Devils advocating...from someone who shorted TSLA

[marvinat0rz]

It's perfectly okay to be skeptical of today's valuation. Tesla is a growth company and will not be priced on fundamentals for a long time. The correct, "final" price of the stock is whichever amount of money Tesla will make in profits over its entire history, inflation-adjusted. A reasonable "buy" price today is some form of risk-weighted version of this number. But it is pure speculation. Most people on this forum believe that Tesla will be a major automaker in ten years or even disrupt the business model/steal the business of established automakers, and hence today's price seems reasonable.

I claim that it will for the forseeable future be impossible to convince either side of the argument with numbers and analysis. If at some point Tesla is valued higher that it will be *possible* to make in profits, that will be a major red flag which should hopefully convince people. On the other hand, if Tesla is suddenly priced at the same P/E and P/B ratio as General Motors, that will be a massive signal to buy. But unless we reach those points, I don't think anyone will be easily convinced to change their minds.

 

[callmesam]

I'm getting a bit concerned about the following:

1. The recall

2. The increase in price of the extended warranty from $2500 to $4000

3. Increase in prices of other components (air shocks, 21"wheels, paint armor).

This signals that quality issues are much more of a concern than they were 6 months ago.

Low ongoing expenses used to be one pillar of the value proposition for Tesla Motors and the Model S. With the elimination of the 40kwh, coupled with the addition of the P+ model, it appears that Tesla will only have the GenIII for the middle end.

 

[JRP3]

I'm getting a bit concerned about the following:

1. The recall

Why? Seems like a non issue, and well handled.

2. The increase in price of the extended warranty from $2500 to $4000

Yeah, kind of crappy, and something of a concern.

3. Increase in prices of other components (air shocks, 21"wheels, paint armor).

It's a way to keep margins up without raising base car pricing. Not sure that's so bad.

This signals that quality issues are much more of a concern than they were 6 months ago.

I'm not sure that's a valid conclusion.

Low ongoing expenses used to be one pillar of the value proposition for Tesla Motors and the Model S. With the elimination of the 40kwh, coupled with the addition of the P+ model, it appears that Tesla will only have the GenIII for the middle end.

I don't see how the addition of the P+ affects the middle end, and 40 demand just wasn't there, so eliminating the extra expense of building a low demand model made sense.

 

[Norse]

The recall was more of an issue short-term IMO. It was handled well, but they would probably made some more cars this quarter if it didnt happen.

 

[jeff_adams]

The recall was more of an issue short-term IMO. It was handled well, but they would probably made some more cars this quarter if it didnt happen.

I was actually quite impressed with how the recall was handled. They caught the issue quickly, were aggressively proactive about repairs on a somewhat minor problem and showed they care about owner safety. It makes me think they will be even more diligent in the future.

 

[callmesam]

Why? Seems like a non issue, and well handled.
Yeah, kind of crappy, and something of a concern.
It's a way to keep margins up without raising base car pricing. Not sure that's so bad.
I'm not sure that's a valid conclusion.
I don't see how the addition of the P+ affects the middle end, and 40 demand just wasn't there, so eliminating the extra expense of building a low demand model made sense.

1. Recall by itself handled very well.

2. Tesla is "not demand constrained" and should charge every dollar the market will bear.

3. The cost increase of the air shocks by 50% gives me concern that they may not be as robust or may have higher warrant costs, which dovetail to

4. Increased extended warranty costs may add to the bottom line, OR may be indicative that the reliability of the vehicle may not be as robust as first envisioned.

I agree that demand caused the decrease in affordability.

Tesla is becoming the apex of luxury. This, by itself, is neither good nor bad. Given the launch into China and it's thirst for lux and technology, Tesla may sell 50% of it's cars in Asia.

 

[Norse]

I was actually quite impressed with how the recall was handled. They caught the issue quickly, were aggressively proactive about repairs on a somewhat minor problem and showed they care about owner safety. It makes me think they will be even more diligent in the future.

Yeah for the long run it was good, I just hope they didnt spent to much time fixing cars, instead of making them

 

[cwerdna]

I also agree the recent recall isn't of significant concern. What would be of concern is if there are many large recalls in the future.

It's perfectly okay to be skeptical of today's valuation. Tesla is a growth company and will not be priced on fundamentals for a long time.

Yep. Probably right on that.

On the other hand, if Tesla is suddenly priced at the same P/E and P/B ratio as General Motors, that will be a massive signal to buy. But unless we reach those points...

