Long-Term Fundamentals of Tesla Motors (TSLA)

[GenIIIBuyer]

All I know is that once Gen III sketches and reservation comes out, I'm putting my down payment down.
Imagine if 100,000 other customers do the same?

I also wonder how many Signature reservations they'll make available. If it's a mass market car, meant for 10x the volume of Model S. I imagine they'd make 10x as many Signatures available? Maybe for 20K down.

10,000 Signature * $20,000 = $200M
90,000 Production * $5,000 = $450M

For a total of $650M.

Also, was giving this some thought the other night. I don't think nearly as many people would be willing to put down a reservation over a year in advance if checking accounts weren't paying 0.01%. Tesla sure is benefiting from historcial low cost of capital at its most capital intensive growth stage.

 

[tftf]

That's why I don't really care how much battery production costs. It's just not relevant in a hypothetical world dominated by Tesla Motors anyway, which your assumptions imply.

Two points:

1. It is not about the battery production costs, but mainly the initial plant investment itself. Longer-term, costs may even go down for TSLA.

2. I wrote nothing about "world domination", far from that. My estimates above are for "just" 250-500k TSLA Gen III cars/year, each with a range of 200+ miles as advertised. To put these numbers in perspective: Worldwide car production is (2012) currently at 85 million cars/year, 65 million of those are passenger cars.

As a starting point, I posted the numbers Nissan invested in its three smaller plants over the years. I doubt Tesla's much larger plant including recycling will be much cheaper in just 3 years from now.

Again, I would love to see other estimates, thank you.

 

[JRP3]

There is so much wrong with many of your assumptions I'm not sure where to start. First of all real volume G3 production probably won't hit until 2018 so they don't even need to start building the plant until probably 2016. Lead time for equipment is around 6 months, Panasonic built a plant in about 15 months from announcement to production. The Tesla factory doesn't need to achieve full production volume from day one, it can and will ramp up over time. The solar and recycling elements can also be added over time, especially the recycling which won't even be needed in volume until 10 years from now or more. Comparison to the LEAF factories is misleading because Nissan uses a less energy dense chemistry, Tesla will need less production volume per kWh of energy storage, especially 3-4 years in the future with more advanced chemistry.
I've had some private discussion with a lithium battery researcher who estimated $300-$500 million for initial equipment costs + around $100 million for plant build costs, then maybe $2 billion for full capacity line equipment.
Bottom line, the time frame is well within reason and the cost will be as well. I fully expect a joint venture to spread the costs or the creation of a separate company. Tax breaks and government support to promote a modern, green facility can be expected as well.

 

[tftf]

I've had some private discussion with a lithium battery researcher who estimated $300-$500 million for initial equipment costs + around $100 million for plant build costs, then maybe $2 billion for full capacity line equipment.
Bottom line, the time frame is well within reason and the cost will be as well. I fully expect a joint venture to spread the costs or the creation of a separate company. Tax breaks and government support to promote a modern, green facility can be expected as well.

Ok, thanks for the estimate. (My estimate of 5-10 billion includes the tooling and ramp-up/space for the Gen III car in addition to the battery factory).

Given that current worldwide 18650 battery cell production is at around 2.5 billion cells/year (TSLA would probably need to equal that production volume in its plant) I can't come up with a number below $5 billion USD myself.

One can also arrive at estimates using a different method (per cell-year upfront costs). There were earlier discussions in this forum based on a paper which stated:

Although specific costs vary, the initial investment required to build a U.S. manufacturing facility for cylindrical 18650 lithium-ion cell production is roughly $4 per cell produced each year. This
means that a U.S. facility capable of producing 30 million cells per year requires an upfront investmentof about $120 million.

Source: http://americanmanufacturing.org/files/1-s2.0-S0378775312018940-main (4).pdf

So assuming a simple calculation of:

($4 cell-year) * (4000 to 5000 cells for each Gen III) * 500k Gen III cars/year = Total investment for TSLA battery "giga factory" (non-car related).

Funny enough, this comes quite close to the upper limit of my alternate estimate ($10 billion) using market comparables.

