Long-Term Fundamentals of Tesla Motors (TSLA)

[D.E.]

Given that this is a Long Term thread it might be a good idea to reflect back how Tesla long term results have fared.

Here are the 5 year return for Tesla along with broad based alternatives: Total Return includes dividend (reinvestments).


I don't think any of us long term investors ever fathomed such an outcome. The only debates we ever had was how many baggers this is going to be!

@DaveT is right. We might as well rename the whole Investor section as 'Waiting for Godot'

Except Tesla doesn’t have a dividend. Tesla lost $5.72 per share last year. Tesla closed at $297.86
The average PE for the NASDAQ is 18.43
So the stock is priced as if it has earnings of $16.16 per share instead of a $5.72 loss.

If I bought Tesla stock at today’s closing stock price, I would have paid as if the earnings per share were $21.88 higher.

Put another way, the stock price has already priced in earnings of $16.16 per share.

I wouldn’t expect the stock price to increase until the earnings exceed $16.16 per share. Since I’d like to double my money, Tesla will need to earn $32.32 per share to support a stock price of twice what it is now.

Will it do it? It might, Elon is amazing. But if Elon continues tweaking the nose of the FTC and if he gets himself removed as CEO, does anyone think his replacement is going lead the company to get earnings north of $30 per share?

The long term holders of TSLA are speculating. It may be a good bet but a lot of things have to go well. This parts supply problem is going to become huge when the other auto makers come into the market. Right now Tesla is about the only game in town. Tesla is about to see competition.

So “how many baggers is this going to be!”
How many multiples of $16.16 per share do you see Tesla earning?

 

[JRP3]

We are certainly about $100 below where I would have expected us to be but playing the volatility has helped. Buy around $300, sell when you think it's near a local high, repeat. Hold core position to avoid FOMO. I even made a little money today getting out of a margin buy until some of the SEC uncertainty is over.

 

[D.E.]

We are certainly about $100 below where I would have expected us to be but playing the volatility has helped. Buy around $300, sell when you think it's near a local high, repeat. Hold core position to avoid FOMO. I even made a little money today getting out of a margin buy until some of the SEC uncertainty is over.

The title of the thread is “long term fundamentals”. What you describe is speculation, not use of fundamentals. That is a minefield.

 

[JRP3]

Well I did say I hold a core position, which is long term.

 

[scaesare]

I do not have any technical details or knowledge of mechanics of the heating systems. What I do have is personal experience, since I have both a Model S and a Model 3 sitting in my garage side-by-side. This last week we had some quite brutal cold (such as -20 Celsius) and my experience is that the Model 3 heats up noticeably faster than the Model S when I turn on the heater (pre-conditioning) from the phone app before starting to drive.

ps: there is only one aspect where the Model 3 is worse in cold weather and that is the door handles freezing up if you wash the car in the winter. The water gets behind the handles and freezes there. The model S is able to push out the handles breaking the ice, but the mechanical system in the 3 seems to handle it worse, also harder to wipe clean off water -- can't access the space behind the handles like you can on the S.

Iy appears @dc_h was talking about battery pack thermal mgm't, not cabin heat.

The S/X have separate ~6KW coolant loop heaters to provide heat for the pack. They can also use waste drivetrain heat to condition the pack.

The 3 does not have a separate pack heater. Instead it can operate the motor in a mode where it will generate extra heat (even at a standstill), which is then used to condition the pack.

Both models have electric PTC cabin heaters.

 

[EinSV]

A 5 year growth metric that is more relevant to "Long-Term Fundamentals" is revenue increase:

Q42013-$615M
Q42018-$7.225B

Revenue has increased 11.7X in 5 years, or a compound annual growth rate of over 60%.

Another relevant metric is cash flow. Tesla is now generating operating cash flow at a rate of $5.2B per year in Q3/Q4 2018 v. $464M/year in Q3/Q4 2013. An 11.2X increase.

Tesla also generated significant free cash flow and was profitable on both a GAAP and non-GAAP basis in 2H 2018.

Tesla as a company has outperformed expectations of the vast majority of investors over the past five years and its long-term fundamentals have never looked better IMO. Share price depends on the whims of the market, and does not necessarily reflect performance on fundamentals in the short term.

In the long run, this usually sorts itself out (Benjamin Graham's short term voting machine v. long term weighing machine).

 

[mongo]

OT, technical warning...

The 3 does not have a separate pack heater. Instead it can operate the motor in a mode where it will generate extra heat (even at a standstill), which is then used to condition the pack.

Apologies for being pedantic (motor and drive unit are often used interchangeably), it is likely the inverter part of the drive unit generating the heat (via the liquid cooled switching device running in a linear/ resistive mode), not the motor part.

The motor itself is made of low resistance copper windings, which are good for motive efficiency, but lack the ability to generate heat (unless you use inductive heating). The motor itself may not even be cooled other than by conduction via the housing/ case.

The inverter switching devices can be controlled to a resistive state (using cross conduction) where they would generate as much heat as they can handle which would them be fairly directly coupled to the coolant. This would also not generate any net motive force in the motor itself.

