I agree. This will only push the people who were leaning heavily towards purchasing an S already because they have a chance to save a couple bucks. But, that is what TM wants. Fill up the S production queue while they are ramping the X. Short term hedging for production/delivery numbers for end of Q3/Q4.
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ok, i see what you are saying. No need to experiment on that one, just use common sense Tesla! I agree about tarnishing. When you start moving into things like this, all of a sudden people are paying different prices for the same thing. why should customer A get 1000 bucks off just because s/he knows someone with a model S, while customer B does not know anyone so pays a thousand bucks more. If they want to be different than dealers, then BE different. Keep it clean, and simple, no gimmicks. Thats what the average person wants, and appreciates- Direct, honest communication, and fairness. When they start doing things like this, and whole 'save on gas calculated into advertised price thing', It lessens my faith in leadership and Tesla's overall vision on the path they want to take.
Johan
Ex got M3 in the divorce, waiting for EU Model Y!
Al just had the perfect solution to this situation, which also brings an enormous positive spin and PR opportunity with it: Have TMCers pool buyers and have one representative S owner on TMC win the X but donate it to charity in the name of TMC.
You should have stopped following or having faith in Tesla five+ years ago, because this is just a rehash of a similar program ran with the Roadster.
It's a standard Musk tactic and it's part of the reason why he has successful businesses.
A lot of parts are molded plastic. I don't think this is a big deal. A lot more parts are aluminum body parts, which obviously have to be different. Then there's the different seats. And carpet. And headliner. And floormats. The "engineering heavy" parts probably only account for 30% of the car anyway.
Lets bring this thread back up. ChrisA is right on the direction although I'm not sure he correctly anticipated the reasons. In any event my personal take is now is the time to work on buying just as last July would have been a good time to sell and/or get defensive.
@uselesslogin -- Good timing! I was just considering updating this post. Because of valuation, my bias for the next six months and beyond is now positive (though I would not say that I'm loading up, but I'm interested in feedback from others on this thread per my questions below). Assuming the company was profitable so that stock option dilution would be calculated into the fully diluted count, I think Tesla has about 147-148 million shares out. At $176, that's a $26 billion cap. If the stock fell another 30% from here, it would be valued at $18 billion. I think $18 billion would be a very compelling value for Tesla right now. Even with a scary, unanticipated hiccup on S sales, the company should get to $8-$10 billion revenue run rate in the next couple of years with lots of growth potential thereafter. Less than 2x sales for a company with very good prospects for profitable growth long term certainly seems like a compelling value. In short, there is still potentially downside from here near term, but I think that downside is in the 30% range (not 50%+ which is where I think we were six months ago).
Per @uselesslogin's comments above, I certainly did not get the reasons exactly right six months ago, but I don't think I was entirely off either. Together with a high valuation, my biggest concern was a temporary flattening or softening of model S sales in the shadow of the model X promotion and introduction (particularly given that even a successful X launched would result in low margins on those sales temporarily). This obviously did not happen as Model S sales were extremely robust in the second half of the year. At the same time, I don't think the concern was entirely unfounded as I think this is the reason that the company launched its very successful referral program in the fall -- it decided it needed to pull a demand lever and I think it's reasonable to guess that concern the X launch might negatively impact S sales had something to do with it.
From a fundamental standpoint, I think S sales growth in the next six months is still the key variable. The delay in the X ramp means that we are only somewhat farther along than where we were six months ago, just with a better valuation on the stock. Tesla needs continued robust S sales to support the profitability and cash flow of the company in the next six months. On demand outlook for Model S near term, I simply don't have a lot of conviction, but I'm curious as to the opinions of others on this forum. On the one hand, the response to the summer/fall referral program was pretty awesome (as was demand in Europe). On the other hand, the fact that Tesla came out with an enhanced financing deal recently seems like they are still pulling levers to ensure consistent demand and I'd rather see evidence of strong demand without the need to pull levers. We'll know more after the conference call next week for sure. But again, I'm curious as to what others think about the demand picture for the model S (next 6 months to a year).
@ChrisA -- I think the perfect time to buy is in the next 2 weeks. I just don't know if it is before or after this call. I'm hoping we get clarity as to what sustainable Model S demand is, when a Model X ramp might happen, and what kind of revenue and margin we might see from Tesla Energy products. This is an exciting year for Tesla I think, but it is off to a slow start. I would also be interested in other's opinions and thoughts. There is too much panicking right now it seems. My strategy is mostly buy extra while it is low and sell it on the way up and keep a long term core position regardless of what happens or what direction I might think the stock would go. I know it can move very quickly upwards so I want to always have a minimum core position I'll be happy with.
Hmm. We're looking in the one-year timeframe?
Actually, at current prices and with the current service network, I think Tesla's pretty much maxed out Model S sales rate at ~50000/year... unless they manage to deal with the headwinds in China, or there's another foreign market I haven't been paying attention to which has a boom. I figure as long as Model S runs steady at that rate, that's OK; I'm a little worried the sustainable rate is less than that and Tesla will have to drop the price. Model X should sell about the same amount per year, maybe more. The rampup of Model X is a bit slower than expected but I don't think that's going to be a key issue; I think it'll have relatively little effect by the end of 2016.
