Long-Term Fundamentals of Tesla Motors (TSLA)

[Sancho]

Even my most intelligent, thoughtful friends think I'm crazy investing heavily in TSLA. A vast percentage of the investing public just can't see a few chess moves into the future. In order to refute signals to the contrary (like 400,000 reservations) their minds are open to ideas that are barely rational (e.g the number must be inflated by people with multiple preorders and no intention to buy).

The talking head financial media amplify and reinforce this thinking, partly because they themselves see things like the vast majority, and partly because feeding the delusion helps ratings.

And so, when Musk advances the mass production goal by two years, instead of seeing this as a huge positive for the stock price, they view it as a huge negative, confirming their denial theory that Musk is a liar or wildly delusional.

I have been investing (successfully, thankfully) for 20 years. This is the best opportunity I have ever seen to profit from something about to happen so soon, that so few people seem to accept as plausible.

 

[wdolson]

American corporations are mostly run by people with poor imaginations and they focus only on quarterly profits with little view beyond that. And most investors are have drunk that Kool Aid. Tech companies are largely younger and think further ahead. Tesla thinks like a tech company and it tends to think even further ahead than most tech companies.

 

[Johan]

Very true @Sancho and @wdolson.

All the really poor bear stories are the result of cognitive dissonance in a high percentage of the investment community. When you fail to understand what is going on you need to create more (if possible) plausible or less plausible (when that's all you can come up with) stories to support your position.

 

[EinSV]

Since the analysts are apparently afraid to make any forecasts using Tesla's latest projections, I thought it would be great if any forum members who were interested wanted to take a shot at it.

To get the ball rolling, I put together some high level projections using the 1M vehicles in 2020 estimate. I assumed that in addition to the S/3/X, by 2020 the Y will be in volume production and that some next-gen Roadsters will be sold.

I tried to err on the conservative side including for some potential big ticket items like Tesla Energy. I did not attribute any contribution from a driver-less car service that has been suggested. I used what I think is a conservative mix of S/X v. 3/Y. In reality, I expect S and X sales to continue to grow rapidly as markets open up and more customers are introduced to Tesla and get comfortable with EVs. Since the S and X are much higher margin than the Model 3, I think there is a fair amount of upside potential here.

I also (conservatively) ignored revenue from pre-owned vehicles and other services, ZEV credits etc. The one area where I may be less conservative are gross margins on the Model 3/Y -- my SWAG is 15%. I think that is achievable by 2020 as Tesla moves up the learning curve on production but is by no means a given.

FWIW, call me crazy but I do think the 1M projection is achievable with a fairly straightforward path of a successful Model 3 ramp, continued growth in S/X sales and launching the Y in 2019. In fact, I wouldn't be at all surprised if Tesla exceeded this target.

If anyone else wants to weigh in with their own estimates or any suggestions for improving mine, that would be great.

(PS Sorry you have to click on the attachment -- could not figure out how to post the image directly as others have done and it looked pretty messy when I just pasted the data).

 

[wdolson]

I doubt the next gen Roadster will be out by 2020. The Model Y (or whatever they call the CUV based on the Model 3 chassis) may not be out by 2020, though it probably would.

I would expect the S/X sales will start to flatten out. The margin on the S/X today is about 20%, it may go up a little, but I don't expect it to go up by much. I expect the margin on the Model 3 platform cars will be around 10-15%. Elon Musk has indicated that Tesla Energy could end up being a bigger profit center for Tesla than the cars ever were. I expect the Tesla Energy ramp up will be faster than the car ramp up has been/will be. The revenue from Tesla Energy could be quite significant by 2020.

 

[Fallenone]

I doubt the next gen Roadster will be out by 2020. The Model Y (or whatever they call the CUV based on the Model 3 chassis) may not be out by 2020, though it probably would.

I would expect the S/X sales will start to flatten out. The margin on the S/X today is about 20%, it may go up a little, but I don't expect it to go up by much. I expect the margin on the Model 3 platform cars will be around 10-15%. Elon Musk has indicated that Tesla Energy could end up being a bigger profit center for Tesla than the cars ever were. I expect the Tesla Energy ramp up will be faster than the car ramp up has been/will be. The revenue from Tesla Energy could be quite significant by 2020.

