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Dave is somewhat busy writing Tesla Weekly, which is a free e-mail newsletter he writes that is not to be missed. Easy to sign up to get it in your inbox every Friday.
chickensevil
Active Member
Speaking of which, I have been extremely busy at work as of late and unable to spend every waking moment thinking about Tesla or TSLA and I am quite happy now I signed up for the newsletter. I got pretty much any and all important news for the past few weeks thanks to the letter. So thank you DaveT!
TSLA's recent downslide
Here's how I'm viewing TSLA's recent downslide (currently at $208.88 as of today).
1. The impact of falling oil prices
The drastic and sudden pummeling of oil prices in the past month has definitely had an effect on TSLA. For one, the higher the price of oil the greater and quicker the appeal of Tesla's mass market potential is (ie., Gen3 and beyond). If oil prices are super low, then the transition to electric vehicles on a mass market level could take longer. As a result, analysts need to lower growth rate expectations to take into account a future with lower oil prices (even though nobody knows where oil will be in the next few to several years).
Lower oil prices don't have much impact on TSLA's trajectory over the next few to several years though. Especially since the Model S and Model X is geared toward luxury buyers who's main (or even secondary) concern is not gas prices. They are buying Tesla's cars mainly for the performance, and Tesla still outperforms any gas car in its class by a wide margin. And further, Tesla's cars are getting better faster (ie., Autopilot, dual motors, and in the future increased battery range).
Lower oil prices probably don't impact Gen3 sales either for the first few years, since the performance of Tesla's Gen3 car will likely put to shame the BMW 3 Series and result in a large waitlist as Tesla struggles to meet demand. However, oil prices do affect Tesla's future after Gen3 production has reached Tesla's 2020 goals (ie., 300-500k Gen3 vehicles a year). Lower oil prices will make the cost of ownership of an ICE vehicle more affordable and thus more competitive (vs high oil prices). Higher oil prices increase the cost of ownership of ICE vehicles and make electric vehicles more attractive. To illustrate this point, imagine oil was really high and gas prices at $10/gallon (in the U.S.) in 2020 and the resulting high demand for Tesla's Gen3 (and future Gen4) vehicles.
So what does this have to do with TSLA's stock price?
Well, TSLA's valuation is driven by projections/expectations of future earnings (which would be a result of margin on revenue). If we're stuck in a world with low oil prices (ie., $60/barrel) for the long-term (which personally I don't think is likely), then this dampers the expectations of future long-term demand for Tesla's mass market vehicles and thus dampers expectations for revenue and earnings, which in turn affect how much people are willing to pay for TSLA today.
2. Tesla's execution questions
There have been some lingering questions on how well Tesla is (and will be able to) execute. They needed to lower 2014 guidance (to 34k vehicles delivered from 35k vehicles delivered). And more recently, Tesla has experienced a delay in delivering the first P85D deliveries. However, this delay seems to be resolved.
However, whenever a company needs to lower guidance there always (or at least usually) will be questions of whether the company is able to execute in the short and long-term.
In TSLA's recent Q3 conference call, Elon Musk mentioned a few times how difficult it was to produce vehicles. Yes, Tesla has high standards and that's good. But there does seem to be the occasional hiccup as well.
If you asked the folks here on the TMC Investors group a year ago, many had expected TSLA to deliver many more than 34k vehicles in 2014. The demand is and has been much greater than Tesla can meet. For many months it appeared that battery supply was in short supply from Panasonic and that was the main reason for production constraints. But after that was apparently resolved, there was the hiccup in the factory retooling that caused the factory shutdown to go longer than expected and for Tesla to miss Q3 production goals. And now there's the hiccup with P85D deliveries.
I'm personally optimistic on Tesla's long-term ability to execute. I think they're building an ambitious company of talented people and they're experiencing some growing pains that rapidly growing companies face. However, I do think they can improve in the area of logistics and management. You never (or rarely ever) hear Apple saying that making millions of iPhones and iPads are so difficult. Rather, Apple just gets the job down. I do wonder if Tesla needs a Tim Cook kind of person to act as COO or at least VP of Operations to smooth logistics and production out.
3. Tesla's long-term fundamentals
During the last big TSLA plummet (ie., Nov 2013) I wrote a post called "Exuberance and Depression". It's a good read and reminder in a depressed market sentiment to look at the company's fundamentals to see if their still in tact. From that post:
"In a way, great investing can be psychological warfare. If you’re going to invest in stellar company during periods of depression, you must overcome the fears, doubts, real risks, and uncertainty that is prevalent during the period of depression. That’s not easy. One key skill that can help is to develop a system where you can come up with valuations on your own, not relying on analysts and others. Meaning, you can look at a company’s financials and determine what you are willing to pay for the company if you were to buy the company outright. Normally, this entails looking at their revenue, margins, growth rate, earnings, addressable market, competitive advantage, etc. to come up with a sum of money you’d be willing to purchase the company for (note: the challenge is most people use over-simplified methods and aren’t very good at this). Now when you do this, you want to reach a sum that is fair to both sides. Now, armed with this valuation you are able to enter the battlefield. If the company’s market cap is significantly lower than the amount you’re willing to purchase the company for, then it becomes a candidate to buy shares. Of course, there are other factors in making a decision but at least now you’re armed with numbers as you evaluate the market cap of a stellar company you have your eyes on, and this can help you pull the trigger during the turbulent periods of depression surrounding a stock."
