General Discussion: 2018 Investor Roundtable

[MattEnth]

Lots of care bears in the TMC jungle today. They wants to save our monies

I do, actually. I feel genuinely bad for those who have fallen for what feels like a cult-like valuation. Tesla, at its current levels, is simply not worth more than Ford or GM. Not even close. They’re way behind in autonomous vehicles. The battery and solar businesses are small businesses with pressured margins. They have limited competitive barriers. And they are hemorrhaging cash with debt payments coming due. This is the reality of where Tesla is today.

The macro market seems set for a broad correction that starts rewarding execution and cash flows rather than big ideas. Tesla is a shining example of this, a company that makes bold claims and pushes big ideas, but continuously fails to deliver an underlying cash flow.

I said Tesla would be down 8% today and the market wouldn’t react much to production numbers. They were down 7% before the production emails started circulating and are now down 5%. I think they’re going to continue to slip into earnings as institutional and even some retail investors begin to look for the off ramp. Earnings will be rough - losses in excess of $750M seem likely.

 

[Mrr82]

Jalopnik says that the e-mail was sent last night, but the timing doesn't seem to make sense (no production on Easter Sunday, I assume) and there is no date on the e-mail screenshot.

Maybe when he says last night, he means at night? Bit of semantics when we're talking about 3:02am.

 

[30seconds]

I take it as

I do, actually. I feel genuinely bad for those who have fallen for what feels like a cult-like valuation. Tesla, at its current levels, is simply not worth more than Ford or GM. Not even close. They’re way behind in autonomous vehicles. The battery and solar businesses are small businesses with pressured margins. They have limited competitive barriers. And they are hemorrhaging cash with debt payments coming due. This is the reality of where Tesla is today.

The macro market seems set for a broad correction that starts rewarding execution and cash flows rather than big ideas. Tesla is a shining example of this, a company that makes bold claims and pushes big ideas, but continuously fails to deliver an underlying cash flow.

I said Tesla would be down 8% today and the market wouldn’t react much to production numbers. They were down 7% before the production emails started circulating and are now down 5%. I think they’re going to continue to slip into earnings as institutional and even some retail investors begin to look for the off ramp. Earnings will be rough - losses in excess of $750M seem likely.

Easy to see how awesome GM & Ford are. Just look at the clear awesomeness of the Bolt or Ford Fusion EV vs. the Model 3.

 

[MattEnth]

Easy to see how awesome GM & Ford are. Just look at the clear awesomeness of the Bolt or Ford Fusion EV vs. the Model 3.

If I were an investor in GM or Ford, I don't think I'd care about what types of cars they were selling. I would care about how much profit they made from car sales (which is a lot). I'd also care about how they're ahead of industry changes, which GM is (with Cruise and promise of a "no steering wheel" car in 2019).

 

[JRP3]

Just need to speak up here - I know Dana & she's extremely ethical. You may disagree with her articles at time (I do), but she's not anti-Tesla or pro-Tesla. She's a reporter. (And fyi, she's been attacked many many times as being just another Tesla fangirl. Also unfair.)

She seems to have turned more negative over time. That tweet certainly was completely unnecessary, misleading, and negative towards Tesla.

 

[sundaymorning]

For those of you who are not familiar with Delorean and wonder why they didn’t make it. Delorean produced less than 6,500 vehicles, which cost almost twice as much as a Corvette. John Delorean also tried to finance his car business by selling/dealing big time drug trafficking. Don’t get sucked into headlines such as these, Journalism these days are quite pathetic.

Can Elon Musk avoid the fate of John DeLorean? Tesla CEO may need to 'rethink' strategy

Elon only deals hats/flame throwers so we’re ok.

John Z. DeLorean is arrested in $24 million cocaine deal - Oct 19, 1982 - HISTORY.com

 

[Waiting4M3]

I take it as


Easy to see how awesome GM & Ford are. Just look at the clear awesomeness of the Bolt or Ford Fusion EV vs. the Model 3.