The S has been consistently above 25%, if not for FX, much closer to 30%. The only reason why the overall GM on the car business in the last two quarters were at 20% was because of the difficulties in rampping up X

 

[wdolson]

Just crunched a few numbers and you're mostly right. Profit per vehicle has ranged from a low of 18% Q4 2015 to a high of 29.57% Q2 2014. The profit margin per vehicle has been closer to 20% for the last year. Another thing I found when I crunched the numbers is the average revenue per car has been declining. The high was $109K in Q3 2014 which was fueled by people buying the P85D. In Q4 2015 it was $69,540 a car and in Q1 2016 it was $77,597 a car. I can understand some cars are en route for delivery at the end of a quarter, but the numbers should be made up the following quarter when those cars are delivered.

From looking at the delivery thread it looks like a lot of 70s and 70Ds are being delivered of late and more orders for the 70 might contribute to the lower average price, but $69K is cheaper than Tesla's cheapest car.

 

[EinSV]

I doubt the next gen Roadster will be out by 2020. The Model Y (or whatever they call the CUV based on the Model 3 chassis) may not be out by 2020, though it probably would.

I would expect the S/X sales will start to flatten out. The margin on the S/X today is about 20%, it may go up a little, but I don't expect it to go up by much. I expect the margin on the Model 3 platform cars will be around 10-15%. Elon Musk has indicated that Tesla Energy could end up being a bigger profit center for Tesla than the cars ever were. I expect the Tesla Energy ramp up will be faster than the car ramp up has been/will be. The revenue from Tesla Energy could be quite significant by 2020.

I made some assumptions about the mix of cars partly to understand how the mix impacted revenues and profitability, but even if they ended up selling 850,000 Model 3s and 150,000 Model S/X and margins are lower than I projected the numbers would still look good. I don't think they'll wait past 2020 to launch the Model Y especially since they are predicting about 1,000,000 cars sold in 2020.

I agree with you completely on TE -- my revenue and margin projections are much lower than what I think will most likely happen. But since Tesla is playing it close to the vest with their projections I thought I'd err on the side of caution.

 

[wdolson]

If Tesla Energy ramps up fast, it's possible that may be their biggest profit center by 2020. It would be ironic if TE was funding all the car development. The key there is battery supply and how fast they can expand the Gigafactory to supply all the batteries they're going to need.

 

[Stretch2727]

Another thing I found when I crunched the numbers is the average revenue per car has been declining. The high was $109K in Q3 2014 which was fueled by people buying the P85D. In Q4 2015 it was $69,540 a car and in Q1 2016 it was $77,597 a car. I can understand some cars are en route for delivery at the end of a quarter, but the numbers should be made up the following quarter when those cars are delivered.

The revenue per car is not declining to this level. In fact it likely went up in Q1 due to Model X. You need to use the non-GAAP numbers for revenue as the GAAP numbers do not allow the full revenue on a sale due to the residual guarantee and lease accounting. This is why Tesla gives non-GAAP numbers and I understand in 2017 the accounting rules change to allow this revenue with GAAP. Also, the % of leases have been increasing.

4th QTR - 2015 = $1,742,024/ 17.5 = $99.5K per Car
1st QTR - 2016 = $1,601,727/ 14.8 = $108.0K per Car

This is just a rough number as there is some services revenue, Tesla energy, etc that should be backed out of the revenue number.

Also, cars in transit will not effect this calculation. They are considered inventory and Tesla cannot recognize in the revenue number above. The are not counted as deliveries as well.

 

[JRP3]

I've been thinking that once the Model 3 is out in volume Tesla may move the S and X further upmarket to better differentiate them from the Model 3. This should lead to higher ASPs for them.

 

[electracity]

I think that Tesla expects the model 3 to cannibalize a lot of model S sales. It is ironic that the Model S is compared to Mercedes S class when it seems that very few buyers went from top of the line Mercedes and BWM to Tesla cars.

Tesla best chance for highest growth is the next five years. I think that they won't hold back features on the model 3 to improve S/X sales. If this is true, the only differentiators are the S/X having more space and range.

Perhaps one reason Musk keeps thanking S/X owners for their contribution towards the model 3 is that he is worried about them being pissed off about the relative value of their cars to the model 3.

