Friend(s) of JP - Conversations with Nicu

[sleepyhead]

Nicu - I believe that you wrote an article a year or two ago about TSLA being a potential 10 or 20 bagger opportunity. I have never read the article myself so I am not sure about its content, but it sounds like you had it right the first time.

The sad thing is that you did a 180 and have turned bearish. Instead you should have continued pumping up TSLA and you could have been the guy who called TSLA early and rode it all the way up into the 4 digits. Time will tell, but I think you "screwed the pooch" on this one.

TSLA is not overvalued right now and I gave you a simply calculation a few pages back to show why it is still a good idea to buy TSLA at $160. Now I am going to use one of your "optimistic" numbers and pick a one year sample:

TSLA makes 500k units in 2017 or 2018, whatever it is it really doesn't matter - 2019 works as well. Let's say 100k S and X for $10bn in revenue. Another $20bn for 400k of Gen 3. That gives you $30bn in revenue and a company that is still growing like crazy at that point. You are looking at a 2x - 5x price/sales ratio or up to $150bn TSLA valuation in 5 years. IMO it might take a little longer than 5 years to reach 500k units, but you really never know with this company.

Using your numbers I get a $60bn - $150bn valuation, while you get a $5bn valuation; albeit my valuation is 5 years from now and yours is discounted back to today. Mine discounted back would be like $30bn - $60bn, i.e. still a great buy at $20bn market cap.. This just shows how skewed the views are of the longs and shorts. The correct answer is probably somewhere in the middle.

All I know for sure (95% chance) is the TSLA will have a $100bn+ market cap eventually and probably a lot more. That is still a 5-10 bagger opportunity. It might take 5 years or it might take 10 years. 10 bagger in 10 years is still a great investment, even a 5 bagger in 10 years is awesome. So the real question is do you want to buy today at $165 and get a 5 - 10 bagger in 5 to 10 years or do you want to sit on the other side of the trade and whine about how much TSLA is overvalued?

Shorts are going to get crushed again and it is going to be legendary.

- - - Updated - - -

"To understand why the hype cycle happens again and again with each new innovation, and why it keeps seducing even those of us who have been burned before, we must look more deeply at what drives the rise and fall of expectations that create the cycle.

In a theoretical, completely rational world ruled by logic, excitement about an innovation would track perfectly with the reality of what the innovation could do. As the performance of the innovation improved, and as people's understanding of how to derive value from it evolved, people would become increasingly confident about it, and their adoption of it would grow. [...] in the real world, wonderful, warm, passionate human beings repeatedly develop levels of excitement and disillusionment that don't match the current reality of what the innovation can do."

My first impulse was to offer a real world prize for the first to identify the source, but Google is simply ruining the joy of that kind of games. Anyway, the chapter explaining why this happens with regularity and predictable results if full of gold nuggets, I wholeheartedly recommend it.

I have no idea, but if I had to guess without googling it, I would say that JP wrote this.

I don't really read any JP articles, because I get annoyed after a few sentences, but I can envision JP saying something like this. Whoever wrote this probably thinks that he/she is a superior human being. That is the kind of vibe I get from reading this, and it does not hold true in every example. TSLA would be the greatest exception. People are not even close to over-hyping Tesla yet. Tesla is under-hyped right now. It will be a lot better than the vast majority of people can imagine.

 

[Discoducky]

Thanks mod's?OP for changing the title of the thread to something more relevant to what's going on in this thread. It seems like there is more FUD than real conversations/discussions as all that is being presented as a challenge to the current market behavior is more of the same from the subjective/fundamental/bees can't fly variety.

 

[Norbert]

To me it seems there is a real and basic difference in POV here, other than about share price valuation and pro-hype vs. anti-hype:

Will electric cars be a niche market, or will there be a general transition?

I think, now as much as I already did for a long time (on this forum since 2009), that the increased market for batteries will drive innovation in range and price, kWh/kg and $/kWh, through research and mass production, which along with other factors will enable and drive an almost complete transition to electric cars, of the whole auto industry. (And this is also in the interest of battery producers.)

Furthermore the question of the 18650 format, as well, is hiding a much more important difference: that of short range EVs (established ICE manufacturers) vs. long range EVs (Tesla), leading to a corresponding difference in battery technology optimization. Needless to say, I favor Tesla's approach, and the Model E is going to show the value of this approach in a larger market.

Some want to believe that Elon's remarks about battery factories are indicative of a larger problem, however apparently they were only about the question of who builds the necessary factories. JP was wrong about so many things where he said Tesla was heading towards disaster, that I just don't believe him, and don't even feel the need to research his sources in this regard. There was a time when I tried to make sense of some of his articles, but that time is over. I believe Elon when he says it's going to happen one way or the other, and that won't depend on the success of the upcoming attempt to let the new Falcon 9 hover over water.