Before we fall too far into the hoop of comparing Tesla valuation to that of Ford or GM, remember Tesla owns their own stores, charging stations, battery factory, energy generation (solar), battery storage, it's like Ford + dealerships + gas stations + engine/transmission parts suppliers, oil rigs+gas refineries, gas tankers

 

[landis]

he was talking about overall vehicle production (MS/X/3), last year they were at 100k/yr pace, and by end of 2018 they're shooting for 400k/yr pace, which means ~6k/wk for M3.

So I was having some fun with numbers for production rate. Sharing them here since it may help others apply physics to the ramp rates. Shaving that last minute off the rate is the hardest but it doubles the rate from 5k to 10k per week.

As noted up thread, assuming four shifts for 24x7 production of 12 weeks per quarter (so computed annual numbers likely two weeks undercounted.) Speeds of cars off the M3 line are based on 15.4 ft length with almost a car length between them for 30 feet/car of motion.

Curiously the 2500 Q1 goal, the 5000 Q2 goal, and the 10k goal, roughly match production rates of one Model 3 off the line every 4, 2, or 1 minutes.

It is very likely that Q1 already achieved a rate exceeding one M3 every 5 minutes. (only off goal by one minute ;-)

So I interrept the 6k/wk pace to mean all individual steps of the line will take 96 seconds or less by the end of the year.

As was discussed up thread, some steps that can't achieve these rates could be double or triple teamed, though with this latest guidance maybe no promises on this until later.

Min/Car	Cars/Day	Cars/Week	Cars/Q	Cars/Y	f/m	mph
n	60/n*24	d*7	w*12	q*4	30/n	fmin*60/5280
60	24	168	2016	8064	0.50	0.01
30	48	336	4032	16128	1.00	0.01
20	72	504	6048	24192	1.50	0.02
15	96	672	8064	32256	2.00	0.02
10	144	1008	12096	48384	3.00	0.03
9	160	1120	13440	53760	3.33	0.04
8	180	1260	15120	60480	3.75	0.04
7	205.7	1440	17280	69120	4.29	0.05
6	240	1680	20160	80640	5.00	0.06
5	288	2016	24192	96768	6.00	0.07
4	360	2520	30240	120960	7.50	0.09
3	480	3360	40320	161280	10.00	0.11
2	720	5040	60480	241920	15.00	0.17
1.6	900	6300	75600	302400	18.75	0.21
1	1440	10080	120960	483480	30	0.34

edit: typo 'of M2' -> 'off M3'

 

[Iceman]

Elon seems to have just activated Tesla-defense mode on Twitter.

About damn time I say.

 

[2virgule5]

If I were an investor in GM or Ford, I don't think I'd care about what types of cars they were selling. I would care about how much profit they made from car sales (which is a lot). I'd also care about how they're ahead of industry changes, which GM is (with Cruise and promise of a "no steering wheel" car in 2019).

You would invest in a company without caring a tiny bit about the intrinsic quality of its product vs competition, on the verge of a massive shift towards a different energy source and business model? Wow!

 

[ChrisA]

I make valuation calls infrequently and keep track of them on this thread:
Long TSLA, but bearish next six months

But comments are germane to this thread. Any feedback appreciated!

I'm going to weigh in on this thread again as I think this is another noteworthy valuation moment for TSLA. For me, a noteworthy moment is when the risk/reward dynamics are either particularly good or particularly bad. I've been a long term holder on Tesla since late 2012, but I think the risk reward dynamics are turning favorable right now.

To recap, I think this is the fourth moment when valuation dynamics looked really compelling in one direction or another:

Moment 1: Late fall of 2012/1st quarter of 2013. At this time, Tesla's market cap was about $3.8 billion. It was really clear that Tesla would have a very compelling product in the Model S and early estimates for sales potential were around $2 billion (20k units at $100k was the approximate math at the time; of course they went on the greatly exceed those estimates). I recall that by late March it was evident Tesla was ramping up production. So here was a company with venture capital growth potential that was trading at just over 2x a reasonable estimate of forward sales.

