Long-Term Fundamentals of Tesla Motors (TSLA)

[dakh]

I think that's partially true. But OTOH Elon and JB have said that one of the primary ways that the GF will reduce costs is the custom cell manufacturing equipment. Two of the ways to customize the equipment are to scale it and to integrate it. This will probably cost more on an absolute basis, but probably less on a kWh per dollar basis.

Yeah but that was the plan to begin with so when they said they can produce more within the same building I guess it's kind of open for interpretation and mine was that it was about volumetric efficiency. But now that I think about it, that totally qualifies as jumping to conclusions

 

[electracity]

My understanding is that at this point, Panasonic is more of a contract manufacturer for Tesla. Tesla owns the battery design and is even getting involved in the manufacturing process. Panasonic will be able to apply the Tesla innovations to non-Tesla battery production which is where Panasonic is getting their value.

The cells are being made by Panasonic employees running machines supplied by Panasonic. Yet somehow this puts Tesla in a superior financial position? I do think Panasonic probably does have next gen. equipment with their IP in the building. I don't think Musk has convinced Panasonic that they should run their business as a non-profit to benefit Tesla.

Panasonic would want to shift risk to Tesla, so the terms of the cell sale is probably cost plus. Tesla also bought enough years of production that the machines became a capital lease for Tesla.

 

[Phil Seastrand]

The cells are being made by Panasonic employees running machines supplied by Panasonic. Yet somehow this puts Tesla in a superior financial position?

But who's IP are they using? Initially it was Panasonic, but as I understand it the chemistry is all Tesla's now.

We don't know the nature of the contract between Panasonic and Tesla. It could be similar to the relationship between Apple and Foxconn where Apple owns all the IP and Foxconn just does the manufacturing. Or you're right and Panasonic holds all the cards.

 

[Krugerrand]

Some seem to think one or the other has to have the upper hand. There is such a thing as a mutually beneficial partnership. Elon Musk has always given the impression of being very fair; ie. the entire Nevada deal, releasing patents, willingness to partner with others in the SuperCharger Network, etc...

 

[GoTslaGo]

Have to quote Elon here in re: Nevada, "The House always wins..."

BTW it was edifying to hear Elon's perspective of the Nevada deal, and makes a lot of sense. Most of the criticism in state only looked at the numbers, but never seemed to go into details.

 

[electracity]

But who's IP are they using? Initially it was Panasonic, but as I understand it the chemistry is all Tesla's now.

We don't know the nature of the contract between Panasonic and Tesla. It could be similar to the relationship between Apple and Foxconn where Apple owns all the IP and Foxconn just does the manufacturing. Or you're right and Panasonic holds all the cards.

Lithium ion is probably maturing as a technology, and every competent company knows how to make decent EV cells. How to make those cells inexpensively, and how to use the cells effectively are likely the key. Every major innovation goes through a phase where experts have insider knowledge that then becomes common knowledge. Like the early days of PC, where people questioned whether IBM clones were as good as IBM PCs. Everyone reverse engineers everyone else stuff, and pretty soon a lot of people are expert.

I expect the key parts of the deal with Panasonic is capital expenditure and risk. Panasonic is not going to bet the company on Tesla. Tesla needs massive capital investments (on or off their balance sheet) to exploit their opportunity.

 

[JRP3]

At the shareholder meeting I remember JB or someone saying that there are parts of the GF that have to kept sealed off because of Panasonic's proprietary machinery.

 

[MitchJi]

At the shareholder meeting I remember JB or someone saying that there are parts of the GF that have to kept sealed off because of Panasonic's proprietary machinery.

Yes.

Tesla is also involved though with the innovations that led to the fact that they can get 3x the production from the same factory footprint.

Panasonic signed on to the project a short time after they stated that they were convinced that the 30% reduction figure given by Tesla was a conservative estimate. They are not stupid, and I'm sure that they can see from the TE demand, and the M3 demand that the GF is going to be a mint.

I'm sure that Tesla is treating them well and that they consider their relationship with Tesla to be mutually beneficial.

 

[MitchJi]

I have an idea, about how Tesla plans to get from 30% to 50% and (I think I have posted the timing information before) part of the reason they are confident that they can ramp cell production very quickly:

Tesla has said at least 30% cost reduction for the GF in 2017 and 50% by 2020.

Tesla and Panasonic will be using custom cell manufacturing equipment at the GF, and that will have a big impact on the cost reductions. Producing the custom equipment for the first production line will cost much more, and take much longer, than building six additional production lines (assuming 7 phases). This explains both the added 20% cost savings, and is part of the reason they are confident that they can ramp cell production for both the M3 and TE.

In your question you had [indiscernible] should be corrected, like the -- so the 30% savings is not just due to logistics. Logistics is a big factor. We are --

It's not even the biggest though.

