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This comment leads me to believe you have not spent real time driving the car. The P85+ blows the doors off the 2012 Porsche 991 911S that I sold this summer. If any cars are outdated, it is the ICE products from Porsche, BMW, Audi, etc., not Tesla.
JRP3
Hyperactive Member
Realist's last post points out exactly why he gets "jumped on". He's created an unrealistic scenario and based his investing strategy on it.
among more complicated analysis around sales growth, costs, margins, discount rates, etc that I like to do around major positions I hold I also like the simple ones.
I agree with Realist that it is all about valuation. So at a $20B valuation for a company with high growth prospects I start with P/E guesstimates. I don't think the existing automakers are a good benchmark any more so than newspapers were for internet companies 5-10 years ago. Any of the publishing companies could have built substantial internet portals, search engines, apps, etc., but the fact is that they were too tied to existing business models and internal structures (talent / lack of talent included) to do so. this is a common story with companies that provide substantial technology disruption and you either believe it or not.
So at a P/E of 20 and a valuation of $20B what would it take/ when could TSLA reach this? If Elon says 25% margins for the Model S and X and average selling price of $100k (this is the EASY math version) then TSLA would need $4B in revenues or 40,000 vehicles sold. Seems to me that they will hit this run rate by the end of next year at 800 vehicles / week. that would put them at a revenue multiple of 5 and earnings multiple of 20, neither of which are particularly unreasonable for a high growth company that is a major disruptor.
Of course this is an oversimplified analysis, but they too have utility.
I agree with Realist that it is all about valuation. So at a $20B valuation for a company with high growth prospects I start with P/E guesstimates. I don't think the existing automakers are a good benchmark any more so than newspapers were for internet companies 5-10 years ago. Any of the publishing companies could have built substantial internet portals, search engines, apps, etc., but the fact is that they were too tied to existing business models and internal structures (talent / lack of talent included) to do so. this is a common story with companies that provide substantial technology disruption and you either believe it or not.
So at a P/E of 20 and a valuation of $20B what would it take/ when could TSLA reach this? If Elon says 25% margins for the Model S and X and average selling price of $100k (this is the EASY math version) then TSLA would need $4B in revenues or 40,000 vehicles sold. Seems to me that they will hit this run rate by the end of next year at 800 vehicles / week. that would put them at a revenue multiple of 5 and earnings multiple of 20, neither of which are particularly unreasonable for a high growth company that is a major disruptor.
Of course this is an oversimplified analysis, but they too have utility.
marvinat0rz
Member
This analysis is off by at least a factor of two since you need to use net margin and not gross margin. So you probably need at least slightly better accuracy for a serious bull case.
The crucial key to my thesis are the warranty claims.
The initial gross margin is not going to help you when warranty claims explode. And this is what I see from several sources incl. this forum.
The Model S has a 50.000 mile warranty. Imagine one serious battery problem and it destroys the profit margin for 3 or more cars.
Getting the quality right is everything to get sustainable profit in this industry. Tesla is a very long way from that. I believe Musk is clearly underestimating this factor.
If this warranty claims will show up in the numbers, basically showing Tesla's inability to create any positive cash flow, it should be a shock to the bulls.
The initial gross margin is not going to help you when warranty claims explode. And this is what I see from several sources incl. this forum.
The Model S has a 50.000 mile warranty. Imagine one serious battery problem and it destroys the profit margin for 3 or more cars.
Getting the quality right is everything to get sustainable profit in this industry. Tesla is a very long way from that. I believe Musk is clearly underestimating this factor.
If this warranty claims will show up in the numbers, basically showing Tesla's inability to create any positive cash flow, it should be a shock to the bulls.
So other manufacturers cars don't have warranties or problems? You are really grasping here, and your track record is sad.
I agree on the point of pure fundamental valuation, but this has always been the lifelong debate in the world of finance, and I understand the concepts of cash burn/generation. I hate to say it but your thesis is all over the place. You say it hinges on warranty, then you change to say that they cannot sustain sales, then you talk about margins and how they are seemingly razor thin.
