current vin assignments have zero impact on q4 or even q1. Production lines seem to be booked unt March. By the time they would show up in sales, reservations should rebound.
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InTheShadows
Active Member
I don't think you can read into the short term demand right now. It's holiday season and car sales always plummet this time of the year. People are looking at the vin chart and getting scared because they see the vin assignment rate dropping. Not taking into consideration that car sales are very cyclical.
According to the news below Q4 sales so far is "higher than expected". The Barclays analyst cut 2014 sales estimate by 10% though.
Tesla CEO expects feds to clear Model S in fires - Yahoo Finance
Quote:
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...
"Musk also said that Model S sales are higher than expected so far in the fourth quarter. Earlier this week the car received the highest owner satisfaction score in a Consumer Reports survey.
But Barclays analyst Brian Johnson, in a note to investors Thursday, cut 10 percent from his 2014 Model S sales estimate, saying that historically other automakers have lost sales during highly publicized investigations.
Toyota and Audi, he wrote, saw sales drop 10 percent to 20 percent during past investigations for unintended acceleration. "Even though both vehicles were later largely exonerated, each of these cases led to significant demand destruction," Johnson wrote.
He reduced his Model S sales forecast for next year to 29,700, and lowered his one-year price target for Tesla stock from $141 to $120."
Tesla CEO expects feds to clear Model S in fires - Yahoo Finance
Quote:
...
...
"Musk also said that Model S sales are higher than expected so far in the fourth quarter. Earlier this week the car received the highest owner satisfaction score in a Consumer Reports survey.
But Barclays analyst Brian Johnson, in a note to investors Thursday, cut 10 percent from his 2014 Model S sales estimate, saying that historically other automakers have lost sales during highly publicized investigations.
Toyota and Audi, he wrote, saw sales drop 10 percent to 20 percent during past investigations for unintended acceleration. "Even though both vehicles were later largely exonerated, each of these cases led to significant demand destruction," Johnson wrote.
He reduced his Model S sales forecast for next year to 29,700, and lowered his one-year price target for Tesla stock from $141 to $120."
If there is an impact on sales from the investigation, it won't be felt in Q4 sales. Those are all spoken for with reservations.
2019: The long horizon approach to TSLA investing
The main reason I’m invested in TSLA is because of the long-term potential of Tesla to disrupt the auto industry and lead an electric vehicle revolution. The world auto market is huge and is prime for disruption but the shift to EVs will not happen overnight. That’s why I think it’s crucial that the buy-and-hold investor has a long-term view on Tesla.
The 2019 timeframe
JB Straubel (CTO, Tesla) shared this all-important slide in a presentation at Stanford on Sept 13, 2013 (JB Straubel | Energy@Stanford SLAC 2013 - YouTube
The interesting part of the slide is the progression of vehicles/year from 2017 to 2019:
2017 - 200,000 cars
2018 - 400,000 cars
2019 - 700,000 cars
These numbers appear to be Tesla’s projections of how many cars they’re expecting to be producing in 2017, 2018, and 2019. Here’s a few observations. 2017 starts out quite slow for the first year of GenIII production (Elon has said that GenIII will start production in late 2016 or 2017). Considering that Model S/X production might be over 100k in 2016, in 2017 the majority of cars sold will likely be Model S/X as GenIII production ramps up. It’s not until 2018 when GenIII production surpasses Model S/X. And then in 2019, GenIII production scales to much bigger numbers.
Based on these numbers, I’ve plugged in rough guesses for 2014-2016:
2014 - 35,000 cars
2015 - 70,000 cars (45-50k Model S, 20-30k Model X)
2016 - 120,000 cars (60k Model S, 60k Model X)
Here’s how this looks like in a chart.
As you can see, the big scaling of production happens in 2017-2019 with the release of GenIII. By 2019 Tesla will need an additional factory to support the production of 700k cars/year.
