Articles/megaposts by DaveT

[Fallenone]

2. For TSLA earnings itself, I'm not expecting a blowout earnings. Tesla delivered almost 3k less cars than they had hoped for and I think that will impact their financials.

While I'm not expecting them to be profitable, the 3k miss in deliverable should have minimal impact on cash generation. In Q4 there was much less discounts on new cars sales (or depreciation for a few dozens miles, whatever one may want to call it), P100D was at higher production rate, introduction of the pricier autopilot, and Model X margins should be increasing as well. My calculation basically ended up at the same gross profit from the auto business as Q3, before any FX fluctuations.

Also, In the investor event at GF1 in Jan, Elon mentioned parts of the cars missed delivery at end of 2016 was already paid by customer in full. So although they cannot count it towards revenue, they do get the cash. Same with the $8k full AP2 sales.

 

[DaveT]

Q4 earnings is tomorrow. Here are some of my personal thoughts.

1. Tomorrow's TSLA earnings will be the first since they've acquired SCTY. It will be interesting to see how TSLA incorporates SCTY's earnings and lays out everything, especially since SCTY's financials have typically been complex. I wouldn't be surprised to see the conference call inundated with questions from analysts seeking clarity on the merged financials. What I'm looking here for personally is if Tesla can present Solarcity's business/financials in a way that can de-risk it from an investor view (ie., simpler/clearer portrayal of finances and stronger strategy to manage cash flow and debt). If this happens, as a TSLA investor I'm happy since it'll allow Tesla to focus their energies on Model 3.

2. For TSLA earnings itself, I'm not expecting a blowout earnings. Tesla delivered almost 3k less cars than they had hoped for and I think that will impact their financials. Further, as pointed out by @EinSV in this post (Q4 2016 ER Modeling / Predictions), the stronger dollar will likely negatively impact cash flow as well. On the other hand, there were quite a few cars in transit at the end of the quarter (6,450), and that will count toward Q1. Overall though, while I'm prepared for less-than-stellar earnings results (compared with Q3), I'll be especially looking at cash generated last quarter and also the capex spent as well. Tesla guided for $1B in capex spending for Q4. If they can get away with less than that amount, that's a good sign showing that they've likely found a way to spend less than anticipated in capex for Model 3 rollout, which in turn would allow them to spend less and improve their cash position and reduce reliance on the capital markets for more money.

3. Perhaps the biggest sleeper for Q4 earnings/results will be if Tesla gives 2017 guidance for Tesla Energy. Most analysts discount TE because it's such an unknown in terms of how it will ramp. But if Tesla gives clear indication (and figures) on how TE will ramp in 2017, this could be very bullish and could surprise a lot of people.

Tesla could also give guidance for the # Model S/X deliveries in 2017, as well as Model 3 deliveries. However, I think Tesla is in a sticky spot regarding this. Model S/X deliveries might get a bit cannabalized by Model 3 deliveries in second half of the year, unless Tesla can update/upgrade the Model S/X (which they probably will do with faster-charging cells from the GF, HUD, and maybe a new interior and exterior refresh?). I'm expecting the Model S/X to have deliveries of at least 100k this year, but no more than 120k. We'll see if and what Tesla guides. Regarding Model 3, I think it'd be wise for Tesla to hold off on giving concrete delivery numbers for 2017. I personally think it's better if they aim to fulfill all their employee (Tesla/SpaceX) orders this year in Q3/Q4 (ie., 10-20k deliveries?) and make sure everything is solid before ramping to general production in Q1 2018. I hope I'm wrong and Tesla can deliver cars faster than this (so I can get my Model 3 faster as well), but Tesla's track record with timelines is somewhat dubious.

We're all curious as to how Model 3 is progressing, and hopefully Elon can give some concrete updates on this (ie., beta fleet production, first deliveries, part 3 reveal date, etc).