In terms of the stock price in the next year, I think the major effects will be (a) general bear market due to idiotic Fed interest rate increase last December, (b) short-term program traders amplifying any move, and (c) how successfully Elon pulls out the 'mighty Wurlitzer' regarding Model 3. I think the gas price drop probably also affected the stock but that's probably mostly baked in. I honestly don't think the stock price will respond to fundamentals for more than a year, it's all going to be sentiment for a while.
I'm going to weigh in on this thread again as I think this is another noteworthy valuation moment for TSLA. For me, a noteworthy moment is when the risk/reward dynamics are either particularly good or particularly bad. I've been a long term holder on Tesla since late 2012, but I think the risk reward dynamics are turning favorable right now.
To recap, I think this is the fourth moment when valuation dynamics looked really compelling in one direction or another:
Moment 1: Late fall of 2012/1st quarter of 2013. At this time, Tesla's market cap was about $3.8 billion. It was really clear that Tesla would have a very compelling product in the Model S and early estimates for sales potential were around $2 billion (20k units at $100k was the approximate math at the time; of course they went on the greatly exceed those estimates). I recall that by late March it was evident Tesla was ramping up production. So here was a company with venture capital growth potential that was trading at just over 2x a reasonable estimate of forward sales.
Moment 2: Here's where I started this thread July 24th 2015. With the stock at $267, I became bearish near term. The stock price implied a market cap of about $39 billion. At the time, I think one could reasonable assume that Mode S and X sales might have a potential of $8-$10 billion. But even if Tesla achieved those sales targets, the cap would have been 4x sales. Moreover, there were a lot of uncertainties associated with the roll-out of the X. Ultimately, my biggest concern at the time -- X cannibalizing S sales -- proved to be unfounded. But the change in valuation mattered a lot, particularly as the company struggled to ramp up X volumes.
Moment 3: On Feb 3, 2016, I weighed back in on this thread turning bullish. By this time, there was a much clearer line of site to an $8-$10 billion revenue run rate from combine S and X sales and the stock had fallen to $176, about a $26 billion cap. Should the stock fall another 30% and we would have been back to 2x multiple for venture investment type growth.
Moment 4: Now we are again at a favorable risk reward moment. At $252, the market value is around $44 billion (does anyone have a a good estimate on current diluted shares out?). Adding net debt of $8 billion, the enterprise value of Tesla is about $51 billion. But even with the much larger market cap, Tesla's growth potential of the next five years is still terrific -- venture type growth potential. Moreover, I think the company has a reasonable shot at achieving a $20-25 billion run rate in sales in the next 12-18 months. This brings the valuation on prospective sales to around 2x once again.
Are there risks to investing now? Of course. Tesla is managed by a CEO who has openly talked about being "reeled back from the cliffs of insanity" by his own management team (and that's probably happened more than once). Musk swings for the fences. As he pushes hard on the corporate accelerator, unforeseen events could put him and the company in a really tricky spot. But for all the negative headlines right now, Tesla seems to be in a pretty strong position, especially if Model 3 is being produced at 2k per week and on its way to 4k per week. As I've written before, the best way to think about Tesla is as an odd beast -- a large cap, publicly traded, venture investment. It's growth potential is still large enough to merit a venture investment type analysis. Knock three zeros and then think about valuation. If I had the opportunity to buy a $44 million company that had 1) near term revenue potential of $25 million; 2) long term growth potential of 40%; 3) a talented management team; and 4) long-term dynamics that favor operating margin expansion (falling battery costs and leverage over existing operating expenses), I would be thrilled. That's Tesla, just an order of magnitude bigger.
As usual, I'm keen on feedback from the thoughtful folks on this forum on any of the ideas expressed above.
PS -- If one's risk tolerance is not for venture investment, Tesla's 5.3% coupon bonds seem to be a no-brainer. At $86.6, the yield to maturity is 7.7%. Currently, Tesla's net debt is around $9 billion. Even if the company were horrendously managed over the next year, I think a lot of companies would drool at the prospect of buying it for +$20 billion (about 2x S/X sales run rate). So while conventional metrics may spook fixed income investors, the bonds seem money-good to me, even if things got worse.
To recap, I think this is the fourth moment when valuation dynamics looked really compelling in one direction or another:
Moment 1: Late fall of 2012/1st quarter of 2013. At this time, Tesla's market cap was about $3.8 billion. It was really clear that Tesla would have a very compelling product in the Model S and early estimates for sales potential were around $2 billion (20k units at $100k was the approximate math at the time; of course they went on the greatly exceed those estimates). I recall that by late March it was evident Tesla was ramping up production. So here was a company with venture capital growth potential that was trading at just over 2x a reasonable estimate of forward sales.
