Blind Faith Price Targets

[jhm]

Thank you for updating this model. What are the annual dilution assumptions per version? Elon clearly stated that Tesla neither needs nor wants to raise capital, so are the dilution assumptions finally at zero, and maybe even negative (i.e. share buybacks) for later years?

You can scroll back through the thread to see how we motivated and debated each target. But basically we landed on 3 specific stock targets so people could use the number that best suited their outlook however they may arrive at it.

Personally, I think Sport is about right, my bed just a little low, but for guaging the market when sentiment is low, I like the Nominal level just to be conservative.

It will be fascinating to see how the market reacts to positive cash flow because this can really impact how the market views the potential for growth and need for fresh capital.

 

[jhm]

VERY FAR, as in Mars?
BTW, what will the currency be called -- marsuperials? Marsmarks? Ooh wait: Mars Mallows!

I thought the currency on Mars is shares of SpaceX.

 

[jhm]

At $348/share (22nd percentile), we are right in the middle of the blessed zone (10th to 30th percentile). I really see no hang ups with the price flying up in the $400 to $450 range. Indeed the upper end (30th percentile) 12 months from now is $454.

I am temped to only show the Nominal Targets since Musk expressed so much restraint around growth ambitions, but I won't be like that.

The Nominal Targets are more conservative but suggest huge upside potential. It really is a great time to accumulate if you haven't already loaded up.

Nominal Target $3250

Percentile    Implied Discount    2018-08-06    2018-09-05    2018-12-31    2019-08-06    2019-12-31    2020-12-31    2022-12-31
21.8%    26.6%     $348      $355      $383      $441      $485      $614      $985
2%    29.0%     $291      $297      $323      $376      $417      $538      $895
10%    28.0%     $314      $321      $347      $402      $444      $569      $932
30%    26.2%     $360      $367      $395      $454      $498      $629      $1,002
50%    24.9%     $397      $404      $434      $496      $542      $678      $1,057
70%    23.9%     $428      $435      $466      $530      $578      $716      $1,099
90%    22.2%     $488      $496      $529      $596      $646      $790      $1,179
98%    20.7%     $548      $556      $591      $661      $713      $861      $1,255

Sport Target $5250

Percentile    Implied Discount    2018-08-06    2018-09-05    2018-12-31    2019-08-06    2019-12-31    2020-12-31    2022-12-31
15.8%    33.2%     $348      $356      $391      $464      $520      $694      $1,231
2%    35.1%     $304      $312      $343      $411      $464      $627      $1,146
10%    34.1%     $328      $336      $369      $439      $494      $663      $1,192
30%    31.9%     $382      $391      $428      $504      $564      $744      $1,295
50%    30.3%     $427      $437      $476      $557      $620      $809      $1,374
70%    29.1%     $470      $480      $520      $606      $672      $868      $1,445
90%    26.9%     $551      $562      $606      $699      $769      $977      $1,574
98%    25.1%     $630      $641      $689      $788      $862      $1,079      $1,690

Insane Target $7250

Percentile    Implied Discount    2018-08-06    2018-09-05    2018-12-31    2019-08-06    2019-12-31    2020-12-31    2022-12-31
11.8%    37.8%     $348      $357      $396      $480      $546      $753      $1,431
2%    39.6%     $308      $317      $352      $430      $492      $688      $1,341
10%    38.3%     $338      $347      $385      $467      $532      $736      $1,408
30%    35.9%     $399      $409      $451      $542      $613      $833      $1,538
50%    34.3%     $445      $456      $502      $598      $674      $905      $1,632
70%    32.6%     $503      $515      $564      $667      $747      $992      $1,742
90%    30.2%     $597      $610      $664      $777      $864      $1,126      $1,909
98%    28.2%     $692      $706      $764      $887      $980      $1,257      $2,065

 

[EVMeister]

So are your personal thoughts that the Nominal target might be more achievable given Musk's current growth ambitions than any higher level? Or perhaps that they might be somewhat low but the Sport Target is too high? I know these things change with sentiment etc. but just curious to know where you think things currently stand.