I haven't run the numbers but OTOH, that would mean TSLA would have to drop MASSIVELY to reach that.

 

[Al Sherman]

Frankly, I miss Realist. I've read the thread "cover to cover" and though I understand very little it makes me proud to be a part of this Forum. You guys are so freaking smart and well prepared/researched. Most impressive!

My personal story is that I was lucky. I have always paid professionals to manage our portfolios. In the case of Tesla I've been emotionally involved for a long time. Usually buying stocks on emotion has not worked for me. I couldn't help myself with TM and bought a lot. It seems to be working out this time.:smile:

BTW: What is an "astroturfer?"

AND: Was Realist the same guy that started the thread on the car dealerships? I didn't think that guy was from Germany? Was it the same guy under a different name?

 

[Realist]

AND: Was Realist the same guy that started the thread on the car dealerships? I didn't think that guy was from Germany? Was it the same guy under a different name?

No, I do not have 2 names here.

And if anyone is interested, I am still short of course. And I am happy to admit, it has been a pain so far.

Nevertheless, for the time being I stick to it.

With the convertible bonds we are close to a 15 Billion market cap. That's about 1/3 of GM with 200.000 full time employees and 8 Billion EBIT a year at app. 36 billion equity.

TSLA has 3.000 employees, no EBIT and less than 1billion equity.

It's still a long way to go.

 

[Right_Said_Fred]

No, I do not have 2 names here.

And if anyone is interested, I am still short of course. And I am happy to admit, it has been a pain so far.

Nevertheless, for the time being I stick to it.

With the convertible bonds we are close to a 15 Billion market cap. That's about 1/3 of GM with 200.000 full time employees and 8 Billion EBIT a year at app. 36 billion equity.

TSLA has 3.000 employees, no EBIT and less than 1billion equity.

It's still a long way to go.

I think having 200,000 employees is a better reason to short a stock than having 3,000 employees. They cost a lot of money! It's total output, output per employee and (future) profitability that should determine the value of a stock and whether it is overvalued.

 

[Robert.Boston]

BTW: What is an "astroturfer?"

Astroturf = fake "grass roots". Certainly didn't apply to @Realist.

Welcome back, @Realist.

 

[kevin99]

Astroturf = fake "grass roots". Certainly didn't apply to @Realist.

Welcome back, @Realist.

Realist! It is time to for both of us to report out position and p/l as we had a pact!

I am happily riding the wave. This morning I did sell out call @125 for this week. Hopefully TSLA is not running up so crazily as it has been. Please stop at 125, just for 3 more days so I can collect the premium! That is the only short window I can see. Still I could lose money there, which will reduce some of my gain on my core long position. I still have tons of positive delta.

On a separate note, I am one of the 20 Founder members of the TESLIVE next weekend. Looking forward to seeing all of you there!

 

[Eberhard]

I don't think he shorted the stock. That is pretty difficult to do from Germany; you can't just go to your bank - there are hundreds of them - and open a trade account which allows you to short a US-stock, especially one that isn't a big cap (I know, Tesla is getting there).

in fact its really easy.

open an account with any american broker like interactive brokers

Eberhard

 

[jrickard]

I do not want to go that much off topic here as the carbon footprint of electric cars has already been discussed over and over again.
In case of the Tesla supercharger there is one important aspect that just seems to be ignored.

Due to the fixed resistance of the battery (impedance) and the basic relation of P=I^2xR your charging losses will rise exponentially in relation to the power you are using. I have no specific data on the Supercharger but even tesla cannot rewrite the laws of physics. At least they recommend not using the Supercharger all the time due to balance issues on the battery. Still, with the Supercharger your charging losses will be at least 3 times higher than on your standard 24A solution at home.

s.

Well let's not ignore it any longer. You have no idea what you are talking about. But it is very interesting to hear from the shorts on this forum. Thanks for posting here. I predicted the "short squeeze" on our weekly video at EVTV.me
nearly two years ago. Took on some June $47 call options in February and expect my new $107,000 Model S sometime between July 22nd and August 5th. Actually, I was one of the first reservations but decided to cancel and use the money in the squeeze. So I want to thank you from the bottom of my pants for helping fund my new Tesla Model S with your misinformation and disinformation. You're out there working for us and we deeply appreciate it.

Lest anyone ELSE however be so woefully misinformed. The shorts never did drop to what you stated. Low point was May31 reporting at a little over 18 million - just under 24%. It is now at 19.9 million, which indicates to me that the truly overblown price today of $123 WILL in fact be blown out entirely to my prediction of six months ago of $140. In fact, that's starting to look a little soft. When will you guys learn.

