If gross margins stay healthy, will Wall Street give Tesla $$ for many years?

[calisnow]

What is the consensus here? If Tesla shows sales growth and the gross margins on its vehicle sales stay healthy, can it lose money for many more years as long as the losses are due to heavy R&D spending, building out infrastructure and expanding manufacturing capacity?

And when I say "can it lose money for many more years" I mean - will Wall Street keep supplying it with more and more cash via stock offerings.

I come from a very long term investing background, personally, where I buy things and just basically hold on for the long run. I've decided that to show my support for Tesla I'm going to buy some shares next week for fun - money I can afford to lose.

I will not personally care if Tesla shows an accounting profit, or even positive cash flow, or even whether they hit their quarterly targets - as long as sales show a healthy year-over-year growth rate and the gross margins on the vehicles remain healthy. I don't care if Tesla loses money for another 5-10 years, myself - as long as the money they lose is because it's all getting poured back into R&D, improving the technology in the cars, building infrastructure to help create a moat, etc.

How do others feel who own shares? What's the consensus on how Wall Street is viewing the company - are the shares remaining high because other people think positive cash flow is around the corner, or because people think that in the very long run Tesla is building a juggernaut that will bear great fruit but not for another decade or so?

 

[calisnow]

I also wonder how much altruism is baked into the stock price. Like me, for example - I'm going to purchase tens of thousands of dollars worth of stock on Monday. I almost see this like doing good for the world - whether or not Tesla makes any money for me in the short run is not the point. If I lose it - oh well - I'd rather lose money doing this than giving to what I view as inefficient charities.

I make my money elsewhere, this is the only stock I'll buy to "do good." In fact, I make my living with rather boring, almost "vulture" value investments. But as for Tesla - what is it worth? I have no idea and I don't care either. I can't value it by any conventional metric and I doubt anyone else can either - I just like the idea of helping change the world with awesome sauce so much that I'm willing to pay into the group effort to fund this change.

The question is - how many more people are there like me? Are we a significant factor in supporting the stock price? If in fact we are, then to some small extent the usual rules of profitability don't apply to Tesla.

Even with Amazon, a very long term play to make money, a company which had to build infrastructure to make money - people didn't buy Amazon to change the world. Tesla, my gut tells me, is different.

 

[xav-]

2 words: Jim Chanos

I have been following this guy for several years. Most consider him the best short seller ever and I do.

Some of the calls that be made:
- Valeant healthcare: the stock was $200 a year ago, now it is $20 and heading to bankruptcy. Valeant healthcare is a horrible company which purchased great companies, fired R&D and increased medication prices by 8-10 x. Chanos disclosed his short position on Valeant when the stock was $100. I was considering shorting it when it was $200 following his advice I am so mad I did not do it.

- Enron: this is how he got famous for. He called it before anyone else.

- The solar collapse of 3 - 4 years ago. Stocks like first solar went down by 90 percent. He called it. I remember seeing him on tv talking about it all the time before the collapse happened.

Some other calls: HP, Caterpillar (which I actually shorted and made some money on it following his advice).. And solar city.

Did he make some bad calls? Probably but the vast majority of the time he is spot on. He is so spot on now that every time he says something the market immediately follows.

So why do I bring up Chanos? Because he has been shorting tesla. He has been spot on SolarCity in my opinion. Does he make a good case for tesla? I don't know.

To summarize his views on tesla. He is very concerned by
- the high number of high level executives leaving
- the negative cash flows
- the purchase of SolarCity.
- the volume projections which to his mind are impossible to achieve.

Is he going to be right? I don't know. Would I buy the stock when this guy is short? I won't. That said there are a lot of people shorting the stock so it may have a lot of upside in case of a short squeeze.

Your guys will hate me but I am contemplating taking a short position on Tesla so that if the 3 is massively delayed I will have a nice deposit for the S and don't have to wait for the 3

Trust me I would much rather lose money on the short and have my 3 delivered on time.. But the s is so much money for us..

 

[jmsurpri]

I've been buying and selling Tesla for a couple years. Even though I believe in the vision, the stock can have some fierce swings and so I (try to) buy low and sell high. Given all the recent news, I dont feel very comfortable with the short term action and so I sold all my TSLA a couple days ago.

