Long-Term Fundamentals of Tesla Motors (TSLA)

[AudubonB]

A small caveat, Sleepy. As you surely are aware, most times in international trade the perceived price to the consumer changes as a function of the change in the appropriate exchange rates. So a Tesla in China that costs X yuan today could cost (0.9)X were the yuan to appreciate that much against the dollar. Tesla's $-based income statement, in this example, would be unchanged (other than for whatever price elasticity of demand there is in China....)

I'm not saying that will occur, nor that there is the possibility of price stickiness. But neither is it necessarily cast in stone either way.

 

[sleepyhead]

A small caveat, Sleepy. As you surely are aware, most times in international trade the perceived price to the consumer changes as a function of the change in the appropriate exchange rates. So a Tesla in China that costs X yuan today could cost (0.9)X were the yuan to appreciate that much against the dollar. Tesla's $-based income statement, in this example, would be unchanged (other than for whatever price elasticity of demand there is in China....)

I'm not saying that will occur, nor that there is the possibility of price stickiness. But neither is it necessarily cast in stone either way.

I am not sure I understand what you are saying, but once the price is set in Yuan using the 6.05 exchange rate Tesla is not going to go back and lower that price.

If the price is 734k (or whatever it is) CNY today then Tesla gets $121k per car. But if the Yuan strengthens to 5.80 next year, then Tesla WILL NOT lower the price of the car in Yuan. Instead Tesla will now receive $126k per car, and that additional $5k goes straight into gross margin, and feeds in straight into EPS after taxes.

There is no way that Tesla is going to lower the price in Yuan once it strengthens against the dollar. And there is virtually no chance that the Yuan weakens against the dollar either.

Elon knows exactly what he is doing and the margins will be huge in China.

 

[AudubonB]

once the price is set in Yuan using the 6.05 exchange rate Tesla is not going to go back and lower that price.

Let's hold on to that and revisit it in eighteen months. As a gedankenexperiment, however, riddle me this: suppose the currency of another country (why don't we call it "China") pulls an Argentina and depreciates against the dollar by, oh, 90%. If you think under those circumstances the overseas vendor is not going to adjust the price of its product in that country, then would you please take a look at this bridge I've got for sale?

 

[TD1]

Like every manufacturer they are hedged against currency risk.
Elon even mentioned it in a Qx Call, how they are hedged against € risk.
So TM doesn't care to much how the CNY will perform.

 

[sleepyhead]

Like every manufacturer they are hedged against currency risk.
Elon even mentioned it in a Qx Call, how they are hedged against € risk.
So TM doesn't care to much how the CNY will perform.

There is no such thing as perfect hedging and there will always be Forex Gains/Losses. Tesla has had rather substantial Forex movements in Q1 for example just from buying cells from Japan, and this is even before they started shipping cars to Europe.

Everybody knows that the Yuan is only going up. So I am not sure that there is a need to hedge against the Yuan. It is not a currency that trades on the open market so hedging in China is a lot harder. If Tesla does hedge, hopefully they only hedge in one direction to the downside; I am sure that there is somebody out there willing to sell a few CNY puts since they will most likely go worthless.

 

[DonPedro]

They chose this pricing strategy many months/years ago and they had to stick to it. Elon said last year that they will charge the same price globally. If they price gauged China, then I would have dumped all of my TSLA and left the company for good. Elon simply stayed true to his word, so the China price reveal isn't actually news, and in my mind is a non-event.

Also, the CNY will naturally appreciate against the USD and pretty soon the margins in China will be huge. I am actually stunned that nobody has mentioned this yet, here or in the media.

This is sheer genius, absolutely brilliant!

The most brilliant thing is how they score a lot of publicity and goodwill with the announcement that they are sticking to the same pricing policy as before.

 

[sleepyhead]

The most brilliant thing is how they score a lot of publicity and goodwill with the announcement that they are sticking to the same pricing policy as before.

