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Bank of America downgrade

Discussion in 'TSLA Investor Discussions' started by Dan5, Feb 22, 2013.

  1. Dan5

    Dan5 Member

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    Here's the reasoning

    Meanwhile, Bank of America's John Lovallo downgraded the stock to underperform, saying he thinks demand for electric cars will be "tepid" until technology catches up and consumers don't have to "pay a premium or sacrifice convenience".

    It's a shame that Tesla gets penalized by ill conceived notions when they have a wait list (not tepid demand) and that the Performance one is on par with the cost of it's competitors, and it's more convenient than going to a gas station once a week.
     
  2. AnOutsider

    AnOutsider S532 # XS27

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    But, for longer drives, it's really not. If you never go outside 80-90 mile radius from your home, you're golden. If you go farther, you'll need to stop and charge. For many here, this is apparently a non-issue, but I think for the masses it WILL be an issue.

    I took a trip 90.1 miles last Sunday that should have been doable without charging. Close, but doable. Luckily there was an outlet at my destination, so I got to charge up. I did. Good thing too, the temp dropped quite a bit while we ate dinner and hung out at our friend's house and used up much more range on the way home than on the way there. Had they not had a high power outlet, we would have been forced to stop at the J1772 a local community college had set up. How convenient is leaving after a great night and driving to a parking lot to sit for 1.5-2 hours while you grab enough range to make it home?
     
  3. Norbert

    Norbert TSLA will win

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    As far as I know the BOA downgrade came after the NYT article. I think such terms as "sacrifice convenience" carry the message from that article. It is correct in the literal sense that in some situations the EV is less convenient, but not in the sense that the term currently suggests.

    In many situations EVs are more convenient. BTW, how does the pre-heating/pre-cooling via smartphone work?
     
  4. NigelM

    NigelM Recovering Member

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  5. Dan5

    Dan5 Member

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    Preheating via the iphone works great. Do it while its plugged in sitting in the garage, cant do that with a normal car.
     
  6. dadaleus

    dadaleus 4GETOIL P85#S70,FdrX,S85D

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    Way more convenient than gas for me. Can't imagine how many hours of sitting at gas stations I've saved.
     
  7. stainlesssteel

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    Flawed logic:

    1) claiming tepid consumer demand until EVs have no price or convenience differences vastly underestimates the game-changing benefits of EVs

    2) no differentiating snowballing press and demand for the Model S, from tepid demand for other EVs.

    I assume this is the same "John Lovallo with Merrill Lynch" on the Tesla 4Q2012 conference call.

    I found it interesting on the call that alone among the analysts, rather than ask meaningful questions, Lovallo appeared to be trying to raise fear/uncertainty/doubt. He awkwardly made an apparent reference to the 08Feb2013 NY Times Broder stalling article, seemingly baiting Elon to say people are having problems with cold weather range:

    "despite all the noise in the press, do you see kind of the potential necessary additional planning for a driver of EV as a headwind?...Are you hearing that from anybody?"

    No follow up; instead, moving to CFO Deepak with what seemed like further FUD mining:

    "Q4 stepup in development services revenue…was that more a kinda of trueup from the 3rd quarter…partially where that Daimler revenue got pushed back?"

    Given the apparent FUD mining, weak rationale given for his downgrade the next day, and bizarre lowering of his 2013 profit estimate to 10 cents from 30 cents a share in the face of improved profit outlook, it appears Lovallo had made his mind up before the call.

    It's a nonsensical, zero-credibility downgrade.
     
  8. zack

    zack Member

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    The NYT article distracts people from realizing that the vast majority of the time they'll charge at home and will rarely need to use a charge point.
     
  9. VoltAir

    VoltAir Member

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    #9 VoltAir, Feb 26, 2013
    Last edited by a moderator: Feb 26, 2013
    Analyst perspectives re: Lovallo


    Stainless: Please understand I'm NOT being sarcastic or snippy, but it sounds like the conference call environment may be somewhat new to you, particularly for a company whose "shininess" is wearing offwith rising expectations of measureable profitable performance. Companies try to stack the analyst deck the best they can for these events, but having a tough character(s) in the group is going to become more normal. Honestly, on those occasions when Musk gives a weak answer and there is a "thanks for the color" reply or no followup at all, it doesn't do the management team image any favors.

    As for the downgrade, BoA’s $0.10 EPS is actually higher than the current consensus number of $0.05 for FY2013 (down from $0.14 just two weeks ago). Yes, Lovallo probably did already have his mind made up, but that doesn’t necessarily indicate anything except he shares the general perspective right now. Even Jeffries’ Elaine Kwei, who is very bullish on TSLA, very slightly trimmed her outlook both for Q1 and FY.

    I guess I'm trying to say very gently that optimistic TSLA holders should toughen up a bit.
     