Your fantasy of having some sort of technical knowledge of the laws of physics has to be corrected. The concept of the "internal impedence" of a battery is constantly confused. There is a diffusion capacity that we more properly term an "equivalent series resistance" that a lot of bobos have mangled into this magical "internal resistance" and indeed, ohms law does appear to apply, even though the battery has no "resistance" at all. That's why it is an equivalent series resistance.

That said, we have demonstrated fast charge on LiFePo4 cells at 3C to 95% charge with less than a 10Fahrenheit rise in anode temperature and no change in "efficiency" at all. I have to believe that the Lithium nickel aluminum manganize oxide hybrid cells used in the TEsla Model S will behave quite similarly. There is no chemistry indicating otherwise. And unless you charge the cells above 95% state of charge, there really is no mechanism to pose a "balance problem" either. Pure myth.

In short, after reviewing your posts, you present a veritable fount of misinformation, myth, and nonsense that kind of explains the prevalence of shorts in this market. This morning TSLA was added to the NASDAQ 100 by the way, displacing ORACLE.

In any event, there is no "wasted" energy or efficiency issue with fast charging as performed by the Model S or any power level remotely within the grasp of a fast charger in the realistic future. In fact, we are having extreme difficulty reproducing claims of decreased cycle life in any charge scenario up to 3C. 3C on an 85 kWh Model S would require over a quarter million watts of power - not even remotely available in the near future.

You may fast charge at will without concern.

The aspect of "undercharging" your cells, which is actually enabled on the Model S, is quite real. This will indeed extend the life of your cells and unfortunately, the type of cells Tesla has chosen are kind of notoriously short lived, with almost no motivation for the manufacturer to do any work to change that.

Again, thank you for a totally free Tesla Model S. Keep investing with heart, mind, and of course all that knowledge you carry around. You guys make me look very good. And we've heard from hundreds of viewers who at large levels and small, have all taken a bite on the TSLA stock runup - it being for some their first adventure in investing in the stock market.

Regards;

Jack Rickard

 

[brianstorms]

(That wouldn't be Jack Rickard from Colorado and Boardwatch Magazine fame, would it? If so, long time no see! I founded Coconut in 1987.)

 

[AudubonB]

Astroturf = fake "grass roots". Certainly didn't apply to @Realist.Welcome back, @Realist.

OK, so now I'm even more confused. What does "grass roots", fake or real, have to do with trolls, and so on? I give Herr Realist a tip of the hat, as he shows more gumption than I would have in not only posting, fairly steadfastly, what has been a bad call, but doing so in the middle of a lion's den. I know when I foul up that badly, I tend to keep quiet about it! Okay, here's one: buying a certain.... iStock .... in the high $500s and holding on to it ever since. Ouch. On the other hand, it's less than 2% of my holdings.Another value Realist gives to this forum is a demonstration of the reasons and ideas - well- or ill-founded as they may be, for the bear story regarding TSLA. Cupcakes: EVERY company has a bull and bear story. Every one. No ying without yang; there's no one-hand clapping. His good reasons should be listened to; his bad ones should be rebutted. It is MUCH better to have a Jeremiah around than to have everyone clapping each other on the back all the time telling ourselves how smart we are. There's a fine locker-room term for that I'll let you all contemplate.

- - - Updated - - -

Once again: WHAT'S HAPPENED to my paragraphs? They keep running together!

 

[jrickard]

No, I do not have 2 names here.

And if anyone is interested, I am still short of course. And I am happy to admit, it has been a pain so far.

Nevertheless, for the time being I stick to it.

With the convertible bonds we are close to a 15 Billion market cap. That's about 1/3 of GM with 200.000 full time employees and 8 Billion EBIT a year at app. 36 billion equity.

TSLA has 3.000 employees, no EBIT and less than 1billion equity.

It's still a long way to go.

Ok. A few words of help. I feel your pain. It's a bit of a mess. But for the past 20 years all the 10 baggers have been disruptive technology companies with huge growth factors. The key element to watch is of course growth management. That growth is the kind of problem to have doesn't change the fact that its a problem.

Attempting to do a valuation based on fundamentals, sales, profit margins, and so forth is going to cost you a lot of money. I've been following tech stocks since the 1980's and it is a little bit of a different game. Nobody cares about the fundamentals - its all about the growth rate and how long it can be sustained. And it's happened over and over and over - Worldcom, and Microsoft and Cisco Systems and Google and AOL and eBay and Yahoo and currently NEtflix and LinkedIn and et al. They do go up. And yes, they do go down. And never, never, never about "valuation". We make money from valuation guys day in and day out and month in and month out.