 

[Sir Guacamolaf]

Tesla needs to mature out of the auto-manufacturer mentality into an energy play if it intends to survive and prosper. This of course, is hardly easy.

 

[calisnow]

Given all the recent news, I dont feel very comfortable with the short term action and so I sold all my TSLA a couple days ago.

Of course, I suppose you could argue that all the recent news is baked into the share price already, and that if this news had not surfaced the share price would be higher than it is now.

 

[calisnow]

2 words: Jim Chanos.. is very concerned by
- the high number of high level executives leaving
- the negative cash flows
- the purchase of SolarCity.
- the volume projections which to his mind are impossible to achieve.

Gotta admit, the executive exodus/churn does seem a bit odd/spooky to me. My optimistic side tries to argue that it's because Tesla execs get poached - but my pessimistic side, well. . .

As for volume predictions - I also agree they sound impossible to achieve - I've just assumed he won't make those Model 3 targets, but will ramp up as fast as possible and in the very long run - multiple years out - he'll have all the capacity he needs.

It's the executive exodus which seems the worst signal to me, if I had to pick a signal.

 

[calisnow]

Does Tesla have a COO? I can't find one on their website.

 

[EinSV]

What is the consensus here? If Tesla shows sales growth and the gross margins on its vehicle sales stay healthy, can it lose money for many more years as long as the losses are due to heavy R&D spending, building out infrastructure and expanding manufacturing capacity?

And when I say "can it lose money for many more years" I mean - will Wall Street keep supplying it with more and more cash via stock offerings.

I come from a very long term investing background, personally, where I buy things and just basically hold on for the long run. I've decided that to show my support for Tesla I'm going to buy some shares next week for fun - money I can afford to lose.

I will not personally care if Tesla shows an accounting profit, or even positive cash flow, or even whether they hit their quarterly targets - as long as sales show a healthy year-over-year growth rate and the gross margins on the vehicles remain healthy. I don't care if Tesla loses money for another 5-10 years, myself - as long as the money they lose is because it's all getting poured back into R&D, improving the technology in the cars, building infrastructure to help create a moat, etc.

How do others feel who own shares? What's the consensus on how Wall Street is viewing the company - are the shares remaining high because other people think positive cash flow is around the corner, or because people think that in the very long run Tesla is building a juggernaut that will bear great fruit but not for another decade or so?

You might want to check out the Long Term Investment thread for thoughts about long-term potential and valuations. There is quite a bit of knowledge on the forum in that thread and other investment threads.

Having said that, I can't speak for why others may have invested and what criteria they may be using but I originally invested in Nov. 2012 after the Model S hit the market because I thought Tesla had a better product than the competition at the same price and had revolutionary technology that would eventually take over the industry.

I have held the stock since then as it has gone up about 7X. I tripled down earlier this year because IMO the investment case is more compelling now than in 2012. The incredible response to the Model 3 signals to me that a very large number of people are ready for a BEV vehicle and especially want a Tesla. Tesla's battery costs are dropping like a rock and there does not appear to be any serious BEV competition until 2019 or 2020 at the earliest, and by then Tesla will be miles ahead. The stock price is actually lower than it was before the incredible response customers had to the Model 3 introduction. I believe this is due to overwrought fears of the impact of a delayed Model 3 introduction (which in turn are inflamed by a challenging Model X introduction), plus a mountain of FUD from short sellers and others. In terms of the ambitious goals themselves, I tend to see it more like you suggest -- if Tesla is growing quickly it's not all that important that they hit every target along the way.

As for the ability to raise capital, in my opinion (an opinion shared by investor Ron Baron and others), there is a reasonable chance Tesla may not need another cap raise for the foreseeable future if ever. Once Tesla Energy ramps up later this year or early 2017 after the first phase of the gigafactory is up and running, it should generate a substantial amount of cash to help with the Model 3 ramp. Elon has said that he thinks TE could eventually become as large as the Tesla automotive business and will grow faster (which is saying something given the 50-80% growth rate of Tesla's vehicle business for the foreseeable future). Citigroup has estimated that stationary storage will become a $400B business and IMO Tesla appears to be better positioned than the rest of the industry from a cost perspective and otherwise. If Tesla does end up needing to raise capital it hasn't been an issue to this point and the last cap raise was oversubscribed. Also, from a valuation perspective I think most investors are ignoring Tesla Energy which is a huge mistake since it could become as valuable as the automotive business in the long run.