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Yeah, Tesla Weekly goes out every Friday morning.
Btw, on a personal note, my wife and I are expecting our first child in 2 weeks.
Here's how I'm viewing TSLA's recent downslide (currently at $208.88 as of today).
1. The impact of falling oil prices
The drastic and sudden pummeling of oil prices in the past month has definitely had an effect on TSLA. For one, the higher the price of oil the greater and quicker the appeal of Tesla's mass market potential is (ie., Gen3 and beyond). If oil prices are super low, then the transition to electric vehicles on a mass market level could take longer. As a result, analysts need to lower growth rate expectations to take into account a future with lower oil prices (even though nobody knows where oil will be in the next few to several years).
Lower oil prices don't have much impact on TSLA's trajectory over the next few to several years though. Especially since the Model S and Model X is geared toward luxury buyers who's main (or even secondary) concern is not gas prices. They are buying Tesla's cars mainly for the performance, and Tesla still outperforms any gas car in its class by a wide margin. And further, Tesla's cars are getting better faster (ie., Autopilot, dual motors, and in the future increased battery range).
Lower oil prices probably don't impact Gen3 sales either for the first few years, since the performance of Tesla's Gen3 car will likely put to shame the BMW 3 Series and result in a large waitlist as Tesla struggles to meet demand. However, oil prices do affect Tesla's future after Gen3 production has reached Tesla's 2020 goals (ie., 300-500k Gen3 vehicles a year). Lower oil prices will make the cost of ownership of an ICE vehicle more affordable and thus more competitive (vs high oil prices). Higher oil prices increase the cost of ownership of ICE vehicles and make electric vehicles more attractive. To illustrate this point, imagine oil was really high and gas prices at $10/gallon (in the U.S.) in 2020 and the resulting high demand for Tesla's Gen3 (and future Gen4) vehicles.
So what does this have to do with TSLA's stock price?
Well, TSLA's valuation is driven by projections/expectations of future earnings (which would be a result of margin on revenue). If we're stuck in a world with low oil prices (ie., $60/barrel) for the long-term (which personally I don't think is likely), then this dampers the expectations of future long-term demand for Tesla's mass market vehicles and thus dampers expectations for revenue and earnings, which in turn affect how much people are willing to pay for TSLA today.
2. Tesla's execution questions
There have been some lingering questions on how well Tesla is (and will be able to) execute. They needed to lower 2014 guidance (to 34k vehicles delivered from 35k vehicles delivered). And more recently, Tesla has experienced a delay in delivering the first P85D deliveries. However, this delay seems to be resolved.
However, whenever a company needs to lower guidance there always (or at least usually) will be questions of whether the company is able to execute in the short and long-term.
In TSLA's recent Q3 conference call, Elon Musk mentioned a few times how difficult it was to produce vehicles. Yes, Tesla has high standards and that's good. But there does seem to be the occasional hiccup as well.
If you asked the folks here on the TMC Investors group a year ago, many had expected TSLA to deliver many more than 34k vehicles in 2014. The demand is and has been much greater than Tesla can meet. For many months it appeared that battery supply was in short supply from Panasonic and that was the main reason for production constraints. But after that was apparently resolved, there was the hiccup in the factory retooling that caused the factory shutdown to go longer than expected and for Tesla to miss Q3 production goals. And now there's the hiccup with P85D deliveries.
I'm personally optimistic on Tesla's long-term ability to execute. I think they're building an ambitious company of talented people and they're experiencing some growing pains that rapidly growing companies face. However, I do think they can improve in the area of logistics and management. You never (or rarely ever) hear Apple saying that making millions of iPhones and iPads are so difficult. Rather, Apple just gets the job down. I do wonder if Tesla needs a Tim Cook kind of person to act as COO or at least VP of Operations to smooth logistics and production out.