While Tesla fans would like to see Tesla scale faster, there are major challenges Tesla needs to overcome like battery production. It appears battery production for the Model S/X is largely resolved with a recent agreement with Panasonic to boost production. However, GenIII battery production will likely be resolved by Tesla creating their own battery factory (perhaps in partnership with Panasonic) close to their Fremont factory. I think this is the right move and will allow them to be in control of the production/supply of probably the most crucial part of the car.
After 2019, Tesla will likely continue to expand at a blistering pace that will depend on how amazing GenIII (sedan and crossover) really is.
TSLA as a stock will likely go through great volatility over the next several years. It will waver between periods of exuberance where much distant future value will be sucked into the present stock price and periods of depression where people dwell on major doubts of Tesla’s ability to disrupt the auto industry and be a global leader in the auto market.
If you’re able to time the ups and downs, then more power to you. But for the majority of people, it would probably be the wiser move to invest a significant amount with a long-term horizon and not being swayed by the volatility.
The danger, of course, is if Tesla’s fundamentals change and their future is no longer as appealing as before (ie., they won’t be able to reach the potential we were hoping for them to reach). This is something to monitor even for the buy-and-hold investor. But to me, as long as Elon Musk remains at the helm of Tesla he will ensure Tesla develops compelling products, and those products will stir demand and lead to revenue and profit.
2019 TSLA stock price
Let’s examine a bit more what TSLA stock price might be in 2019 if they’re able to sell 700k cars. I’ll use rough numbers but you can plug in numbers you feel more comfortable with.
700,000 cars x $50,000 (avg selling price due to 150k cars being Model S/X and GenIII selling mostly with 5-10k in options) = $35 billion
18% gross margin = $6.3 billion
9% profit* = $3.15 billion (I’m figuring 50% of gross margin to be profit based on other companies in the industry. However, Tesla won’t be this profitable actually in 2019 because they will be expanding. Yet, I’m using this number because it’s what they should/could be having as profit based on gross margin and revenue, and is helpful for calculating valuation.)
So, now the question is what multiple will investors give Tesla. If Tesla is growing rapidly, which they will be in order to reach 700k cars in 2019, investors will likely give at least 20x profit. So, $3.15b x 20 = $63 billion market cap divided by 150m shares (rough estimate) = $420/share.
Now this is a very conservative estimate of $420/share if Tesla is able to sell 700k cars in 2019. More likely is that investors will give a higher multiple than 20x since Tesla is still rapidly growing. I think a 100x multiple would be excessive and unrealistic. A 50x multiple might be possible but probably unrealistic. I would imagine a 30-40x multiple might be fair and realistic. Let’s use a 30x multiple to be conservative. $3.15 billion profit x 30x p/e = $94.5 billion market cap divided by 150m shares = $630 share price.
So conservatively if Tesla can sell 700k cars in 2019 then the stock price will likely be at least $630/share.
Starting at $150 it the beginning of 2014 and ending at $630 in 2019 (about 4-5 years out) is a very good return on investment. It’s basically investing $1 and getting back that $1 plus $3 more (of course, not taking taxes into consideration).
Another reason why I like TSLA as a long-term investment is because I think the risk of Tesla failing or becoming a mediocre company as low. I recognize major short-term risks (ie., more fires, recall, etc) but over the long-term, as long as Elon stays healthy, I see Tesla having a very, very good likelihood of growing their market share and being successful with the release of GenIII.
Overall, the long-term outlook of Tesla is quite astonishing, and that’s why I’m bullish on TSLA long-term.
The main reason I’m invested in TSLA is because of the long-term potential of Tesla to disrupt the auto industry and lead an electric vehicle revolution. The world auto market is huge and is prime for disruption but the shift to EVs will not happen overnight. That’s why I think it’s crucial that the buy-and-hold investor has a long-term view on Tesla.
