NYU professor on TSLA valuation

[TSLAopt]

[/QUOTE

Not sure if any of you were discouraged by that NYU professor who said the TSLA stock should be at 67 right now, but he had a 2nd blog post on Friday (Musings on Markets: Tesla: A Follow up) offering possible ways and scenarios it could be a fair share price valuation above from where it is now. He doesn't personally think any will come true but I have a feeling any of us who own the car and have studied the company closely would agree that at least 2 of his 3 reasons (disruptor and first mover advantage) will come true, hence the stock price should be closer to 200 now from his analysis on that (or actually much above 200 if both are true instead of just one).

While he doesn't agree with any of these possibilities himself he says, I just posted the below and really hope he answers as he has answered others in the comments. Would be curious to what he says for #4. Will follow up and let you guys know if so.


----------------------
Professor,
I'm the anonymous that made the "Occam's Razor theorem" comment on your last post and appreciate you flipping the perspective on this blog post even if you don't personally agree with it...yet.


One very important yes/no answer question and 3 others not as important:


#1)Have you driven this Model S yourself yet?


2)Did you know it's been given the best rating of any car ever by Consumer Reports and Motor Trend? (As well as other auto publications)


3)did you know it's gotten the highest safety rating of any car ever tested by the NHTSA?


4)Would your opinion on valuation change if next year when Tesla releases the Model X it has the best ratings and safety of any SUV ever built? (Ie. One might assume their Gen III car to be released in 2016-2017 has a good chance to be the best rated and safest mass market car ever too in that case)


Thanks,
EP
---------------------

 

[sleepyhead]

His models are very robust and he is a very smart guy, but I don't think you can try to value TSLA this way, meaning discounting everything to present value to find out how much the shares are worth.

The proper way to value TSLA is to come up with an idea of how many cars you believe Tesla will build 3, 4, or 5 years out and try to come up with a valuation for a more mature company.

E.g. if you think that Tesla will have $10bn in sales in 3 years and over $1bn in net profit, you might think the stock will command a 40x PE ratio (since gen 3 will just start rolling out)and TSLA will be worth $350 in 3 years. So the question is do you buy the shares today at $166 to find out if you are right.

You can't use a DCF, FCFE, or whatever other model for TSLA valuation.

Just to clarify what this professor's model means is that if you think Tesla will fulfill only one of the three criteria (will probably meet two) then these shares are worth north of $200 today. So they are underpriced and you should be buying. Because tomorrow they might be worth $220, and next year $300.

 

[TSLAopt]

Just to clarify what this professor's model means is that if you think Tesla will fulfill only one of the three criteria (will probably meet two) then these shares are worth north of $200 today. So they are underpriced and you should be buying. Because tomorrow they might be worth $220, and next year $300.

Spot on Sleepy...we know that at least two or those scenarios are probable, especially if Elon can solve the battery supply constraint issues within the next couple years which I have full faith he will...while this professor is very smart, probably much smarter than me, he also is a bit ignorant if he hasn't even driven the Model S himself yet, that's why I really hope he answers that question. Driving it for more than a few minutes, or better yet owning one, really gives us an advantage in that our eyes are opened to how revolutionary this car really is and in turn how revolutionary the company really is.

 

[ppl]

Spot on Sleepy...we know that at least two or those scenarios are probable, especially if Elon can solve the battery supply constraint issues within the next couple years which I have full faith he will...while this professor is very smart, probably much smarter than me, he also is a bit ignorant if he hasn't even driven the Model S himself yet, that's why I really hope he answers that question. Driving it for more than a few minutes, or better yet owning one, really gives us an advantage in that our eyes are opened to how revolutionary this car really is and in turn how revolutionary the company really is.

I find it interesting that he disclaims any investment in tesla despite his model. Perhaps he should be shorting this. As too over valued, he needs to examine the cost of an nyu education

 

[TSLAopt]

[/QUOTE

Not sure if any of you were discouraged by that NYU professor who said the TSLA stock should be at 67 right now, but he had a 2nd blog post on Friday (Musings on Markets: Tesla: A Follow up) offering possible ways and scenarios it could be a fair share price valuation above from where it is now. He doesn't personally think any will come true but I have a feeling any of us who own the car and have studied the company closely would agree that at least 2 of his 3 reasons (disruptor and first mover advantage) will come true, hence the stock price should be closer to 200 now from his analysis on that (or actually much above 200 if both are true instead of just one).

While he doesn't agree with any of these possibilities himself he says, I just posted the below and really hope he answers as he has answered others in the comments. Would be curious to what he says for #4. Will follow up and let you guys know if so.


----------------------
Professor,
I'm the anonymous that made the "Occam's Razor theorem" comment on your last post and appreciate you flipping the perspective on this blog post even if you don't personally agree with it...yet.


One very important yes/no answer question and 3 others not as important:


#1)Have you driven this Model S yourself yet?