 

[jhm]

I think Musk was under pressure to downplay big ambitions in the last EC. He needed to show that Tesla can and will grow just fine without hitting up Wall Street for more cash. I'm not sure if this is just a short term posture while the Model 3 ramps up or if reflect a more permanent shift in the long term ramp.

Certainly @ValueAnalyst was bullish about Tesla growing quite rapidly on a self-funding basis. At a basic level that is what our debate about share dilution was about. I hope this is correct as it would mean that the Insane Target is achievable while even returning some capital to shareholders. That would be a beautiful thing.

On the other hand, less than optimal execution can subject Tesla to longer than expected stretches of cash burn and delay critical ramp up. This is what we have seen with the Model 3 ramp. The whole timeline has been delayed 7 or more months. Production in July or June is where it should have been last December or January. The delay has also meant that the cash burn continued about two quarters longer than it ideally would have. I am very positive that Tesla is on the right track now and that Model 3 is truly explosive growth for the company. But still, Tesla has had to go through a round of layoffs to get through this, and I believe that takes a toll on Elon's sense of responsibility. So I don't think we make up for lost time and we may even proceed on a more cautious basis going forward.

Another issue impacting longterm growth is the pace at which Gigafactories are being developed. We are now hearing a few details about a Shanghai plant and a EU plant likely in Germany. This is positive news, but I think we are at a stage of development that we should have hit 12 months ago. We need to ramp up battery production to about 245 GWh in 2023 to hit a revenue target of $136B in the same year. This implies that battery production needs to advance 70% every year to support 50% revenue growth. Before you can ramp up battery production 70%, you've got to have enough manufacturing floor space to bolt down the equipment. Thus we need multiple GFs that are at just a small fraction of their ultimate capacity. We need construction crews at multiple sites just building out the factory floor and bolting down equipment. We've got to break into parallel growth and not be limited by serial growth at a single GF1. I would not be surprised if a portion GF2 got diverted from solar panel production to battery and perhaps truck production. Tesla's appetite for longterm growth must be fed with batteries.

So Tesla can still hit the Insane Target level, but I think it may come a year or two later, 2029 or 2030 rather than 2028. Does this make a critical difference in whether I will invest in Tesla? No. It is still one of the most dynamic stocks to own for the next decade whether it grows revenue at 50% or 30%. In terms of the BFPT methodology, we do need to be sensitive to the longterm vision that Tesla is setting up in the minds of investors. My sense is that Musk is selling us the Nominal vision right now. Perhaps the Sport or Insane vision will reemerge once Tesla is cranking out an abundance of cash. But for now the goal is to be profitable and cash positive in H2 2018. So I think the market is more likely discounting the Nominal Target than imagining a realistic path to the Sport or Insane Targets. Again all these target prices are achievable, but the question is how long it will take.

For discussion, we might ask ourselves, when do we believe share prices will hit $3250, $5250, and $7250?

 

[beeeerock]

And if the private purchase comes about.... back to the drawing board for blind faith targets?? Perhaps less 'blind faith' when the market is removed from the equation?

 

[Gifford 3]

$450 blind faith for short burn of the century.

 

[jhm]

For many of us, the private conversion will be our last chance to hold Tesla over the next ten years or so. The BFPT approach was designed to track the degree to which the market tends to discount this. The resulting strategy was to wait until the market is down on Tesla and accumulate shares. We will not be able to play that game going forward. Rather we need to decide for ourselves what the next ten years of Tesla ownership is worth to us and make a final adjustment to the size of out holdings.

So how will Tesla be able to grow over the next ten years without the harrassment of shorts and other market aggravations that comes with being a public company. Perhaps the Insane Target $7250 starts to make sense to us. How much annual return to you really require to hold this over the next ten years? This is your discount. So if your discount is 30%, you might buy up to $525 per share. If 25%, $778. Or if only a 20% discount, may be willing to pay up to $1171.