4. Stock price
TSLA's been on a massive run since December. My take on this is the following... Tesla had a massive Q3 earnings. It was fantastic and a huge turning point for the company. The company generated tons of cash and started to show at at 100k Model S/X delivery run rate, they could be profitable and generate enough cash to even possibly fund Model 3 production. However, the mood and sentiment around TSLA stock was at a low due the SCTY acquisition, and most analysts/funds couldn't immediately see past that and see how significantly Q3 earnings were. As a result, TSLA hung out in the sub-$200 area for a while (creating a divergence of sorts... meaning TSLA as a company turned a corner and was doing great, but mood/sentiment and stock price was low), until smart investors started picking up significant shares starting December, and then as the stock price went up momentum/sentiment around the stock started to shift and you saw this great run.

Going forward, we've got some great prerequisites to see this run continue into the $300s. For one, we see quite a long base of consolidation between $180 and $280. This provides a good base to launch from. I hold the view if Tesla didn't botch the Model X rollout like they did, we'd already be in the $300s. Further, with pending Model 3 rollout and Tesla Energy ramping, there's a lot to be bullish about. Thus, whether it happens within the next few weeks, months or longer... as long as Tesla executes, we'll likely to see all-time highs and a breakout from the previous range-bound stock price. I think we've got a 50/50 or even 60/40 chance that this breakout happens starting tomorrow's earnings.

5. Capital raise
Now that TSLA's stock price has recovered from it's sub-$200 price and is well over $250, it's probably a wise time for Tesla to do a capital raise. Tesla will likely need more cushion for Model 3 rollout and also they have big plans for a factory in Europe and China. Having more cash could help with expediting those plans. As a result, I'm expecting Tesla to announce a capital raise shortly after earnings (perhaps announcement comes within a week after earnings), and I'd expect Tesla to raise $2B to $3B.

My Q4 Earnings thoughts from Tesla Weekly:

On Wednesday Tesla reported quarterly earnings for Q4 2016. I thought it was a great earnings report (read the shareholder letter here). Tesla has never been in a better place as a company.

1. Model 3 on track Tesla affirmed Model 3 production is on track for initial production in July and volume production in September. They are already making beta prototypes as of early February and conducting crash testing. And their goal is to exit 2017 at a 5000/week (250k/yr) production run rate for the Model 3. In 2018, they hope to hit 10,000/wk (500k/annual) production run rate. Overall, the Model 3 is what Tesla investors have been waiting for all these years. It’s the realization of Tesla’s dream to go mainstream - something most people thought was improbable. But it’s finally happening, and (although first vehicles will go to employees) we’re going to see the first Model 3 vehicles in roughly 5 months time. Once Model 3 reaches full volume production (10k cars/week), Tesla is looking at a combined revenue of roughly $27B and assuming a gross margin of 20%, we’re looking at $5.4B in gross profit. Most of that will be used to cover operating expenses but there will be plenty left over to invest into future growth. In other words, with Model 3 full production Tesla becomes a cash cow of sorts (even though their income statement might not show it because they’ll still be investing heavily into future growth) and will be a in great position to expand their vision across autos, energy, trucking, and more.
   
   
2. Solarcity’s financials nicely integrated Solarcity as a standalone company had quite complicated financials presented in their earnings reports. However, in this first quarterly report after the acquisition, Tesla has chosen to succinctly integrate Solarcity’s financials and remove most the previously presented complexities. I think this is a smart move from Tesla, as it redirects investors’ attention to the Model 3 and tries to remove attention from Solarcity and the challenges of integration and reworking Solarcity’s business model to go toward more cash purchase solar systems and solar roofs.
   
   
3. Tesla laying groundwork for 2020-2025 Tesla has chosen to call Solarcity’s Buffalo factory, Gigafactory 2. And they’ve announced that they’re looking to announce locations for Gigafactories 3, 4 and maybe 5 later this year. My guess is we’ll see a Gigafactory in China and in Europe, for sure. While this isn’t required for Tesla to hit 1 million cars/year by 2020, the additional Gigafactories will allow Tesla to localize production and make cars sold in Europe and China much cheaper than if they were subject to import taxes. The result will be higher demand and lower costs for Tesla. While Tesla publicly talks about 1M cars in 2020, they are actively preparing for much larger numbers beyond 2020 and are putting into place the piece required to reach those goals.
   