 

[JRP3]

I'm pretty sure the motor is liquid cooled and I thought they used motor windings run inefficiently to generate the heat.

 

[scaesare]

OT, technical warning...


Apologies for being pedantic (motor and drive unit are often used interchangeably), it is likely the inverter part of the drive unit generating the heat (via the liquid cooled switching device running in a linear/ resistive mode), not the motor part.

The motor itself is made of low resistance copper windings, which are good for motive efficiency, but lack the ability to generate heat (unless you use inductive heating). The motor itself may not even be cooled other than by conduction via the housing/ case.

The inverter switching devices can be controlled to a resistive state (using cross conduction) where they would generate as much heat as they can handle which would them be fairly directly coupled to the coolant. This would also not generate any net motive force in the motor itself.

You know, I suspect that may be right... or at least provides some portion of the heat.

I've seen a number of articles/posts since that was first discovered a couple of years ago like this one, where they say: " Tesla eliminated and consolidated high voltage parts in Model 3. It eliminated the battery loop heater (drive motor now used instead), ".

But interestingly, this Electrek article says: "Even when parked, Tesla’s software can send a request to the powertrain inverter to start powering up and pass the appropriate currents to the motor in order to produce enough heat to warm the cells – all while not producing any torque so the Model 3 doesn’t move." which is a bit ambiguous, but allows that it could be the inverter that's providing the heat output.

I really don't trust consumerish articles to get it correct, however... I wish there were some definitive engineering discussion of it somewhere I could find.

 

[JRP3]

From a longevity standpoint I'd rather generate heat from the motor than the inverter.

 

[acoste]

This is what FastGraphs shows right now for the average of analysts' estimates for EPS and operating cash flow.

Based on adjusted EPS (avg of 26 analysts) the share price at P/E=27 will be at $263 by 12/31/2020.

However this is a growing company and it reinvests most of its revenue instead of counting it as earnings so the share price / operating cash flow is a better indicator. Based on that the 12/31/2020 will be $771 assuming P/OCF = 25.4.

Both the P/E=27 or the P/OCF =25.4 are on the high side, it is valid for a company with bright future growth.

 

[mongo]

I'm pretty sure the motor is liquid cooled and I thought they used motor windings run inefficiently to generate the heat.

From a longevity standpoint I'd rather generate heat from the motor than the inverter.

The drive unit is liquid cooled. There is an oil/water head exchange and a liquid fed cold plate that the switching devices are mounted to. However, from the teat downs, I did not see any direct cooling path for the stator, nor do S/X have that. Please correct me if I am mistaken, but S/X only has rotor cooling.

The problem with using the motor is that all you have is the winding resistance which is not much because winding losses hurts efficiency. Further, given the surface area and mass of the drive unit assembly, it would be very lossy to the environment.

I understand the hesitation to use the inverter, but it is already set up to handle the losses involved with switching 350V+ at 1000+ amps along with conductive losses while on. Running it in a steady state restive manner can actually be less stressful. With sufficient cooling, single off the shelf package devices can handle 1,500W each continuously.

 

[JRP3]

You appear to be correct.

 

[neroden]

On an annualized basis TSLA's return translates to 3.31% by the way.

I bet most fans have performed way worse than that, given active trading and especially options.

Options have substantially boosted my returns (specifically, selling puts). So has spacing out my purchases -- and market timing, interestingly.

But then TSLA was a safety bet for me. We haven't yet had the general market crash in which TSLA will hang on and the rest won't.

 

[K3jSe7Llp7]

Options have substantially boosted my returns (specifically, selling puts). So has spacing out my purchases -- and market timing, interestingly.

But then TSLA was a safety bet for me. We haven't yet had the general market crash in which TSLA will hang on and the rest won't.

You and others have said that you consider tsla a safe or defensive stock in a recession. Why would this be? Please expand.

 

[anthonyj]

You and others have said that you consider tsla a safe or defensive stock in a recession. Why would this be? Please expand.

I have a firm belief that there is some sort of guardian angel that soaks up shares in the 240-250 range no matter what. I don’t know why, maybe Musk gets a margin call under that level? I think he borrows against 50% of his shares. I wear tinfoil hats from time to time fyi

 

[The Rookie]

This is what FastGraphs shows right now for the average of analysts' estimates for EPS and operating cash flow.

Based on adjusted EPS (avg of 26 analysts) the share price at P/E=27 will be at $263 by 12/31/2020.

View attachment 381034


However this is a growing company and it reinvests most of its revenue instead of counting it as earnings so the share price / operating cash flow is a better indicator. Based on that the 12/31/2020 will be $771 assuming P/OCF = 25.4.

View attachment 381035


Both the P/E=27 or the P/OCF =25.4 are on the high side, it is valid for a company with bright future growth.

Well the H1 2019 graph is now known to be wrong following the ‘not a profit warning’ briefing on Thursday evening.

