Long-Term Fundamentals of Tesla Motors (TSLA)

[chickensevil]

See I'm just shooting for "better than the MB S Class" at the moment which is why I safely put a cap around 75k for now. Because at least using the US sales as a dataset (which itself isn't fair because Tesla hasn't truly penetrated the US market fully. I won't even begin to consider that completed until they have a store in every state and every major city). But the US demand for MS vs S Class is that we are doing slightly better than them. Extrapolating that out you get around 75k globally.

 

[MikeC]

Wasn't sure where else to put this: Want Elon Musk to Hire You at Tesla? Work for Apple - Bloomberg Business

Poaching talent from the most successful company in the world seems like a good long-term strategy to me.

 

[jhm]

Frankly, I'm not worried about the saturation level for Models S and X. The reason X has taken so long is tbat S proved to be a much better seller than was expected back in 2012. So the bigger X is, the longer we'll have to wait the Model 3, the Tesla truck, the new Roadster, and flying cars. Another thing we don't talk about much is how having multiple products should enhance sales efficiency. Multiple models will attract more people to test drive and improve the chance that the shopper will find a good fit.

 

[pGo]

I think biggest reason X delay is due to battery constraints. If Panasonic barely fulfilled S demand, X just wouldn't happen. Now with GF on track so far, battery constraints won't stop 3 development.

 

[Papafox]

With a disguised version of Model X doing road tests out in Alameda, we can suppose that a Model X reveal could take place fairly soon if Tesla wanted. Many of us on this forum believe that Model X will be revealed with a somewhat limited lead time over the start of production date in order to avoid cannibalizing Model S sales. That lead time need not be as slim as what we witnessed in the "D" reveal, however, because while cold-weather buyers would shift in large numbers from S85 to 85D almost immediately, the demographics of X to S buyers are different (female vs. male, for example) and not as large a percentage shift would take place. Still, you should see at least some temporary dip in demand for Model S as people about to order that car re-evaluate the decision as the fanfare of Model X information is released. Keep in mind, too, that many Tesla cars are ordered by families, and preferences between S and X by the husband and wife may see a fair number of orders shift to the X.

We're likely seeing Tesla working out the Model X production process so that we do not see substantial delays as the car enters production.

Model X will be a big hit in North America, which is SUV territory. Model 3 will likely be a hit in Europe because the car is sized more appropriately for the tastes of European customers plus it'll be a big hit everywhere else because of its value. All models will continue to grow in appeal as the worldwide supercharger network matures. From what I've witnessed in Model D reveal, Tesla understands how demand for one model affects another and it will reveal products in a logical way to avoid any dips in demand that could affect production rate. Tesla needs the flexibility to shift some production from Model S to Model X as a major shift in demand from North America occurs. While I cannot predict the growth in demand for Model S over the next two years, I can safely say that the combination of demand for Model S and Model X will continue to grow at an attractive rate.

I continue to believe that Model 3 will become available in 2017 because the gigafactory will be producing batteries by then. Tesla understands the need to sell the gigafactory's products and will time Model 3 release appropriately. Since Model 3 will not necessarily involve new concepts (gull wing doors, all-wheel drive, etc.), it should be much easier to design than Model S or Model X.

 

[Cattledog]

From 'Marketplace' story posted in the Gigafactory section,

“At the price points that we're expecting to achieve with the gigafactory ... we see a market that is well in excess of the production capability of the factory,” says Straubel.

Hadn't heard a Tesla exec express that specific number before (though we all probably imagined this possibility).

 

[ItsNotAboutTheMoney]

Frankly, I'm not worried about the saturation level for Models S and X. The reason X has taken so long is tbat S proved to be a much better seller than was expected back in 2012. So the bigger X is, the longer we'll have to wait the Model 3, the Tesla truck, the new Roadster, and flying cars. Another thing we don't talk about much is how having multiple products should enhance sales efficiency. Multiple models will attract more people to test drive and improve the chance that the shopper will find a good fit.

I disagree on the waiting longer. More sales for S/X translates into more capital, translates into accelerated investment. Tesla will wants to get the Gigafactory built and up to capacity as fast as possible, and then start adding more. The best way to do that is to get Model 3 to market quickly.

