Long-Term Fundamentals of Tesla Motors (TSLA)

[TSLA Pilot]

A friendly advice to some; it is dangerous to fall in love with a stock.

Famous quote from one long time successful Swedish investor “De är alla samma skit” meaning “they are all the same sh*t”.

Don’t fall in love.

Matias, I'll have to assume you've not received your Model S yet?

That must be the case because, well, it's hard not to fall in love with the sheer brilliance of the car, the concept, and the execution of the entire Tesla/SolarCity ecosystem.

Despite the danger of the refrain, "It's different this time," it really IS different this time.

As a long-term holder but short-term buyer (I like to buy more shares when my favorite company is "on sale," such as NOW), I persist in trying to shoot down my own premise that Tesla is a game-changing, industry-creating company.

I can't do it.

Almost every sign points to success over the long-term:

1. Gigafactory progress and completion, which will create an entirely new industry in home and commercial energy storage, in partnership with SCTY. (As a SCTY customer--far too small at 7.44 kW--combining a Tesla or two with a PV System AND home energy storage is a HUGE opportunity. As in: anyone with a Sun-facing roof and a brain will figure out how much money they can save powering their home and their cars from the Sun, thus assuring "no-brainer" success.)

2. The Model S itself--we've purchased three of them so far--the "Best car we've ever tested," according to the engineers at the NON-PROFIT, BUY EVERYTHING WE TEST, ACCEPTS NO ADVERTISING, Consumer Reports:

Tesla Model S 2013 quick take | Consumer Reports - YouTube

Talking Cars with Consumer Reports #5: Tesla Model S - YouTube

[Hopelessly out of date, and more than a few editing and content errors, but still remarkably and overwhelmingly positive from these normally jaded engineers.]

3. JB Staubel's comments at the Energy Storage conference last year, and Elon's multiple interviews. Between the two of them, I don't think there's a "spin" bone in their bodies. If anything, they're probably too honest and unfiltered for their positions? They'd never make it at a conventional auto company, being sent off into a backwater division as punishment for excessive honesty and rule breaking.

4. The problems I've seen, and there ARE a few, (probably too many: atrocious and unacceptably long waits for service, now measured in MONTHS, sometimes not-the-best hires for sales and service, initial quality at delivery issues, apparent lack of concern for safety defects, customer communication) are all somewhat expected with a newish start up that keeps growing as fast as Tesla is. They've gone from a few hundred "true believers" to over 10k employees in just a few years? While exasperating and irritating, what is important for investors is that they are surmountable problems.

5. The level of outright giddiness, enthusiasm and interest from everyone (and that's about 50+ people I'd guess) that has test driven our various Model S's suggest that the Model 3 will be a slam dunk/sure thing, with production constraints as the only limit to sales volume given that the SC network will be very well established by then, and still growing globally.

Now, in the short term? Sure, lots of volatility. I see those as my path to increased margin debt as I purchase even more TSLA shares with funds that are, ahem, currently not in my account. The short-term pain I feel now will be more than made up for when the stock approaches Apple levels of valuation (assuming Elon's whole "give away the patents" thing doesn't destroy the value of the enterprise, of course;-).

Thus, after you've had your Model S for a few weeks, please let us know how your outlook and thoughts on the stock change; I'm pretty sure they will!

p.s. FYI, also in the short term, all of which will be strong positives and provide gob-smacking levels of free publicity, and which suggest buying more TSLA now while the FUD Monster is in full attack mode is a really good idea: Model X reveal and deliveries, 1st Gigafactory progress reports, CPO reveal, Model 3 reveal, additional Supercharger rollouts/milestones, plus a few "Elon Surprises" that are sure to come too . . . .

 

[Matias]

Tsla pilot, you are right, I don’t have the car yet and dream about it every day. :smile: Late May is the D-day!