Agreed. That part was meant to be implied in my post, but I probably should have added it. Thanks.

Here is the CNYUSD chart:

CNY/USD Currency Conversion Chart - Yahoo! Finance

You can see that it only goes up. The Yuan is pegged to the dollar and kept artificially weak. This allows China to be more competitive in exports and does not devalue their huge US Treasury holdings. It has been gradually strengthening over time to get back towards fair value, and it has a looooooong way to go.

 

[30seconds]

I don't think that there is any investment / currency that "only goes up." If it was that easy just sell all your US holdings (including your house), invest in chinese currency futures and reap profit.

Probably they put in hedges based around quarterly anticipated sales, maybe half a year. If the yuan continues to appreciate then sure, their margins will improve over a longer time horizon, but I seriously doubt any CFO/ Audit committee will allow the company to remain unhedged for committed orders. They can still adjust prices on yearly basis and be somewhat protected against short term swings.

 

[sleepyhead]

I don't think that there is any investment / currency that "only goes up." If it was that easy just sell all your US holdings (including your house), invest in chinese currency futures and reap profit.

Probably they put in hedges based around quarterly anticipated sales, maybe half a year. If the yuan continues to appreciate then sure, their margins will improve over a longer time horizon, but I seriously doubt any CFO/ Audit committee will allow the company to remain unhedged for committed orders. They can still adjust prices on yearly basis and be somewhat protected against short term swings.

The Yuan is not freely traded, so you can't invest in it. And if there are futures (I am not sure if there are) then they already have a higher price than today's price due to this expectations.

The only thing you can do is convert all of your dollars into Yuan and then back into dollars in the future, but you will get eaten alive on the bid/ask spread by the banks.

I showed you the chart and the currency is moving in one direction and everyone knew it would move in that direction. But there is no easy way to profit off of this movement, especially because it is only a couple percentage points per year.

Not that easy.

 

[Auzie]

I don't think that there is any investment / currency that "only goes up." If it was that easy just sell all your US holdings (including your house), invest in chinese currency futures and reap profit.

Probably they put in hedges based around quarterly anticipated sales, maybe half a year. If the yuan continues to appreciate then sure, their margins will improve over a longer time horizon, but I seriously doubt any CFO/ Audit committee will allow the company to remain unhedged for committed orders. They can still adjust prices on yearly basis and be somewhat protected against short term swings.

Agree with this statement. Currency movements are a risk for any import/export business. Most businesses that I was involved with hedged to protect the core business from currency fluctuations. Businesses, especially manufacturing, are not set up to make profit out of currency movements, they attempt to make profit on their core activities.

 

[TSLAopt]

Some people in the market are traders, and others are investors. The difference? Time horizon.

Please use this thread to discuss the long-term fundamentals of Tesla Motors, from the POV of an investor.

I have the stock and Jan 16 LEAPs now. I follow the short term thread bc I'm always curious about the most current news and impactful events. However, the more I think about it, the more I think it is a sure thing to just hold TSLA long term instead of trying to time ups and downs. I will still follow the stock daily, but will stay disciplined enough not to sell on any potential short term catalyst that could drive the price down. Here's my simple thesis on holding the stock long term:

a)i will hold the stock until a BEV comes out with greater than 200 miles of range that I test drive and think is comparable or better than the newest Tesla (also at least at a comparable price). My opinion is that this will happen one day, but may not be for 5-20 years from now (probably long after Elon moves onto SpaceX full time).

b)I trust mgmt of Tesla to continue to work out margins and supply/manufacturing constraint issues in the meantime.

c)as deliveries go up over time, especially the S and X over the next couple years , more wealthy people globally will own the car and be as amazed by it as all of us owners. At least half of them will want a piece of the stock long term like us, perhaps just 100 shares or perhaps tens of thousands of shares each. This will continue to help drive the price up and keep TSLA stock with a very expensive valuation that shorts will hate for many years and frustrate the shorts for many years with lots of volatility and more short squeezes.