Logistics [indiscernible] the fact that it's just go to one station to the next instead of going from multiple entities to multiple entities. But really when you get to the kinds of scale that we're talking about, you really get to design custom equipment that's much better at processing each step. And you really get to design the machine that makes the machine, not just do so with off-the-shelf equipment. So it took -- everything about it is going to get a whole lot better. That's why we think the 30% number when the Giga Factory is at full production is a conservative number.

 

[SBenson]

Tougher California rules may knock Toyota off eco-car perch- Nikkei Asian Review

The state has gradually tightened emissions regulations since they were first put into place back in 1990. It decided in 2012 to stop counting hybrids as zero-emissions vehicles as of 2018 -- an edict covering the Prius.

 

[FANGO]

Why would they ever have been counted as zero emission vehicles? 100% of their energy comes from creating emissions. Strange definition of the word "zero"

 

[dakh]

Why would they ever have been counted as zero emission vehicles? 100% of their energy comes from creating emissions. Strange definition of the word "zero"

It's California, so "zero emissions" for them means "no smog in the Los Angeles basin".

 

[FANGO]

Hybrids run on gasoline...they create smog...

 

[kenliles]

Related only to general surrounding issues to tech companies like Tesla-
None-the-less interesting and good to know as background knowledge

U.S. court backs landmark Obama internet equal-access rules - Reuters
U.S. court backs landmark Obama internet equal-access rules

 

[MitchJi]

I hope DaveT, and others chime in.

I really wish some of you will respond with discussion of what is fair value for Tesla.

Clearly the current fair value, at the close on Friday June 17, was (check the SP) $215.43.

What you want to know of course is the future value, which depends on future events. Figuring that out is difficult because there are several interrelated factors, and those factors are not black and white. Between now and whenever you think Tesla will produce over 100k M3's I think it could be a bumpy ride.

The main determinant of SP is income. In the past that has mostly meant auto production, but in the very near future TE will start having a huge impact on earnings.

AT the 2016 shareholders meeting Elon said that (he said this was highly speculative) that he thinks that the revenue from TE will be equal to the revenue from cars, and that it will grow faster. Below I use half of Elon's projected numbers for car production to generate some rough estimates. If the M3 slips that should be more likely to trigger an increase in TE (leftover cells). That should be the revenue equivalent to about 220k cars in 2017, 250k in 2018 and 350k in 2019.

Given the demand for Model 3, we have decided to advance our 500,000 total unit build plan (combined for Model S, Model X, and Model 3) to 2018. So as a rough guess, I would say we would aim to produce 100,000 to 200,000 Model 3s in the second half of next year.

I think the most important point here that we want to make is that we're advancing the Model 3 build plan substantially, and just the overall volume plan, with Tesla aiming to get to the half million unit per year
run rate in 2018 instead of 2020.

I think the worst case is that Tesla is 4-5 months late with Model 3 production and produces about half of Elon's projections, so zero in 2017, and roughly 200k in 2018. Plus conservative MS-MX numbers of 120k in 2017 and 140k (total 340k) in 2018. For 2019 I'll use Elon's 500k figure of 500k total.
2017 totals 120k cars plus the equivalent revenue of 220k cars = 340k
2018 totals 340k cars plus the equivalent revenue of 250k cars = 590k
2019 totals 500k cars plus the equivalent revenue of 350k cars = 850k

I am very confident that they will do better that, but not confident to depend on that for use as an investment (need a Plan B). My absolute worst case, for planning is that Tesla is 12 months late with Model 3 production and produces about half of Elon's projections, so about 50k M3, at the end of 2018 (total about 190k) and about 250k M3 (total about 400k) by end of 2019.
2017 totals 120k cars plus the equivalent revenue of 220k cars = 340k
2018 totals 190k cars plus the equivalent revenue of 250k cars = 440k
2019 totals 400k cars plus the equivalent revenue of 350k cars = 750k

One estimate for SP, based higher vehicle deliveries, and not considering the impact of Tesla Energy Storage (TE):
The following was posted on Jan 6, 2014. about 2 years before the M3 reveal, and the accelerated ramp plans were announced.
Articles/megaposts by DaveT

Articles/megaposts by DaveT
2019 TSLA stock price
Let’s examine a bit more what TSLA stock price might be in 2019 if they’re able to sell 700k cars. I’ll use rough numbers but you can plug in numbers you feel more comfortable with.
<snip>

700,000 cars x $50,000 (avg selling price due to 150k cars being Model S/X and GenIII selling mostly with 5-10k in options) = $35 billion
18% gross margin = $6.3 billion

So, now the question is what multiple will investors give Tesla. If Tesla is growing rapidly, which they will be in order to reach 700k cars in 2019, investors will likely give at least 20x profit. So, $3.15b x 20 = $63 billion market cap divided by 150m shares (rough estimate) = $420/share.

Now this is a very conservative estimate of $420/share if Tesla is able to sell 700k cars in 2019. More likely is that investors will give a higher multiple than 20x since Tesla is still rapidly growing.

I would imagine a 30-40x multiple might be fair and realistic. Let’s use a 30x multiple to be conservative. $3.15 billion profit x 30x p/e = $94.5 billion market cap divided by 150m shares = $630 share price.