I don’t disagree with you with the fundamentals, but as you know, fast growing sexy companies often in some point get overvalued, and I think this might me the case at the moment. Of course I don’t claim to know anything, just guessing.

I think, that the biggest threat in the few years’ perspective from now is the Gigafactory. In order to be profitable it needs high capacity utilization. IF model 3 ramps up slowly and home storage is not a hit, this can cause serious negative cash flow.
But of course this is just speculation.

 

[TSLA Pilot]

And that's the magic of the GF: flexibility. While I am pretty sure that home/commercial energy storage and PV are an assured "hit," just for arguments sake, let's say they're not.

Net result: more batteries available for the Model 3, Model X and Model S variants (and perhaps new, 95 or 105 kWh packs?). GF production can be shifted to where the demand is within days or weeks I'd guess?

Also, and this is pure speculation: Tesla may delete the 60 kW version of the MS to "make room" in the product line up for very well equipped, high-margin Model 3's, thus shifting all MS production to 85, 95 or 105 kWh batteries, further boosting the MS ASP AND the value proposition of all MS's (longer range, and even stronger acceleration and regen possible with a larger battery).

Given the above, I'd posit that all of the first GF's production will be fully subscribed from Day 1, and that there will be another GF location contest within the next year or two.

While long-term, all of these factors will increase the value of TSLA, thus the importance of buying TSLA when it's on sale . . . .

A Warren quote:

• The approach and strategies are very similar in that you gather all the information you can and then keep adding to that base of information as things develop. You do whatever the probabilities indicated based on the knowledge that you have at that time, but you are always willing to modify your behaviour or your approach as you get new information. In bridge, you behave in a way that gets the best from your partner. And in business, you behave in the way that gets the best from your managers and your employees.
  • "Buffett on Bridge" at Buffetcup.com (2013)

 

[jhm]

And that's the magic of the GF: flexibility. While I am pretty sure that home/commercial energy storage and PV are an assured "hit," just for arguments sake, let's say they're not.

Net result: more batteries available for the Model 3, Model X and Model S variants (and perhaps new, 95 or 105 kWh packs?). GF production can be shifted to where the demand is within days or weeks I'd guess?

Also, and this is pure speculation: Tesla may delete the 60 kW version of the MS to "make room" in the product line up for very well equipped, high-margin Model 3's, thus shifting all MS production to 85, 95 or 105 kWh batteries, further boosting the MS ASP AND the value proposition of all MS's (longer range, and even stronger acceleration and regen possible with a larger battery).

Given the above, I'd posit that all of the first GF's production will be fully subscribed from Day 1, and that there will be another GF location contest within the next year or two.

While long-term, all of these factors will increase the value of TSLA, thus the importance of buying TSLA when it's on sale . . . .

A Warren quote:

• The approach and strategies are very similar in that you gather all the information you can and then keep adding to that base of information as things develop. You do whatever the probabilities indicated based on the knowledge that you have at that time, but you are always willing to modify your behaviour or your approach as you get new information. In bridge, you behave in a way that gets the best from your partner. And in business, you behave in the way that gets the best from your managers and your employees.
  • "Buffett on Bridge" at Buffetcup.com (2013)

I agree with the value of flexibility. Innovation gives Tesla alot of "option" value.

To extend this theme to battery makers, consider that other EV makers are using battery technology which is about ten years old on the density scale. How do their suppliers remain current with emerging technology while traditional automakers drag their feet. I think that Tesla's entry into the stationary market will heat up competition in that space. That will motivate battery maker to compete with newer, higher density technology and with expanding capacity. Basically, this creates new "options" for battery makers. The slow uptake of their auto customers need not constrain their growth, the massive supply chain growth needed to transform the auto market.

 

[Johan]

A friendly advice to some; it is dangerous to fall in love with a stock.

Famous quote from one long time successful Swedish investor “De är alla samma skit” meaning “they are all the same sh*t”.

Don’t fall in love.