Assumptions:

- I assume the Gen III requires 4000 to 5000 cells because the Model S requires about 7000+ cells (for the 85 kW·h pack version)

- Further assuming cost reductions until 2016 and economies of scale/cell due to sheer size of the plant, but then adding tooling for the Gen III car of $1-2 billion will balance themselves out.


PS: Of course, that paper may be also be completely wrong, but my estimates using market comparables and the paper linked above using per-cell pricing result in similar estimates.

 

[kenliles]

... Tesla will need less production volume per kWh of energy storage, especially 3-4 years in the future with more advanced chemistry.
I've had some private discussion with a lithium battery researcher who estimated $300-$500 million for initial equipment costs + around $100 million for plant build costs, then maybe $2 billion for full capacity line equipment.
Bottom line, the time frame is well within reason and the cost will be as well. I fully expect a joint venture to spread the costs or the creation of a separate company. Tax breaks and government support to promote a modern, green facility can be expected as well.

This is much more in line with my research and estimates. All, told I'm looking at about a $1B Tesla investment (half) spread over the next years. On the other side of that equation, the competitive advantage it adds (relative to other EV) is worth many times that imo

 

[FluxCap]

Two points:

2. I wrote nothing about "world domination", far from that. My estimates above are for "just" 250-500k TSLA Gen III cars/year, each with a range of 200+ miles as advertised. To put these numbers in perspective: Worldwide car production is (2012) currently at 85 million cars/year, 65 million of those are passenger cars.

If Tesla Motors is selling half a million cars per year, it's game over. They have won. Scaling then-proven volume production into the millions would then only be a matter of time, the combustion-driven passenger car industry would at that point be on a firm path to extinction unless they partner with or buy from Tesla, and TSLA's stock price would reflect forward projections of its dominance of the global automotive market for years to come. That is Tesla world domination, and that is a market cap, balance sheet and income statement so far exceeding your projections that self-funding and joint venture more than pay for increased production, with minor if any external capital requirements.

You are also assuming that management would make a business decision to fund a maximum-capacity battery plant by themselves years ahead of need for its full capacity, which is just a bad business decision. Therefore, I assume it has a low probability of occurring. Incremental supply chain reinforcements that factor in available technology improvements, car design changes, joint venture possibilities, and leverage a network / coalition of interested parties is the much more likely course.

We still have to saturate Model S and Model X consumption before we even talk about GenIII consumption anyway.

If you want comparable "investment estimates" then show us your projected balance sheet, income statement and cashflows of Tesla Motors from 2013-2018. Otherwise you are isolating one item in a growth curve affected by way more variables than hypothetical CapEx.

Show us your model, perhaps? Or do you have one?

 

[tftf]

If Tesla Motors is selling half a million cars per year, it's game over. They have won. Scaling then-proven volume production into the millions would then only be a matter of time, the combustion-driven passenger car industry would at that point be on a firm path to extinction unless they partner with or buy from Tesla, and TSLA's stock price would reflect forward projections of its dominance of the global automotive market for years to come. (...)
If you want comparable "investment estimates" then show us your projected balance sheet, income statement and cashflows of Tesla Motors from 2013-2018. Otherwise you are isolating one item in a growth curve affected by way more variables than hypothetical CapEx.
Show us your model, perhaps? Or do you have one?

About "world domination": If EVs take off in the mass-market I expect other car manufactures to follow the Nissan-Renault and TSLA example: They will enter JVs with battery supplies or go alone and build their own battery plants. Why should they buy from competitor TSLA (except for maybe TSLA investors Daimler, and less likely Toyota) ?

I also expect many car companies to mostly sell PHEVs (Toyota, Audi, GM, Mitsubishi, Ford...) in the near future which require much smaller/different battery packs than pure BEVs.

As for my model used. I did use to have one but have in the meantime switched to the one provided by Prof. Damodaran (NYU Stern). It is much better and detailed than mine

His TSLA .xls-file and valuation is available and discussed here:


Musings on Markets: Valuation of the week 1: A Tesla Test

Musings on Markets: Tesla: A Follow up

Musings on Markets: Many a slip between the cup & the lip: From forward value to value per share today


You can play with the .xls provided. Many people critical of the output/results did not see that an .xls-file is provided to alter the inputs.