 

[NigelM]

Thanks mod's?OP for changing the title of the thread to something more relevant to what's going on in this thread. It seems like there is more FUD than real conversations/discussions as all that is being presented as a challenge to the current market behavior is more of the same from the subjective/fundamental/bees can't fly variety.

I carved these ~160(!) posts out of the Petersen thread as this sparring with Nicu seems to be becoming a regular weekend thing. I'm still trying to decide why this is in the Investors section though.....

- - - Updated - - -

Mod Note: a little more cleaning up, some posts went here - Random Chitchat

 

[JRP3]

John has 10 years of experience in the battery industry as an insider. He has recently been invited to give talks to some of the most prestigious battery conferences, both lead-acid and Li-ion. He meets the CEOs of the largest companies in these industries and shares with SA readers their broad views about the evolution of their industry. If you think you can get that anywhere else and on top of that for free, be my guest.

Somehow this "battery expert" didn't understand the fundamental differences of various lithium ion chemistries until we educated him on them. This "expert" kept saying that EV's were dangerous, would spontaneously catch fire and explode, catch fire and explode when crashed, and repeatedly talked about children burning in them. In reality EV's are turning out to be as safe or safer than ICE's, just as I repeatedly told him they would. This "expert" claims that lithium batteries can't be recycled, yet they are, claims they must cost at least $500/kWh, (more than Tesla prices them at the retail level), claimed no lithium chemistry could match the performance of the PbC, until I showed him otherwise, and on and on and on. What little Petersen actually knows about lithium ion chemistry has been force fed to him in his comment streams, not that he'd admit it. Then there are all the technical errors he makes about EV's in general.
I will admit that Petersen is sort of an expert on the Axion PbC because he's been immersed in it for so long, but that's about it. He's been able to use that and bamboozle some people in the battery industry I guess as well as some of his readers on SA.

 

[Norbert]

Somehow this "battery expert" didn't understand [...]

I also remember the time when it suddenly became necessary to keep pointing out that electric motors do not necessarily need rare earth metals, and that in fact Tesla's motors don't.

 

[Nicu.Mihalache]

Given the "idealistic" value of Tesla's goals, many will be willing to invest without "discounting" as much for risk and interest, the vote-with-your-wallet component comes into play, as many supporters are affluent enough for it to matter.

Investing is a blood sport, not a charity. When you vote with your wallet (translation: invest from emotion), sooner or later the wolves on Wall Street will skin you alive.

- - - Updated - - -

Nicu - I believe that you wrote an article a year or two ago about TSLA being a potential 10 or 20 bagger opportunity. I have never read the article myself so I am not sure about its content, but it sounds like you had it right the first time.

Yep, that's about two years ago, when TSLA was in the low $20s and was about a 10x. But I was talking about fundamentals justified growth and the time scale was 5-10 years if I remember correctly (in a separate article I have also predicted the short squeeze; in another one, I have explained how Tesla is doing a disruption from the top just like Apple, in opposition with the very well known and accepted theory of disruption by the famous prof. C. Christensen). I still believe TSLA will eventually go in the neighborhood of $250. But why buy at $160 to ride it maybe to $250 in five years, when you have a good chance to buy below $70 (or even $50) in the near future and the ride it to $250?

The sad thing is that you did a 180 and have turned bearish. Instead you should have continued pumping up TSLA and you could have been the guy who called TSLA early and rode it all the way up into the 4 digits. Time will tell, but I think you "screwed the pooch" on this one.

The ratio between fundamentals and the stock price changed 180, not me. I am an investor, not someone searching for "online fame". Even if I am not searching for that, imagine what happens if TSLA crashes indeed. Those very few who were influenced by my words and have built an extra margin of safety will probably become my friends

All I know for sure (95% chance) is the TSLA will have a $100bn+ market cap eventually and probably a lot more.

That's exactly what I meant earlier when saying that many Tesla fans (or investors) are assuming away risks. I do not know when, but this will come back to bite you hard if you do not protect your back.

I have no idea, but if I had to guess without googling it, I would say that JP wrote this.

I don't really read any JP articles, because I get annoyed after a few sentences, but I can envision JP saying something like this. Whoever wrote this probably thinks that he/she is a superior human being. That is the kind of vibe I get from reading this, and it does not hold true in every example. TSLA would be the greatest exception. People are not even close to over-hyping Tesla yet. Tesla is under-hyped right now. It will be a lot better than the vast majority of people can imagine.