 

[sundaymorning]

I disagree on the waiting longer. More sales for S/X translates into more capital, translates into accelerated investment. Tesla will wants to get the Gigafactory built and up to capacity as fast as possible, and then start adding more. The best way to do that is to get Model 3 to market quickly.

I think the unexpected high demand in S has allowed Tesla engineers more time to streamline and improve the X. This delay has garnered more anticipation by shareholders, reservation holders and car enthusiasts alike; making the final reveal of the product much bigger than it would have been had X arrived on time.

Tesla isn't desperate enough to release the X without having first perfecting it, this clearly shows in their approach, unlike peers such as Fisker, who is now bankrupt and no longer exist. Fisker's rush to get its product to market ASAP was a Hail Mary attempt, Tesla is methodically planning a touchdown!

The gigafactory is our answer to 3, and guarantee that the worlds lithium supply will flow through our channel, making competition a no brainer.

 

[jhm]

I'm not worried about the Model X cannibalizing Model S sales, no more than I'm worried that the D option cannabalizes sales of RDW versions of the Model S.

 

[Hogfighter]

Long-term, things are going exactly to plan. In 2012 Elon promised 20k cars in 2013....done. In 2013 Elon wanted to deliver 35k cars....and came close. Tesla would have accomplished it if they hadn't built the D, but I can't imagine anyone not wanting to build that. Demand is higher than ever with $257mil in customer deposits. The X is sold out for at least 6 months after production, and we haven't even seen a production model yet. Competition is nowhere on the horizon. 70% growth in 2015, with probably 50% growth in 2016.

The picture is clearer than it has ever been.

 

[MikeC]

Long-term, things are going exactly to plan. In 2012 Elon promised 20k cars in 2013....done. In 2013 Elon wanted to deliver 35k cars....and came close. Tesla would have accomplished it if they hadn't built the D, but I can't imagine anyone not wanting to build that. Demand is higher than ever with $257mil in customer deposits. The X is sold out for at least 6 months after production, and we haven't even seen a production model yet. Competition is nowhere on the horizon. 70% growth in 2015, with probably 50% growth in 2016.

The picture is clearer than it has ever been.

Agree, no great headline material from this one but they reiterated they're right on track. 200k/year rate end of 2015 with 30% GM sounds good to me. If the sale continues, I will keep buying.

 

[32no]

Long-term, things are going exactly to plan. In 2012 Elon promised 20k cars in 2013....done. In 2013 Elon wanted to deliver 35k cars....and came close. Tesla would have accomplished it if they hadn't built the D, but I can't imagine anyone not wanting to build that. Demand is higher than ever with $257mil in customer deposits. The X is sold out for at least 6 months after production, and we haven't even seen a production model yet. Competition is nowhere on the horizon. 70% growth in 2015, with probably 50% growth in 2016.

The picture is clearer than it has ever been.

The problem is execution. Tesla mentioned in the Q3 shareholder letter that it is fair to criticize their execution. For short term execution, it looks really bad they missed lower guidance, missed gross margin significantly, missed EPS significantly even with ZEV credits. Bad short term execution might indicate problems in the future. I'm very disappointed in Tesla and the management for this quarter's performance. They had so much forsight when they gave all the guidance for Q4, it was given in early November, yet they failed to give good guidance.

 

[sundaymorning]

The problem is execution. Tesla mentioned in the Q3 shareholder letter that it is fair to criticize their execution. For short term execution, it looks really bad they missed lower guidance, missed gross margin significantly, missed EPS significantly even with ZEV credits. Bad short term execution might indicate problems in the future. I'm very disappointed in Tesla and the management for this quarter's performance. They had so much forsight when they gave all the guidance for Q4, it was given in early November, yet they failed to give good guidance.

yes, that was 3-4 months ago, get over it. In 2012 Tesla had issues ramping up to 5k per quarter. With every passing quarter the problem becomes less and less of a concern. Unless they innovate something similar to the D, then the new technology would pose a ramp up issue due to unexpected high demands that could not have been extrapolated as there are no existing models to extrapolate from. Listen to the CC, D demand sounds outrageously high.