It's quite OK to fall in love with a company and a product. It's also quite OK to fall in love with a stock, but with one important addition: "... at a given price point!".

In other words: TSLA at $190 in 2015 is a bargain. I believe it with all my heart as well as my rational and analytical parts. (My average buy in price is in the $30s and I'm don't have more funds to commit to TSLA stock now).

 

[neroden]

I should say at this point that I think there are a number of serious risk factors for the *company*. All the worst-case scenarios I see still involve Tesla being a major brand, and a major manufacturer of large numbers of very successful cars. But remember, GM is operating and making cars, while the GM stockholders as of 1990 got wiped out. And this sort of thing has happened even to companies which didn't go bankrupt -- I owned Southern Pacific stock in the 1980s, and found myself a few years later sitting on stock of a company which didn't control any of the Southern Pacific lines. There are nightmare scenarios where other entities manage to scoop the guts of the company out of the hands of the current stockholders. So there are always risk factors.

 

[Hogfighter]

I should say at this point that I think there are a number of serious risk factors for the *company*. All the worst-case scenarios I see still involve Tesla being a major brand, and a major manufacturer of large numbers of very successful cars. But remember, GM is operating and making cars, while the GM stockholders as of 1990 got wiped out. And this sort of thing has happened even to companies which didn't go bankrupt -- I owned Southern Pacific stock in the 1980s, and found myself a few years later sitting on stock of a company which didn't control any of the Southern Pacific lines. There are nightmare scenarios where other entities manage to scoop the guts of the company out of the hands of the current stockholders. So there are always risk factors.

Absolutely true, there are always risk factors. And it is prudent to continually reassess the atmosphere surrounding a company to see if those risks are manageable.

The way I see it, there's no way a company CANNOT be successful if (1) their product is far superior, and (2) there are sufficient barriers to entry. Both of these ring true for Tesla, the latter in the form of battery availability. Granted, there will be many bumps in the road, however.

Regarding the dangers of wiping out equity in the form of bankruptcy, it sure helps to have the CEO owning somewhere around 30% of the stock.

 

[RobStark]

Regarding the dangers of wiping out equity in the form of bankruptcy, it sure helps to have the CEO owning somewhere around 30% of the stock.

There is a reason why Ford used extraordinary means to avoid bankruptcy and GM did not.

 

[stealthology]

Here is a link to Morgan Stanley's 5 minute video they released for their clients last Thursday. Quite entertaining.

 

[JRP3]

Yup, Scarlett Johansson, bobbleheads, and dubstep...I'm in :biggrin: That has to be one of the most creative research notes ever.

 

[kenliles]

I think it's interesting to think about how Tesla EV and Self-Drive future will be disruptive to the industry. But perhaps the bigger effects are with the disruption to what the market will be based on the new dynamics with human needs. If the true cost of moving the vehicle mirror Electrical costs (vs fuel consumption)- especially assuming Electrical costs are largely Solar-Storage (very low costs looking forward)- then the cost of moving the vehicle are nearly the same as the cost of a stationary vehicle. This is similar in concept to a moving-home or moving personal environment I think will be the transformation we see eventually. If so, one of the biggest transformations we might see is a reduction in the number of cars (market size reduction). Once a car is self driving and as cheap to move as sit in place, there's reduced demand for cars per household. It's moving to household member's daily schedule for transpiration. Other factor may interfere with this and it may not come to pass, but it's a vision I've had for a while regarding where we might be headed. Been coming across some articles surfacing recently that are now talking about some of that as well as the self-drive and EV benefits begin showing themselves. Here an interesting take for example.
Self-Driving Vehicles Could Cut Car Ownership Nearly in Half, Report Finds

nothing going to happen quickly of course- but I find long term predictions a more interesting mental endeavor - and this is the long term thread

 

[Drax7]

We live in a convenience society, not having my personal car would be an inconvenience.
Maybe in the distance utopian future it will be different.