Can you please provide an example of a warranty claim and its financial impacts, I haven't found anything? In fact it's inherently less of an expense for Tesla. Problems are easily identifiable and with the way the car is made everything is modular with less parts. If there's a serious failure in the motor... switch the entire assembly out. If there's a problem with the battery... swap it out. I don't see the issue.
I give you credit for having conviction in your case of shorting, but it's on the delusional side of things because it it's baseless. At least the bulls have a case for a direction. I don't see yours. Yes, you can say that people are crazy to keep going back to the question of "have you driven the car?" but this matters. If you haven't, then how can you say it's outdated? Can you please let us know why you think the vehicle is outdated?
Your comparison's to Fisker are dead wrong as well. If you had any sense of business and understanding management metrics/performance/basics you'd know why you were wrong and how it's flat out ignorant to even draw this comparison. You also say that quality is underestimated at Tesla, well this is flat out wrong. Conference call after conference call, this point is stressed in manufacturing Q+A. Gilbert and Elon aren't scrubs they have a track record for quality. There's a reason why he was sleeping on the manufacturing floor during ramp up and why his office is there. The focus is there and I highly suggest you focus on what the real reasons you short so you don't lose your shirt in the long term.
Can you please provide an example of a warranty claim and its financial impacts, I haven't found anything? In fact it's inherently less of an expense for Tesla. Problems are easily identifiable and with the way the car is made everything is modular with less parts. If there's a serious failure in the motor... switch the entire assembly out. If there's a problem with the battery... swap it out. I don't see the issue.
I give you credit for having conviction in your case of shorting, but it's on the delusional side of things because it it's baseless. At least the bulls have a case for a direction. I don't see yours. Yes, you can say that people are crazy to keep going back to the question of "have you driven the car?" but this matters. If you haven't, then how can you say it's outdated? Can you please let us know why you think the vehicle is outdated?
Your comparison's to Fisker are dead wrong as well. If you had any sense of business and understanding management metrics/performance/basics you'd know why you were wrong and how it's flat out ignorant to even draw this comparison. You also say that quality is underestimated at Tesla, well this is flat out wrong. Conference call after conference call, this point is stressed in manufacturing Q+A. Gilbert and Elon aren't scrubs they have a track record for quality. There's a reason why he was sleeping on the manufacturing floor during ramp up and why his office is there. The focus is there and I highly suggest you focus on what the real reasons you short so you don't lose your shirt in the long term.
Johan
Ex got M3 in the divorce, waiting for EU Model Y!
Warranty claim worries is a valid concern. So is a fire that destroys the NUMMI (Tesla have only one plant and are vulnerable in that respect). So is a big earthquake that shuts down Panasonic battery factory (until they have secured other suppliers). Etc. etc. But are you really building your short case on this?
assuming an 80k asp and a 25 percent GM that statement says that replacing one battery under warranty would cost Tesla 60k or more. That is higher even then their retail price on these batteries. While I am glad you are posting here and warranty claims could become an issue .... you are clearly exaggerating when you say one bad battery would eat the profit of 3 or more cars.
The financial impact of warranty claims do become an issue when rising beyond the calculated provisions.
The Model S has serious major issues. Just browse through this forum, the car is not on a competitive level regarding quality. And you cannot sort it out from one Day to the next. It takes years to get it right. Most failures in the car industry happened because of quality issues.
The over optimistic view on demand and technology, the competition and the overall weak financial condition are other points, still the warranty claims are the major factor the market seems to overlook for the moment.
The valuation is far beyond any reasonable approach. But since were are in a bubble it could become 300 before turning to 50 and lower. In the long term I see very little chance for Tesla to survive.
The Model S has serious major issues. Just browse through this forum, the car is not on a competitive level regarding quality. And you cannot sort it out from one Day to the next. It takes years to get it right. Most failures in the car industry happened because of quality issues.
The over optimistic view on demand and technology, the competition and the overall weak financial condition are other points, still the warranty claims are the major factor the market seems to overlook for the moment.