The 2019 timeframe
JB Straubel (CTO, Tesla) shared this all-important slide in a presentation at Stanford on Sept 13, 2013 (JB Straubel | Energy@Stanford SLAC 2013 - YouTube
The interesting part of the slide is the progression of vehicles/year from 2017 to 2019:
2017 - 200,000 cars
2018 - 400,000 cars
2019 - 700,000 cars
These numbers appear to be Tesla’s projections of how many cars they’re expecting to be producing in 2017, 2018, and 2019. Here’s a few observations. 2017 starts out quite slow for the first year of GenIII production (Elon has said that GenIII will start production in late 2016 or 2017). Considering that Model S/X production might be over 100k in 2016, in 2017 the majority of cars sold will likely be Model S/X as GenIII production ramps up. It’s not until 2018 when GenIII production surpasses Model S/X. And then in 2019, GenIII production scales to much bigger numbers.
Based on these numbers, I’ve plugged in rough guesses for 2014-2016:
2014 - 35,000 cars
2015 - 70,000 cars (45-50k Model S, 20-30k Model X)
2016 - 120,000 cars (60k Model S, 60k Model X)
Here’s how this looks like in a chart.
As you can see, the big scaling of production happens in 2017-2019 with the release of GenIII. By 2019 Tesla will need an additional factory to support the production of 700k cars/year.
While Tesla fans would like to see Tesla scale faster, there are major challenges Tesla needs to overcome like battery production. It appears battery production for the Model S/X is largely resolved with a recent agreement with Panasonic to boost production. However, GenIII battery production will likely be resolved by Tesla creating their own battery factory (perhaps in partnership with Panasonic) close to their Fremont factory. I think this is the right move and will allow them to be in control of the production/supply of probably the most crucial part of the car.
After 2019, Tesla will likely continue to expand at a blistering pace that will depend on how amazing GenIII (sedan and crossover) really is.
TSLA as a stock will likely go through great volatility over the next several years. It will waver between periods of exuberance where much distant future value will be sucked into the present stock price and periods of depression where people dwell on major doubts of Tesla’s ability to disrupt the auto industry and be a global leader in the auto market.
If you’re able to time the ups and downs, then more power to you. But for the majority of people, it would probably be the wiser move to invest a significant amount with a long-term horizon and not being swayed by the volatility.
The danger, of course, is if Tesla’s fundamentals change and their future is no longer as appealing as before (ie., they won’t be able to reach the potential we were hoping for them to reach). This is something to monitor even for the buy-and-hold investor. But to me, as long as Elon Musk remains at the helm of Tesla he will ensure Tesla develops compelling products, and those products will stir demand and lead to revenue and profit.
2019 TSLA stock price
Let’s examine a bit more what TSLA stock price might be in 2019 if they’re able to sell 700k cars. I’ll use rough numbers but you can plug in numbers you feel more comfortable with.
700,000 cars x $50,000 (avg selling price due to 150k cars being Model S/X and GenIII selling mostly with 5-10k in options) = $35 billion
18% gross margin = $6.3 billion
9% profit* = $3.15 billion (I’m figuring 50% of gross margin to be profit based on other companies in the industry. However, Tesla won’t be this profitable actually in 2019 because they will be expanding. Yet, I’m using this number because it’s what they should/could be having as profit based on gross margin and revenue, and is helpful for calculating valuation.)
So, now the question is what multiple will investors give Tesla. If Tesla is growing rapidly, which they will be in order to reach 700k cars in 2019, investors will likely give at least 20x profit. So, $3.15b x 20 = $63 billion market cap divided by 150m shares (rough estimate) = $420/share.
Now this is a very conservative estimate of $420/share if Tesla is able to sell 700k cars in 2019. More likely is that investors will give a higher multiple than 20x since Tesla is still rapidly growing. I think a 100x multiple would be excessive and unrealistic. A 50x multiple might be possible but probably unrealistic. I would imagine a 30-40x multiple might be fair and realistic. Let’s use a 30x multiple to be conservative. $3.15 billion profit x 30x p/e = $94.5 billion market cap divided by 150m shares = $630 share price.
So conservatively if Tesla can sell 700k cars in 2019 then the stock price will likely be at least $630/share.