2)Did you know it's been given the best rating of any car ever by Consumer Reports and Motor Trend? (As well as other auto publications)


3)did you know it's gotten the highest safety rating of any car ever tested by the NHTSA?


4)Would your opinion on valuation change if next year when Tesla releases the Model X it has the best ratings and safety of any SUV ever built? (Ie. One might assume their Gen III car to be released in 2016-2017 has a good chance to be the best rated and safest mass market car ever too in that case)


Thanks,
EP
---------------------

this is his very limited response to my questions:

"I have never driven a Tesla but have heard rave reviews of the car (its styling, safety and other features). Would driving a Tesla change my value for the company? I don't think so because I try to separate what I think about a company & its products from what I think of it as an investment. What will change my valuation is evidence that Tesla is cracking the mass market code and that may very well come with the great reviews."

BINGO!!! Just what I suspected, he hasnt driven the car. I suspect if he owned one or drove one much he would agree with his hypothesis for how the company share price should be worth more than what it is now. This gives me further conviction to stay long full throttle and not take anything off the table.

 

[reddy]

BINGO!!! Just what I suspected, he hasnt driven the car. I suspect if he owned one or drove one much he would agree with his hypothesis for hw the company share price shade worth more than what it is now. This gives me further conviction to stay long full throttle and not take anything off the table.

So does this mean that only persons who have driven a Tesla can properly appraise the value of its stock? How do I appraise the stock for Kotex then?

And it the market for the stock only Tesla drivers? Test drivers ?

Perhaps if we all give out more test drives to friends the stock will go even higher.

 

[TSLAopt]

So does this mean that only persons who have driven a Tesla can properly appraise the value of its stock? How do I appraise the stock for Kotex then?

And it the market for the stock only Tesla drivers? Test drivers ?

Perhaps if we all give out more test drives to friends the stock will go even higher.

good question...it doesn't mean only people who have driven or owned a Tesla can properly appraise the value, it means that onlÿ people who have driven (for considerable time, more than 5 minute test drive) or owned a Model S can properly say the value of this disruptive company stock is too high. I have yet to see an honest case of ths. People who haven't driven it are ignorant if they say the value is too high because they have no actual experience with exactly how disruptive this car is vs. any ICE car out there. It's literally like trying to compare apples to oranges unless you drive or own the Model S first. It's a whole other dimension ahead of all other cars. I've owned men for 8 months and am still thrilled everyday to drive it, I hate driving our ICE car when we need two each use a separate car for the day.
I can't wait to get the Model X as our 2nd car.

 

[neroden]

Not sure if any of you were discouraged by that NYU professor who said the TSLA stock should be at 67 right now, but he had a 2nd blog post on Friday (Musings on Markets: Tesla: A Follow up) offering possible ways and scenarios it could be a fair share price valuation above from where it is now. He doesn't personally think any will come true but I have a feeling any of us who own the car and have studied the company closely would agree that at least 2 of his 3 reasons (disruptor and first mover advantage) will come true, hence the stock price should be closer to 200 now from his analysis on that (or actually much above 200 if both are true instead of just one).

He's a bright man -- he just hasn't spent as much time intensively studying Tesla and the electric car business as we have. In short, I believe all THREE of his reasons are true, which means that (by his analysis) Tesla has three different paths to deserve valuation around $200. I think the odds that Tesla will make at least one of them work are very high; if the chances of success on each of the three paths is 30%, then the chance of success on one of the three is 80%. Of course if all three paths work out, Tesla will be worth a great deal.

---
My personal analysis of Tesla has focused on a risk factor nobody talks about: the "executive screw-up" factor. Basically, I think Tesla can only fail if the company makes major, stupid screw-ups: shooting itself in the foot. This is always a serious possibility and can sink companies which, on paper, had everything going for them. For instance, it seems that the continuing mess in the delivery & paperwork has not sunk Tesla yet, but it remains a risk factor: a copycat which did everything else like Tesla but also handled the delivery and paperwork smoothly would have a chance of cannibalizing Tesla's market. A more serious screw-up could actually sink the company quite fast. At the moment, Tesla has avoided most of the screwups which other electric car companies made, so I am relatively optimistic about this risk factor, but it's one which is very hard to quantify.

 

[ShortSlaver]

Nobody really knows what the value of this company should be. I do believe it is valued very high right now, but that doesn't mean it won't be valued higher in the future.

 

[vfx]

... People who haven't driven it are ignorant if they say the value is too high because they have no actual experience with exactly how disruptive this car is vs. any ICE car out there. ....

Blowhard Kramer is a good example of a conversion.

On the other side. I don't drink coffee, but years ago could potentially see what is going on around me with wife and others all flowing to Starbucks and seeing it's a worthy investment. (not that I did). She bought some Peets stock though.

 

[blakegallagher]

Spot on Sleepy...we know that at least two or those scenarios are probable, especially if Elon can solve the battery supply constraint issues within the next couple years which I have full faith he will...while this professor is very smart, probably much smarter than me, he also is a bit ignorant if he hasn't even driven the Model S himself yet, that's why I really hope he answers that question. Driving it for more than a few minutes, or better yet owning one, really gives us an advantage in that our eyes are opened to how revolutionary this car really is and in turn how revolutionary the company really is.