I also think that the anti-dilution of shorts covering some $34M shares short can easily push the price up to $457. So even if one wants to cash out, there may be some good prices over $460.

Good luck whatever your exit strategy may be. Keep the Faith.

 

[adiggs]

I'm wondering where shorts are going to find 34M shares without Tesla providing help. My own reaction is that $420 sounds like too low of a buyout / go private price, and that means I'm keeping everything I have. There are lots of calls at higher OTM strike prices that can help, but that'll necessitate the stock price going WAY over the $420 level.

If somewhere around 85% of shares are in the hands of people that are keeping everything they have, then that leaves ~0 shares for the 34M short shares to buy (my math - 170M shares + ~30M shares short = 200M shares beneficial ownership, 30M need to be bought back by the shorts - it's all approximate).


Then again, I think the company is underpriced today by about 1/2 (IMO $700 is a more reasonable valuation today, than $350). It's all future valuation, but with the Model 3 ramp starting to execute, the arrival of profitability is going to come in a non-linear rush. And with so few shares in circulation, the earnings are going to arrive by the dollars, not the pennies ($2B in profits next year would be better than $10 EPS, in a company growing crazily - that's worth a BIG PE).

 

[jhm]

I'm wondering where shorts are going to find 34M shares without Tesla providing help. My own reaction is that $420 sounds like too low of a buyout / go private price, and that means I'm keeping everything I have. There are lots of calls at higher OTM strike prices that can help, but that'll necessitate the stock price going WAY over the $420 level.

If somewhere around 85% of shares are in the hands of people that are keeping everything they have, then that leaves ~0 shares for the 34M short shares to buy (my math - 170M shares + ~30M shares short = 200M shares beneficial ownership, 30M need to be bought back by the shorts - it's all approximate).


Then again, I think the company is underpriced today by about 1/2 (IMO $700 is a more reasonable valuation today, than $350). It's all future valuation, but with the Model 3 ramp starting to execute, the arrival of profitability is going to come in a non-linear rush. And with so few shares in circulation, the earnings are going to arrive by the dollars, not the pennies ($2B in profits next year would be better than $10 EPS, in a company growing crazily - that's worth a BIG PE).

I got similar anti-dilution results here: TSLA Market Action: 2018 Investor Roundtable

I don't think that Tesla will be making any special offers to help the shorts out. They rented the stock and smashed up the place. Now we are taking the shares back and will be keeping the security deposit.

OTOH, perhaps shorts would like to buy up some convertible debt.

 

[neroden]

I'm wondering where shorts are going to find 34M shares without Tesla providing help.

My very tedious calculation a while ago was that short-term institutional holders (quants like Rennaissance, etc.) were holding about 35M shares. You can see how tight that match is. However, in a buyout, index funds would also have to sell, so there would be somewhat more slack than 1 million shares. Not a lot more though.

My own reaction is that $420 sounds like too low of a buyout / go private price, and that means I'm keeping everything I have.

I agree but I simply can't afford to sacrifice that much liquidity; I can't have over half my personal portfolio tied up in illiquid private equity. I would have to sell some. I don't think $420 is a good price. I want the bid raised.

Then again, I think the company is underpriced today by about 1/2 (IMO $700 is a more reasonable valuation today, than $350). It's all future valuation, but with the Model 3 ramp starting to execute, the arrival of profitability is going to come in a non-linear rush. And with so few shares in circulation, the earnings are going to arrive by the dollars, not the pennies ($2B in profits next year would be better than $10 EPS, in a company growing crazily - that's worth a BIG PE).

I have to say that an attempt to go private now at this price is sharp financial engineering, and I frankly hope they have to raise the price or leave the stock public.

 

[winfield100]

I don't think $420 is a good price. I want the bid raised.