Tesla investment this year is well down, so it can’t really be used as an excuse for no earnings anymore.

Given the price cuts, production numbers for S&X and no meaningful volume increases compared to Q4 the revenue this year is going to be down on last years Q4 annualised, so growing company may be optimistic, in fact right now it’s contracting (SCY virtual closure).

 

[adiggs]

You and others have said that you consider tsla a safe or defensive stock in a recession. Why would this be? Please expand.

I don't speak for @neroden of course, but I think I understand his reasoning (and share it to a larger than smaller degree). The larger context is a worldwide transition in our source(s) of energy, from a mine and burn energy economy, to a renewable energy economy. As that transition proceeds, there are some very large companies and industries that are about to get to know their bankruptcy attorneys entirely too well.

Big enough to have an impact on the worldwide economy.

Meanwhile the cost of energy as an economic input will be shrinking, so not all industries are going to be equally affected. That's a couple of paragraphs covering years of conversation in the Shorting Oil, Hedging Tesla thread (so I've skipped a few steps here and there ).


TSLA as a defensive stock is the idea that as oil & gas becomes increasingly affected by decreased demand, some subset of those current investors will go looking for alternatives. Some of them will go invest in the company that seems to be doing the most damage to oil & gas demand, whether that's really the case or not.

Demand for EV's in general, and Tesla EV's in particular, being so much better than the ICE cars they are replacing - the belief is that no matter how bad the world economy gets, and how bad it gets for auto makers, it's going to be worse for ICE car makers than EV makers, and its going to be worse for EV makers than it is for TSLA. Because of the quality of the vehicle and the driving experience (and Supercharging, and the rest of the Tesla experience).


One particular industry that you can do some research on now, to get an idea of what we think is coming for oil & gas in the next few years, is the coal industry. It's still a huge industry today. The problem for coal investors is that if you were invested back in 2007 at the peak, then you saw the value of your investment shrink 90%, and then another 90%, and then another 90% over the last decade. About a 20% decline in US demand for coal, and investors in US coal companies have been wiped out (maybe a couple of times as companies cycle in and out of bankruptcy).

The point is you don't need 90% demand reduction to get 90% value reduction in your investment. If the coal experience is repeated, we won't even need a worldwide 10% reduction in demand to see the public / private companies talking bankruptcy.

The expectation is that the next recession will be concentrated in the mine and burn energy sectors, and may skip other sectors entirely. TSLA, in this view, has enough demand that growth may slow, but it won't shrink. That's a really good place to be when others are shrinking.

 

[neroden]

You and others have said that you consider tsla a safe or defensive stock in a recession. Why would this be? Please expand.

The entire gasoline car market is dying. Peak ICE car sales were 2017. Meanwhile, the electric car market continues to grow at 50% per year. None of Tesla's competition can make a car as cheaply as Tesla (with the possible exception of some of the Chinese companies); none of them have a Supercharger network or equivalent (not even the Chinese companies, though they're working on it); none of them have the brand value. Only two of the Chinese companies have lined up battery supply; all the German companies and some others are being held up for ransom by LG Chem. Even if three of the Chinese competitors succeed, it won't meet total demand, even in a recession. So Tesla will still be selling every car they can make, *right into a recession*.

The stationary battery business is similar. There are viable competitors, but not enough to meet demand, even in a recession. In enough parts of the globe, installing these batteries is either a money-saver or a matter of security. Tesla has the leading brand name.

In the possible event of Tesla facing another cash crunch, there are *known* sources of funding, including Bailie Gifford, where James Anderson has flat out said in public he'd fund them.

My investment thesis is basically based around the horrendous hopelessness of every other carmaker. Unless cars stop being sold entirely, Tesla is going to keep selling and keep making money, and in a short-term cash crunch, they definitely have funding available.

In addition, Musk is really *very* good at cost engineering.

Also, as he said in either the Q3 or Q4 conference calls, Tesla has made the giant investments to produce EVs. They've *made them already*. They're counting as depreciation on the P&L statement, but the cash has been spent. (Although they did borrow against a lot of it with the asset-backed borrowing line.) The other car companies *have not made those investments* and have to make them in the *future* just to catch up with where Tesla is now. This puts them in a really invidious position during any downturn in demand.

----
Meanwhile, damn near everything else is looking really really shaky in a recession. Most utilities are teetering, due to overinvestment in fossil fuels and being unable to compete with solar + batteries. Consumer staples are even lower-margin than cars. Fossil fuel stocks, obviously, this should go without saying. A lot of the rest of the market is *highly* discretionary purchases. I mean, I think Amazon will be fine as will a number of major B2B businesses, and I think people will hang onto Netflix even when they drop all other entertainment, but you see what I mean.

 

[neroden]

Given the price cuts, production numbers for S&X and no meaningful volume increases compared to Q4 the revenue this year is going to be down on last years Q4 annualised, so growing company may be optimistic, in fact right now it’s contracting (SCY virtual closure).

They're contracting leasing (as fast as possible); cash and bank-loan solar sales are actually expanding.