 

[chickensevil]

yes, that was 3-4 months ago, get over it. In 2012 Tesla had issues ramping up to 5k per quarter. With every passing quarter the problem becomes less and less of a concern. Unless they innovate something similar to the D, then the new technology would pose a ramp up issue due to unexpected high demands that could not have been extrapolated as there are no existing models to extrapolate from. Listen to the CC, D demand sounds outrageously high.

Yeah I think their focus as stated on the call is right where it should be right now. Which is, execution... They said they were slowing down their expansion for the moment to level out their OpEx so they can make everything run smooth again. I mean clearly they don't need to go crazy with OpEx if the demand is off the charts already and no sign of slowing down. So working out the kinks is the big focus and that makes sense. We will see what happens with the retooling happening this quarter and the paint shop coming up shortly thereafter getting production ramped is the thing to focus on for the next few months.

 

[sundaymorning]

Yeah I think their focus as stated on the call is right where it should be right now. Which is, execution... They said they were slowing down their expansion for the moment to level out their OpEx so they can make everything run smooth again. I mean clearly they don't need to go crazy with OpEx if the demand is off the charts already and no sign of slowing down. So working out the kinks is the big focus and that makes sense. We will see what happens with the retooling happening this quarter and the paint shop coming up shortly thereafter getting production ramped is the thing to focus on for the next few months.

I'm with you on this one, there's no need for something more awesome than what's available in the D, focus on retooling and get back to demolishing guidance. Q1 may be much better than anticipated due to limited distractions and low target, the wild card right now is how the media will react and analyst model their charts? The decision to shut the plant down in Q1 was the correct path as we have the 1.4k backlog from q4 as a cushion. I think the buildup to q1 will be pretty sweet.

 

[Hogfighter]

Sorry in advance for the long post, but so many issues are being misconstrued.

Tesla missed their projections for 2014 because of the release of the D model (small airbag issue as well as the new seats were requested more than projected). They could have chosen not to release the D model until much later, but no one in their right mind would want that...demand is through the roof and average sticker price is quite a bit higher. But what is important is that they produced the cars.....35,000 for 2014. The cars simply weren't delivered in time for a variety of reasons, however are delivered now.
Additionally, analysts need to look at non-GAAP numbers. Tesla receives the cash up front for 'leases' done through banks...it's not really a lease, but a loan. They have to report it as a lease because they are on the hook if residual values come in lower than forecast. But residual values are holding much higher than forecast, so it's a moot point. So to get an accurate picture of the cash flow situation, they issue non-GAAP numbers. To say they are losing money is simply a falsehood.

Let's look at what was said on the conference call:
Demand
Perhaps the most significant segment of the recent conference call was the update on the demand picture. TSLA currently is holding over $250 million in customer deposits, a new record. They have over 10,000 orders for Model S, a significant number given that Tesla is producing Model S at record rates. Model X orders stand at almost 20,000 firm orders….for a car that hasn’t been built yet. These are astonishing numbers for a product that has an average sticker price of $100,000, with no advertising, no product placement and no discounts. Demand for the P85D is much higher than Tesla expected. Elon even eluded to having a ‘secret weapon’ that would increase demand should they ever need it. Clearly demand is not an issue for 2015; and if demand ever shows signs of waning, Tesla has many options to increase demand. This is important since many news articles have concentrated on the sluggish sales in China. Although I believe China will become an important market for Tesla, it is obvious that for the foreseeable future production will not be able to meet demand.

Production
TSLA announced production of 35,000 cars in 2014, a 50% increase from 2013. They plan on producing around 60,000 cars in 2015, a 70% increase, with a higher average sticker price. Tesla has plans to increase production approximately 50% per year for the next 5 years with the introduction of the Model X in the 2[SIZE=-1][SUP]nd[/SUP][/SIZE] half of this year, and Model 3 in 2017. As production increases, economies of scale kick in and gross margins increase, with TSLA predicting a 30% gross margin on Model S by the end of 2015. For a company to have 50% growth rate with increasing gross margins for the foreseeable future is impressive.