   
4. Capital raise I think it’s inevitable that Tesla raises capital soon and the main reason is because they’re goals and timeline for the Model 3 are very aggressive and need aggressive funding that isn’t present from their current Model S/X business. While the Model S/X business would fund a modest Model 3 rollout, Tesla wants to do the most they can and meet as much demand as possible. I expect Tesla to soon raise an extra $2 to $3 billion to provide extra cash cushion during their Model 3 expansion and rollout.

Overall, Tesla is in great shape and the Model 3 is imminent - this is what matters to the long-term TSLA investor.

 

[RationalOptimist]

Dave, thanks for the above. It's a great summary. You've been a fine leader in this community. Will be such a great moment when 3 arrives and cranks up, and the naysayers finally put away.

 

[JRP3]

and the naysayers finally put away.

You certainly are an optimist

 

[RationalOptimist]

You certainly are an optimist

But a rational one! The point is, as Dave outlines, that when it's clear that 3 is selling profitably and at scale, the current bear case collapses, and the stock will at least double. There remains huge execution risk, so it comes down to a judgement on whether Elon and team really can deliver. To my mind, all the pieces are in place for them to do that.

 

[MitchJi]

But a rational one! The point is, as Dave outlines, that when it's clear that 3 is selling profitably and at scale, the current bear case collapses, and the stock will at least double. There remains huge execution risk, so it comes down to a judgement on whether Elon and team really can deliver. To my mind, all the pieces are in place for them to do that.

IMO the risk is confined to do they hit 1k per week in July or October.

But I wouldn't bet a substantial portion of our portfolio on that, hence J19 LEAPS instead of J18's, which gives me an additional 12 months

 

[SBenson]

But a rational one! The point is, as Dave outlines, that when it's clear that 3 is selling profitably and at scale, the current bear case collapses, and the stock will at least double. There remains huge execution risk, so it comes down to a judgement on whether Elon and team really can deliver. To my mind, all the pieces are in place for them to do that.

Are you sure that you are rational. For that matter are any one of us sure we are rational. additionally how sure are you that the stock price will double on model-3 ramp success?

Before I get into details I want to clarify, I make these devils-advocate type posts to actually seek validation. I am heavily exposed on the long side myself. However I get the sense that model-3 and the current Tesla state is the most perilous state than ever before. There is a distinct chance that Tesla could fall on its own weight (much like SolarCity). So I believe it is healthy to have a discussion.

Coming to valuation. Here is one way to look at it:

As per @DaveT above model-3 full volume production will equate to $5.4Bil gross profits (keep in mind not net-profits). Here is something to consider:

S&P 500 -
Price/Sales (P/S) is ~2
Gross Margin is ~30%
In other words Price/Gross Margin is ~ 6.7

At 5.4 Bil gross profits, would equate to a market cap of ~36Bil

In other words the current TSLA valuation of ~40Bil fully captures entire Model3 volume production and then some.

Now you might argue that, well Tesla will keep growing through other things like Model-Y, Truck, Semi and whatnot. As it stands today they are all hypothetical. Any company can make any claims. I don't believe a company is given valuation or credit just for making claims. Also note, that my ultra-simple math doesn't account for any risk at all (there is no discount rate or time value applied).

So how can we be so sure that TSLA will go up with model-3 success? The root of the problem is margins. Quite honestly 20% gross margin is really nothing to feel proud of. It is substantially worse than S&P 500 companies. Even AMZN, the company that never makes any net-profits has 35% gross margins by the way. Why do we get excited about Tesla at all with these type of prospects? I can't tell anymore.

Separately there are other risks with Model-3. If the ramp goes slow as GS expects, the cash flow over time will be a terrible *sugar*-show. Forget about multi-baggers, there will be a serious valuation reset and a liquidity crisis.

If model-3 ramp is successful then it is not clear to me at all how service and supercharger infrastructure will scale at all. Keep in mind, the number of cars on road is accumulative. Even at flat unit sales and revenues (0 growth), the number of cars needing service and charging keep growing!

The ownership experience already seems to be tanking in pockets of places based on various TMC threads. How will Tesla keep up. How will it pay for it? This is what I mean Tesla could fall on it's own weight.

Overall I am finding it increasingly difficult seeing a successful scenario where TSLA surpasses it's upper bound of of ~280 to 290. Let alone a multi bagger.

