currently in my list of car companies that I see surviving, given their lack of commitment toward EVs, however if HFCVs catch on, this could really change the dynamics of the battle. While I am not a believer in Hydrogen for many reasons, it is plausible that it still becomes a primary car type.

Even if it doesn't, the main original point I was trying to make, of Tesla selling 10M cars by 2030, would still only make Tesla a mid-tier car company (assuming all companies continue to exist for the next 15 years, and new car sales growth continues to go up on the scale people are projecting). So your thoughts on them making *more* than 21 factories would give way to your Tesla 3.0 thesis where they not only become a strong player, but the leader in the new vehicle market. By 2030, I am going to go out and assume that they need to be making 20M cars at a minimum per year, in order to be the front runner... meaning probably 40 giga factories, maybe more.

If they can keep the 25% margins then yeah, there is NO reason they can't start funding their own factories soon-ish without even needing to ask investors for money.

 

[ggies07]

Thanks for the posts DaveT, I'm liking them. I saw what you were seeing in 2012, bought my shares in July, but wish I could have bought more volume than I did. My family was financially tight, but I knew I needed to invest in this company and it's worked out well so far. So it's nice to see others put deep thought into the future of this company. Keep the posts coming!

 

[chickensevil]

For those who might be looking to jump in right now, and wondering if it is too late, and what are the risks. Based on Tesla 1.0 pretty much being the worst case scenario at this point, and given the current stock price, that is a worst case scenario of a 20% growth in share price through 2019 which is a 4% Y/Y return on your investment. Now, that isn't by any means a "winner" stock... but hardly a loser. I think it is pretty safe to say, if you invested today, you would at the very least end positive on your investment through 2019.

That is the big take-away I see in this, just based on your first few posts, Dave. Please correct me if I am wrong. One could basically buy a 2 year leaps or actual stock and come out on the positive side in pretty much all scenarios. I would say this is one of the most solid investments one could make right now for a 5 year hold.

 

[clmason]

For those who might be looking to jump in right now, and wondering if it is too late, and what are the risks. Based on Tesla 1.0 pretty much being the worst case scenario at this point, and given the current stock price, that is a worst case scenario of a 20% growth in share price through 2019 which is a 4% Y/Y return on your investment. Now, that isn't by any means a "winner" stock... but hardly a loser. I think it is pretty safe to say, if you invested today, you would at the very least end positive on your investment through 2019.

That is the big take-away I see in this, just based on your first few posts, Dave. Please correct me if I am wrong. One could basically buy a 2 year leaps or actual stock and come out on the positive side in pretty much all scenarios. I would say this is one of the most solid investments one could make right now for a 5 year hold.

To further play devils advocate, what happens if Tesla invests in the Giga Factory and the Gen III is a flop either due to design, engineering, or supply problems. Then they have a albatross factory plus materials to build with, but the car is not selling or those that are sold are plagued by problems. That would surely send Tesla's Market Cap downward below "Tesla 1.0" levels. So yeh, I don't think 1.0 could be the fall back scenario because we know they will be making the huge investments in Gen III.