But if Tesla can't get more than a 250 mile range in an upgraded model 3, the product line will still be well differentiated. Model S/X margins will continue to improve with dropping battery prices and sharing some costs with the model 3 line. I think the Germans and the Japanese will need to pivot and go after the model 3 as soon as they get their first S/X competitors launched.

 

[Krugerrand]

I think that Tesla expects the model 3 to cannibalize a lot of model S sales.

No they don't. Didn't they just state on the last ER that the reveal of the Model 3 INCREASED interest in the Model S? I'm pretty sure they did.

 

[electracity]

No they don't. Didn't they just state on the last ER that the reveal of the Model 3 INCREASED interest in the Model S? I'm pretty sure they did.

Announcing the model 3 increased interest in the model S. There is no way that the many model S buyers who traded a mainstream car would have chosen the S over an model 3 if both are generally available.

Tesla is going to compete with itself. Advice to follow this approach as a business strategy is often given, but few CEO's are brave enough actually implement such a plan.

 

[MitchJi]

I would expect the S/X sales will start to flatten out. The margin on the S/X today is about 20%, it may go up a little, but I don't expect it to go up by much. I expect the margin on the Model 3 platform cars will be around 10-15%. Elon Musk has indicated that Tesla Energy could end up being a bigger profit center for Tesla than the cars ever were. I expect the Tesla Energy ramp up will be faster than the car ramp up has been/will be. The revenue from Tesla Energy could be quite significant by 2020.

Tesla will be able to increase MS-MX margins when they reduce cell costs using the GF production equipment., either in Nevada or Japan.

IMO the revenue from TE will be substantial by the end of 2017, and that will surprise the market.

 

[EinSV]

Tesla will be able to increase MS-MX margins when they reduce cell costs using the GF production equipment., either in Nevada or Japan.

IMO the revenue from TE will be substantial by the end of 2017, and that will surprise the market.

Totally agree with this. Also, they probably will have some overseas vehicle production by 2020 which could act as a currency hedge -- the strong dollar has definitely hurt margins.

 

[BornToFly]

Announcing the model 3 increased interest in the model S. There is no way that the many model S buyers who traded a mainstream car would have chosen the S over an model 3 if both are generally available.

Tesla is going to compete with itself. Advice to follow this approach as a business strategy is often given, but few CEO's are brave enough actually implement such a plan.

Are you for real? I would never buy a Model 3 over an S. The 3 is a lot smaller, and I'm sure the interior won't be as nice as an S. Some people prefer a nicer, bigger car if they can afford it. That is like saying nobody will be an Accord because they can buy a Civic.

 

[electracity]

Are you for real? I would never buy a Model 3 over an S. The 3 is a lot smaller, and I'm sure the interior won't be as nice as an S. Some people prefer a nicer, bigger car if they can afford it. That is like saying nobody will be an Accord because they can buy a Civic.

Go look at the "what car did you own before a Tesla" threads. Do you really believe that Prius owners will buy an S/X because it has a nicer interior?

There are three types of current Tesla owners:
1) Those who would have never considered the expensive S/X if the model 3 was available
2) Those who would have seriously weighed the pros and cons of the Model S against the Model 3
3) Those who "buy the best" and would only consider the S/X.

How many current Model S owners have a model 3 pre-order?

 

[EinSV]

Uh oh -- "demand constrained"? Again?

 

[tander]

Are you for real? I would never buy a Model 3 over an S. The 3 is a lot smaller, and I'm sure the interior won't be as nice as an S. Some people prefer a nicer, bigger car if they can afford it. That is like saying nobody will be an Accord because they can buy a Civic.

Go look at the "what car did you own before a Tesla" threads. Do you really believe that Prius owners will buy an S/X because it has a nicer interior?

There are three types of current Tesla owners:
1) Those who would have never considered the expensive S/X if the model 3 was available
2) Those who would have seriously weighed the pros and cons of the Model S against the Model 3
3) Those who "buy the best" and would only consider the S/X.

How many current Model S owners have a model 3 pre-order?

I've been on the fence about getting an S because while I can afford it, and it's clearly to me pretty much the best overall car right now, I consider it pretty flashy which is a significant deterrent for me. I'd much rather drive a model s than some cars that cost twice as much, it's like choosing a pc over a really luxurious typewriter. But that said, the model 3 would be a much easier choice for me, and I end up squeezing into small parking spots a lot, so the smaller size would be a bonus in that way too.