Moment 2: Here's where I started this thread July 24th 2015. With the stock at $267, I became bearish near term. The stock price implied a market cap of about $39 billion. At the time, I think one could reasonable assume that Mode S and X sales might have a potential of $8-$10 billion. But even if Tesla achieved those sales targets, the cap would have been 4x sales. Moreover, there were a lot of uncertainties associated with the roll-out of the X. Ultimately, my biggest concern at the time -- X cannibalizing S sales -- proved to be unfounded. But the change in valuation mattered a lot, particularly as the company struggled to ramp up X volumes.

Moment 3: On Feb 3, 2016, I weighed back in on this thread turning bullish. By this time, there was a much clearer line of site to an $8-$10 billion revenue run rate from combine S and X sales and the stock had fallen to $176, about a $26 billion cap. Should the stock fall another 30% and we would have been back to 2x multiple for venture investment type growth.

Moment 4: Now we are again at a favorable risk reward moment. At $252, the market value is around $44 billion (does anyone have a a good estimate on current diluted shares out?). Adding net debt of $8 billion, the enterprise value of Tesla is about $51 billion. But even with the much larger market cap, Tesla's growth potential of the next five years is still terrific -- venture type growth potential. Moreover, I think the company has a reasonable shot at achieving a $20-25 billion run rate in sales in the next 12-18 months. This brings the valuation on prospective sales to around 2x once again.

Are there risks to investing now? Of course. Tesla is managed by a CEO who has openly talked about being "reeled back from the cliffs of insanity" by his own management team (and that's probably happened more than once). Musk swings for the fences. As he pushes hard on the corporate accelerator, unforeseen events could put him and the company in a really tricky spot. But for all the negative headlines right now, Tesla seems to be in a pretty strong position, especially if Model 3 is being produced at 2k per week and on its way to 4k per week. As I've written before, the best way to think about Tesla is as an odd beast -- a large cap, publicly traded, venture investment. It's growth potential is still large enough to merit a venture investment type analysis. Knock three zeros and then think about valuation. If I had the opportunity to buy a $44 million company that had 1) near term revenue potential of $25 million; 2) long term growth potential of 40%; 3) a talented management team; and 4) long-term dynamics that favor operating margin expansion (falling battery costs and leverage over existing operating expenses), I would be thrilled. That's Tesla, just an order of magnitude bigger.

As usual, I'm keen on feedback from the thoughtful folks on this forum on any of the ideas expressed above.

PS -- If one's risk tolerance is not for venture investment, Tesla's 5.3% coupon bonds seem to be a no-brainer. At $86.6, the yield to maturity is 7.7%. Currently, Tesla's net debt is around $9 billion. Even if the company were horrendously managed over the next year, I think a lot of companies would drool at the prospect of buying it for +$20 billion (about 2x S/X sales run rate). So while conventional metrics may spook fixed income investors, the bonds seem money-good to me, even if things got worse.

 

[RobStark]

Before we fall too far into the hoop of comparing Tesla valuation to that of Ford or GM, remember Tesla owns their own stores, charging stations, battery factory, energy generation (solar), battery storage, it's like Ford + dealerships + gas stations + engine/transmission parts suppliers, oil rigs+gas refineries, gas tankers

Tesla has powertrain suppliers as well not least of which is Panasonic.

Panasonic will also be manufacturing at GF 2 in Buffalo.

Utilities are also supplying power to Superchargers.

 

[JRP3]

No idea how reliable this source is but: Tesla’s Musk Takes Charge of Model 3 Production as Problems Persist

Tesla’s struggles to manufacture its flagship Model 3 electric sedan reached a boiling point last week, prompting CEO Elon Musk to take direct control of the division producing the vehicles, according to two people briefed on the matter.