The valuation is far beyond any reasonable approach. But since were are in a bubble it could become 300 before turning to 50 and lower. In the long term I see very little chance for Tesla to survive.
sub
Active Member
Speaking of out dated, the car we are needing to replace is a 2001 BMW 3 series wagon. I've spent thousands over the last few months keeping it on the road, it burns a quart of oil every couple of weeks. It has 150k miles. We have test driven new BMW wagons and I refuse to buy one, they are only slightly improved in the last 13 years and I can't justify spending 5k, why would I spend 40-50k?!
we just did our 2nd test drive, it's been hard getting my wife on board. Plan was to test drive model S then head to ice dealers and probably buy something because my wife insisted she couldn't do the tesla. After our tesla test drive, we didn't bother going to look at ice vehicles, pointless. We will be buying our tesla shortly.
why the long story? This is what the shorts are missing, hard to break this sentiment down with a calculator, can't stop the momentum now.
we just did our 2nd test drive, it's been hard getting my wife on board. Plan was to test drive model S then head to ice dealers and probably buy something because my wife insisted she couldn't do the tesla. After our tesla test drive, we didn't bother going to look at ice vehicles, pointless. We will be buying our tesla shortly.
why the long story? This is what the shorts are missing, hard to break this sentiment down with a calculator, can't stop the momentum now.
Johan
Ex got M3 in the divorce, waiting for EU Model Y!
This claim has no root in reality. Clearly you must have some better source for this claim than this forum. There is going to be a hughe bias towards error and problem reporting on a forum like this. Please tell me you have not based a large part of your short thesis on such weak assumptions.
One hard fact, that we do have, is that even though warranty work/claims has never been a singled out cost post in the quarterly reports, it would have been very hard to hide these costs were they in fact substantial. There is no sign of these costs having been of significance in any of the last quarterly reports. Now I know you will say that the cars have only been on the road for a short time and that in time they will start to fail/break down/require a lot of warranty work etc. etc. etc. But again I ask what are you basing this assumption on???
Tesla refurbishes pretty much every part. Battery problems are dirt cheap to warranty, as you only have to replace what is bad.
Congratulations you understand basic budgeting of cash inflow and outflow, but you missed my point. Where did you get the numbers for 1 warranty claim takes out profit margins of 3 cars. Which serious major issues are you referring to? Creaking windshields? Moonroof wind noise? Even Honda's and Acuras have this problem. This is industry wide and you are looking at a very limited sample size. For every 1 car there's an issue with there are 10 or more (just giving an example) that are more than fine. There's confirmation bias on the negative side as well, people are more inclined to write negative reviews than positive ones. Give me some serious major issues. Don't even talk about German cars and quality because quite frankly most of them don't hold up well under normal usage after a certain point. This isn't even up for debate, it's damn near fact based on empirical evidence. It's called planned obsolescence. Why do you think most luxury cars are leased? Why do you think they started maintenance free service plans till 3 years/30,000 miles. More importantly, I still haven't seen any data or facts to back up your point. You talk about financial stability like it's Tesla a la 2008. It's simply not. You clearly have no handle on the way a company works.
And no, most failures in the car industry do not happen because of quality issues directly. Do a full analysis up the chain from product to boardroom and you will see where the issues lie. Quality is only as good as it's management. Henrik Fisker didn't give a damn about engineering which led to his quality issue... too much heat leading to burning cars. DMC was promising, but they had quality issues because John Delorean was a drunk and didn't care. GM had an issue because executives were too busy playing boardroom games while competitors surpassed them.
It's good that you are posting this because it's quite a good representation of common market sentiment. Human beings are sheep. Believe what you want to believe, but most of the Tesla bulls are contrarians and its these people that make it successfully. Had you made this argument before the Model S was launched it would be more feasible. You say that Tesla has very little chance to survive, but I am more inclined to believe the minds that are greater than yours and mine such as Elon Musk, JB Straubel, Akio Toyoda, and others. I suggest you disconnect your heart from your head and take a breather and think about the baseless arguments you are putting out.
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I never said they weren't a valid concern, but I want to see his analysis on the financial impact. I haven't seen squat. If he's making assertions, he needs to be able to back them up on stuff other than emotions and hopes and dreams of Tesla's demise. Truthfully I could care less on what he bases his short case on because I enjoy free lunches, but if he's trying to sway others into believing stupidity there's a serious problem with that.
Johan
Ex got M3 in the divorce, waiting for EU Model Y!