3. Tesla's long-term fundamentals
During the last big TSLA plummet (ie., Nov 2013) I wrote a post called "Exuberance and Depression". It's a good read and reminder in a depressed market sentiment to look at the company's fundamentals to see if their still in tact. From that post:
"In a way, great investing can be psychological warfare. If you’re going to invest in stellar company during periods of depression, you must overcome the fears, doubts, real risks, and uncertainty that is prevalent during the period of depression. That’s not easy. One key skill that can help is to develop a system where you can come up with valuations on your own, not relying on analysts and others. Meaning, you can look at a company’s financials and determine what you are willing to pay for the company if you were to buy the company outright. Normally, this entails looking at their revenue, margins, growth rate, earnings, addressable market, competitive advantage, etc. to come up with a sum of money you’d be willing to purchase the company for (note: the challenge is most people use over-simplified methods and aren’t very good at this). Now when you do this, you want to reach a sum that is fair to both sides. Now, armed with this valuation you are able to enter the battlefield. If the company’s market cap is significantly lower than the amount you’re willing to purchase the company for, then it becomes a candidate to buy shares. Of course, there are other factors in making a decision but at least now you’re armed with numbers as you evaluate the market cap of a stellar company you have your eyes on, and this can help you pull the trigger during the turbulent periods of depression surrounding a stock."
- - - Updated - - -
Yeah, Tesla Weekly goes out every Friday morning.
Btw, on a personal note, my wife and I are expecting our first child in 2 weeks.
Congratulations, Dave. I hope your child inherits your passion for smart investing, and you'll have lots of fun discussing TM and TSLA in future. But for now, I would follow AlMc's advice and get a lot of sleep.
Thanks for the post, great as always.
I am not sure, however, that I entirely agree with the impact of falling oil prices point.
Model S in size and "traditional luxury" content (but not driving experience) falls little short of BMW 7 Series/MB S Class, while priced competitively with these vehicles. So one can make a strenuous argument that the low cost per mile driven in Model S increases it's appeal visa vi slightly larger BMW 7 Series/MB S Class sedans with slightly more luxury content. I want to note that this is truly strenuous argument, because price of gasoline is really not a factor in making buying decision in this category of cars (but the fact that gasoline is burned can). Since Model S is still one of the, if not the best seller in this category of cars, one can conclude that in the eyes of buying public it more than compensates slight disadvantage of smaller size and lower "traditional luxury" content by having superior driving experience, better space utilization and technological advantage.
As TM moves into production of Model 3, it is benchmarked in size, content and price squarely against BMW 3 series, while all indications are that it will have performance, space utilization and technological advantage. So Model 3 will have outright parity with the competition on size, price and content, while having performance, space utilization and technological advantage. This is therefore, not a parity situation that I described with Model S above, but the case of "not fair" competition even before we touch subject of cost per mile driven and gas prices. My point is that low price of gasoline will not make Model 3 competition more attractive if it makes cost per mile driven differential smaller - the cost of operation will still be higher than for Model 3. So given the performance, space utilization and technological advantage of Model 3, why would anybody want to buy an ICE competition if it costs to operate little less with low oil price, but still more that Model 3??
Since valuations of TSLA are based on Model S/X and Model 3 platform, the impact of oil prices on TM competition against mass market non-premium segment should have no bearing on price of stock.
So impact of oil prices on TSLA is completely irrational, and is based on distorted perception only. The question of how and when this perception can change, of course, is the a few billion dollars one...
Thanks for the post, great as always.
I am not sure, however, that I entirely agree with the impact of falling oil prices point.
Model S in size and "traditional luxury" content (but not driving experience) falls little short of BMW 7 Series/MB S Class, while priced competitively with these vehicles. So one can make a strenuous argument that the low cost per mile driven in Model S increases it's appeal visa vi slightly larger BMW 7 Series/MB S Class sedans with slightly more luxury content. I want to note that this is truly strenuous argument, because price of gasoline is really not a factor in making buying decision in this category of cars (but the fact that gasoline is burned can). Since Model S is still one of the, if not the best seller in this category of cars, one can conclude that in the eyes of buying public it more than compensates slight disadvantage of smaller size and lower "traditional luxury" content by having superior driving experience, better space utilization and technological advantage.
As TM moves into production of Model 3, it is benchmarked in size, content and price squarely against BMW 3 series, while all indications are that it will have performance, space utilization and technological advantage. So Model 3 will have outright parity with the competition on size, price and content, while having performance, space utilization and technological advantage. This is therefore, not a parity situation that I described with Model S above, but the case of "not fair" competition even before we touch subject of cost per mile driven and gas prices. My point is that low price of gasoline will not make Model 3 competition more attractive if it makes cost per mile driven differential smaller - the cost of operation will still be higher than for Model 3. So given the performance, space utilization and technological advantage of Model 3, why would anybody want to buy an ICE competition if it costs to operate little less with low oil price, but still more that Model 3??
Since valuations of TSLA are based on Model S/X and Model 3 platform, the impact of oil prices on TM competition against mass market non-premium segment should have no bearing on price of stock.
So impact of oil prices on TSLA is completely irrational, and is based on distorted perception only. The question of how and when this perception can change, of course, is the a few billion dollars one...