Financials
TSLA is a high growth company in an industry that has high costs associated with growth. Building of the gigafactory, increasing production capacity, expanding the sales and service centers, and growing the supercharger network all have high initial costs. So although gross margins are fairly high and increasing, net profit will continue to be low to nonexistent as TSLA is using those gross profits to expand. The press loves to concentrate on net profit, which gives the perception that TSLA is losing money; however this does not paint the full picture. Thus, it is important to concentrate on (1) free cash flow, and (2) how TSLA plans on paying for the high costs associated with growth. Fortunately, TSLA gave guidance that in the coming years free cash flow will expand dramatically, and that the vast majority of CapEx will be paid for organically. In other words, the dreaded dilution of shares with multiple secondary offerings will not be the primary source of growth. So TSLA’s market cap is $24 billion with projected 2015 sales of $6 billion, or TSLA shares trade at 4x sales. This is a very reasonable multiple for a company growing at over 50% per year with expanding margins.


Tesla’s future is becoming clearer and more stable. There have been no f*res since the improvement to the undercarriage over a year ago; no significant recalls; and the resale value of Model S has remained impressively high, nullifying the resale risk of the lease agreements. Competition to date is nonexistent, and although several articles infer to the next ‘Tesla killer’, I believe there is plenty of room for several models of luxury electric cars in the future. Additionally, by the time any other car company introduces a compelling electric vehicle, Tesla will be firmly entrenched as the undisputed leader in electric vehicles with hundreds of thousands of vehicles on the road, and thousands of superchargers available for free to Tesla owners.

 

[HiTech]

Lots of great points on this thread. Tesla followers are truely amazing! I'd like to add a few more points:

1. Earnings Issues: The issue is not Demand, not Production, not Marketing, nor Financials. It's Delivery! The model Tesla is using (direct orders and delivery to customers directly) is very difficult to manage in the global scale that the company is in now. We saw issues related to this in 2012 and 2013 within US. Now it's gone global, and the company is facing the same issues at grander scale. This is where better data modeling on the demand per region and forecasting is huge. Part of this is offset by utilizing reservations, with 2-3 months delivery time. That said, it is still not even touching the issues of shipping product globally from one manufacturing site, etc.

2. Forecasting: I don't have the exact figures to come up with a reasonable forecast, but here is what I'd try... Look at the whole market for vehicles in the mid-sedan range (roughly $20k+) to luxury (about $150k). From this list, look at the percentage of vehicles sold for luxury sedans, percentage of vehicles sold for luxury SUVs/CUVs. This should give a reasonable guidance of the long term market demand. If we assume 500k vehicles sold in 2020, then put the appropriate percentages to get the figures... then assume 2m in 2025. That said, I do understand that there could be a variation on demand for the EVs, compared to ICE, but this should work as a reasonable "rule of thumb".

3. Competition: I think the only real competition are future Tesla models! I have the S85, and the S85D is looking mighty attractive to me right now! Though, I cannot afford another high end vehicle in the family right now.

In full agreement with Hogfighter: "Tesla's future is becoming clearer and more stable."

- - - Updated - - -

Oh, regarding my Long Term expectations for TSLA...
Using a Price/Sales Ratio of roughly 8 (for trailing twelve months) model (as earnings don't seem to work in this high growth environment). With that in mind, here are the next 6 years (enjoy):
2014 (actual): Rev = $3.2B, therefore Market Value = $25.6B, therefore stock price is roughly $205 at 124.5M shares.
2015 (guidance): assuming revenue = $5.6B; Market Value = $44B; Stock $350 at end of 2015
2017: Rev = $13.6B; MV = $103B; Stock = $775
2020: :love:

 

[dmunjal]

Lots of great points on this thread. Tesla followers are truely amazing! I'd like to add a few more points:

1. Earnings Issues: The issue is not Demand, not Production, not Marketing, nor Financials. It's Delivery! The model Tesla is using (direct orders and delivery to customers directly) is very difficult to manage in the global scale that the company is in now. We saw issues related to this in 2012 and 2013 within US. Now it's gone global, and the company is facing the same issues at grander scale. This is where better data modeling on the demand per region and forecasting is huge. Part of this is offset by utilizing reservations, with 2-3 months delivery time. That said, it is still not even touching the issues of shipping product globally from one manufacturing site, etc.