 

[theschnell]

Now you might argue that, well Tesla will keep growing through other things like Model-Y, Truck, Semi and whatnot. As it stands today they are all hypothetical. Any company can make any claims. I don't believe a company is given valuation or credit just for making claims. Also note, that my ultra-simple math doesn't account for any risk at all (there is no discount rate or time value applied).

Overall your analysis is quite sane and a good gut check. However, I take issue with the part I quoted above. Tesla should get some value assigned to its claims because it always follows through on major product claims. It's always late, and it doesn't always go as planned, but it still does them. So they have credibility in the major product claims they make because they have always followed through on them eventually.

Edit: Also, to value TSLA like the S & P, while again a good gut check, would be entirely out of the norm for a company growing as rapidly as Tesla.

 

[Jonathan Hewitt]

Are you sure that you are rational. For that matter are any one of us sure we are rational. additionally how sure are you that the stock price will double on model-3 ramp success?

Before I get into details I want to clarify, I make these devils-advocate type posts to actually seek validation. I am heavily exposed on the long side myself. However I get the sense that model-3 and the current Tesla state is the most perilous state than ever before. There is a distinct chance that Tesla could fall on its own weight (much like SolarCity). So I believe it is healthy to have a discussion.

Coming to valuation. Here is one way to look at it:

As per @DaveT above model-3 full volume production will equate to $5.4Bil gross profits (keep in mind not net-profits). Here is something to consider:

S&P 500 -
Price/Sales (P/S) is ~2
Gross Margin is ~30%
In other words Price/Gross Margin is ~ 6.7

At 5.4 Bil gross profits, would equate to a market cap of ~36Bil

In other words the current TSLA valuation of ~40Bil fully captures entire Model3 volume production and then some.

Now you might argue that, well Tesla will keep growing through other things like Model-Y, Truck, Semi and whatnot. As it stands today they are all hypothetical. Any company can make any claims. I don't believe a company is given valuation or credit just for making claims. Also note, that my ultra-simple math doesn't account for any risk at all (there is no discount rate or time value applied).

So how can we be so sure that TSLA will go up with model-3 success? The root of the problem is margins. Quite honestly 20% gross margin is really nothing to feel proud of. It is substantially worse than S&P 500 companies. Even AMZN, the company that never makes any net-profits has 35% gross margins by the way. Why do we get excited about Tesla at all with these type of prospects? I can't tell anymore.

Separately there are other risks with Model-3. If the ramp goes slow as GS expects, the cash flow over time will be a terrible *sugar*-show. Forget about multi-baggers, there will be a serious valuation reset and a liquidity crisis.

If model-3 ramp is successful then it is not clear to me at all how service and supercharger infrastructure will scale at all. Keep in mind, the number of cars on road is accumulative. Even at flat unit sales and revenues (0 growth), the number of cars needing service and charging keep growing!

The ownership experience already seems to be tanking in pockets of places based on various TMC threads. How will Tesla keep up. How will it pay for it? This is what I mean Tesla could fall on it's own weight.

Overall I am finding it increasingly difficult seeing a successful scenario where TSLA surpasses it's upper bound of of ~280 to 290. Let alone a multi bagger.

Your point that Tesla is valued today for what they plan to do in 2020 makes sense. In 2020 they will be valued for what they plan to do in 2025, and in 2025 what they plan to do in 2030. If they achieve their plans they will reach $1T+ market cap valuation. If they mess things up then the stock will be punished accordingly and depending on how bad it could get really, really ugly. It's important to keep in mind though that no one buys into a growth company based on current year profits. At this point, investing in TSLA is deciding whether you think TSLA and Elon Musk will be able to achieve their goals in a reasonable time frame and whether risks like you mentioned will materialize and mess everything up. That's why bears are so adamant about TSLA's valuation; they see TSLA's goals as "impossible." If any other company was attempting what TSLA is attempting I would be running for the hills but TSLA has a pretty strong record for achieving the "impossible." There are enough other investors with the same mindset, otherwise we wouldn't be in the $200s and would be much lower. If it was guaranteed that TSLA was going to meet all it's goals for the next 10 years it would be much higher.