Moment 2: Here's where I started this thread July 24th 2015. With the stock at $267, I became bearish near term. The stock price implied a market cap of about $39 billion. At the time, I think one could reasonable assume that Mode S and X sales might have a potential of $8-$10 billion. But even if Tesla achieved those sales targets, the cap would have been 4x sales. Moreover, there were a lot of uncertainties associated with the roll-out of the X. Ultimately, my biggest concern at the time -- X cannibalizing S sales -- proved to be unfounded. But the change in valuation mattered a lot, particularly as the company struggled to ramp up X volumes.
Moment 3: On Feb 3, 2016, I weighed back in on this thread turning bullish. By this time, there was a much clearer line of site to an $8-$10 billion revenue run rate from combine S and X sales and the stock had fallen to $176, about a $26 billion cap. Should the stock fall another 30% and we would have been back to 2x multiple for venture investment type growth.
Moment 4: Now we are again at a favorable risk reward moment. At $252, the market value is around $44 billion (does anyone have a a good estimate on current diluted shares out?). Adding net debt of $8 billion, the enterprise value of Tesla is about $51 billion. But even with the much larger market cap, Tesla's growth potential of the next five years is still terrific -- venture type growth potential. Moreover, I think the company has a reasonable shot at achieving a $20-25 billion run rate in sales in the next 12-18 months. This brings the valuation on prospective sales to around 2x once again.
Are there risks to investing now? Of course. Tesla is managed by a CEO who has openly talked about being "reeled back from the cliffs of insanity" by his own management team (and that's probably happened more than once). Musk swings for the fences. As he pushes hard on the corporate accelerator, unforeseen events could put him and the company in a really tricky spot. But for all the negative headlines right now, Tesla seems to be in a pretty strong position, especially if Model 3 is being produced at 2k per week and on its way to 4k per week. As I've written before, the best way to think about Tesla is as an odd beast -- a large cap, publicly traded, venture investment. It's growth potential is still large enough to merit a venture investment type analysis. Knock three zeros and then think about valuation. If I had the opportunity to buy a $44 million company that had 1) near term revenue potential of $25 million; 2) long term growth potential of 40%; 3) a talented management team; and 4) long-term dynamics that favor operating margin expansion (falling battery costs and leverage over existing operating expenses), I would be thrilled. That's Tesla, just an order of magnitude bigger.
As usual, I'm keen on feedback from the thoughtful folks on this forum on any of the ideas expressed above.
PS -- If one's risk tolerance is not for venture investment, Tesla's 5.3% coupon bonds seem to be a no-brainer. At $86.6, the yield to maturity is 7.7%. Currently, Tesla's net debt is around $9 billion. Even if the company were horrendously managed over the next year, I think a lot of companies would drool at the prospect of buying it for +$20 billion (about 2x S/X sales run rate). So while conventional metrics may spook fixed income investors, the bonds seem money-good to me, even if things got worse.
Chris, that's an impressive track record.
I look at Tesla as an investment in much the way you describe. As far as the current situation, I think the main difference now from the three comparable opportunities in the past (I would add the Spiegel bottom in late 2016 to the two you mention) is macro risk, which seems much more significant than in any of those periods. Even factoring that in, the Model 3 ramp combined with crazy negativity, and Model Y and the Semi coming down the pike, does seem to create a favorable risk reward moment of the same magnitude as late 2012/early 2013, Feb. 2016 and late 2016.
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Good point. I would agree that macro risk right now is greater. We have a president who is actively undermining the principles of a liberal democracy and a Republican Party that has become fully radicalized, abdicating its role as a check on the executive branch. We are also eight years into an economic expansion.
bdy0627
Active Member
The counterpoint I would make is that the huge TSLA dip in early 2016 was largely due to a falling Nasdaq, similar to now. For buyers at the bottom of that dip, around Feb 11, 2016, the market looked pretty scary and uncertain, as it does now. People were getting nervous and predicting a bear market. TSLA went on to recover nicely over about 8 weeks, aided by a climbing market. Within 6 weeks, TSLA was virtually back where it had been before the big slide. The Nasdaq did not quite get back to where it was in late December 2015, before the dip, but it steadily climbed. It then dipped again, taking TSLA down with it, but nowhere near where it had fallen before. We will likely need a somewhat rising market to help TSLA climb now. At the very least, not a dropping Nasdaq. It happened then but who knows what will happen over the next 6 - 8 weeks.
adiggs
Well-Known Member
My apologies for being nitpicky - I like this way of thinking about Tesla, and I agree. Just that when you knock off 3 zeros, you get a company that is 3 orders of magnitude smaller. So the ending becomes "That's Tesla, just three orders of magnitude bigger"
ValueAnalyst
Closed
Thanks for this; impressive record indeed. Do you have a price target for any period or how you expect SP to play out? thanks!
My apologies for being nitpicky - I like this way of thinking about Tesla, and I agree. Just that when you knock off 3 zeros, you get a company that is 3 orders of magnitude smaller. So the ending becomes "That's Tesla, just three orders of magnitude bigger"
Good catch!
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