I would be ok with the valuation guys if they would invest for value and take their 6% and go on. But they want to get in and make a killing on timing a bubble. And they never understand any of the dynamics of bubbledom. Largely because they are valuation analysts. Accountants can't play this game.

It works entirely on growth, and momentum. And it comes unravelled on growth management, and the cruel realities of the law of large numbers.

Tesla poses a real possibility of a dramatically disruptive technological revolution, going quite beyond moving down the road on batteries, but also to the way cars are designed, the way they are manufactured, and most importanly on how they are marketed. If successful, there is an $85 BILLION dollar a year market out there. And right now they seem headed for a heady $2 billion of it - 2.3%. So there is a LOT of room for growth if it turns out the car is desireable and they can use these design, manufacturing, and sales techniques to manage that growth.

Their profit margin, the number of car sales, sales per employee, value of plant and equipment, equity, debt, lack of debt, etc etc etc has NOTHING to do with the stock price and won't for years. How fast will they grow? And how long can they grow at that rate? And will the growth kill them.

The law of large numbers is the ultimate demise all succumb to. If you have $50 million in sales, you need to find another $50,million in sales to achieve 100% growth. At a billion in sales. You need a billion. But once you get to 40 or 50 billion in annual sales, finding another 50 billion is a LOT of new sales. The law of large numbers. Apple. Cisco. Microsoft. AOL. Google never seems to mind it. But it will get them eventually.

And there is managing the growth. Often the skills to lead a company to a hundred million in annual sales are not precisely the same skills required to go to a billion, or ten billion. And so managing growth is a huge issue.

So the stock price of TSLA will revolve around potential growth, and an every day evaluation of how well the management team deals with growth. Anyone picking their nose over profit margins, valuation, debt, etc will get slaughtered. It's about growth. And it's about growth management for some time with TSLA.

The NUMI plant, which Toyota essentially GAVE them by swapping it for stock, is just a jewel. They can grow a LOT without the enormous disruption and dilution of moving or building new plants. They will have plenty of issues with charge stations, service locations, and stores without having to worry about the production plant.

Short term, you'll see a little runup to July 22nd and a little dip after the earnings are released. Grab it to cover short positions. I'll sell on the afternoon prior to earnings and buy back in two days later - after all lthe valuation losers have had their say.

Tesla IS going to have a row to hoe making the case after the low hanging fruit are gone. But at this point I think they'll make it. In fact, the car is starting to look like a cultural icon and fashion statement. If that gets started, all bets are off. We could actually see a SECOND short squeeze in the same year.

Jack Rickard
http://www.EVtv.me

 

[callmesam]

Tesla IS going to have a row to hoe making the case after the low hanging fruit are gone. But at this point I think they'll make it. In fact, the car is starting to look like a cultural icon and fashion statement. If that gets started, all bets are off. We could actually see a SECOND short squeeze in the same year.

Jack Rickard
http://www.evtv.me

Tesla is producing 550 cars/week and has been since third week of June.

http://bit.ly/13JzdvR

"kidjay | JULY 9, 2013
We took the factory June 25th after going through all the car pickup stuff. So our tour didn't start till 5:30pm, our appt was at 4:30p. The guy that did the tour ask if we wanted to walk the factory instead of the tram they had. By doing this, we were able to go to section were the tram couldn't go! We saw things that most people could not see and it was just my wife, my son, and myself! We didn't leave Fremont factory till 7:30pm. We spent that much time in the factory learning about the MS and going to almost every station on the ground level with robots in full operation and the factory on full throttle with the second shift of the day. The upstairs is off limit where they have the battery operation and some other secret stuff. By the way, they have monitors within the factory and it show how many MS they have produce that week so far. The week prior to us taking the tour. They pumped out 550 MS. The guy told us that was the most they have every done so far in 1 week!"

You may be right about that second short squeeze.

 

[kenliles]

JR. Agree it's all about growth and that's the huge runup to date. Now what are all those tech growth investors going to do as Q2 report shows QoverQ revenue contraction, significant EPS contraction and again projected for Q3. The current problem with that tech crowd is they are accustomed to rapid scale of expansion on product success. Tesla is a technology company, but in a market where scalability is measured in years, not weeks for software, months for electronics.