For these three simple reasons, I am projecting the stock, conservatively, to be over 1000 within 5-7 years...perhaps as little as 2-3 years from now when the E is about to come out if the general stock market stays a strong bull market until then.


Again, this is just my own hypothesis for my own decisions, and everyone should do their own research.

 

[adiggs]

I have the stock and Jan 16 LEAPs now. I follow the short term thread bc I'm always curious about the most current news and impactful events. However, the more I think about it, the more I think it is a sure thing to just hold TSLA long term instead of trying to time ups and downs. I will still follow the stock daily, but will stay disciplined enough not to sell on any potential short term catalyst that could drive the price down. Here's my simple thesis on holding the stock long term:

a)i will hold the stock until a BEV comes out with greater than 200 miles of range that I test drive and think is comparable or better than the newest Tesla (also at least at a comparable price). My opinion is that this will happen one day, but may not be for 5-20 years from now (probably long after Elon moves onto SpaceX full time).

b)I trust mgmt of Tesla to continue to work out margins and supply/manufacturing constraint issues in the meantime.

c)as deliveries go up over time, especially the S and X over the next couple years , more wealthy people globally will own the car and be as amazed by it as all of us owners. At least half of them will want a piece of the stock long term like us, perhaps just 100 shares or perhaps tens of thousands of shares each. This will continue to help drive the price up and keep TSLA stock with a very expensive valuation that shorts will hate for many years and frustrate the shorts for many years with lots of volatility and more short squeezes.



For these three simple reasons, I am projecting the stock, conservatively, to be over 1000 within 5-7 years...perhaps as little as 2-3 years from now when the E is about to come out if the general stock market stays a strong bull market until then.


Again, this is just my own hypothesis for my own decisions, and everyone should do their own research.

I like the list of things you're looking for TSLAopt, as an early hint that the long investment thesis is changing. I have two additional that I suspect you are also kind of looking for anyway:
d) Change in leadership from Elon to somebody else. I believe that this is inevitable, but to facilitate a good changeover, I'm looking for two things: 1) a COO or hand picked successor that we hear from in the news regularly, and where I hear the same commitment to revolutionizing the car business (I don't want to hear an MBA talking about cost cutting and efficiencies - this is a mission, not a recipe). 2) Gen 3 is out and past the initial volume ramp (so a broad swath of the world starts having clearer line of sight to an electric transportation future)

e) People with a short thesis, who DO get the Model S and electric transportation more generally. Realist in the one thread is the closest so far that I know of - I listen to what they (he) have to say very carefully and consider whether the fundamental investment thesis has changed. I think this is another way of thinking about your (a) above.

 

[TD1]

regarding change of the Leadership:

I think this will not happen for a very long time.
Even if Elon won't have as much time for Tesla anymore like a real CEO should have, he will still keep his position. He understand very well that it adds to the Brand if he is the CEO.
He might give away a lot of his daily work to somebody else, but continue to be the face of the company.

But Elon is like Steve Jobs and replacing him with another Tim Cook, won't be good for the Brand.

 

[30seconds]

I have the stock and Jan 16 LEAPs now. I follow the short term thread bc I'm always curious about the most current news and impactful events. However, the more I think about it, the more I think it is a sure thing to just hold TSLA long term instead of trying to time ups and downs. I will still follow the stock daily, but will stay disciplined enough not to sell on any potential short term catalyst that could drive the price down. Here's my simple thesis on holding the stock long term:

a)i will hold the stock until a BEV comes out with greater than 200 miles of range that I test drive and think is comparable or better than the newest Tesla (also at least at a comparable price). My opinion is that this will happen one day, but may not be for 5-20 years from now (probably long after Elon moves onto SpaceX full time).

b)I trust mgmt of Tesla to continue to work out margins and supply/manufacturing constraint issues in the meantime.

c)as deliveries go up over time, especially the S and X over the next couple years , more wealthy people globally will own the car and be as amazed by it as all of us owners. At least half of them will want a piece of the stock long term like us, perhaps just 100 shares or perhaps tens of thousands of shares each. This will continue to help drive the price up and keep TSLA stock with a very expensive valuation that shorts will hate for many years and frustrate the shorts for many years with lots of volatility and more short squeezes.