 

[FluxCap]

About "world domination": If EVs take off in the mass-market I expect other car manufactures to follow Nissan-Renault and TSLA: They will enter JVs with battery supplies or go alone and build their own battery plants. Why should they buy from competitor TSLA (except for maybe its investors Daimler and less likely Toyota) ?

As for my model used. I did use to have one but have in the meantime switched and use the one provided by Prof. Damodaran. It is much better and detailed than mine

His TSLA .xls-file and valuation is available and discussed here:


Musings on Markets: Valuation of the week 1: A Tesla Test

Musings on Markets: Tesla: A Follow up

Musings on Markets: Many a slip between the cup & the lip: From forward value to value per share today


You can play with the numbers yourself and add your assumptions (many people using the model forgot that an .xls-file is provided to add your own numbers).

Damodaran's model has been roundly proven to be flawed and incomplete. He does not use standard 5-year Pro Forma financial projections and thus it is not a full DCF model with visibility into future GAAP accounting statements for this or any company.

He made this model for his students to play with stock valuation in a somewhat idiot-proof manner by plopping a few inputs into one page. No serious analyst would use such a rudimentary model.

So you've answered my question, and you don't have a pro forma model of your own. That's cool, I don't have an updated model I'm using either.

But I would caution you that investing based on a student's tool into which you plop assumptions you didn't create and whose dependencies you do not fully understand is a dangerous way to value any company. Tread carefully.

 

[tftf]

He made this model for his students to play with stock valuation in a somewhat idiot-proof manner by plopping a few inputs into one page. No serious analyst would use such a rudimentary model.

Serious analysts covering TSLA? Which ones? Please provide links. I would love to see more detailed estimates, research reports and models used.

Have you for example seen the simple models used by the GS (bearish example) and Dougherty (bullish example) analysts covering TSLA?

I doubt Andrea James (Dougherty) even used any model worth speaking of when she comes up with "estimates" such as:

$300 PT - $100 "execution risk" = $200 PT for TSLA

I prefer Damodaran's model and approach to both the GS and Dougherty analysis to value TSLA, at least as a starting point.

 

[FluxCap]

Serious analysts covering TSLA? Which ones? Please provide links. I would love to see more detailed estimates, research reports and models used.

Have you for example seen the simple models used by the GS (bearish example) and Dougherty (bullish example) analysts covering TSLA?

I doubt Andrea James (Dougherty) even used any model worth speaking of when she comes up with "estimates" such as:

$300 PT - $100 "execution risk" = $200 PT for TSLA

I prefer Damodaran's model and approach to both the GS and Dougherty analysis to value TSLA, at least as a starting point.

Do you have experience interacting with professional analysts from major investment banks and research firms? Each analyst's model is perhaps their most closely-guarded secret, so of course I don't have access to them, and neither do you. Not even their top-tier clients get the actual models they use, they get reports based on those models. It is on you to build your own model, if you understand how do do so. Which it seems you do not.

We have also discussed this before, over a month ago, in another thread. Your blind praise of Damodaran's model without even understanding the math contained in it, and your cavalier dismissing of Andrea James (who is a professional analyst, and you are clearly not) are things you have spoken in the past. Why do you suspect her analysis is inferior? Do you know her? Do you think her bank would hire an idiot? Do you think it's because she's a woman? I really don't understand this line of attack.

Finally, assumptions drive valuations, and smart people differ on assumptions, but to pretend that one assumption determines future value on its own is foolish. And to pretend that one assumption carried through an already flawed model is an accurate indicator of future performance is equally unwise as a basis for investment decisions.

 

[tftf]

Why do you assume that analysts have so sophisticated proprietary models in comparison? I have worked with IB analysts and their models (although not related to TSLA or car industry) often are sub-par or cobbled-together spreadsheets.