I have to say that an attempt to go private now at this price is sharp financial engineering, and I frankly hope they have to raise the price or leave the stock public.

i may be incorrect, but wont the vote to go private require a recall/closeout of short positions, triggering a bubble in stock price, that may stabilize at far above $420. (I'm seeing a lot of whistle in the dark bluster)(only down $200K in paper losses, well force convert the paper losses to real losses wit the vote, either way longs win it seems)

 

[neroden]

i may be incorrect, but wont the vote to go private require a recall/closeout of short positions, triggering a bubble in stock price, that may stabilize at far above $420.

Well, yes. People who hold long shares will either have to recall them from lending in order to get actual private shares (as I am currently doing) or will tender them for $420 (or whatever), which means they will also have to recall them in order to tender them. Those who tender them might be paid off by their brokerages but the brokerages would still want the shares back from the short-sellers to tender them.

I guess we'll see what the actual buying & selling interest is with the short-sellers driven out. I am certainly hoping it's high enough to stabilize the price well above $420 and force Musk to reconsider th $420 buyout price.

(I'm seeing a lot of whistle in the dark bluster)(only down $200K in paper losses, well force convert the paper losses to real losses wit the vote, either way longs win it seems)

 

[SBenson]

Given that this thread is "blind faith" - that ultimately everything will be resolved favorably and the ultimate goal will be met - I have this chart to present.

Just a disclaimer first: personally I don't subscribe to nor endorse the idea of 'blind faith', just putting this here as an academic exercise.... For those who do, this could be an alternative to Jim's table.

The idea is that we take Musk's comp package end goal as a given (blind faith) - 650Bil market cap by 1/23/2028. Then use the market-cap each day to find the implied market discount in annualized terms.

No dilution assumptions are made, as market cap is used each day. Thus dilution is applied as it happened. No forward projections are made either.

Once again assuming, the end goal is constant - greater the discount, more of a buy it is.

Once again note that the end goal being constant is a super massive assumption - the end goal in reality could very well turn out to be zero (who knows). Having said that here is the chart.

Red line is current level. Green line is the median level since Jul 2013.

As you can see we are well past the SCTY bottom in pessimism. However haven't reached the levels of pessimism at Model-X bottom

 

[generalenthu]

Given that this thread is "blind faith" - that ultimately everything will be resolved favorably and the ultimate goal will be met - I have this chart to present.

Just a disclaimer first: personally I don't subscribe to nor endorse the idea of 'blind faith', just putting this here as an academic exercise.... For those who do, this could be an alternative to Jim's table.

The idea is that we take Musk's comp package end goal as a given (blind faith) - 650Bil market cap by 1/23/2028. Then use the market-cap each day to find the implied market discount in annualized terms.

No dilution assumptions are made, as market cap is used each day. Thus dilution is applied as it happened. No forward projections are made either.

Once again assuming, the end goal is constant - greater the discount, more of a buy it is.

Once again note that the end goal being constant is a super massive assumption - the end goal in reality could very well turn out to be zero (who knows). Having said that here is the chart.

View attachment 341158

Red line is current level. Green line is the median level since Jul 2013.

As you can see we are well past the SCTY bottom in pessimism. However haven't reached the levels of pessimism at Model-X bottom

what price corresponds to that? I am very thankful for the Model X now because, as the 3 takes some marketshare from model S, Model X i suspect will start outselling the S. A family who gets the 3 will find it really tempting to get the X.

 

[adiggs]

what price corresponds to that? I am very thankful for the Model X now because, as the 3 takes some marketshare from model S, Model X i suspect will start outselling the S. A family who gets the 3 will find it really tempting to get the X.

I think the point with @SBenson's post is that this is another way of thinking about BFPT that gets away from share price. Using the idea that market cap in ~10 years is 650B, what rate will the company market cap need to grow at to get to that market cap in that timeframe.

By normalizing on market cap, you lose the share price granularity as you also need shares to turn share price into market cap.

But you can use this market cap view to get an idea of how the changing market cap values relate to each other over time (in terms of the implied discount against the ending market cap in 10 years).


I think I like this way of thinking about it. This puts the current share price at about historically low levels (where history starts July 2013 ).

