Long-Term Fundamentals of Tesla Motors (TSLA)

[Perfectlogic]

Steve, you mentioned a cost of a trillion dollars to build out factories for energy storage, and capex happens to coincide with the yearly revenue for the factories as 35GWH/y = $5,25B in yearly revenues at $150/KWH, I still think this is almost an order of magnitude too high compared to what we might see in a decade if the stars align.

 

[spacekadet]

Can we move the battery storage topic somewhere else please? Let's get back to short term TSLA price analysis. I guess the CS upgrade wasn't too exciting for investors today.

 

[SteveG3]

Steve, you mentioned a cost of a trillion dollars to build out factories for energy storage, and capex happens to coincide with the yearly revenue for the factories as 35GWH/y = $5,25B in yearly revenues at $150/KWH, I still think this is almost an order of magnitude too high compared to what we might see in a decade if the stars align.

PF, you can reread what I wrote, I described a range of costs to build out the factories to meet demand for energy storage from possibly far more modest than a couple hundred billion dollars to possibly possibly a trillion dollars.

Do I know what the demand will be? No. That's why I describe such a large range, and keep saying that the key question is, how big will demand be. If the potential market is as large as the potential market for batteries in EVs (which I believe Adam Jonas suggested this past February, and I think JB Straubel has hinted at), than we would be talking about a trillion dollars to build up enough GFs to meet demand. Again, I don't know what the demand will be, and I'm not going on anyone else's unexplained say so, nor suggesting that you do that... but I don't think my suggesting that range is "insanity," and I do think it is unclear that the batteries will face commodity pricing pressure anytime soon.

 

[FANGO]

Q4 is going to be great in my opinon and I think we might see margin going above 30 % in 2015. I think there is something about margin above 30 % for four consequtive quarters in Elon’s compensation package.

I don't think this will happen. The chance for it to happen has passed. I doubt model x will start with excellent margins and by the time it's up to speed the model 3 will be too close to have 4 quarters of 30%. If the model x is so similar that they don't have to take time to get up to speed on margins, or they can raise the price a bit or something, then maybe there's a chance. But I doubt it.

 

[Perfectlogic]

Well you did mention a trillion a year in your post even if it was at the high end, now I think that is unrealistic even though I hope it too be true, either way I guess you are right that insanity was a wrong word to use.

Now back on topic I still think we will push through the ATH to $280-300 in the coming months. Like some have mentioned the restistance is propably shorts eyeing an opportunity at the ATH to sell as they don't seem very good at coming up with reasons to support their view like that guy on CNBC, the "general public" is also just so bearish on the stock, anyone watched some Tesla threads on Reddit? Wow. There is propably also a lot of profit taking as the stock has been very volatile so in fear of losing all the gains people take some money off the table, even here on this very bullish board that have been done by some. I also think there are a lot of buyers out there willing to pick up shares on even smalls dips creating a floor around 255-260 which will push the stock higher eventually, I am not selling my $220 sep calls just yet.

 

[eepic]

Steve, you mentioned a cost of a trillion dollars to build out factories for energy storage, and capex happens to coincide with the yearly revenue for the factories as 35GWH/y = $5,25B in yearly revenues at $150/KWH, I still think this is almost an order of magnitude too high compared to what we might see in a decade if the stars align.

PF - I believe SteveG3 is attempting to explain that the stationary storage market won't be subject to pricing commoditization until there's capex in the trillion(s) spent to satisfy all demand at the price point, by Tesla and/or others who can compete. That's different than saying Tesla will reach that size in the next decade (or ever). In other words, Tesla and others can all happily sell everything they can at the same price without having to undercut one another, until they have the capacity to produce more than is demanded by the market.

Btw here's a relevant short-term tidbit for everyone else in this thread, sorry for the off-topic discussion (and mods if you have to move it)!
"GM Global Product chief Mark Reuss said the Detroit auto maker "absolutely" sees Tesla Motors (TSLA) as a competitor and GM engineers have spent time driving its cars and visiting the electric-powered car producer. Reuss said he anticipates TSLA will introduce a lower-priced model, and he believes TSLA will be successful. As for GM's Chevy Volt, Reuss said the company needs to do a better job of marketing the plug-in hybrid that goes 40 miles on an electric charge before switching to gasoline. He wants to target those who like the car and get them into it rather than just mass marketing."