We see such huge swings in the share price because no one knows how close they will get to their goals. The hard part is deciding how much they can mess up and still have positive gains in the share price. When projecting stock value 5-10 years out a 1 year delay on plans should drastically affect the valuation today but we don't know how much of a delay in plans is already factored into the share price.

Thank you for your points. It is good to be aware of and monitor real risks while maintaining one's eye on the prize.

 

[JRP3]

But a rational one!

Expecting the naysayers to go away, when many of them are in fact not rational, is also not rational I don't expect Mark BS, Keif Wifaneef, or any of their ilk to ever go away, no matter what Tesla or TSLA does.

 

[DaveT]

Very long read by Charlie Munger (Warren Buffett's partner) but well worth it if you're serious about using insight to become a better investor.
The Psychology of Human Misjudgment by Charles T. Munger | Harrison Barnes :Harrison Barnes

As related to TSLA, I think these two tendencies have an outsized impact on TSLA's volatility. From Munger's list:

"#2. Liking/Loving Tendency
One very practical consequence of Liking/Loving Tendency is that it acts as a conditioning device that makes the liker or lover tend:

1. to ignore faults of, and comply with wishes of, the object of his affection,
2. to favor people, products, and actions merely associated with the object of his affection (as we shall see when we get to “Influence-from-Mere-Association Tendency, and
3. to distort other facts to facilitate love.

#3. Disliking/Hating Tendency also acts as a conditioning device that makes the disliker/hater tend to:

1. ignore virtues in the object of dislike;
2. dislike people, products, and actions merely associated with the object of his dislike, and
3. distort other facts to facilitate hatred."

I see a lot of liking/loving tendency in some TSLA bulls and a lot of disliking/hating tendency in some TSLA bears. Sometimes it seems like each group triggers the other as well.

 

[DaveT]

Are you sure that you are rational. For that matter are any one of us sure we are rational. additionally how sure are you that the stock price will double on model-3 ramp success?

Before I get into details I want to clarify, I make these devils-advocate type posts to actually seek validation. I am heavily exposed on the long side myself. However I get the sense that model-3 and the current Tesla state is the most perilous state than ever before. There is a distinct chance that Tesla could fall on its own weight (much like SolarCity). So I believe it is healthy to have a discussion.

Coming to valuation. Here is one way to look at it:

As per @DaveT above model-3 full volume production will equate to $5.4Bil gross profits (keep in mind not net-profits). Here is something to consider:

S&P 500 -
Price/Sales (P/S) is ~2
Gross Margin is ~30%
In other words Price/Gross Margin is ~ 6.7

At 5.4 Bil gross profits, would equate to a market cap of ~36Bil

In other words the current TSLA valuation of ~40Bil fully captures entire Model3 volume production and then some.

Now you might argue that, well Tesla will keep growing through other things like Model-Y, Truck, Semi and whatnot. As it stands today they are all hypothetical. Any company can make any claims. I don't believe a company is given valuation or credit just for making claims. Also note, that my ultra-simple math doesn't account for any risk at all (there is no discount rate or time value applied).

So how can we be so sure that TSLA will go up with model-3 success? The root of the problem is margins. Quite honestly 20% gross margin is really nothing to feel proud of. It is substantially worse than S&P 500 companies. Even AMZN, the company that never makes any net-profits has 35% gross margins by the way. Why do we get excited about Tesla at all with these type of prospects? I can't tell anymore.

Separately there are other risks with Model-3. If the ramp goes slow as GS expects, the cash flow over time will be a terrible *sugar*-show. Forget about multi-baggers, there will be a serious valuation reset and a liquidity crisis.

If model-3 ramp is successful then it is not clear to me at all how service and supercharger infrastructure will scale at all. Keep in mind, the number of cars on road is accumulative. Even at flat unit sales and revenues (0 growth), the number of cars needing service and charging keep growing!

The ownership experience already seems to be tanking in pockets of places based on various TMC threads. How will Tesla keep up. How will it pay for it? This is what I mean Tesla could fall on it's own weight.

Overall I am finding it increasingly difficult seeing a successful scenario where TSLA surpasses it's upper bound of of ~280 to 290. Let alone a multi bagger.