 

[jhm]

Kenliles, I think you have the consequence backwards. Self-driving EVs will reduce the cost per mile both financially and in terms of time taken from other more desirable activities. If you reduce the cost of something, then basic economics suggest that consumption will go up, not down. People will become much more mobile. For instance, commuting several hours to work will not be so costly. Many people will find they can get more work done in during their commute than in the office. So work 4 hours in the car, 4 hours face time in the office, and done. The rest of your time is for family. In this kind of work from commute world, more people will enjoy living in the exurbs. So miles driven per year per capita will go up. Moreover, the connected commuter will benefit from having their own vehicle set up just the way they want it. People will want to own their own space and not have to load and unload all their stuff and devices everyday just so they can rent a crappy little Google car. This is a workspace and a home space. Now suppose vehicle usage goes up from 12000 miles per year to 15000. This is going to wear out vehicles about 20% faster, so new car sales go up, not down. It all goes back to the same theme, as the cost per mile goes down, consumption goes up. Welcome to the hyper-mobile society.

 

[Johan]

Kenliles, I think you have the consequence backwards. Self-driving EVs will reduce the cost per mile both financially and in terms of time taken from other more desirable activities. If you reduce the cost of something, then basic economics suggest that consumption will go up, not down. People will become much more mobile. For instance, commuting several hours to work will not be so costly. Many people will find they can get more work done in during their commute than in the office. So work 4 hours in the car, 4 hours face time in the office, and done. The rest of your time is for family. In this kind of work from commute world, more people will enjoy living in the exurbs. So miles driven per year per capita will go up. Moreover, the connected commuter will benefit from having their own vehicle set up just the way they want it. People will want to own their own space and not have to load and unload all their stuff and devices everyday just so they can rent a crappy little Google car. This is a workspace and a home space. Now suppose vehicle usage goes up from 12000 miles per year to 15000. This is going to wear out vehicles about 20% faster, so new car sales go up, not down. It all goes back to the same theme, as the cost per mile goes down, consumption goes up. Welcome to the hyper-mobile society.

This is genius and the more I think about it I realize you're absolutely correct.

 

[kenliles]

Kenliles, I think you have the consequence backwards. Self-driving EVs will reduce the cost per mile both financially and in terms of time taken from other more desirable activities. If you reduce the cost of something, then basic economics suggest that consumption will go up, not down. People will become much more mobile. For instance, commuting several hours to work will not be so costly. Many people will find they can get more work done in during their commute than in the office. So work 4 hours in the car, 4 hours face time in the office, and done. The rest of your time is for family. In this kind of work from commute world, more people will enjoy living in the exurbs. So miles driven per year per capita will go up. Moreover, the connected commuter will benefit from having their own vehicle set up just the way they want it. People will want to own their own space and not have to load and unload all their stuff and devices everyday just so they can rent a crappy little Google car. This is a workspace and a home space. Now suppose vehicle usage goes up from 12000 miles per year to 15000. This is going to wear out vehicles about 20% faster, so new car sales go up, not down. It all goes back to the same theme, as the cost per mile goes down, consumption goes up. Welcome to the hyper-mobile society.

hmmm... so you're saying that the workforce will migrate quickly to one that is not location dependent (work from car more than half the time). Not sure I believe the bulk of work force will apply to that, but if so- a good point that the car per person is afforded. To the extent however that the work force remains largely site specific (8 hours required on-site), the car is free to self drive to spouse or other and return automatically at prescribed times rather than staying immobile (un-useful) most of the day.

I like your picture better if we achieve it as a society- however, currently we (at least USA) are moving in-opposite to that as 90% of the workforce is required on-site and has less and less disposable capital -

 

[jhm]

hmmm... so you're saying that the workforce will migrate quickly to one that is not location dependent (work from car more than half the time). Not sure I believe the bulk of work force will apply to that, but if so- a good point that the car per person is afforded. To the extent however that the work force remains largely site specific (8 hours required on-site), the car is free to self drive to spouse or other and return automatically at prescribed times rather than staying immobile (un-useful) most of the day.