 

[FANGO]

Interesting quote from CS report:

"Electric vehicles are inherently better than Internal Combustion (ICE) vehicles," said Gaives. "If Tesla can get to cost-parity with ICE and still offer $1,400-$2,500 per year fuel savings to the consumer, it won't be a fair fight."

Read more: http://www.benzinga.com/analyst-rat...overage-on-tesla-says-its-not-a#ixzz3AN0g8cOl

I don't see why people talk about cost parity as if it's some far-off thing. What cars in the Model S' price class compare to it at all? There's nothing. It handily beats all competition in just about every measure, even cars which are much more expensive (e.g. Maserati Quattroporte). Hell, Motor Trend just published a comparison of the Model S vs. the i8, where the i8, a sportscar which is 1300lbs lighter, has 3 less seats, has little cargo space, and costs 40k more (i8 base vs. P85 base) *barely* beat the Model S in terms of performance. I'm talking identical 0-60 and quarter mile times, similar braking (Model S actually won this), and the only reason they gave it to the i8 "by the slimmest of margins" is because it feels better to drive and did the 25s figure 8 .2s faster. And of course in every other measure, except the slight beat in performance, the Model S is better, which MT acknowledged and gave the S the prize.

And this is against BMW, one of the companies taking electrification more seriously. And who have been around for 100 years making excellent cars. And they still barely squeaked by with a car that has huge natural advantages.

And we talk about cost parity? What cost parity? It's already here. It's already *beyond* here. And it's not just the Tesla, you can lease a Leaf for 199 and it's a much better car than anything else at that price point. The Fiat 500E is priced between the Pop and Abarth, and is faster than the Pop and slower than the Abarth, and at least as fun as the Abarth is (depending on the review you read). Fiat didn't even want to make the damn car, and yet it's still a fantastic car. Of course we're already at cost parity. And then the cars cost less long term and are more fun...so we're at better than cost parity. QED, conversation over, everyone go buy an EV now.

 

[Perfectlogic]

PF - I believe SteveG3 is attempting to explain that the stationary storage market won't be subject to pricing commoditization until there's capex in the trillion(s) spent to satisfy all demand at the price point, by Tesla and/or others who can compete.

I realize what he means, I wrote this on the matter of demand/supply as the battery production ramps up

The capex requirements will definately be high in order to meet demand in batteries and will probably push margins up temporarily due to constrained supply, but if this happens then big investments will start to flow in from several companies trying to get a piece of the pie, thinking margins on batteries will be extremely high for decades to come due to supply constraint is unlikely. Just look at how fast the supply caught up in solar despite the industry growing rapidly actually creating an oversupply resulting in paper thin margins and bankrupt companies (I don't actually think this will happen but it's just an example to show how quickly supply can catch up).

A trillion in capex means more than a trillion in yearly revenues though, so I don't find that likely, maybe if spread over the next 30-40 years.

 

[FANGO]

Also, we know that Tesla had a meeting with Apple. Everyone was speculating takeover bid. But I think it had to do with creating solar cells etched into glass (or sapphire to be specific). Apple is working with GTAT on a sapphire project, but I have a feeling that it will be a lot more. Apple also is working on etching solar cells directly into the sapphire of the phone. When the iphone6 comes out in 4 weeks, I am certain that you will see a sapphire screen. Then in a couple of years, you will see sapphire front and back. This will allow them to etch solar cells directly into sapphire and make them invisible. Your phone will then charge by itself any time you lay it down on the table; or at a minimum keep the battery from draining in stand-bye mode.

Who are these people who keep their phones outdoors on tables, and not in their pocket? This is impractical and costly, and nobody will make a phone like this. If anyone does, it will be Samsung, since it's a silly gimmicky idea which nobody needs or will use (which is kind of their thing).

Also, I would not be surprised to see TSLA incorporate solar cells into the glass of the car, and we will have a self-charging car in a few short years (maybe decade).

No, there won't be a solar car. The only way we could have a solar car is if a) solar cells get extraordinarily efficient, b) crash safety regulations are largely eliminated (could come when we near 100% self-driving cars) AND c) the public completely rethinks what a car is (single occupancy, self driving, drafting, prone seating position, tiny tires, swoopy shape, lower speed/performance, no city use, etc.). Or d) the sun goes nova, thus drastically increasing solar radiation per square foot, because until that happens we have to work with what they have - which just isn't enough to power a large fast metal machine with a bunch of people in it.