As soon as something suggests an inconvenient truth, instead of listening and trying to understand, you activate you shield. Be assured, this is perfectly normal behavior at this stage of the hype cycle. Been there, done that. Let me assure you, that this is from a book published by Harvard Business Press about two years before Tesla's IPO. It's a well documented general fact, and they try to explain why it arises with such regularity and how to avoid being trapped. If a scientific study threatens you, it should raise some questions about your own position in all this saga.

 

[brianman]

When you vote with your wallet (translation: invest from emotion)

This is an incorrect translation. Voting with your wallet has (to me at least) a very specific meaning with a broad tent of motivations that vary case by case. Many of them have absolutely nothing to do with emotion.

IMO, almost all investing is "voting with your wallet" -- meaning that you're voting on a stock (or fund or whatever) that you think will yield a return you are happy with, or for a product or technology you see promise in, or whatever.

 

[Mario Kadastik]

There's a far simpler way to show that TSLA is not overvalued. If you take about as conservative as you can and go with price / sales. I just looked at GM and F and if I read the data about right the cash from operations (which I'd assume is car sales for simplicity) is for both about $10B. Their respective market caps are ~$50B-$70B. This means that a price / sales rate of 5-7 for an established company. If we now assume the average price of a MS of ~$100k for simplicity and due to large part P and P+ sales and about 25k cars sold this year (realistic considering we're seeing VINs in the 23k region already now), then that alone would give ~$2.5B of sales which at 5-7x gives $12-18B market cap. As TSLA plans to sell 40k cars next year we can lower the average to say $85k we'll get sales of $3.4B, which with same multipliers give $16B-$23B market cap. And that is with established players multipliers. TSLA is a growth stock with Model X coming in 2015 in volume and Gen III on the 5 year horizon so a multiplier at least 2x-3x of the F/GM for the next few years that would mean $40-60B market cap or a share price that's 2-3x above current one.

Update: Ah, might have been misled by cash from operations. Oh well it was a nice theory while it lasted I guess one would have to account afterall the sales from future cars and discount to today, still think TSLA isn't as much overvalued as some think.

 

[Nicu.Mihalache]

This is an incorrect translation. Voting with your wallet has (to me at least) a very specific meaning with a broad tent of motivations that vary case by case. Many of them have absolutely nothing to do with emotion.

IMO, almost all investing is "voting with your wallet" -- meaning that you're voting on a stock (or fund or whatever) that you think will yield a return you are happy with, or for a product or technology you see promise in, or whatever.

Voting with your wallet, as far as I understand English, is about buying products, not shares - and that may indeed make a huge difference for a company. Trying to influence market prices with your wallet, even as a community, is like going out in sandals trying to stop the rain and call the sun to shine. As soon as you offer them your hard earned wool on a plate, they will take the scalp too.

 

[brianman]

Trying to influence market prices with your wallet

I get the impression your definition of "voting with your wallet" is narrower and/or quite different than mine.

"Influencing market prices" is never my intent when voting with my wallet on investments.

For me it's about "where do I think I get value for my money". How people interpret my vote is black magic, and I get the impression your own biases are coloring your perspective -- as you seem to think you can interpret what people are voting for when they vote on investments with money.

 

[Nicu.Mihalache]

There's a far simpler way to show that TSLA is not overvalued. If you take about as conservative as you can and go with price / sales. I just looked at GM and F and if I read the data about right the cash from operations (which I'd assume is car sales for simplicity) is for both about $10B. Their respective market caps are ~$50B-$70B. This means that a price / sales rate of 5-7 for an established company.

This is why I have posted this link earlier, GM has a sales multiplier in the vicinity of 0.3x, not 5-7x
Tesla Investors Are Crazier Than Elon Musk (TSLA)


Tesla has 180 times the valuation of GM per car sold. Of course, the ASP is now about 4-5x (included in my rough estimates as a multiple of OM), but with Model E this should go down to about 2x. That is, Tesla has to sell about 90x or almost 1.9M cars per year (units in my previous computations) to justify today's valuation. I think the chances of that happening in the following decade (before 2023) are beyond remote.

- - - Updated - - -

"where do I think I get value for my money"

In my vocabulary this is investing, not voting. So, here we are, both talking about the same thing but with different definitions. However, if fundamentals do not justify your choice, sooner or later the market will correct and show you the true value ("weighting machine", as opposed to "voting machine").