I'm aware most of them can't share their models. But I have read quite a few research reports on TSLA (since the IPO up to 2013) and am not that impressed. Most analysts just follow the stock price and rewrite their reports accordingly.

Let me give the example of the Deutsche Bank analyst covering TSLA. His recent price targets were:

21 Feb 13: $35 (from $28)

15 May 13: $50

26 July 13: $160

19 Sept 13: $200 (re-iterated)

Close to worthless in my opinion, the stock already jumped and he just follows suit. And and let's remember that these guys and gals have priviledged access to the company via factory tours, interviews with execs and close contact with Investor Relations as well as industry sources, premium reports and a free Bloomberg Terminal on their desk. So the outcome is a PT that basically follows the TSLA price movements ex-post?

I can look at the TSLA stock chart myself...I don't need an analyst for that

your cavalier dismissing of Andrea James (who is a professional analyst, and you are clearly not) are things you have spoken in the past. Why do you suspect her analysis is inferior? Do you know her? Do you think her bank would hire an idiot?

I have seen her CV:

Andrea James - Resume

Andrea James | LinkedIn

She might be a fine journalist who jumped ship and is now a "senior analyst" at Dougherty (a series 7 exam and what else?) covering TSLA. I certainly don't criticize her for being female. She just sounds like a cheerleader whenever she is covering/discussing TSLA, no critical thinking.

Listen to the latest CC again. She is "excited" to hear about the "giga factory" but fails to ask what the investments and other challenges are - same for all the other analysts present on the CC (mostly male), so I'm not even singling her out. She just happens to have one of the crudest PT assumptions for TSLA stock as I outlined above.

PS: And yes, I'm using simple models as well. But at least I was aware months ago that battery supply was a critical path in the TSLA supply chain and try to estimate the investments needed.

 

[FluxCap]

Why do you assume that analyts have so sophisticated models in comparison? I have worked with IB analysts and their models (although not related to TSLA or car industry) often are sub-par or cobbled-together spreadsheets.

I'm aware most of them can't share their models. But I have read quite a few research reports on TSLA (since the IPO up to 2013) and am not that impressed.



I have seen her CV:

Andrea James - Resume

Andrea James | LinkedIn

She might be a fine journalist who jumped ship and is a "senior analyst" at Dougherty (a series 7 exam and what else?) covering TSLA. I certainly don't criticize her for being female. She just sounds like a cheerleader whenever she is covering/discussing TSLA, no critical thinking.

Listen to the latest CC again. She is "excited" to hear about the "giga factory" but fails to ask what the investments and other challenges are - same for all the other analysts present on the CC (mostly male), so I'm not even singling her out.

She just happens to have one of the crudest PT assumptions for TSLA stock as I outlined above.

PS: And yes, I'm using simple models as well. But at least I was aware months ago that battery supply was a critical path in the TSLA supply chain and try to estimate the investments needed.

Good grief, congrats on finding an old resume. She has been an analyst covering stocks for Doherty since 2009. Without seeing her model, or any analysts model for that matter, you cannot critique it. You can disagree with her conclusions but it is again cavalier and odd to discredit her as an analyst based on a price target alone.

And I said "WOW" at exactly the same point she did on the call when Elon spilled the beans on this giga-factory concept, which I am positive his fellow Tesla Motors executives did not intend for or expect him to reveal because it was nowhere in the letter. Hence Andrea's surprise, and mine, and everyone's. She did ask a rather incisive follow-up question immediately about it, as well.

I understand you are not long Tesla, but please don't pretend you know more than analysts who cover the stock for a living, unless you have the model to show for it.

 

[tslafan123]

tftf, A genuine request. Can you get off this forum please? You are turning this into Seeking Alpha. I know you from there as well.

You are just detractor trying to mess up this forum's appeal - where there was valuable information and insight exchanged. Please don't ruin this.

- - - Updated - - -

For others to see: this is Mr.tftf

http://seekingalpha.com/user/5760541/comments/symbol/tsla

 

[JRP3]

Though tftf and I have had our arguments I don't want to see him chased off. His points aren't completely invalid, (at least when he's not trying to pretend that Tesla's superior charging standard is somehow actually a negative, but I don't believe he's brought that nonsense here, though I guess I just opened the door :tongue He's much better than Tippydog, Solucky and that Ducnguyenphotography Petersen sycophant.