@SBenson Just curious, are you trying to trade TSLA or keep it long-term? What's your investment thesis for the position you're holding?

 

[MikeC]

Very long read by Charlie Munger (Warren Buffett's partner) but well worth it if you're serious about using insight to become a better investor.
The Psychology of Human Misjudgment by Charles T. Munger | Harrison Barnes :Harrison Barnes

As related to TSLA, I think these two tendencies have an outsized impact on TSLA's volatility. From Munger's list:

"#2. Liking/Loving Tendency
One very practical consequence of Liking/Loving Tendency is that it acts as a conditioning device that makes the liker or lover tend:

1. to ignore faults of, and comply with wishes of, the object of his affection,
2. to favor people, products, and actions merely associated with the object of his affection (as we shall see when we get to “Influence-from-Mere-Association Tendency, and
3. to distort other facts to facilitate love.

#3. Disliking/Hating Tendency also acts as a conditioning device that makes the disliker/hater tend to:

1. ignore virtues in the object of dislike;
2. dislike people, products, and actions merely associated with the object of his dislike, and
3. distort other facts to facilitate hatred."

I see a lot of liking/loving tendency in some TSLA bulls and a lot of disliking/hating tendency in some TSLA bears. Sometimes it seems like each group triggers the other as well.

Just want to say great read, Dave. I think having a good understanding of the behavioral aspects of investing is as important, or even moreso, than dissecting 10Ks or studying charts.

 

[Zhelko Dimic]

Are you sure that you are rational. For that matter are any one of us sure we are rational. additionally how sure are you that the stock price will double on model-3 ramp success?

Before I get into details I want to clarify, I make these devils-advocate type posts to actually seek validation. I am heavily exposed on the long side myself. However I get the sense that model-3 and the current Tesla state is the most perilous state than ever before. There is a distinct chance that Tesla could fall on its own weight (much like SolarCity). So I believe it is healthy to have a discussion.

Coming to valuation. Here is one way to look at it:

As per @DaveT above model-3 full volume production will equate to $5.4Bil gross profits (keep in mind not net-profits). Here is something to consider:

S&P 500 -
Price/Sales (P/S) is ~2
Gross Margin is ~30%
In other words Price/Gross Margin is ~ 6.7

At 5.4 Bil gross profits, would equate to a market cap of ~36Bil

In other words the current TSLA valuation of ~40Bil fully captures entire Model3 volume production and then some.

Now you might argue that, well Tesla will keep growing through other things like Model-Y, Truck, Semi and whatnot. As it stands today they are all hypothetical. Any company can make any claims. I don't believe a company is given valuation or credit just for making claims. Also note, that my ultra-simple math doesn't account for any risk at all (there is no discount rate or time value applied).

So how can we be so sure that TSLA will go up with model-3 success? The root of the problem is margins. Quite honestly 20% gross margin is really nothing to feel proud of. It is substantially worse than S&P 500 companies. Even AMZN, the company that never makes any net-profits has 35% gross margins by the way. Why do we get excited about Tesla at all with these type of prospects? I can't tell anymore.

Separately there are other risks with Model-3. If the ramp goes slow as GS expects, the cash flow over time will be a terrible *sugar*-show. Forget about multi-baggers, there will be a serious valuation reset and a liquidity crisis.

If model-3 ramp is successful then it is not clear to me at all how service and supercharger infrastructure will scale at all. Keep in mind, the number of cars on road is accumulative. Even at flat unit sales and revenues (0 growth), the number of cars needing service and charging keep growing!

The ownership experience already seems to be tanking in pockets of places based on various TMC threads. How will Tesla keep up. How will it pay for it? This is what I mean Tesla could fall on it's own weight.

Overall I am finding it increasingly difficult seeing a successful scenario where TSLA surpasses it's upper bound of of ~280 to 290. Let alone a multi bagger.

Good thoughts here. I'd agree with lots of it, but add few, that make me comfortable long-term, not M3 term, or any other short term.