Starting at $150 it the beginning of 2014 and ending at $630 in 2019 (about 4-5 years out) is a very good return on investment. It’s basically investing $1 and getting back that $1 plus $3 more (of course, not taking taxes into consideration).
Another reason why I like TSLA as a long-term investment is because I think the risk of Tesla failing or becoming a mediocre company as low. I recognize major short-term risks (ie., more fires, recall, etc) but over the long-term, as long as Elon stays healthy, I see Tesla having a very, very good likelihood of growing their market share and being successful with the release of GenIII.
Overall, the long-term outlook of Tesla is quite astonishing, and that’s why I’m bullish on TSLA long-term.
As usual great post Dave.
This growth potential is why I still watch TSLA like a hawk daily although i no longer has a position in them. Right now i believe the return on my money is better suited else where. After this next earnings report that could very well change again. For now i will remain on the sideline and see what investors reaction to their next ER is. I too want to see that growth and i want to see Elon make those 2014 statements. If He tells me Tesla is on Track then i could shift a large % of my account back to Tesla. As usual Tesla is a force that is only just in its infancy. Thanks again Dave for all your insight.
This growth potential is why I still watch TSLA like a hawk daily although i no longer has a position in them. Right now i believe the return on my money is better suited else where. After this next earnings report that could very well change again. For now i will remain on the sideline and see what investors reaction to their next ER is. I too want to see that growth and i want to see Elon make those 2014 statements. If He tells me Tesla is on Track then i could shift a large % of my account back to Tesla. As usual Tesla is a force that is only just in its infancy. Thanks again Dave for all your insight.
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RationalOptimist
Member
Yup. Great piece, Dave. There are several other elements that COULD materially add further value. For me, number 1 would be evidence that Tesla's supercharger stations had become a wider standard used by other manufacturers. I predict that sometime in the next 24 months we'll see the following headline. "New Mercedes model will use Tesla superchargers." If that happens, look out! Also appealing for mass sales: the Tesla truck.
The Giga factory has extraordinary moat-building potential. But I'm a little nervous until we can get clarity a) on how it gets financed and b) protection from technology shifts.
The Giga factory has extraordinary moat-building potential. But I'm a little nervous until we can get clarity a) on how it gets financed and b) protection from technology shifts.
Great post Dave...however I think if they are growing at that pace and their brand maintains the recognition it has now then their multiple will almost certainly be closer to 50 in 2019 unless we are in a stock market crash then maybe 30.
Another interesting business line is residential, commercial and utility-scale power storage systems. I'm unclear as to how big this business will be for Tesla but I think the market for these power storage systems will be quite large eventually.
The 30 p/e multiple is based off of 9% of revenue (or 50% of their gross margin) which I think they can do eventually but during growth it'll probably be lower. So for 2019 I'd expect actual profit to be lower than 9% of revenue and probably closer to 4-5% as they use the money for growth. So if actual profit is $1.5 billion (from $35 billion revenue) then I can see actual p/e around 60x (giving a $90 billion market cap) and similar stock price as I mentioned earlier, $630. Of course all of this is rough speculation.
Thanks for the great post Dave-
My thought regarding valuation are linked to how Tesla is perceived at that time. If they have substantive revenues from battery storage systems, still expanding SC network, hints of other EV markets (like personal movers, airplanes etc.), the market may comfortably afford higher than Auto industry standard demands- a technology multiple; food for thought;
thanks again for the great post
My thought regarding valuation are linked to how Tesla is perceived at that time. If they have substantive revenues from battery storage systems, still expanding SC network, hints of other EV markets (like personal movers, airplanes etc.), the market may comfortably afford higher than Auto industry standard demands- a technology multiple; food for thought;
thanks again for the great post
Dave, great post, I'm wondering how their capital supply does during this ramp? Do they enough from sales to ramp this fast? I feel like TM would be going faster if they could right now in that they would already have a giga-factory nearly built if they would have had the money 2 years ago.
Thanks again for all time and energy you put into TMC!
Thanks again for all time and energy you put into TMC!