The move came after Tesla failed to hit its goal of making about 500 Model 3 sedans per day, or 2,500 per week, by the end of March. Mr. Musk appears to have pushed aside the company’s senior vice president of engineering, Doug Field, who had been overseeing manufacturing in recent months.

 

[RobStark]

No idea how reliable this source is but: Tesla’s Musk Takes Charge of Model 3 Production as Problems Persist

Well, Model 3 is not Tesla's flagship sedan nor is Tesla manufacturing 5 days a week.

 

[Todd Burch]

Confirmation that Elon believes there’s no risk of a Tesla bankruptcy:

 

[sundaymorning]

No idea how reliable this source is but: Tesla’s Musk Takes Charge of Model 3 Production as Problems Persist

If it’s true then he’s exactly the medicine we need. We shall find out what production output is after market closes tomorrow. For now I am assuming the article is false.

 

[MP3Mike]

No idea how reliable this source is but: Tesla’s Musk Takes Charge of Model 3 Production as Problems Persist

Elon responded:

Can’t believe you’re even writing about this. My job as CEO is to focus on what’s most critical, which is currently Model 3 production. Doug, who I regard as one of the world’s most talented engineering execs, is focused on vehicle engineering.

and:

About a year ago, I asked Doug to manage both engineering & production. He agreed that Tesla needed eng & prod better aligned, so we don’t design cars that are crazy hard to build. Right now, tho, better to divide & conquer, so I’m back to sleeping at factory. Car biz is hell …

 

[SteveG3]

Just need to speak up here - I know Dana & she's extremely ethical. You may disagree with her articles at time (I do), but she's not anti-Tesla or pro-Tesla. She's a reporter. (And fyi, she's been attacked many many times as being just another Tesla fangirl. Also unfair.)

She seems to have turned more negative over time. That tweet certainly was completely unnecessary, misleading, and negative towards Tesla.

I'm making no claims about Dana Hull or anyone else about levels of being 'ethical,' but, it's been very clear to me for some time that articles she writes have had a motivation beyond informing the public.

To be clear, I've never seen Dana Hull write the off the charts stuff we see from so many in the media. What's more, I suspect that it is improbable that one can maintain a job with Bloomberg without writing articles that reflect some additional motivations.

 

[engle]

Elon emailed it to his team at 3:02am I think from the factory floor because the 7 days of production had recently ended at 11:59 PM on 3/31/2018. He probably just came out of a debriefing session with his senior production managers, etc. (or a nap -- does he ever sleep?)

I predict they will report Model 3 "production" from 0001 3/25/2018 to 2359 3/31/2018 and it will be 2,188 Model 3's. Of course, "deliveries" will be significantly less that week, if reported at all. In fact, when I drove by the large new car holding pen parking lot at the SW edge of the factory at 8 am on Sunday (I live 4.5 miles away and was on my way up to Mendocino County), the lot was maybe 70%(?) full, and it is quite large. Unfortunately, I didn't have time to return home to pick-up my DJI Mavic Pro drone so some of you could count the cars! LOL

So, my prediction is:

2,188 produced last 7 days 2(+?) shifts;
no prediction for Q1 production and total deliveries since I'm too busy today to think much about it. I do think the number will come in higher than Bloomberg, however.

Will be fun to wait and watch to see.

I hope EM has *finally* learned his lesson not to overcommit and under-deliver! I hope guidance for the Street will be *intentionally* low for Q2, etc. It should be a number they can easily and confidently beat now that they have the kinks worked out to get to this point in the exponential ramp curve...

(very long -- but that should be obvious!)

Maybe when he says last night, he means at night? Bit of semantics when we're talking about 3:02am.

 

[ggies07]

Elon responded:


and:


View attachment 291292

Glad to see Elon firing back now.