I did not invest originally because of all the good things Tesla is doing but that is definitely a key reason I was initially so excited about the company and took the time to learn about it. The fact that one company has the potential to do so much to help with climate change and reduce air pollution (over 5,000,000 deaths per year worldwide) while producing incredible vehicles that beat the pants off the competition is pretty cool. But the reason I invested is that I thought people were underestimating Tesla's potential in a very big way. I think they still are -- even more so today than in 2012.

Oh, and in late 2012/early 2013 the short sellers were out in force just like they are now -- Tesla was one of the most shorted stocks on the market. They were dead wrong. The stock rocketed up and the short sellers and short selling hedge funds lost truckloads of money for themselves and their investors. You won't see them talking about that though ....

Anyway, those are my two cents. Good luck!!

 

[EinSV]

Does Tesla have a COO? I can't find one on their website.

No true COO to my knowledge. I have seen some investors suggest Tesla should hire one but I don't have an opinion one way or another.

 

[GoTslaGo]

Interesting article on shorts (in Fortune, Elon's FAVORITE...):

Falling Stocks Have Been Great for These Short Sellers

Quote (please note, article was March):

Keeping a low profile may benefit the 58-year-old contrarian right now. Chanos is best known for shorting stocks—making investments that pay off when share prices decline. In 2015, Chanos’s short-only fund, called Ursus (Latin for “bear”), was up 10%, trouncing the S&P 500. This year has also started with a bang. And with so many of his peers losing money, it’s probably best to avoid chances to say “I told you so.”

later it states:

Recent results at Ursus show how treacherous the strategy can be: A dollar invested in Ursus at the beginning of 2007 would have been worth about 68¢ at the end of 2015, according to estimates by its investors. If you didn’t get in until 2009—when the last bull market started—your $1 would have dwindled to about 38¢.

End quote.

I thought it was quite a weird schizophrenic article, but lays out some interesting issues and facts regarding shorts & Chanos.

PS--

I've learned a tremendous amount about why shorting is popular, for the Brokers.... Lot's of money in the interest they charge for letting you short a stock.

Tracking short interest


That being said, I am long TSLA, and yes it is for "feel good" reasons (AP, environement, etc...) and because I think it's a great EV. The supercharger network IMHO is one of the key reasons why it should do great. Yes, we can't value it and technically it likely shows up as a loss on the books, but it makes adoption of TSLA EVs a lot easier than any other EV competition out there.

 

[EinSV]

Gotta admit, the executive exodus/churn does seem a bit odd/spooky to me. My optimistic side tries to argue that it's because Tesla execs get poached - but my pessimistic side, well. . .

As for volume predictions - I also agree they sound impossible to achieve - I've just assumed he won't make those Model 3 targets, but will ramp up as fast as possible and in the very long run - multiple years out - he'll have all the capacity he needs.

It's the executive exodus which seems the worst signal to me, if I had to pick a signal.

The core executive team of Musk, JB Straubel (CTO) and Franz von Holzhausen (Chief Designer) has been very stable. Turnover at Silicon Valley tech companies is the norm -- but Tesla has a terrific CFO and impressive new manufacturing talent.

 

[GoTslaGo]

They also brought in a new Exec for production.

Tesla Hires Audi Assembly Veteran as Musk Seeks Output Surge

Quote:

Tesla Motors Inc., the electric-car maker run by billionaire Elon Musk, hired Audi AG’s Peter Hochholdinger to help oversee production as it seeks to boost vehicle output about 10-fold by 2018.

End quote.

It seems to me that anytime you bring in people, others will leave. Seems like he's doing good since he's been able to bring production numbers to 2k/month for most of June.

 

[xav-]

Gotta admit, the executive exodus/churn does seem a bit odd/spooky to me. My optimistic side tries to argue that it's because Tesla execs get poached - but my pessimistic side, well. . .

As for volume predictions - I also agree they sound impossible to achieve - I've just assumed he won't make those Model 3 targets, but will ramp up as fast as possible and in the very long run - multiple years out - he'll have all the capacity he needs.

It's the executive exodus which seems the worst signal to me, if I had to pick a signal.

I think they will succeed. I am just not sure it's going to be great for shareholders.. K
what they are trying to achieve is just unprecedented. I think they will someday worth much more than they are now. But how many more shares??