And etching vertical surfaces with solar won't do anything, since vertical surfaces don't get sun, horizontal surfaces do.

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Just doing a bit of back of napkin math.

Let's say over the next few years/decades renewables+batteries because economically attractive, and we transition over 20 years to a system that supports a stationary storage buffer of about 5% of daily energy usage.

Using 143,851 TWh/year from World energy consumption - Wikipedia, the free encyclopedia

143,851 TWh/year = 394,000,000,000 kWh/year * 5% = 19,700,000,000 kWh stationary storage

Let's say that storage is introduced at a steady pace over twenty years, then each year there's a demand for 985,000,000 kWh stationary storage. Let's say they've streamlined the supply chain with multiple gigafactories, and have a $50/kWh cost vs $125/kWh pricing.

$125 kWh x 985,000,000 = $123 billion per year revenue
$75 x 985,000,000 = $73.9 billion per year in gross margin

Of course, it's going to be production constrianed to the ability of Tesla to scale up to this. But like Elon alluded to before, if stationary storage becomes economically attractive the demand will be quasi-infinite for decades.

While your demand numbers are interesting, you're suggesting a profit of 150% ($50/kwh cost, $125/kwh pricing). That's not going to happen.

By the way, Goldman's report talked about what they think stationary storage will be worth. Perhaps you will think these are not-optimistic-enough, but here you are: https://dl.dropboxusercontent.com/u/28705686/213091911-Tsla-Goldman.pdf

They say it's worth $20/share as of when the report was written. It's a good report btw, I think people should read it all the way through if they haven't.

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@ItsNotAboutTheMoney - completely agree that at today's prices the economics for solar+storage does not make sense in an unsubsidized market. My (admittedly optimistic) argument is based on the premise that unsubsidized solar may become more cost efficient than traditional sources at some point, although this is straight from the horse's mouth (below).

"Goal is for unsubsidized solar power to cost less than grid electricity from coal or fracked gas"
Twitter / elonmusk: Goal is for unsubsidized solar ...

Well, this will definitely happen, as anyone who's seen the cost curves of solar over the last decades can tell you. And it will happen soon. It's already happened in some places (with lots of sun and above-average electricity costs)

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Now back on topic I still think we will push through the ATH to $280-300 in the coming months. Like some have mentioned the restistance is propably shorts eyeing an opportunity at the ATH to sell as they don't seem very good at coming up with reasons to support their view like that guy on CNBC, the "general public" is also just so bearish on the stock, anyone watched some Tesla threads on Reddit? Wow. There is propably also a lot of profit taking as the stock has been very volatile so in fear of losing all the gains people take some money off the table, even here on this very bullish board that have been done by some. I also think there are a lot of buyers out there willing to pick up shares on even smalls dips creating a floor around 255-260 which will push the stock higher eventually, I am not selling my $220 sep calls just yet.

Not sure which Reddit Tesla threads you mean, are you referring to r/investing? Because if so, that place is crawling with "value investors" who think anything over a P/E of 1 is overvalued. They can safely be disregarded (or laughed at).

The rest of the site is overwhelmingly pro-Tesla, and rightly so, even if they're not as well informed as we are. Even the teslamotors subreddit has a lot of misconceptions, but they're generally positive misconceptions I guess. Except the "Elon says it's overvalued" people, who are parroting an irrelevant point they don't understand which is based on a misquote from about a year ago (so basically, there's nothing useful about it).

 

[eepic]

Who are these people who keep their phones outdoors on tables, and not in their pocket? This is impractical and costly, and nobody will make a phone like this. If anyone does, it will be Samsung, since it's a silly gimmicky idea which nobody needs or will use (which is kind of their thing).



No, there won't be a solar car. The only way we could have a solar car is if a) solar cells get extraordinarily efficient, b) crash safety regulations are largely eliminated (could come when we near 100% self-driving cars) AND c) the public completely rethinks what a car is (single occupancy, self driving, drafting, prone seating position, tiny tires, swoopy shape, lower speed/performance, no city use, etc.). Or d) the sun goes nova, thus drastically increasing solar radiation per square foot, because until that happens we have to work with what they have - which just isn't enough to power a large fast metal machine with a bunch of people in it.

And etching vertical surfaces with solar won't do anything, since vertical surfaces don't get sun, horizontal surfaces do.

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While your demand numbers are interesting, you're suggesting a profit margin of 150%. That's not going to happen.

By the way, Goldman's report talked about what they think stationary storage will be worth. Perhaps you will think these are not-optimistic-enough, but here you are: Dropbox - 213091911-Tsla-Goldman.pdf

They say it's worth $20/share as of when the report was written. It's a good report btw, I think people should read it all the way through if they haven't.

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Well, this will definitely happen, as anyone who's seen the cost curves of solar over the last decades can tell you. And it will happen soon. It's already happened in some places (with lots of sun and above-average electricity costs)

Agreed, it doesn't make much sense to be lugging around a solar panel on your car for the foreseeable future. It makes a lot more sense on your roof instead. As an aside, JB was heavily involved with the solar car race team at MIT so he knows all the challenges and tradeoffs.

I'd love to read the report, could you relink (doesn't work)? And just to reiterate, I was laying out an optimistic case with some ballpark numbers as a response to "why are analysts/folks so optimistic on the potential stationary storage market?".. not saying this will necessarily be the case.

 

[FANGO]

Agreed, it doesn't make much sense to be lugging around a solar panel on your car for the foreseeable future. It makes a lot more sense on your roof instead. As an aside, JB was heavily involved with the solar car race team at MIT so he knows all the challenges and tradeoffs.

I'd love to read the report, could you relink (doesn't work)? And just to reiterate, I was laying out an optimistic case with some ballpark numbers as a response to "why are analysts/folks so optimistic on the potential stationary storage market?".. not saying this will necessarily be the case.

Relinked, here again

https://dl.dropboxusercontent.com/u/28705686/213091911-Tsla-Goldman.pdf

 

[Johan]

Short-Term TSLA Price Movements - 2014

Whoah guys enough with the chest pumping. The discussion on a future energy storage market is really interesting, perhap it could be cut in to a separate thread.

Sleepyhead I too was surprised to read your vision of a car with integrated solar panels that charges itself in the nearish future... Even with 100% theoretically perfect solar panels and the car outside 24/7 on the equator you wouldn't meet even 5-10% of the average person's energy needs for a car??? Or I'm I missing something here?

 

[FANGO]

Short-Term TSLA Price Movements - 2014

Whoah guys enough with the chest pumping. The discussion on a future energy storage market is really interesting, perhap it could be cut in to a separate thread.

And sleepy I too was surprised to read your vision of a car with integrated solar panels that charges itself in the nearish future... Even with 100% theoretically perfect solar panels and the car outside 24/7 on the equator you wouldn't meet even 5-10% of the average person's energy needs for a car??? Or I'm I missing something here?

The Fisker had a rather massive panel and was able to produce enough energy to go 200 miles......per year. Assuming those cells were 15% efficient, let's now say we get ourselves to 100% efficient panels (which is impossible). That makes ~1,300 miles per year. That's a nice chunk, sure, but it doesn't make for a solar car. Also, the Fisker panel was going to be a $5k option and then they realized nobody would buy it so they made it standard. The cost will come down, efficiency will go up, and attaching it to a less overweight car will get you more miles from it, sure, but add those things up and you still have a solution which is at best only a partial reduction in (already low) energy costs.

Solar cars just won't work, unless we vastly reconsider what a car is. Now, this might (and probably will) happen over the course of decades, but no matter what it will always be more practical to have solar panels on the roofs of buildings (which are pointed towards the sun and don't park in garages, under trees, downtown next to buildings, don't drive under overpasses or next to big trucks) than in the windows of cars.

Being bullish on solar (as I am, since all my stock holdings outside of Tesla are solar companies, and my holdings are leveraged) does not mean you need to be unrealistically bullish on solar. Solar phones, solar roadways, solar cars etc., these are not realistic. An almost entirely solar grid, backed up by some nuclear and by energy storage, all cars running on solar power through batteries, possibly some v2g, and doing all of this well before anyone thinks is possible, that IS eminently realistic, as all the cost curves of solar show. There's no reason for people to get mad about injecting realism into the conversation.

 

[Raffy.Roma]

The Fisker had a rather massive panel and was able to produce enough energy to go 200 miles......per year. Assuming those cells were 15% efficient, let's now say we get ourselves to 100% efficient panels (which is impossible). That makes 1,200 miles per year. That's a nice chunk, sure, but it doesn't make for a solar car. Also, the Fisker panel was going to be a $5k option and then they realized nobody would buy it so they made it standard. The reason for all this is because solar cars just won't work, unless we vastly reconsider what a car is. Now, this might happen over the course of decades, but no matter what it will always be more practical to have solar panels on the roofs of buildings than in the windows of cars.

Agree but IMHO all opinions on this matter have to be respected. So I like to read the posts of sleepy about cars with integrated solar panels. There is a thread on TMC about the matter of solar panels to be mounted on the Model S. It means that this is a subject that deserves to be treated on TMC. You never know in the future what the technology of solar panels will be able to do.

 

[Johan]

Agree but IMHO all opinions on this matter have to be respected. So I like to read the posts of sleepy about cars with integrated solar panels. There is a thread on TMC about the matter of solar panels to be mounted on the Model S. It means that this is a subject that deserves to be treated on TMC. You never know in the future what the technology of solar panels will be able to do.

But we know how much energy there is in the sunlight falling in the earth is, right? And we roughly know how large a car is and most likely that won't change significantly. And with those facts it's fair to make some pretty good assumptions regarding not the practical, but theoretical feasibility of on-car panels as the sole/main source of propulsipn energy.

 

[NannerAirCraft]

Have you seen the solar car eVe by Sunswift? Meet eVe | Sunswift
That can go 500 miles with its solar cells! And this solar car actually kind of looks like a more normal car. Imagine if its 22.7% efficient cells were two or three times better!

 

[Raffy.Roma]

But we know how much energy there is in the sunlight falling in the earth is, right? And we roughly know how large a car is and most likely that won't change significantly. And with those facts it's fair to make some pretty good assumptions regarding not the practical, but theoretical feasibility of on-car panels as the sole/main source of propulsipn energy.

For the time being solar panels are already feasible for 12 V services like lights, air conditioning and so on. Then once again you never know what the technology will be able to do in 10 or 15 years. As sleepy I like to dream to the self-charging car. May I dream?

 

[ckessel]

Solar cars are about as practical, and as likely, as solar cows and for the same reasons.

 

[Johan]

For the time being solar panels are already feasible for 12 V services like lights, air conditioning and so on. Then once again you never know what the technology will be able to do in 10 or 15 years. As sleepy I like to dream to the self-charging car. May I dream?

Yes you may. But don't invest based on it

(Energy required for 12V lights and such is generally discussed in Watts while for driving, well, we mostly use kilowatts right? There's a reason for that.)

 

[FANGO]

I am not investing on it and I think not even Tesla is investing on it. But we know that Research and Development on Solar Panels is improving a lot. We don't know what the outputs of this research will be in 10 or 15 years.

But we do know the theoretical maximums, as Johan says. You can't get more than 100% efficient (or even to 100%), and you can't get more sun on each square foot of Earth (unless, as I mentioned, we have some catastrophic solar event, or the ozone layer disappears or something). You can reduce costs, yes, to the point where maybe it's cheap enough to have solar on every car roof, and maybe supplement the energy use a little, even if it's not going to drive the entire car, but considering the low energy cost of EVs and the relative impracticality of solar cells on cars vs. on roofs that might not be economical for some time either. But to drive the entire car, that will take a huge reimagining of what a car is. I happened to outline that huge reimagining in my original post on this topic.

"a) solar cells get extraordinarily efficient, b) crash safety regulations are largely eliminated (could come when we near 100% self-driving cars) AND c) the public completely rethinks what a car is (single occupancy, self driving, drafting, prone seating position, tiny tires, swoopy shape, lower speed/performance, no city use, etc.)"

The reasons for these things are....crash safety adds a lot of weight and restricts the forms cars can take (a hood is bad for aerodynamics, for example - the least drag shape is that of a raindrop, bulge at the front), occupancy adds weight, human drivers are inefficient, drafting is better with self-driven cars since they can follow closer and cut drag, prone seating allows more aerodynamics along with swoopy shape, tiny tires have less rolling resistance, lower speed/performance is more efficient, city use is hard because of shadows from buildings. Cars will at best be supplemented by solar cells, or charged by offboard solar cells (on the roofs of buildings), until all or most of these changes happen, and I think those will take a long time. And even after all that, cars will still be driven or parked in shade a nonzero amount of time, which further cuts efficiency, whereas buildings are only ever shaded by clouds or taller buildings.