2. Forecasting: I don't have the exact figures to come up with a reasonable forecast, but here is what I'd try... Look at the whole market for vehicles in the mid-sedan range (roughly $20k+) to luxury (about $150k). From this list, look at the percentage of vehicles sold for luxury sedans, percentage of vehicles sold for luxury SUVs/CUVs. This should give a reasonable guidance of the long term market demand. If we assume 500k vehicles sold in 2020, then put the appropriate percentages to get the figures... then assume 2m in 2025. That said, I do understand that there could be a variation on demand for the EVs, compared to ICE, but this should work as a reasonable "rule of thumb".

3. Competition: I think the only real competition are future Tesla models! I have the S85, and the S85D is looking mighty attractive to me right now! Though, I cannot afford another high end vehicle in the family right now.

In full agreement with Hogfighter: "Tesla's future is becoming clearer and more stable."

- - - Updated - - -

Oh, regarding my Long Term expectations for TSLA...
Using a Price/Sales Ratio of roughly 8 (for trailing twelve months) model (as earnings don't seem to work in this high growth environment). With that in mind, here are the next 6 years (enjoy):
2014 (actual): Rev = $3.2B, therefore Market Value = $25.6B, therefore stock price is roughly $205 at 124.5M shares.
2015 (guidance): assuming revenue = $5.6B; Market Value = $44B; Stock $350 at end of 2015
2017: Rev = $13.6B; MV = $103B; Stock = $775
2020: :love:

Price to Sales of 8 is very high for a large company. Most are closer to 5 or less.

 

[MartinAustin]

Tesla is going to become an electric car and battery storage company. Those two markets are going to be big. No other company currently has that roadmap. Generac is a company that makes generators of the type you use during power cuts, but they have no roadmap leading them into battery storage, even if it would make sense for them to expand into that. Ford, GM etc. are starting to make battery-powered cars, but don't have the intent to expand into the battery storage industry, and if they did they'd have a hard time finding the batteries. Perhaps Honda might be the closest, since they produce the Honda Fit EV and also are a popular supplier of portable power generators.

I was excited to hear Elon mention the stationary storage yesterday, though at first, I wondered why they would launch so early - pre-Gigafactory - with such a dearth of batteries around. I don't think Tesla has anything more profitable that they can do with 85KWh's worth of batteries than to put it into a Model S car and sell it for $79,900. Selling them in a home storage battery would be less profitable. But, I am reckoning they are going to bring in used Tesla Model S batteries - ones that have been returned under warranty, returned in leased cars, or returned from Model S owners who want to upgrade their cars to larger batteries (different thread altogether!) - and rework them for sale as home batteries. Perhaps, the up-to-2,500 Roadster batteries that are going to come back from owners may be refashioned into these home solutions, too. I project home batteries will be sold with a price that matches their measured, working capacity. Some batteries may have more capacity than others, resulting from the usage style from their initial deployment (my own P85 battery appears to have 97.7% of its original capacity), so this would be reflected in price calculations - rather like the calculations for Tesla's loaner and demo cars. Once the Gigafactory is up and running they will have the extra capacity available, as stated, to produce as many brand-new home storage batteries as needed.

Being in both businesses will bring Tesla economies of scale in battery production, but also expertise in deployment techniques, long-term charging & discharging problems, software expertise, and of course brand awareness. Expertise in one will be great to share across to expertise in the other.

After the Tesla Home Battery is revealed, analysts from multiple different sectors will be look at Tesla - homebuilders, energy industry, and automotive, maybe more. Could be a great catalyst for TSLA.

 

[FANGO]

Martin, the fit ev has been discontinued. And their generators are gas powered. I'd say they aren't close.

Also, Elon and JB have said that there are few cases they've found where recycled batteries would work better than current batteries for home storage purposes, and that they don't expect to reuse batteries for home storage, that it would be more reasonable/cheaper/more efficient to use new batteries. This is sort of unfortunate because I would like to see batteries repurposed to low-draw applications, and I think that will still happen somehow, but perhaps not via Tesla. Oh well.