I like your picture better if we achieve it as a society- however, currently we (at least USA) are moving in-opposite to that as 90% of the workforce is required on-site and has less and less disposable capital -

Even if you have to be onsite for 8 hours, self-driving cars will make your commute more enjoyable. For example, you could just kick back and post comments on TMC while your Tesla Gen3 SUV takes you to work or back home. One of the basic motivations for taking a long commute is so you can afford a nice home in a nice neighborhood. A nice home in a nice neighborhood close to a major employment center is usually much more expnsive. So for many there is an economic tradeoff between a shorter commute and a more affordable home. So if your choice is between a $350k home with a 30 minute commute or a nicer home for only $250k with a 60 minute commute, a really nice self-driving car could make the longer commute worth it. Saving $100k on housing can free up a little more capital for other things in life.

 

[dmckinstry]

It's quite OK to fall in love with a company and a product. It's also quite OK to fall in love with a stock, but with one important addition: "... at a given price point!".

In other words: TSLA at $190 in 2015 is a bargain. I believe it with all my heart as well as my rational and analytical parts. (My average buy in price is in the $30s and I'm don't have more funds to commit to TSLA stock now).

I'm pretty much in the same boat as you Johan. Unfortunately, I cashed in about half my stock in May or early June of 2013 to buy my Model S. Unfortunate because, if I'd waited a few months I could have sold less of my stock at a higher price. However, I couldn't make myself wait any longer to buy the car. That part of it I've never regretted. However, all I have in my brokerage account now is enough to buy about 1/2 a share. The best I can do is just keep waiting.

 

[kenliles]

Even if you have to be onsite for 8 hours, self-driving cars will make your commute more enjoyable. For example, you could just kick back and post comments on TMC while your Tesla Gen3 SUV takes you to work or back home. One of the basic motivations for taking a long commute is so you can afford a nice home in a nice neighborhood. A nice home in a nice neighborhood close to a major employment center is usually much more expnsive. So for many there is an economic tradeoff between a shorter commute and a more affordable home. So if your choice is between a $350k home with a 30 minute commute or a nicer home for only $250k with a 60 minute commute, a really nice self-driving car could make the longer commute worth it. Saving $100k on housing can free up a little more capital for other things in life.

that's a fair point- and I agree; I think the free up of capital will also come from 2 cars reducing to 1. As the car can on it's own return home for use during the day- or transport both household members with equal comfort and convenience.
I like your idea of the driverless commute itself changing where we live in relation- good point

 

[jhm]

To be sure, I do think it will be hard to anticipate how society will adapt to self-driving cars. No doubt driverless cabs will bring down the cost of cars for hire. Currently there are 791 vehicles per 1000 inhabitants in the US. This is very high on the global scale. Most of Europe is 400 to 500 vehicles per 1000 inhabitants. So the US could probably stand to dial back it's motorization rate. Still others will travel more miles per year as the cost comes down. We can have all sorts of responses happening at the same time. So it becomes uncertain how it will net out. I do believe that miles driven per person per year will go up, but ownership and lifestyles can change in unpredictable ways. The irony of our current society is that telecommunications has never been cheaper or more capable, and yet monthly expenditure on telecommunications is very high and we've never been more connected. So as cars become cheaper to operate, more connected and more capable, does that mean we'll lose interest in vehicles and buy in to transport as a service models, or will we find new ways to make connected transport part of our lifestyle. The next generation could well be both hyper-connected and hyper-mobile. Our children might think nothing about traveling all night to wake up 500 miles from home just to visit some friends and return the next day without losing any sleep, worrying about cost or lodging along the way.

 

[neroden]

The US has super-expensive telecoms, by the way. They're cheaper almost everyhwere else.