- Secular winds - Tesla is at the forefront of transport revolution that's taking place, and their costs are bound to go down as batteries get better, while ICE costs will go up. All competitors, while capable, will have to deal with complex business model/stranded assets/pension liabilities transitions. Also, shareholder base is in the stock for income/dividends purposes and will not let them start transformation and kill profits until it's almost too late. This is also bound to encourage many executives to focus on success and bonuses in the short term, as there will be no reward for bringing bad news. Until future is well recognized by majority and written on the wall. At which point restructuring experts will be brought in, many $B of write-offs, many 10s of 1000 people loosing jobs, churn of shareholder base, activists circling the carkas etc. Simple human psychology of shareholders and executives combined will ensure they fail to answer with enough force to change in time, gently. Except for car makers dominated by family/private interests, like Porsche/Piech family for VW group
- Amazingly, amazingly good execution by Tesla. What they've achieved over the short period of time is out of this world.(*please see note below if you're open to reading critique of Elon, skip it otherwise)
- Elon's amazing forethought, clarity of where industry may end up, and good(perhaps great) orchestration. Some examples: Building Model S as aspirational performance vehicle, network of superchargers, autopilot development, self-driving development, gigafactory, even dreaded SCTY acquisition(I hated it, I hated being blindsided like that, still hate it) is probably great hedge when in 5 years utilities start playing game with us, electric vehicle owners

*Now, if our fearless leader had some maturity to use simple underpromise/overdeliver model, we'd be able to appreciate amazing sucesses achieved, but as-is, success is well hidden with his trademark approach: 1. announce impossible, no positive points because everyone doubts it (history of overpromises), and 2. come close to impossible (by that time everyone forgot it was impossible), yet fail promise, in the industry(WallStreet) that doesn't tolerate failures, and empower critiques to control perception and spin stories of failures

 

[renim]

View attachment 216011

my calcs are from how Tesla S roll out in 2012, just prorated for higher volume, anybody else remembers Elon forecast for model S production circa early 2012?

realistically, if Tesla X keep ramping up USA sales this year, the tax rebate will start expiration just as the last of the employee model 3 gets delivered, fortunately tax rebate phase out is gradual, and perhaps 5 months of delivery may be made with full rebate, post start of phase out. so perhaps there will be 100,000 of the original model 3 reservations who get the full rebate, no guessing for what trim level that will be

Due to nerves, a lot of people are going to order Tesla S for immediate delivery, so to secure their rebate. crazy times ahead.

[QUOTE="SBenson, post: 1992990, member: 25297].......If the ramp goes slow as GS expects, the cash flow over time will be a terrible *sugar*-show. Forget about multi-baggers, there will be a serious valuation reset and a liquidity crisis. ....[/QUOTE]

I don't know what GS expects, but my baseline expectation is a repeat of 2012 but at 5 times the volume. If the fed tax rebate is not adjusted, then the 200,000 mark stands and I expect continued demand support for Tesla, be it S or 3. So the critically of the ramp is not what it was in 2012. If there is an adjustment to the tax rebate that extends it, then there is a real cash danger for Tesla if the 3 ramp is slow, and people wait (Osborne effect). But in general, I expect something of a goldilocks effect for Tesla with the tax rebate. they get it, the Germans and Lexus won't.

 

[neroden]

Are you sure that you are rational. For that matter are any one of us sure we are rational. additionally how sure are you that the stock price will double on model-3 ramp success?

Before I get into details I want to clarify, I make these devils-advocate type posts to actually seek validation. I am heavily exposed on the long side myself. However I get the sense that model-3 and the current Tesla state is the most perilous state than ever before. There is a distinct chance that Tesla could fall on its own weight (much like SolarCity).

Tesla isn't exposed to the same borrowing risks, and they're getting out of SolarCity's banking business as fast as they can.

While the debt may look large, huge portions of it are bog-standard lend-against-revenues-coming-next-week stuff.

The presence of genuine tangible book value in the form of the factories is another substantial difference, for example, meaning that Tesla won't have any trouble getting low-interest loans.

Tesla *is* exposed to the rist of a general upturn in interest rates because they haven't locked in low interest rates for long terms. This is a real risk worth worrying about.

So I believe it is healthy to have a discussion.

Absolutely.