 

[kenliles]

Though tftf and I have had our arguments I don't want to see him chased off. His points aren't completely invalid, (at least when he's not trying to pretend that Tesla's superior charging standard is somehow actually a negative, but I don't believe he's brought that nonsense here, though I guess I just opened the door :tongue He's much better than Tippydog, Solucky and that Ducnguyenphotography Petersen sycophant.

 

[CalDreamin]

Though tftf and I have had our arguments I don't want to see him chased off. His points aren't completely invalid, (at least when he's not trying to pretend that Tesla's superior charging standard is somehow actually a negative, but I don't believe he's brought that nonsense here, though I guess I just opened the door :tongue He's much better than Tippydog, Solucky and that Ducnguyenphotography Petersen sycophant.

I totally agree.

 

[tftf]

tftf, A genuine request. Can you get off this forum please? You are turning this into Seeking Alpha. I know you from there as well.

You are just detractor trying to mess up this forum's appeal - where there was valuable information and insight exchanged.

I think I have provided some valuable insight. Otherwise, please let me know what the specific issues are?

Did you follow my links (not the ones about Andrea James, sorry if I got distracted there but maybe it's also worthwile to know the background of so-called "senior analysts" covering TSLA)?

This is the long-term fundamentals thread. I have asked questions about the investments needed for the "giga factory" and for example included a link to a PDF from Argonne Labs, 140 pages long. This is a very detailed paper on battery pricing and outlook from one of the most respected battery research labs I'm aware of ( Energy | Argonne National Laboratory ). Have you read it?

I also tried giving my estimates and later found similar numbers were discussed on this forum using another method.
Even if these numbers are way off due to economies of scale and price drops until 2016 the numbers are quite relevant for TSLA investors. Let's for example assume $2 instead of $4 upfront investment per 18650 cell we still arrive at close to $5 billion assuming 500k Gen III cars:

($2 per cell-year) * (4000 to 5000 cells for each Gen III) * 500k Gen III cars/year = Total investment for TSLA battery "giga factory" (non-car related).

I think this is much too low so I stick to my original estimates.

Please do share your numbers if you don't agree with mine - or even think this "giga factory" is a non issue. I would love to hear your opinions and estimates. So far, only Fluxcap and kenliles gave other estimates.

 

[JRP3]

Let's play with some more numbers. Currently Tesla is using 3.4ah cells in the S. There are 4ah cells in the pipeline, lets assume they are available 3 years from now. I think Tesla can do the base G3 with 45kWh pack, using 4 ah cell x 3.6 V nominal = 14.4Wh/cell, divided into 45kWh = 3,125 cells. a 50kWh pack = 3,472 cells.

 

[TSLAopt]

Let's play with some more numbers. Currently Tesla is using 3.4ah cells in the S. There are 4ah cells in the pipeline, lets assume they are available 3 years from now. I think Tesla can do the base G3 with 45kWh pack, using 4 ah cell x 3.6 V nominal = 14.4Wh/cell, divided into 45kWh = 3,125 cells. a 50kWh pack = 3,472 cells.

Is there a way to vote tftf off perhaps?
I'd prefer to read him on seeking alpha as he ruins these threads. He's definitely either a paid troll or heavily short himself and spends his day trolling this site, seeking alpha, and who knows where else.

 

[AlMc]

Is there a way to vote tftf off perhaps?
I'd prefer to read him on seeking alpha as he ruins these threads. He's definitely either a paid troll or heavily short himself and spends his day trolling this site, seeking alpha, and who knows where else.

I can only speak for myself but I do not mind alterative views on open forums as long as they people are respectful of each other and there is good moderation of the threads. If there is a particular person who just seems to 'rub me wrong' I just ignore that person's posts.

I think we have good moderation here, especially compared to the official TM site where there is lots of bashing, hostility and troll hunting.

Just my 2 cents