I agree. I can not help but think he has got a rough draft for his giga-factory in his head. I imagine a joint venture with Panasonic or Samsung but who knows what Elon will do.

 

[Mnlevin]

First let me say, I not only have driven the car, I own one and placed my order 3 years ago, receiving my MS May 3rd. I was at the factory for the ride along about Oct 2011. I love the car, I love the company but I don't love the stock. I am in the financial services business and people ask me about it all the time. I very clearly remember the Tech Bubble of 1999- 2001 and while I believe that TESLA will be a game changer and thrive into the future I don't think the current stock price reflects the value of the company. I am not using any models or algorhythms, just gut feelings. Any stock price must be supported by dividends as well as future growth. I believe the company will grow over the next few years but it is not paying a significant dividend and future growth will take more money. It will either come from debt, or another round of stock offerings neither will enhance the net book value of the company. The company is not predicted to become a significant part of the total auto sales for anytime if ever in the future. Again, great company and product. The stock price reflects speculation and there is no financial reason for its current price. My prediction is that the real value of the stock is somewhere between $58-75. I am not a stock analyst but just using my experience and intuition. Stock prices ALWAYS get to the real value at some point. Similar to the housing bubble, someone will be caught holding the bag when the stock price falls.

 

[TSLAopt]

First let me say, I not only have driven the car, I own one and placed my order 3 years ago, receiving my MS May 3rd. I was at the factory for the ride along about Oct 2011. I love the car, I love the company but I don't love the stock. I am in the financial services business and people ask me about it all the time. I very clearly remember the Tech Bubble of 1999- 2001 and while I believe that TESLA will be a game changer and thrive into the future I don't think the current stock price reflects the value of the company. I am not using any models or algorhythms, just gut feelings. Any stock price must be supported by dividends as well as future growth. I believe the company will grow over the next few years but it is not paying a significant dividend and future growth will take more money. It will either come from debt, or another round of stock offerings neither will enhance the net book value of the company. The company is not predicted to become a significant part of the total auto sales for anytime if ever in the future. Again, great company and product. The stock price reflects speculation and there is no financial reason for its current price. My prediction is that the real value of the stock is somewhere between $58-75. I am not a stock analyst but just using my experience and intuition. Stock prices ALWAYS get to the real value at some point. Similar to the housing bubble, someone will be caught holding the bag when the stock price falls.

Hi Mnlevin,
I appreciate your feedback as you are an owner and so I value it vs. feedback from people who study the stock and are not an owner.
what do you think your gut is basing the 58-75 target price on if you had to guess?
What do you do within the financial services industry if you don't mind me asking?
Thanks

 

[Robert.Boston]

IMO, the reason why you should drive the car to value the stock is so that you can put the appropriate weight on various scenarios. As the good professor noted, there are many ways the future can play out. When analyzing the stock value, you should not just pick one scenario as "the future", but rather build up many scenarios and value the company under each scenario. Then, you can calculate the stock value as the weighted average of those different scenarios. The weights you choose, therefore, are very important and highly subjective. Anyone who has driven the Model S will place approximately zero weight on "the company will fail once the backlog is filled" scenario and a high weight on "the company will succeed wildly and overtake BMW as a premium car brand" scenario.

 

[mountaineer]

it's just noise. the guy wrote a few books on valuation, that's it. lots of professors can do that

 

[vgrinshpun]

In order to have an accurate answer to the disruptor question it would be usefull to ponder the following:

Q: What percentage of current MS owners would ever consider buying an ICE car?
A: Approaching zero

Q: What percentage of current MS owners would consider buying another car from Tesla?
A: Approaching 100%

Although I am confident that the numbers above represent reality, great majority of people who had not driven the car would have very tough time to accept this reality.

 

[gameon]

yeah so many people wrote that stock is overvalued (including musk on tweet) but it won't go down...go figure (that's what all people trying to do right now)

 

[Causalien]

In my opinion, I always look at the timing of such articles. Why is it released at the time it was released and not say... during the Q2 report period?
Did I really know this person's existence before? I lost count how many times someone brought on someone who has extreme credibility in certain industry with a hit article on some stock. Yet I've never heard of that person before. Honestly at this point, I don't think even Elon knows where the stock price goes.

The only exception is Meredith Whitney. She's the only analyst I've seen so far who dares to announce on national TV on a target price and time frame. We all know that you only do target price or Time frame when predicting, never both. Yet she did it. So, someone like that has credibility IMO.

 

[fastcars]

same guy predicated about apple and fb correctly... sometime professores or outside can see the problem pretty well compare to blind sided investors

 

[Causalien]

Wasn't aware of the professor. The only prophet I've heard of for AAPL is Andy Zaky. Who went down in flames. What did the professor say about FB? It's at $44.