Coming to valuation. Here is one way to look at it:

As per @DaveT above model-3 full volume production will equate to $5.4Bil gross profits (keep in mind not net-profits). Here is something to consider:

My analysis says that the stationary battery market has substantially higher margins and lower capital costs than the car market, as well as faster deployment. I think that's an upside. It's very hard to put solid reliable numbers on that upside though. Tesla seems to have only one serious competitor right now (AES) and if the Gigafactory gets the efficiencies Tesla hopes for, Tesla should be able to make high profit margins while undercutting AES.

I think TSLA stock has priced in the Model 3, but not the Solar Roof or the Powerpacks.

Overall I am finding it increasingly difficult seeing a successful scenario where TSLA surpasses it's upper bound of of ~280 to 290. Let alone a multi bagger.

I'm not expecting another humungous jump like the one from 30 to 180 (...darnit!) but I can very easily construct a scenario where the price doubles over 5 years, which is better than the average S&P 500 rate.

 

[MitchJi]

Baird analyst Ben Kallo named Tesla Motors his top pick for 2017 and reiterated an Outperform rating and price target of $338.

"We think the ramp of Tesla Energy and Model 3 production could exceed expectations during 2017, and believe the opportunity is not currently reflected in share prices," Kallo said.

Kallo does not believe Tesla's energy storage business and growth opportunity is currently reflected in share prices. "We believe TSLA battery sales are accelerating, and we should see additional benefits from the battery production ramp coinciding with the launch of the Model 3," he commented. "We recommend accumulating shares ahead of additional details being released about TSLA’s current battery costs and density metrics, and believe the upcoming Gigafactory tour on January 4 will be a positive catalyst for the stock."

I think TSLA stock has priced in the Model 3, but not the Solar Roof or the Powerpacks.

I'm going to have to agree with Kallo on the M3 not being priced in, and agree with both of you that storage is not priced in.

 

[Matias]

I'm not expecting another humungous jump like the one from 30 to 180 (...darnit!) but I can very easily construct a scenario where the price doubles over 5 years, which is better than the average S&P 500 rate.

Is the doubling in five years enough, if you adjust it with the risk?

 

[MitchJi]

Is the doubling in five years enough, if you adjust it with the risk?

IMO the main risk is that the SP doubles sooner than five years.

 

[neroden]

Is the doubling in five years enough, if you adjust it with the risk?

I consider Tesla to have lower risk than the S&P 500.

The S&P is heavily dominated by:
-- oil companies, which will become burning trash fires -- I expect most to go bankrupt
-- corrupt major banks, which were caught committing massive frauds against their customers and shareholders, where management was kept in place and bailed out... they may defraud their stockholders again...
-- Apple, which is using a complex scheme of transfering US patents to an Irish subisidary to evade taxes by pretending that its entire international income is earned in Ireland (which it really is not)

And then it's full of all kinds of random companies of varying stability.

There is a very very common confusion between risk and volatility. TSLA is much more volatile than the S&P 500. But I believe for a long term investor, the S&P 500 is actually incredibly risky; you're buying a basket of random companies about which you know little or nothing, and assuming that the average will do well. That's failed quite catastrophically during 1929, most notably, and at a number of other times as well.

I believe that Tesla is in a sector -- electric cars, batteries, solar panels -- with much better growth potential and much less shrinkage potential than the average company; I believe it has better management than the average company; I believe it is more honest than the average company (not entirely honest, just more honest); I believe that it has much more hard physical assets than average (and therefore will survive a "crisis of faith" better than financial companies which are mostly paper); it certainly has more demand than average (with large backlogs) and it has higher gross margins than average; and I believe there are high barriers of entry for competitors due to the high capital costs and the time involved in acquiring the know-how.

All of these combine, in my personal view, to make Tesla *less risky* than the S&P 500.

This is all by way of saying that I think "risk adjusted" methodologies are mostly not really risk-adjusted, they're volatility-adjusted, which is an entirely different thing. I don't give a damn about volatility; I can ride it out, I've got the psychology for it. I worry about actual *risk*, which is quite different.

I'd rather reliably place my money in a company which makes high-quality electric cars and nice storage batteries and solar roofs, and sells them to a huge waitlist, than in banks whose management have already cheated their stockholders once, oil companies, and a company which is evading taxes using questionable schemes -- even though those companies might be more profitable. Does that make sense when you think about *risk*?