Interesting article on shorts (in Fortune, Elon's FAVORITE...):

Falling Stocks Have Been Great for These Short Sellers

Quote (please note, article was March):

Keeping a low profile may benefit the 58-year-old contrarian right now. Chanos is best known for shorting stocks—making investments that pay off when share prices decline. In 2015, Chanos’s short-only fund, called Ursus (Latin for “bear”), was up 10%, trouncing the S&P 500. This year has also started with a bang. And with so many of his peers losing money, it’s probably best to avoid chances to say “I told you so.”

later it states:

Recent results at Ursus show how treacherous the strategy can be: A dollar invested in Ursus at the beginning of 2007 would have been worth about 68¢ at the end of 2015, according to estimates by its investors. If you didn’t get in until 2009—when the last bull market started—your $1 would have dwindled to about 38¢.

End quote.

I thought it was quite a weird schizophrenic article, but lays out some interesting issues and facts regarding shorts & Chanos.

PS--

I've learned a tremendous amount about why shorting is popular, for the Brokers.... Lot's of money in the interest they charge for letting you short a stock.

Tracking short interest


That being said, I am long TSLA, and yes it is for "feel good" reasons (AP, environement, etc...) and because I think it's a great EV. The supercharger network IMHO is one of the key reasons why it should do great. Yes, we can't value it and technically it likely shows up as a loss on the books, but it makes adoption of TSLA EVs a lot easier than any other EV competition out there.

I have watched him for 5 years.. He's spot on 80 pc of the time. If he was not then why do stocks start crashing every time he announces a short position?

Why do you think short interest on tesla is so high? He's a big part of it. Why do you think solar city crashed and is now being bought (some would say bailed out) by tesla? He's a big part of it.

Of course the stock market has been going up and up so his returns may be trail.. also he's got multiple funds. Anyway I am not advocating any of his funds, just his skills when it comes to short selling.

 

[Todd Burch]

Keep in mind that Tesla may be tricky to value because most market folks think of it as a car company and almost completely forget about their energy side (storage/grid balancing), which will be on the order of half of their business (at least as far as battery pack consumption is concerned). That makes them very unique and a company that can't be compared to traditional auto stock evaluation models.

 

[182RG]

And when I say "can it lose money for many more years" I mean - will Wall Street keep supplying it with more and more cash via stock offerings.

but not for another decade or so?

No. Wall St. doesn't have that kind of patience. It will expect investments to be monetized and returned. A company can only live off of infusions for so long.

EM has made a lot of "stretch" projections. A significant miss will be very damaging.

 

[Chopr147]

I do not have any Tsla stock but thought about buying some and just leaving it and check back 10 years from now. Like a 401K. But I am no stock wizard and try to stay away from what IDK. As an amatuer I believe Tesla will be a good stock to have but so many things have to go right for the company. I would have liked to be in that boardroom when Elon and friends suggested building a Supercharger network WORLWIDE! Between R & D and this infrastructure, Giga,Manufacturing etc.......I don't see Tesla in the black for many years from now. Can it be like Apple stock in the 80's?

 

[carter_seattle]

I think you have to decide if you think Tesla is potentially like Amazon: a company willing to be misunderstood for years, that cares more about delighting customers than delighting Wall St and plows all of its cash flow back into chasing future growth opportunities. For me the answer is Yes.

 

[xav-]

The problem with the Amazon story is that Amazon is a retail company and as such not very capital intensive. Their bills are due 30 days in advance they get paid up front, their products are finished.. They don't have to stay in the warehouse for long before they are sold.

Amazon as big as they are only has $30 billion in invested capital. They can grow and grow without much shareholder assistance. That's not a manufacturing company.

 

[GoTslaGo]

Before you buy.

I personally find the investor section on tmc very interesting and informative. There's bears and Bulls arguing. There's technicians trying to predict prices. There's fundamental guys watching production, delivery, repair numbers etc.

You'll get a better sense of whether you want to invest in tsla. And if you do, what price you would think is right.

As xav- points out there is a lot of people betting against tsla. And obviously big money positioned against it. This makes the stock quite volatile, and risky.

Just my two cents. I've learned a tremendous amount about investing and trading in general there. If you just jump in and everything goes south (which happened to me right off the bat), no amount of "it was because I thought the company was great" will take that bitterness away.