  10. Norbert

    Norbert TSLA will win

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    Given Tesla's focus on growth and new products, wouldn't you say that EPS is a rather insignificant number?
     
  11. Norbert

    Norbert TSLA will win

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    It seems Lovallo has the lowest target share price of all analysts, and is in a minority with his "underperform" rating. According to the info below, the consensus 12-month price target is $38.

    Tesla Motors, Inc. (TSLA) Analyst Research - NASDAQ.com

    So I don't know what you mean with "shares the general perspective" in the context of other analysts.

    Even if BofA expects a higher 2013 EPS than common consensus, Lovallo might still see it as a negative factor, and (perhaps) give it more significance than other analysts.

    However I think the major factor of the downgrade is the demand expectation, and given his question in the conference call, I'd agree with stainlesssteel in that there he seems to be tainted by FUD from the NYT article about cold weather range, in an uncommon (but possible) use case, which in reality the Model S is able to handle quite well.
     
  12. 100thMonkey

    100thMonkey Member

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    Can't help but think someone in the oiligarchy is calling Broder: "checks in the mail, great job!"
     
  13. VoltAir

    VoltAir Member

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    Good question, Norbert. Tesla now has the heavy burden of achieving profitability targets, and most eyes will be on it. It may not be fair, but this is the way things go. People will start to look at actual multiples rather than theoretical ones, and Tesla will have to prove shares are worth AMZN-style multiples without the cash and working capital performance of such enterprises in the near-term.

    Right now Musk says the business will get to a modest non-GAAP profit in Q1 through production cost improvement and R&D cuts. This will become the focal point of expectations, barring something absolutely spectacular (think bigger than Supercharger) before the next call. The cost reduction will be challenging. You can do a little math and see that they need to carve away about $8-10k cost per car in Q1. They can probably pull it off, but if they miss it's a huge disappointment.

    The R&D may be a little more problematic when it comes to your poit about "new products". I think they will hint at another Model X slip if he really takes the tough decision to go under $60M in Q1. This won't affect FY2013, so it's a matter of how well Musk can sell it.

    FYI my current trading position is Jan 14 40.00 calls. I think the next quarter or two will be rugged.
     
  14. Norbert

    Norbert TSLA will win

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    #14 Norbert, Feb 26, 2013
    Last edited: Feb 26, 2013
    Actually completely agree about the importance of achieving profitability, just not that the *amount* (above zero) would be important. What I think does matter, however, is how much Tesla will be able to invest, during 2013, in future products (or perhaps also in extending the reach of Model S).

    Since it was already 6 weeks into the quarter, and since Elon is known to be present on the factory floor, so to speak, and knows what goes on, on a daily basis, I'd expect they will get a least very close, which would be good enough in my view. (BTW, for Q4 2012, I always thought the important part is that they reach full production rate at the end of the year, not so much that they meet specific sales numbers. In so far as Tesla will become profitable already in Q1, I'd see this as a confirmation of what I thought was important.)

    I think improving the Model S production, adding software features, etc, will also benefit the Model X. If Model S can in fact reach sales numbers of 30,000/year to 40,000/year, as was recently predicted, then this will already fulfill part of Model X's role, so a slip there would be a natural consequence perhaps.

    Ah, I see, thanks. And this quarter already seems rugged enough for two, so I do think it will be rugged on whatever level things will develop. :)
     
  15. Robert.Boston

    Robert.Boston Model S VIN P01536

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    I must have missed this prediction. Who made it, when?
     
  16. Yuri_G

    Yuri_G Member

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    Musk in a recent Bloomberg interview. He estimated that when Model S is at full production and selling globally it could move 10-12k cars in Europe, 10-12k in Asia, and 10-15k cars in North America.
     
  17. Norbert

    Norbert TSLA will win

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    #17 Norbert, Feb 27, 2013
    Last edited: Feb 27, 2013
    If I'm not mistaken, it was also in the conference call, discussing demand (not intended production).

    EDIT: Yes, it was also in the conference call. However, it came with the caveat that it would take some time to build up in Asia, particularly in China.
     
  18. mitch672

    mitch672 Active Member

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    I have quite often seen opposite guidance/advice given, especially from any of the "market makers" (not sure if BOA is or isn't a MM), the theory on this is: if they KNOW a stock is crap, they recommend it, after all, they have inventory they need to unload. If a stock has a great future, they often try to find "problems" with it, and push the price down, the reason? They are trying to load up on it cheaply, and when they have enough inventory, their recommendation will change, why its a fantastic stock now, you should all buy a gazillion shares :). Although you might question this simplistic view, there is a tremendous amount of this going on, in the market.
     
  19. Teslawisher

    Teslawisher Member

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    Nail on the head. Most reporting and analysts don't "see" this. As not only the general public gets more informed, so will the reporters and analysts. Or, as the reports and analysts start understanding this concept, the general public will become more informed. Chicken or egg?
     

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