... So then you and I are in agreement then
What I meant was that if there were real data pointing towards poor quality then warranty costs would be a valid concern. But to just throw it out there as a valid concern, without any data supporting it, would mean that any likely and unlikely catastrophe that could hit Tesla is a valid reason to short the stock (which it is of course not).
NigelM
Recovering Member
Quote of the day IMO. There's plenty of folks on TMC who've played with puts and call and at various times many of them have effectively bet that the price is going down; just so happens there's a few folks that think it's going down much more than others....it's just a question of degree.
anticitizen13.7
Not posting at TMC after 9/17/2018
A startup company like Tesla, which is a manufacturer, has to re-invest money in physical plant expansion and R&D for future products. I don't believe that standard models of present valuation apply, because the company is still working towards its goal of building cars in the Hundreds of Thousands (300k+/year) rather than in the Tens of Thousands (20k+/year). Nobody, whether Bull or Bear, is going to have any good indication in the near term of what the company will be actually worth 5-10 years down the line. Is investing in Tesla something akin to speculation? Probably, but all new ventures come with uncertainty and risk.
The stock could ultimately go to $1,000+/share, or be worth $0/share. Nobody knows.
I want to address the bolded comment, because it's a common criticism leveled against the Model S. I believe people claim that Model S is "oudated" because it currently lacks several features found in similarly priced cars.
In its very comprehensive review, Ars Technica says as much: http://arstechnica.com/features/2013/10/review-tesla-model-s/3/
However, it is much easier for Tesla to add the features it doesn't have to its cars, than for BMW and Audi to add Tesla-like technology to its existing platforms. Stuff like Adaptive Cruise Control and IR cameras are relatively inexpensive electronics. It should not be difficult to integrate these systems into the Model S. In contrast, for BMW or Audi to replicate the Tesla driving experience, they would have to engineer whole new mechanical platforms around an electric powertrain, develop a large battery system, create a Supercharger-class DC charging system, deploy a network of Superchargers, and sell these high performance electric cars alongside their ICE counterparts.
For Tesla to catch up on the gadgets will not be difficult. For BMW and Audi to catch up on the paradigm shift to electric cars is a much more difficult path. By the time BMW has something that can compete with a Model S in several years (if they choose to build a 5-series sized electric), it will be too late. Tesla's Supercharger network grows by the week. Tesla will have made serious inroads into China, where big American cars are seen as a prestige purchase.
Based on Tesla's last SEC Filing warranty accrual rate is below 3% of revenue. That is among the lowest rate of the industry equal to japanese and much lower than my german friends.
I find it hard to believe that such a young company with a basically new and unproven technology can achieve anything close to that, especially considering the fact that they have a 8 year warranty on the battery.
You can make your own calculation if real warranty expenses are 10% of revenue. The effect on the profit margin is severe. Interesting to note during Roadster production accrual rate was 6%. And that car was plain simple in comparison to the Model S.
I find it hard to believe that such a young company with a basically new and unproven technology can achieve anything close to that, especially considering the fact that they have a 8 year warranty on the battery.
You can make your own calculation if real warranty expenses are 10% of revenue. The effect on the profit margin is severe. Interesting to note during Roadster production accrual rate was 6%. And that car was plain simple in comparison to the Model S.
anticitizen13.7
Not posting at TMC after 9/17/2018
http://www.consumerreports.org/cro/news/2013/10/tesla-model-s-recommended-reliablity/index.htm
(1) Tesla had lots of data from the Roadster to use when designing the Model S battery pack. Its not like the concept is completely novel.
(2) Electric powertrains are inherently simpler than internal combustion engines. Look at the Tesla Model S motor + single gear. Then look at a Honda J35Y1 V6 engine + 6-speed automatic. Which one has more parts that can fail?
Also, even in the event of a battery or motor problem, repairs are much easier on a Tesla Model S than they are on a conventional petrol automobile. Dropping out the battery is a trivial task for the service center. The powertrain is easily accessed as well. To pull an engine out of something like a Honda is much more complicated and requires a lot of $ cost in labor.
I'd like to hear anyone dispute the points I've made. I was (and still am, to some extent) a big Honda supporter, and I think Honda engines are great engineering, but any way I look at this, Tesla's way of making an automobile is the future.
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