For these three simple reasons, I am projecting the stock, conservatively, to be over 1000 within 5-7 years...perhaps as little as 2-3 years from now when the E is about to come out if the general stock market stays a strong bull market until then.


Again, this is just my own hypothesis for my own decisions, and everyone should do their own research.

I'm in exactly same investment strategy. In terms of Elon leaving - I think he stays until either Model E has successful launch or big auto companies show real and large commitment to electrical transport (like having multiple ground designs available for sale). This is based on his stated goals behind tesla. In any case we are probably talking 2017 at the earliest.

Not sure of c as main driver of stock value, but I do expect significant appreciation. I don't think 100% revenue growth (all on Model S no less) between 2013 and 2014 is baked into street expectations. Solving supply constraints, doubling Model S production and setting up next leg of growth in 2015 with Model X and WW supercharger availability are going to make this a very very exciting year.

plus there is nothing competitors will launch in 2015 that will be seen as a viable option.

 

[JRP3]

Might Elon remain CEO mostly in name with limited actual daily involvement? Just for big announcements and big decisions? He might get bored being CEO of only one company :wink:

 

[AlMc]

Might Elon remain CEO mostly in name with limited actual daily involvement? Just for big announcements and big decisions? He might get bored being CEO of only one company :wink:

That would be my theory. He is hiring/surrounding himself with good upper management people that can carry on the TM vision now. While he may be the real 'ironman' he can not keep up this pace forever and I think/hope he is smart enough to be the 'upfront' person moving forward and letting his upper management people do the day/day;week/week;month/month duties.

 

[DaveT]

I don't mind Elon stepping down as CEO after Gen3 has ramped production (ie, 2018 or so) since he'll remain Chairman of the Board and largest shareholder by far. Significant major decisions that affect Tesla's long term future will likely need to be passed in front of him and he would still be involved giving feedback on products and long term strategic issues.

 

[NigelM]

Mod Note: one post and associated replies went to snippiness. There's no need for sarcastic personal digs.

 

[Norse]

Have you guys seen this?

http://nextbigfuture.com/2014/01/will-there-be-battery-singularity-by.html

 

[gene]

Have you guys seen this?

http://nextbigfuture.com/2014/01/will-there-be-battery-singularity-by.html

Thanks Norse! Boggles the mind!

"The 85 KWh battery pack for a Tesla S would go from $20,000 to $40,000 down to about $11,000.

Lithium ion could get even cheaper (if only from economies of scale from factories that are ten times larger in China).
Lithium Sulfur batteries are getting close to commercialization. They have the potential to drive costs to about $60 per KWh. This would be about $5000 for a Tesla S battery pack.

The Tesla model S was picked as the Car and Driver car of the year. If it could be made three times cheaper and the follow on generation 3 is planned to be half the price of the model S.

The Battery singularity would be the electric car singularity.

Batteries that replace gasoline but at lower lifetime costs have the potential to completely replace combustion engines. I believe the costs will be brought down and the factory construction and scaling of the supply chain will take until about 2025. We could get to 10 million electric cars per year by about 2020 and then to 100 million by 2025.

This would likely mean that Tesla with its large lead in electric cars would likely be selling as many cars as Toyota now and possibly 2 to 3 times as many. This would be 10 to 30 million cars. Tesla would be worth $300 billion to $2 trillion depending upon the price earnings multiple. Elon Musk has about 27-28% of Tesla. He would be worth $100 billion to $600 billion depending upon exactly how big and profitable Tesla becomes."