I think Tesla is in a good place regarding capital supply for the foreseeable future and even as they ramp production further in 2017-2019.
I would imagine with the extended Panasonic agreement that Tesla won't have any problems with 35k cars in 2014 and 70k cars in 2015. Starting 2016, I would imagine Tesla's gigafactory would start to contribute some to battery production along with existing Panasonic factories to reach 120k cars sold. And then in 2017, Tesla's gigafactory will take a bigger role and start scaling (to reach 200k cars sold). In 2018, Tesla will really need to ramp battery production at their gigafactory to reach 400k cars and then even more in 2019 to reach 700k cars. But it's interesting that Tesla's gigafactory can probably start off really slow in 2016. Even in 2017, it appears that Tesla is looking to produce limited quantities of GenIII (ie., less than 100k) in their first full year of production. So this allows the gigafactory to ramp as well and get ready for 2018 and 2019 when Tesla will need a load of batteries.
In terms of capital supply, I don't see Tesla crunched until maybe 2017-2018 when they start ramping to 400k cars/year and beyond. At that time they can do a raise with minimal dilution. The raise would allow them to establish new factories (auto production and battery) overseas in Europe and China.
I think most Tesla fans would love to see Tesla ramp GenIII production faster but the reality might be that the scaling challenges to GenIII are substantial and Tesla knows what they're doing by aiming for less than 100k GenIII cars in their first full year of production in 2017. This will give them time to get the car right and prep for mass scaling in 2018, 2019 and beyond.
All I know is that if you want a GenIII car you'd probably need to place a reservation quite early to get one during its first year of production.
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Thanks Dave, I wonder how much capital will be needed for the giga-factory? Seems it would need to be north of $50M for tooling, automation, raw materials and opex. Wish that Solyndra building was still available, but maybe TM will find a good fit close enough to Fremont.
I don't know much about building factories and battery production. But a true giga-factory will be in the billions of dollars to establish. If Tesla can start off slow then they can spread the costs over a few years time to make it more manageable on their capital supply. But if they want to be more aggressive they might need to do a stock offering and raise some money.
Actually the more I think about it, I lean toward Tesla doing an offering to raise money for the gigafactory. I don't think they need to do an offering soon as they still have a lot of cash in the bank. But if they want to build/ramp battery production at a giga-factory they'll probably need more money than they're bringing in currently. They'll probably need to start scaling battery production some time before GenIII to get ready for GenIII.
I'd prefer Tesla to build/operate the giga-factory on their own so they can control/own the battery design and manufacturing process. But Tesla appears to value their partnership with Panasonic so I wouldn't be surprised to see Panasonic have some role in the gigafactory.
Dave,
I think the partnership is even more important for Panasonic to keep then Tesla Motors. If Elon Musk can prove to all of the other automakers that EVs are the way forward, Panasonic will get contracts from the other automakers to produce batteries also. Out of the 15 million+ cars sales in the United States, about 100,000 were EVs in 2013. Even if Tesla builds its own giga-factory, the other automakers will either need to put up the capital to build their own battery factories or pay Panasonic to build them it. I could see Panasonic offering generous terms if they were to partner with Tesla on the giga-factory. My only question is what will Panasonics role be in the factory? Tesla already designs its own battery packs.
I think the partnership is even more important for Panasonic to keep then Tesla Motors. If Elon Musk can prove to all of the other automakers that EVs are the way forward, Panasonic will get contracts from the other automakers to produce batteries also. Out of the 15 million+ cars sales in the United States, about 100,000 were EVs in 2013. Even if Tesla builds its own giga-factory, the other automakers will either need to put up the capital to build their own battery factories or pay Panasonic to build them it. I could see Panasonic offering generous terms if they were to partner with Tesla on the giga-factory. My only question is what will Panasonics role be in the factory? Tesla already designs its own battery packs.
JRP3
Hyperactive Member
Panasonic's cell manufacturing experience would be valuable, but probably what they may have in the development pipeline for the future even more so.
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