Long-Term Fundamentals of Tesla Motors (TSLA)

[valuationmatters]

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.

Latest quarterly gross margin was 26% I believe on a real GAAP basis.

X seems infinitely more complicated, so I think 25% for the X is incredibly optimistic.

Also, most car companies make gross margins more like 10-15%. 25% is again, incredibly optimistic.

Model 3 will never make money because its cost of sales will be 2/3 or 3/4 that of the S, while its price will be half.

Tesla's gigafarce is sheer arrogance of a bored billionaire. Anyone could throw billions into a non-economical boondoggle in the desert. Tesla is just dumb enough to do it. Asinine.

This company loses billions, and I believe they will continue to do so.

And the fans will do anything to justify it, make up excuses for burning money, defend the company as if it were holy. Meanwhile the billionaire will still be a billionaire. And you will all lose thousands. Sorry.

Pro EV, anti-arrogance, anti-Tesla.

Have we had an independent review of the Model X? Oh right, Tesla has no spare Model X's to provide. Besides, it's a conspiracy of all the [insert one of 20 different villians].

Delusions. The last big stock bubble after Solarcity (which is a blatant play on having a return on invested capital below its cost of capital -- actually hilarious -- again bankers get rich and you all get poor).

 

[30seconds]

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.



.

clear to me that you no actual knowledge on where tesla is spending money if you expect them to have a long term 5% margin.

good luck with your value based investing

 

[esk8mw]

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.

I asked you this before and didn't receive a response, so I'll try again. What are the strikes and expiry dates for your puts? You are already beginning to gloat, so I think it's fair to lock them in for posterity. And I want to see you back here posting on the x date.

 

[Fallenone]

Sorry but I don't see any solid reasoning for your 25% long term gross margin estimate but quite a lot of emotional bashing.

Thank you for your post and goodbye.

Latest quarterly gross margin was 26% I believe on a real GAAP basis.

X seems infinitely more complicated, so I think 25% for the X is incredibly optimistic.

Also, most car companies make gross margins more like 10-15%. 25% is again, incredibly optimistic.

Model 3 will never make money because its cost of sales will be 2/3 or 3/4 that of the S, while its price will be half.

Tesla's gigafarce is sheer arrogance of a bored billionaire. Anyone could throw billions into a non-economical boondoggle in the desert. Tesla is just dumb enough to do it. Asinine.

This company loses billions, and I believe they will continue to do so.

And the fans will do anything to justify it, make up excuses for burning money, defend the company as if it were holy. Meanwhile the billionaire will still be a billionaire. And you will all lose thousands. Sorry.

Pro EV, anti-arrogance, anti-Tesla.

Have we had an independent review of the Model X? Oh right, Tesla has no spare Model X's to provide. Besides, it's a conspiracy of all the [insert one of 20 different villians].

Delusions. The last big stock bubble after Solarcity (which is a blatant play on having a return on invested capital below its cost of capital -- actually hilarious -- again bankers get rich and you all get poor).

 

[esk8mw]

Latest quarterly gross margin was 26% I believe on a real GAAP basis.

X seems infinitely more complicated, so I think 25% for the X is incredibly optimistic.

Also, most car companies make gross margins more like 10-15%. 25% is again, incredibly optimistic.

Model 3 will never make money because its cost of sales will be 2/3 or 3/4 that of the S, while its price will be half.

Tesla's gigafarce is sheer arrogance of a bored billionaire. Anyone could throw billions into a non-economical boondoggle in the desert. Tesla is just dumb enough to do it. Asinine.

This company loses billions, and I believe they will continue to do so.

And the fans will do anything to justify it, make up excuses for burning money, defend the company as if it were holy. Meanwhile the billionaire will still be a billionaire. And you will all lose thousands. Sorry.

Pro EV, anti-arrogance, anti-Tesla.

Have we had an independent review of the Model X? Oh right, Tesla has no spare Model X's to provide. Besides, it's a conspiracy of all the [insert one of 20 different villians].

Delusions. The last big stock bubble after Solarcity (which is a blatant play on having a return on invested capital below its cost of capital -- actually hilarious -- again bankers get rich and you all get poor).

If you want to troll, you have to put in a lot more work than that. You only spent like a week here laying the groundwork for concern trolling and trying to warn of "potential risks" before delving into the kinds of "arguments" posted above. You should have put in a few months first so people might have actually taken you seriously. Now your credibility is shot. You'll have better luck on seeking alpha or something, you won't change any minds here.

 

[valuationmatters]

You're right, I won't change any minds here. Which makes this a great website to read because no matter how bad Tesla fails, there will always be fans to support it. I'll just enjoy reading. Good night all!

 

[dakh]

Latest quarterly gross margin was 26% I believe on a real GAAP basis.

X seems infinitely more complicated, so I think 25% for the X is incredibly optimistic.

Also, most car companies make gross margins more like 10-15%. 25% is again, incredibly optimistic.

Model 3 will never make money because its cost of sales will be 2/3 or 3/4 that of the S, while its price will be half.

Tesla's gigafarce is sheer arrogance of a bored billionaire. Anyone could throw billions into a non-economical boondoggle in the desert. Tesla is just dumb enough to do it. Asinine.

This company loses billions, and I believe they will continue to do so.

And the fans will do anything to justify it, make up excuses for burning money, defend the company as if it were holy. Meanwhile the billionaire will still be a billionaire. And you will all lose thousands. Sorry.

Pro EV, anti-arrogance, anti-Tesla.

Have we had an independent review of the Model X? Oh right, Tesla has no spare Model X's to provide. Besides, it's a conspiracy of all the [insert one of 20 different villians].

Delusions. The last big stock bubble after Solarcity (which is a blatant play on having a return on invested capital below its cost of capital -- actually hilarious -- again bankers get rich and you all get poor).

Blow by blow.

X was complicated to design and to set up production for. What is your evidence that it's expensive to actually make? The base price is $5K more than S which isn't exactly pocket change and I think it's reasonable to assume that $5K more than covers the cost of materials and 3rd party components vs Model S. It's very complicated to make machines that make machines, but once that is done -- profit

Profit margin on anything that Tesla makes should be considered not against comparable traditional car manufacturers, but against the reality of how much it costs to make comparable electric vehicle vs. gas burner. I think this might be your biggest misconception. They get as much profit margin as can be had in a market where they achieve the same or better result using different technology vs. anyone else. There is next to zero room for squeezing more out of combustion engine, in fact there's less because of the tightening emission regulations. There's a whole lot of economy of scale and technology improvement left in EV. We're firmly in the low hanging fruit territory still. EV drivetrain will, with complete certainty, become cheaper. And so far Tesla is a company that is pushing that boundary.

Cost of sales, I don't even know what to say here. You think it's very expensive to run a web site that allows one to configure a car, then send that over the wire to robots at the factory and then ship it to a service center? And that is compared to independently run dealer network that has to make its own cut and has its own interests that aren't always aligned with interests of the manufacturer or customer? You can't be serious.

Ah I think I'm feeding the trolls now, sorry lost my steam responding to the rest of the statements.

 

[valuationmatters]

Good luck to you all. I'll just let all you believers enjoy your confirmation biases and blindly hand over your hard-earned money to Musk at the next capital raise.

 

[dakh]

Well I guess there's value in such debates. I think that pretty much we need to start any bear case with a solid base of proof that
1. We're not quite there yet with EV drivetrain being better than an ICE at similar cost
2. Even if 1 is true or will become true soon, Tesla won't be able to capture the increasing pricing power vs. ICE (due to competing EV, incompetence, lack of capital, whatever)

If a bear case can't grapple with one or both of these, it's quite likely not worth looking into.

- - - Updated - - -

You're right, I won't change any minds here. Which makes this a great website to read because no matter how bad Tesla fails, there will always be fans to support it. I'll just enjoy reading. Good night all!

That's a bit insulting. You made some fairly broad statements but wasn't able (or didn't care to) to substantiate them on a more detailed level, and now you turn around and say there's a bunch of irrational fanboys here. Who's being irrational?

 

[hcsharp]

...
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.
...

Actually their R&D spending has a proven track record of being quite efficient. This is especially true when compared to other automakers. What data do you have that would make anyone describe it as "massively inefficient"?

Tesla has some headwinds for sure. Their cost of sales is more than the dealer network that most automakers have. The industry will become more competitive and gross margins of 25% will be hard to maintain, especially for Model 3. They will continue to experience growing pains as an organization. But one of their problems is NOT "massively inefficient" R&D spend.

 

[dakh]

Their cost of sales is more than the dealer network that most automakers have. The industry will become more competitive and gross margins of 25% will be hard to maintain, especially for Model 3. They will continue to experience growing pains as an organization. But one of their problems is NOT "massively inefficient" R&D spend.

How do you calculate cost of sales? If you look at Ford's cost of sales alone sure it'll be lower. But in a competitive situation like we have here you have to compare vertically integrated Tesla's cost of sales vs. Ford+Dealer cost. And remember dealer won't be making most money on service anymore so they'll have to start making money on the sale itself. I don't think they stand a chance to vertically integrated model with online ordering system at its core (if it's run well enough).

Add to that that Teslas literally sell themselves for the most part (no advertising costs). Speaking of Model X and its delays and problems, how many Teslas do you think each of those doors opening in the parking lot would sell? That's probably hundreds of millions of advertising dollars right there.

 

[Blip]

You're right, I won't change any minds here. Which makes this a great website to read because no matter how bad Tesla fails, there will always be fans to support it. I'll just enjoy reading. Good night all!

I really enjoy reading this kind of posts. It makes (or at least should make) every TSLA investor to stop, think and re-evaluate. It also brings forward good argumenst from "both sides". Stop using the troll-argument on members with alternative views!

 

[Frank Einstein]

Does anybody think that the recent reduction in share price will make Tesla a more attractive acquisition for a giant company like Apple or Google?

 

[wdolson]

Does anybody think that the recent reduction in share price will make Tesla a more attractive acquisition for a giant company like Apple or Google?

It isn't much of a reduction. If Apple wanted to make a hostile takeover of Tesla they could have done it last summer, they have the cash. I doubt any tech giant is going to go for a hostile takeover because they know Elon would likely just walk away if they were successful and probably take a lot of talent with him if that happened.

And Tesla is not open to a friendly takeover right now. Elon was talking to Google about it in early 2013, but when Tesla turned around, the deal left the table and Elon has not considered selling out since.

 

[JRP3]

Stop using the troll-argument on members with alternative views!

It's not the alternative views that brings the troll comment, it's the quality and presentation of the arguments. His are flawed and dripping with emotion. A few examples:

Tesla's gigafarce is sheer arrogance of a bored billionaire. Anyone could throw billions into a non-economical boondoggle in the desert. Tesla is just dumb enough to do it. Asinine.

Pro EV, anti-arrogance, anti-Tesla.

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's not quality analysis, it's pure emotional irrational hatred.

 

[The Blue Owl]

infinitely ... incredibly ... will never make money ... gigafarce ... sheer arrogance ... bored billionaire ... throw billions ... boondoggle ... dumb ... Asinine ...loses billions ... excuses ... burning money ... holy ... billionaire ... billionaire ... lose ... anti-Tesla ... delusions ... stock bubble ... blatant ... bankers rich ... you poor

The logical structure and soundness of this argument are as clear as a crystal.

A crystal of crack.

 

[ecarfan]

It's not the alternative views that brings the troll comment, it's the quality and presentation of the arguments. His are flawed and dripping with emotion.
That's not quality analysis, it's pure emotional irrational hatred.

Or a deliberate attempt to incite a reaction just for the fun of it. There is a word for that...

 

[AudubonB]

Moderator's Comment:
There are a lot of recent posts that are snip-worthy. As doing just that takes a good deal of work on the part of moderators, they'll stand - at least for the moment - but here's a shouldn't-be-necessary!!! set of warnings to:

keep your emotions under control,

and if you can't, then either

* don't post

or

* review your language before you hit <Send> and excise the inflammatory material.


<Snip> Bunch o' %$#!@ third-graders.... </Snip>

 

[hockeythug]

I'm going to have to step away from this section for a while. I don't like the way things are headed. One could argue if it is even healthy for this site long-term.

 

[electracity]

Ford makes 1.4 billion in a quarter and 7.4 billion for the year with a market cap of 47B
Tesla market cap is now about 24B

I don't know what Tesla should be worth today, but overvalued arguments are at least as valid a bull arguments.