 

[marvinat0rz]

Nicu, have you considered that Tesla might be ahead of the curve in terms of P/E and other valuation metrics, and that this will remain true all the way from its current position to a (potential) situation as a major, global car company? If you're off by a factor of 2 in your "today" valuation, you'll miss out completely. I'm guessing that the risk/reward curve is too steep for you at the moment and that potentially losing out is a risk you're willing to assume. Implicitly that's what you've done by selling early, just wondering whether it was a conscious choice.

I think you provide a good voice of caution during these euphoric times, and I think it's valuable to have some skeptics around. I only agree with you up to the point that there are underappreciated execution & macro risks, though. It isn't unprecedented that growth companies take on ridiculous P/E multiples (by traditional standards). I'm thinking of Amazon, which was widely criticized and compared to the established book sales industry. Tesla is very similar in that it breaks the traditional rules of the auto industry, which means that there are considerable differences which would make a direct comparison more dodgy. ("Just-in-time"-style manufacturing, no sales through dealerships, purely electric design, infrastructure investments, software industry inspiration, relentless focus on design, no unions or pension benefits ++).

Thanks for having the balls to post though, in spite of being in disagreement with almost everyone here!

 

[neroden]

But why buy at $160 to ride it maybe to $250 in five years, when you have a good chance to buy below $70 (or even $50) in the near future and the ride it to $250?

Because that opportunity will not exist. To put it simply.

Tesla is going to retain an elevated multiple as long as it is expanding. At some point it will get overpriced, most likely, and then it will retrench. You can do your own estimates of inherent value.

What will *not* happen is this: TSLA will NOT drop from an already-less-than-inherent-value price to a deep discount price to provide convenient purchase opportuninties for you.

 

[Nicu.Mihalache]

Thanks for having the balls to post though, in spite of being in disagreement with almost everyone here!

It's not about balls. It's about time and energy. While I have to filter at least 10x harder here than what I get reading JP's articles and comments, I have some fun (even laughter sometimes) and confirmation (most of the time) about my hypothesis about the human mind / emotions and the way that it manifests in groups / society. Since I have got here about 5 months ago, I have learned only two new things: the interest shorts were paying during the short squeeze, and the fact that I got the PbC cycle life backwards (and that neither me or JP are perfect human beings, but I had been strongly suspecting that already). Also, among aggressive posters, there are some very intelligent, experienced and courteous fellows here but they seem shy to post in the middle of the usual brouhaha. And the moderators ... while they move things around sometimes confusingly so, overall they do a great job cleaning up stuff and keeping a decent level for the exchanges.

About the balls. Since I am a father, I am only afraid for Her and things that would hurt her indirectly (like me having a bad car crash, for example - quite hard to do in a Prius LOL). Emotions and social inhibitors are details, hard to ignore sometimes, but details in the great picture nevertheless. So coming here, I can ask "what is the worst thing that can happen?". I can get insulted or banned, but as long as I stay polite, this only reflects on the other side of the equation. Or I can say stupid things that would easily be pointed out to be wrong. But this is learning, the greatest gain you could get in a forum, as long as you keep your eyes and ears open and hormone taps closed.

Sorry for the twisted answer, in short I just wanted to thank you for your kind words

 

[Norbert]

Investing is a blood sport, not a charity. When you vote with your wallet (translation: invest from emotion), sooner or later the wolves on Wall Street will skin you alive.

"invest from emotion": Your language is more emotional than anything else I've been reading on this forum lately. And I don't think you are really making a point regarding either Tesla or TSLA. ....thanks for your concern, but my account is doing fine.

 

[jeff_adams]

The big problem I see with Nicu's "valuation" of Tesla is counting units sold.

As pointed out by Citizen-T and others, Tesla will have many other sources of revenue besides car sales. Supercharger access fees for competitors, grid storage at superchargers, licensing Tesla technology, the list goes on and on.

Trying to say that Tesla will have to sell a certain amount of cars to justify their market cap is incorrect.

 

[qwk]

The big problem I see with Nicu's "valuation" of Tesla is counting units sold.

As pointed out by Citizen-T and others, Tesla will have many other sources of revenue besides car sales. Supercharger access fees for competitors, grid storage at superchargers, licensing Tesla technology, the list goes on and on.

Trying to say that Tesla will have to sell a certain amount of cars to justify their market cap is incorrect.

And comparing Tesla to GM. Lol
That is like comparing Apple to Kodak.

 

[Nicu.Mihalache]

And comparing Tesla to GM. Lol

If you had payed attention to the discussion, there was a Musketeer who initiated the comparison to GM. After the facts proved there was an erroneous factor of 20x in his "easy dismissal" ... crickets!

 

[Krugerrand]

... there was a Musketeer...

You're more like JP then you even know. :frown: