Long-Term Fundamentals of Tesla Motors (TSLA)

[MitchJi]

Putting my money where my mouth is, today I freed up more cash to take advantage of this dark cloud environment. Fully agree there is widespread fear in the markets currently but I strongly believe the fundamentals of this company is only getting stronger, it's moat growing ever wider in all aspects.

I welcome any counter arguments as to why this is a foolish journey I'm getting more deeply mired in.

I don't think you will lose long-term with a stock purchase, or an ITM or NTM 2018 LEAP purchase. OTOH I was thinking similar thoughts when the SP got into the low 200's, now at $186.40 and I m happy that I waited (still waiting) to pull the trigger. So you might want to wait until the SP stops dropping .You might also want to consider the impact of the ER-CC if you think that will have either a substantial positive or negative effect on the SP.

 

[austinEV]

I don't think you will lose long-term with a stock purchase, or an ITM or NTM 2018 LEAP purchase. OTOH I was thinking similar thoughts when the SP got into the low 200's, now at $186.40 and I m happy that I waited (still waiting) to pull the trigger. So you might want to wait until the SP stops dropping .You might also want to consider the impact of the ER-CC if you think that will have either a substantial positive or negative effect on the SP.

I think now that even a crappy Q4 ER would trigger a relief rally and shorts covering. I was expecting a negative reaction the the Q4 ER, but that presumed a runup to that ER. Now, any news must sound good compared to the fear gripping the trading.

 

[StephenM]

It's like someone else said when they quoted W. Buffett earlier; "Be fearful when others are greedy and greedy when others are fearful."

The fundamentals of Tesla haven't changed, so I think we are nearing the territory where the brave will be rewarded handsomely when this ship finally turns around.

 

[BornToFly]

I am getting to the point I might need to turn the computer off for a while. We are basically at the price that we were at when I was buying stock 2 years ago, when there was no Gigafactory, no dual motor, no autopilot, a model X that was no where near production, no model 3, no Tesla Energy, etc. TSLA is MUCH more of a sure thing now than it was 2 years ago, as much of the risk has been taken out by all the success and growth the last two years, so I can't wrap my head around the current stock price (regardless of the macro events). On the one hand, I'm wondering how anyone can be selling right now, and on the other I'm trying to not let fear turn me into a seller....

 

[valuationmatters]

I am getting to the point I might need to turn the computer off for a while. We are basically at the price that we were at when I was buying stock 2 years ago, when there was no Gigafactory, no dual motor, no autopilot, a model X that was no where near production, no model 3, no Tesla Energy, etc. TSLA is MUCH more of a sure thing now than it was 2 years ago, as much of the risk has been taken out by all the success and growth the last two years, so I can't wrap my head around the current stock price (regardless of the macro events). On the one hand, I'm wondering how anyone can be selling right now, and on the other I'm trying to not let fear turn me into a seller....

Because the stock was ridiculously priced as a massive bubble two years ago. Now it is just somewhat of a massive bubble. Returning to a normal valuation for a company selling 50-100k cars a year, losing more and more money, in a hyper competitive industry. Sorry to speak the truth. Looking forward to some hate. Love all you guys who believe the company is worth anything more than $5 billion.

 

[dha]

Sorry to speak the truth. Looking forward to some hate. Love all you guys who believe the company is worth anything more than $5 billion.

Yes, companies growing 50% YOY always command price / sales less than 1

 

[30seconds]

Because the stock was ridiculously priced as a massive bubble two years ago. Now it is just somewhat of a massive bubble. Returning to a normal valuation for a company selling 50-100k cars a year, losing more and more money, in a hyper competitive industry. Sorry to speak the truth. Looking forward to some hate. Love all you guys who believe the company is worth anything more than $5 billion.

Since you won't share your forecasts with us, why don't you let us know which public companies have a reasonable valuation?

 

[BornToFly]

Because the stock was ridiculously priced as a massive bubble two years ago. Now it is just somewhat of a massive bubble. Returning to a normal valuation for a company selling 50-100k cars a year, losing more and more money, in a hyper competitive industry. Sorry to speak the truth. Looking forward to some hate. Love all you guys who believe the company is worth anything more than $5 billion.

Of course, you need to look at the future potential to properly value the company. The Model S is superior in driving experience and efficiency to all other sedans on the planet. The Model X is a 7 passenger SUV, that according to people that have driving both, drives like a Model S. So you have a 7 passenger SUV that drives like an incredible sedan. No SUV on the planet will come close to the performance of the Model X. The 70K+ SUV market is huge, and the Model X is so much better than everything else, that selling 100K/year of the X will be easy to do in a couple years. The Model 3 will easily sell over 500K/year in a few years, because there is no other car with the level of performance and looks that it is promising to deliver, in the $30-50K price range (ICE or EV). Add Tesla Energy sales, and you have a company with revenue in the future that will support a value over 30 Billion.

 

[valuationmatters]

Good luck to you all. Love all you believers. Remember, massive losses which grow faster than revenue. Massive negative cash outflow that grows faster than revenue. Company trading at $30 billion value compared to $4.2 billion in 2015 revenue. Still in a massive bubble. This message board sounds like every other bubble stock. They all crash 90 percent. Tesla will survive but in a radically smaller form. EV's will do well. Just not Tesla.

 

[Crowded Mind]

EV's will do well. Just not Tesla.

Why is this your stance? It seems it is based on posted losses? Do you understand how Cap Ex and R&D are being used? Do you think those uses will not have a positive ROI? If not, how will EV's do well?

Tesla manufactures the best selling car in the only segment they compete in, at a healthy gross margin. What gives you reason to believe this will change, or that they won't be able to compete in other segments? I felt like you came here with an open mind but have become more bearish each day. I was interested in your posts previously, but simply saying good luck is less interesting and thought provoking.

 

[BornToFly]

Good luck to you all. Love all you believers. Remember, massive losses which grow faster than revenue. Massive negative cash outflow that grows faster than revenue. Company trading at $30 billion value compared to $4.2 billion in 2015 revenue. Still in a massive bubble. This message board sounds like every other bubble stock. They all crash 90 percent. Tesla will survive but in a radically smaller form. EV's will do well. Just not Tesla.

You realize the "massive" negative cash outflow was done intentionally to expand for future growth. They hope to be cash positive in Q1 or Q2 this year. And for EVs to do well with oil under $40, they have to be better than a similarly priced ICE vehicle, so they attract car buyers that don't care about buying an EV just to save money at the pump, or about saving the planet. No manufacturer has an EV that fits that description except Tesla, and there is nothing on the horizon for at least 3 years (which probably won't be able to compete with what Tesla will be making 3 years from now).

 

[anticitizen13.7]

Good luck to you all. Love all you believers. Remember, massive losses which grow faster than revenue. Massive negative cash outflow that grows faster than revenue. Company trading at $30 billion value compared to $4.2 billion in 2015 revenue. Still in a massive bubble. This message board sounds like every other bubble stock. They all crash 90 percent. Tesla will survive but in a radically smaller form. EV's will do well. Just not Tesla.

You've obviously never worked for a startup company. They burn cash like crazy in initial stages.

Even if TSLA goes to $0 (zero) I'll be just fine. I only bought TSLA with money I could afford to lose. Most of my money is in Vanguard index funds, LOL.

 

[dha]

Why is this your stance? It seems it is based on posted losses? Do you understand how Cap Ex and R&D are being used? Do you think those uses will not have a positive ROI? If not, how will EV's do well?

Love you believers. Tesla is literally burning cash. Did you really think they were spending aggressively to capture market share and build a sustainable moat with such things as a global charging network and the largest battery factory in the world.

 

[wdolson]

Love you believers. Tesla is literally burning cash. Did you really think they were spending aggressively to capture market share and build a sustainable moat with such things as a global charging network and the largest battery factory in the world.

The bulk of Tesla's spending is all discretionary as opposed to fixed or mandatory talks. A lot of companies are forced to spend large amounts of their revenue on things like pension funds. The bulk of Tesla's spending is investment in things that will expand their business and it's all discretionary. If Tesla cut out spending on the Gigafactory, the Model 3, and the supercharger network, they would be instantly profitable, but it would be cutting off the long term growth of the company for the sake of short term returns.

This is the problem with American corporations and the stock analysts who reward them, all the focus is on how to make as much profit this quarter with very little thought about what the company is going to look like in 5 years. This bean counting is a contributing factor to why the US only leads the world in a couple of industries now. The biggest industry where the US has a big lead is the one industry that thinks like Tesla: high tech.

You say Tesla is literally burning cash. Obviously they don't have burn barrels behind the factory where they are dumping $20 bills. But I assume from your comment that you believe they are spending money with no hope of a return. That is the opinion of some, but it's the short sighted thinking that driver the US stock market and makes most US corporations mediocre.

 

[adiggs]

Love you believers. Tesla is literally burning cash. Did you really think they were spending aggressively to capture market share and build a sustainable moat with such things as a global charging network and the largest battery factory in the world.

You got me @dha. Very nice

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The bulk of Tesla's spending is all discretionary as opposed to fixed or mandatory talks. A lot of companies are forced to spend large amounts of their revenue on things like pension funds. The bulk of Tesla's spending is investment in things that will expand their business and it's all discretionary. If Tesla cut out spending on the Gigafactory, the Model 3, and the supercharger network, they would be instantly profitable, but it would be cutting off the long term growth of the company for the sake of short term returns.

This is the problem with American corporations and the stock analysts who reward them, all the focus is on how to make as much profit this quarter with very little thought about what the company is going to look like in 5 years. This bean counting is a contributing factor to why the US only leads the world in a couple of industries now. The biggest industry where the US has a big lead is the one industry that thinks like Tesla: high tech.

You say Tesla is literally burning cash. Obviously they don't have burn barrels behind the factory where they are dumping $20 bills. But I assume from your comment that you believe they are spending money with no hope of a return. That is the opinion of some, but it's the short sighted thinking that driver the US stock market and makes most US corporations mediocre.

He got you @wdolson dha got you good too!

 

[hcsharp]

Because the stock was ridiculously priced as a massive bubble two years ago. Now it is just somewhat of a massive bubble. Returning to a normal valuation for a company selling 50-100k cars a year, losing more and more money, in a hyper competitive industry. Sorry to speak the truth. Looking forward to some hate. Love all you guys who believe the company is worth anything more than $5 billion.

Sorry no hate from me. In fact I'd like to thank you for your input. I'm long TSLA and need shorts like you to help me see what I might be missing. I've got a few questions for you. I'm not saying you're wrong. I'm just doing my homework to see what I might be missing.

1) Why do you think Tesla should be valued as a company selling 50-100k cars a year? They are growing at 30%/year. Margins are high. Demand is high and getting higher as the public becomes more educated. Market studies indicate the Model 3 will have massive demand unless Tesla completely blows it (they never have). Why do you think growth will stop at 100k? Or stop in 2020? Your models assume no more growth after that.

2) Why don't you value their current development? Losses are due almost entirely to development that is the foundation for their future growth. Tesla has proven to be very good at innovation while controlling costs. That's why Toyota and Daimler originally partnered with them. I realize it's a bigger company now with more inertia so it will not be as good as it was in the past with innovating quickly and cheaply, but it's still a lot better than any other automaker.

3) You are right in stating that it's a very competitive industry. I agree that a lot of people in this forum have gone overboard in assuming Tesla has walled off most competition. The large automakers will act very quickly and decisively if a good part of their revenue is at stake. And unlike Tesla, they can afford to lose money on new EV models in order to gain market share. But Big Auto is already losing money on EVs and it hasn't slowed Tesla much. So my question is why do you think Tesla won't be able to compete in the future with BMW, F, GM? Is there some inherent or systemic reason they will fizzle out like some of the other fad startups you mentioned earlier?

Again I'm not necessarily disagreeing with you. You might have something I need to hear. Thanks.

 

[valuationmatters]

Sorry no hate from me. In fact I'd like to thank you for your input. I'm long TSLA and need shorts like you to help me see what I might be missing. I've got a few questions for you. I'm not saying you're wrong. I'm just doing my homework to see what I might be missing.

1) Why do you think Tesla should be valued as a company selling 50-100k cars a year? They are growing at 30%/year. Margins are high. Demand is high and getting higher as the public becomes more educated. Market studies indicate the Model 3 will have massive demand unless Tesla completely blows it (they never have). Why do you think growth will stop at 100k? Or stop in 2020? Your models assume no more growth after that.

I actually assume they will sell 300K cars by 2020 -- quite optimistic in my opinion. In that year I assume Tesla sells 75K of S and X each at a gross margin of 25%. I assume the remaining 150K sold will be Model 3, at a gross margin of 10% (I think in reality it will be near impossible to make any margin on the 3 for reasons discussed at length here and on SA). But my biggest assumption is that the company's long-term operating profit is equal to 5% of revenue. In reality I believe Tesla will have a difficulty ever breaking even due to wildly inefficient sales and R&D and overhead spending. Basically they have almost no economies of scale compared to other automakers. I have zero confidence in Tesla's ability to execute. And if the gigafarce made sense, another company would have built one in Korea or China. My financial model is a long-term discounted cash flow analysis assuming an 8% discount rate. Based on this all, the stock is worth about $30 per share. Note that if you believe Tesla will achieve 10% long-term operating margins, it results in a massive increase in the stock valuation -- to $280. So if you wanted to argue with me, you should tell me that my 5% long-term profit margin is far too low. So it is really all about what you believe the long-term operating margin will be. I think Tesla will have a tough time ever getting to breakeven. I believe Tesla Energy is a fanciful joke since they have virtually no sales to date and there are half a dozen giant Asian companies already doing it better.

2) Why don't you value their current development? Losses are due almost entirely to development that is the foundation for their future growth. Tesla has proven to be very good at innovation while controlling costs. That's why Toyota and Daimler originally partnered with them. I realize it's a bigger company now with more inertia so it will not be as good as it was in the past with innovating quickly and cheaply, but it's still a lot better than any other automaker.

I think this is incredibly wishful thinking. Their R&D spend is massively inefficient. The company is massively unprofitable and its losses are increasing faster than its revenue growth.

3) You are right in stating that it's a very competitive industry. I agree that a lot of people in this forum have gone overboard in assuming Tesla has walled off most competition. The large automakers will act very quickly and decisively if a good part of their revenue is at stake. And unlike Tesla, they can afford to lose money on new EV models in order to gain market share. But Big Auto is already losing money on EVs and it hasn't slowed Tesla much. So my question is why do you think Tesla won't be able to compete in the future with BMW, F, GM? Is there some inherent or systemic reason they will fizzle out like some of the other fad startups you mentioned earlier?

Feel free to read my numerous prior posts. I just think Tesla is a victim of its own arrogance and hubris. I'm all for EV's. And solar--in fact I love my solar panels (non-SCTY). But I am anti-arrogant companies run by megalomaniacs who are using shareholder money for charitable causes. That benefits society at the expense of naive Tesla shareholders. Mark my words, this stock will be under $100 in the near future. I will not gloat when that happens because many innocent retail investors will be crushed. The investment bankers and founders who sold their stock will already be rich and have moved on. Tesla will survive in much smaller form, likely post-bankruptcy. Model S is nice. Model X is ugly (inflated Prius?), and a disaster. By the time the 3 comes out, the company will be in distress.

 

[Fallenone]

Model 3 isn't here yet so let's put that aside. Gross margin 25% for S and X is basically assuming battery cost will not go down from what it is now. Thus implying the vertical integration in GF will have no effect on battery cost. Care to explain why do you think this will be the case?

I actually assume they will sell 300K cars by 2020 -- quite optimistic in my opinion. In that year I assume Tesla sells 75K of S and X each at a gross margin of 25%. I assume the remaining 150K sold will be Model 3, at a gross margin of 10% (I think in reality it will be near impossible to make any margin on the 3 for reasons discussed at length here and on SA). But my biggest assumption is that the company's long-term operating profit is equal to 5% of revenue. In reality I believe Tesla will have a difficulty ever breaking even due to wildly inefficient sales and R&D and overhead spending. Basically they have almost no economies of scale compared to other automakers. I have zero confidence in Tesla's ability to execute. And if the gigafarce made sense, another company would have built one in Korea or China. My financial model is a long-term discounted cash flow analysis assuming an 8% discount rate. Based on this all, the stock is worth about $30 per share. Note that if you believe Tesla will achieve 10% long-term operating margins, it results in a massive increase in the stock valuation -- to $280. So if you wanted to argue with me, you should tell me that my 5% long-term profit margin is far too low. So it is really all about what you believe the long-term operating margin will be. I think Tesla will have a tough time ever getting to breakeven. I believe Tesla Energy is a fanciful joke since they have virtually no sales to date and there are half a dozen giant Asian companies already doing it better.



I think this is incredibly wishful thinking. Their R&D spend is massively inefficient. The company is massively unprofitable and its losses are increasing faster than its revenue growth.



Feel free to read my numerous prior posts. I just think Tesla is a victim of its own arrogance and hubris. I'm all for EV's. And solar--in fact I love my solar panels (non-SCTY). But I am anti-arrogant companies run by megalomaniacs who are using shareholder money for charitable causes. That benefits society at the expense of naive Tesla shareholders. Mark my words, this stock will be under $100 in the near future. I will not gloat when that happens because many innocent retail investors will be crushed. The investment bankers and founders who sold their stock will already be rich and have moved on. Tesla will survive in much smaller form, likely post-bankruptcy. Model S is nice. Model X is ugly (inflated Prius?), and a disaster. By the time the 3 comes out, the company will be in distress.

 

[valuationmatters]

Read my old posts if you wish to see my full opinions. I much prefer to enjoy reading all the true believers talking about how the Model 3 is already better than this or that car, how Powerwall is already a huge hit (it has zero revenue to date), how Tesla will become Uber or assimilate Uber or whatever. So entertaining. Please continue. Can't wait for my puts to be worth millions.

 

[Fallenone]

Mind giving the link for the post explaining the long term 25% gross margin on S and X? Really curious about how you get to this conclusion.

Read my old posts if you wish to see my full opinions. I much prefer to enjoy reading all the true believers talking about how the Model 3 is already better than this or that car, how Powerwall is already a huge hit (it has zero revenue to date), how Tesla will become Uber or assimilate Uber or whatever. So entertaining. Please continue. Can't wait for my puts to be worth millions.