 

[generalenthu]

I think the point with @SBenson's post is that this is another way of thinking about BFPT that gets away from share price. Using the idea that market cap in ~10 years is 650B, what rate will the company market cap need to grow at to get to that market cap in that timeframe.

By normalizing on market cap, you lose the share price granularity as you also need shares to turn share price into market cap.

But you can use this market cap view to get an idea of how the changing market cap values relate to each other over time (in terms of the implied discount against the ending market cap in 10 years).


I think I like this way of thinking about it. This puts the current share price at about historically low levels (where history starts July 2013 ).

I think we're on the same page. I meant to ask what is the price that corresponds to 34.5% implied discount rate that Tesla got to during the X delay. Didn't mean to quote the whole post.

 

[jhm]

I guess this is a good time to update the BFPTs. As Benson points, out disbelief is at historic highs. Prices are currently so low that any modest recovery of sentiment represents huge upside. For example one-year BFPT at 10% sentiment (quite bearish) is $411. The earth is scorched many times over. The smallest sprout of new hope, if sustained, is enough to move us to a new ATH.

Nominal Target $3250

Percentile    Implied Discount    2018-10-09    2018-11-08    2018-12-31    2019-10-09    2019-12-31    2020-12-31    2022-12-31
0.2%    31.1%     $264      $270      $280      $346      $367      $482      $828
2%    29.4%     $296      $303      $314      $383      $406      $526      $882
10%    28.4%     $320      $326      $338      $411      $434      $558      $919
30%    26.4%     $370      $377      $390      $467      $493      $623      $995
50%    25.2%     $404      $411      $425      $505      $532      $666      $1,044
70%    24.1%     $437      $444      $459      $542      $569      $707      $1,089
90%    22.6%     $491      $499      $514      $601      $630      $773      $1,161
98%    21.8%     $522      $531      $546      $636      $665      $810      $1,201

Sport Target $5250

Percentile    Implied Discount    2018-10-09    2018-11-08    2018-12-31    2019-10-09    2019-12-31    2020-12-31    2022-12-31
0.2%    38.0%     $264      $271      $284      $364      $392      $541      $1,030
2%    35.9%     $304      $311      $326      $413      $443      $602      $1,112
10%    34.5%     $335      $343      $358      $450      $482      $648      $1,173
30%    32.2%     $393      $402      $419      $520      $554      $733      $1,280
50%    30.9%     $430      $440      $457      $563      $599      $784      $1,344
70%    29.4%     $480      $491      $509      $621      $659      $853      $1,428
90%    27.3%     $556      $567      $588      $708      $748      $954      $1,546
98%    26.3%     $601      $613      $634      $759      $800      $1,011      $1,613

Insane Target $7250

Percentile    Implied Discount    2018-10-09    2018-11-08    2018-12-31    2019-10-09    2019-12-31    2020-12-31    2022-12-31
0.2%    42.9%     $264      $272      $286      $377      $409      $584      $1,193
2%    40.7%     $304      $313      $329      $428      $463      $651      $1,290
10%    38.7%     $346      $356      $373      $480      $518      $719      $1,384
30%    36.3%     $407      $418      $437      $555      $596      $813      $1,512
50%    34.7%     $455      $466      $487      $613      $656      $885      $1,606
70%    33.0%     $513      $525      $547      $682      $728      $969      $1,713
90%    30.6%     $608      $621      $646      $794      $843      $1,102      $1,880
98%    29.4%     $661      $675      $701      $855      $907      $1,174      $1,967

 

[EinSV]

I guess this is a good time to update the BFPTs. As Benson points, out disbelief is at historic highs. Prices are currently so low that any modest recovery of sentiment represents huge upside. For example one-year BFPT at 10% sentiment (quite bearish) is $411. The earth is scorched many times over. The smallest sprout of new hope, if sustained, is enough to move us to a new ATH.

As another measure of the disconnect between performance and share price, it's interesting to look back at the beginning of this thread. One of the assumptions underlying "blind faith" was that Tesla could grow revenues at 50% with a target of 10% margins after 10 years or so:

The basic idea is to understand Musk's view of Tesla's long-term term growth potential. The most essential assumption he makes is that Tesla should be able to grow revenue by about 50% per year for the next ten or more years. Recent developments in stationary storage reinforce this outlook. The second key assumption is that Tesla will work towards a 10% profit margin across the business. This assumption is hard to support with recent experience, but Tesla has exhibited a strong commitment toward hitting gross margin goals. The combination of solid GM and scale does work toward realizing a solid profit margin some years out.

Since that time (May 2015), revenues have grown above 50% per year.

And this past quarter -- only 3.5 years later -- Tesla has already achieved operating margins of 6.1%. This is much sooner than even most optimistic investors expected.

I think it is fair to say that performance has met and actually exceeded the "blind faith" assumptions so far.

From the "weighing machine" perspective, Tesla definitely seems on the right track, and the product roadmap for the next five years suggests it is likely that Tesla can continue along the same path or even better so long as it can continue to execute on its plan.

If that happens, it seems like just a matter of time before the market responds. The numbers just become too good to ignore at some point.

 

[EVNow]

I guess this is a good time to update the BFPTs. As Benson points, out disbelief is at historic highs. Prices are currently so low that any modest recovery of sentiment represents huge upside. For example one-year BFPT at 10% sentiment (quite bearish) is $411. The earth is scorched many times over. The smallest sprout of new hope, if sustained, is enough to move us to a new ATH.

Nominal Target $3250

Percentile    Implied Discount    2018-10-09    2018-11-08    2018-12-31    2019-10-09    2019-12-31    2020-12-31    2022-12-31
0.2%    31.1%     $264      $270      $280      $346      $367      $482      $828
2%    29.4%     $296      $303      $314      $383      $406      $526      $882
10%    28.4%     $320      $326      $338      $411      $434      $558      $919
30%    26.4%     $370      $377      $390      $467      $493      $623      $995
50%    25.2%     $404      $411      $425      $505      $532      $666      $1,044
70%    24.1%     $437      $444      $459      $542      $569      $707      $1,089
90%    22.6%     $491      $499      $514      $601      $630      $773      $1,161
98%    21.8%     $522      $531      $546      $636      $665      $810      $1,201

Sport Target $5250

Percentile    Implied Discount    2018-10-09    2018-11-08    2018-12-31    2019-10-09    2019-12-31    2020-12-31    2022-12-31
0.2%    38.0%     $264      $271      $284      $364      $392      $541      $1,030
2%    35.9%     $304      $311      $326      $413      $443      $602      $1,112
10%    34.5%     $335      $343      $358      $450      $482      $648      $1,173
30%    32.2%     $393      $402      $419      $520      $554      $733      $1,280
50%    30.9%     $430      $440      $457      $563      $599      $784      $1,344
70%    29.4%     $480      $491      $509      $621      $659      $853      $1,428
90%    27.3%     $556      $567      $588      $708      $748      $954      $1,546
98%    26.3%     $601      $613      $634      $759      $800      $1,011      $1,613

Insane Target $7250

Percentile    Implied Discount    2018-10-09    2018-11-08    2018-12-31    2019-10-09    2019-12-31    2020-12-31    2022-12-31
0.2%    42.9%     $264      $272      $286      $377      $409      $584      $1,193
2%    40.7%     $304      $313      $329      $428      $463      $651      $1,290
10%    38.7%     $346      $356      $373      $480      $518      $719      $1,384
30%    36.3%     $407      $418      $437      $555      $596      $813      $1,512
50%    34.7%     $455      $466      $487      $613      $656      $885      $1,606
70%    33.0%     $513      $525      $547      $682      $728      $969      $1,713
90%    30.6%     $608      $621      $646      $794      $843      $1,102      $1,880
98%    29.4%     $661      $675      $701      $855      $907      $1,174      $1,967

$346 on 11/08 (next Wednesday) - which is quite possible - is at 0.2% of the Nominal BFPT !