So we should have the revenue equivalent in 2017 of at least 340k cars by 2017, (with zero M3!) 440k by 2018 and 750k by 2019.

Using half of DaveT's numbers for:
340k gets us to an SP of $315 by 2017
$407 based on 440k, by 2018
and over $630 (based on 750k or 850k) by 2019.

 

[steve3]

The capital is clearly not a moat. One moat is obtaining the resulting price. The other moat is the vision (to spend the money for the GF, OTA, Supercharging etc.).

[Edit: Mitch posted this in the short term thread, and I liked the idea of continuing discussion of the moat over here. Not intended as a direct reply to the fair value discussion.]

Yes, the multiple visions, especially the depth of alignment among them...what's good for Mars is great for TM, and eventually superb for TSLA.

For example, Elon has said that the Mars vision requires, in spades: 1) lots of money; and 2) new ability to manufacture large complex objects by redirecting engineering focus onto the manufacturing process, utilizing physics' first principles (density, volume, & velocity of an assembly line).

His personal contribution to #1 is in considerable degree a function of maximizing TSLA SP in whatever timeframe he sees (10-15 years?) as realizable for TM (TA+TE) and jumpstart Mars funding. #2 is a steroid injection for #1, and a requirement for Mars.

Understanding the intertwined & aligned visions like these can help an investor add a few more pixels to the resolution of one's thesis imagery, which is of course refined as stuff happens (or doesn't). After Q1 the market would basically like to put Elon in time out until "proven" production & financial performance. What he sees instead is the need & ability to lay the groundwork for performance at levels that don't compute when viewing through that market's limited lens. That's all fine and dandy for idealists and dreamers, but it's these interwoven visions that ensure sufficient willingness, coupled with demonstrated competency (engineering & business), to take on whatever obstacle blocks realization of the vision.

An engineer's biggest strength and most vulnerable weakness both, is a singular focus on engineering. If you take that focus and place it on integrated, well-thought-out vision(s), and then apply your unmatched engineering competence as a tool to realize that vision, you have Tesla Motors' secret sauce. Daimler just unveiled their vision, a comparison reveals one measure of the depth and breadth of the TM moat.

As DaveT pointed out in his megapost thread, for 2015 and early this year TM looked more like his Tesla 1.0 or 1.5, but for me this understanding points to significant evidence of Tesla 3.0 becoming a reality...and that's not even close to the ceiling.

 

[RobStark]

 

[tftf]

The long-term fundamentals of TSLA will change profoundly thanks to the merger with SCTY.

This is what Morgan Stanley outlined in a great note back in February 2014 (very visionary looking back):

Source: Tesla's Next Trillion Dollar Industry

- SCTY merger will check the "electric utility" side box.

- Gigafactory 1-3 (one each NA, Europe, Asia) will seal the "battery" part.

Now what about the autonomous vehicle side?

I think another merger with a AI car company makes sense to speed things up. The worst thing would be to waste precious time and let legacy car companies pick up car AI / autonomous vehicle start-ups once they realize they are late in the game. Tesla should seal the deal and spend a few billion $ on the most promising ventures in this area in 2016 (spend billions to make trillions, see chart for huge TAM size! Another no brainer!).

Finally, Tesla should start building new car factories in Europe and China asap to be able to meet the huge demand for these AI cars. Luckily, the China factory MOU has already been signed:

Tesla looking to build a factory in China

And all of that is achieved while maintaining the new "cash is king" mantra and with minimal dilution. The new CFO and Musk work hand in hand.

What's left? Analysts "getting" the new Tesla.

I think Morgan Stanley will soon raise their PT on Tesla now that the grand strategy outlined in 2014 is being executed like clockwork only two years later.

Since Musk himself mentioned that the "new Tesla" (see chart above) could be worth a trillion $ over time I think four-digit price targets ($1000 to $2000 is my conservative estimate) for Tesla will soon follow by the smart sell-side on Wall Street.

 

[replicant]

The long-term fundamentals of TSLA will change profoundly thanks to the merger with SCTY.

I've counted 61,263 discussions here on TMC. So there are 61,262 threads left where you can share your sarcasm. Perhaps you can post one joke every 10 messages, this will keep you busy til the Gigafactory opening.

 

[tftf]

I've counted 61,263 discussions here on TMC. So there are 61,262 threads left where you can use your sarcasm.

I'm serious. My post above discusses the SCTY x TSLA merger and creating new revenue opportunities and synergies - therefore altering Tesla's fundamentals at the core. Please add to the discussion how this alters Tesla's fundamentals going forward, thanks.

PS: Unfortunately, Morgan Stanley seems to have flip-flopped on the 2014 note as of today:

Tesla (TSLA) target price cut 26% by Adam Jonas from Morgan Stanley following SolarCity deal

(Details discussed in the link)

This is very strange since the same analysts at Morgan Stanley so accurately predicted the possible synergies between solar, batteries and EVs back in early 2014 (see chart above). I'm disappointed.