Raffy.Roma
Rome (Italy)
Agree. That's why according to me an intervention on the oil prices at Government level is needed (at global level too). The Climate Change/Global Warming issue cannot be affected so much by the oil prices.
Thanks guys. For now, I've been relaxing and keeping my mind peaceful/clear by playing golf daily.
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I think Gen3 demand is sufficient for 500k-1M vehicles/year even with very low oil prices, simply because the Model 3 will be a stellar car and will outperform the BMW 3 series and competitors. However, the compact luxury sports sedan market is still a limited market due to pricing. So, in order for Tesla to expand to 1-2 million Gen3 vehicles a year, it will likely need to expand outside the compact luxury sports sedan market and attract buyers from other markets. If oil/gas is expensive (ie., $6+/gallon) then Gen3 will attract a far greater audience from other car segments, and this will fuel demand and allow Tesla to go crazy with production goals. However, if oil/gas is cheap (ie., $2.50/gallon) even though running an electric car might be cheaper, it still reduces demand compared to high gas prices. All in all, I think Tesla will reach 1-2M Gen3 vehicles sold per year but the question is whether that will happen sooner or later. The sooner the possibilities are, the greater the exuberant mood around the stock can and will be. However, if the magnitude of Gen3 demand is lessened in any significant manner (ie., with very low gas prices), then it can reduce the exuberant sentiment around the stock, and thus the stock can lose some of it's multiple that investors put on it.[/QUOTE]
Some investors/analysts might value TSLA off of a 2020 projection, and in that case low oil/gas prices shouldn't change those projections at all. However, it could change the sentiment somewhat around the stock, whereas with high oil/gas prices people start thinking Tesla is going to "take over the world" but with low oil/gas prices one might need more patience. Also, some analysts are projecting 15 years out (ie., Adam Jonas), so long-term oil/gas price projections could impact their projections (but then again, who knows how much oil/gas will be in 15 years).
Congratulations, may your child grow up in a world free of polluting cars and become a Tesla driver one day :smile:
Scaling up manufacturing is not straightforward or easy, as Elon has already stated. Trade offs must be made between having lean efficient process and exposing business to delays due to lowered resilience and increased risk of supply chain disruptions. Tesla team is most likely on a learning curve on how best to strike a balance between the need to reduce costs and waste from its supply chain and the need to maintain the chosen level of business robustness.
Apple is in a more robust position regarding its product failure risk as compared to Tesla. I am currently on my 4th iphone replacement unit due to various hardware issues. That is not driving me away from Apple (just yet and only because I have other phones). Apple is not so sensitive to product failure as no one gets killed with faulty iphone and perhaps Apple is evaluated more on quality of its software rather than hardware.
If Tesla product had similar hardware failure rates, that could devastate Tesla business. Imo for these reasons making cars is much harder than making consumer electronics.
It is not surprising that the best manufacturing practices originate from car making industry, not from electronics manufacture or anything else. The ones who face the difficulties day in and day out and the ones who must strive to achieve the highest bar are the ones who achieve the highest excellence.
I would be surprised if Tesla does not have more execution hurdles in the future. That is all part of the game and Tesla team is doing just fine in handling hurdles.
These hurdles are translated into trading opportunities for us investors, but I never forget people in Tesla who work so hard to overcome these hurdles.
RobStark
Well-Known Member
The Germans are longer but the Model S is wider. And I think every couple of months the gap in luxury shrinks. For example Model S now has heated steering wheels.
While low oil/gasoline-diesel prices may depress marginal demand for the base Model 3 it also makes it less likely the legacy OEMs will make a mass production(not compliance numbers) long range EV. This delays the transition to BEVs but probably increases the long term market share for Tesla.
For example if this delays Ford and VW 5 years from seriously jumping into the BEV space then that is more conquest sales for Tesla that may never return to Ford and VW. Because once you go Supercharger you never go back.
Thanks for the post and huge congrats, Dave. (On my own personal note -- we are expecting a simultaneous mini-Fluxette and mini-Fluxina in March, to add to the existing mini-FluxCap in my household!)
Get lots of sleep, and line up friends and family to come give you breaks when the baby is up all night -- you will need lots of help!
Get lots of sleep, and line up friends and family to come give you breaks when the baby is up all night -- you will need lots of help!
chickensevil
Active Member
FredTMC
Model S VIN #4925
Dave, thanks so much for your weekly missive. I learn so much and your summaries pare down the reading time immensely. Appreciate it!!
And, congratulations on the upcoming +1!!! I'll give you the advice I give all first-time parents: "Don't listen to any advice!" (it comes out of the woodwork, it never stops, much of it is contradictory, and you'll do just fine doing what you feel is right)
RobStark
Well-Known Member
Congratulations, Dave, and thank you for Tesla Weekly newsletter and deep analysis on this thread!!
Raffy.Roma
Rome (Italy)
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