Seeking Alpha Jan 4 Tesla analysis - very negative article

[martinwinlow]

Well, if GM can do it (with the Bolt), I can't see why Tesla can't. MW

 

[GSP]

Thought I'd post this so you don't have to bother registering for Seeking Alpha if you'd like to read the original piece.

Beware Teslas Model 3 Mess - Tesla Motors (NASDAQ:TSLA) | Seeking Alpha - the article is free but you have to register your e-mail address to view it on their site. The full text is pasted below. NOTE: NONE of what follows this line is my writing - this is ALL the article. So don't shoot the messenger! I just thought it was an interesting piece, though clearly very bearish.

Title: "Beware Tesla's Model 3 Mess"

Summary

While Tesla has been astonishingly vague about how big its Gigafactory must be to support Model 3 production, it's clear that the pilot facility now under construction is inadequate.
Tesla is at least two years behind its own schedule for committing crucial suppliers and subcontractors to "partner" with it in the Gigafactory.
It is highly doubtful that the Model 3 will cost only $35,000. A base model price of $45,000 is more likely, and 500,000 Tesla vehicle sales in 2020 is unachievable.
Tesla's Model S and Model X have had the luxury EV market all to themselves. The Model 3, by contrast, will face formidable competition.
Tesla's reliance on Model 3 deposits as interest-free financing presents the company with serious disclosure obligations to a less financially-sophisticated class of buyers.

What a load of total BS. Seeking Alpha is truly a junk site. People would be better informed locked in a cave somewhere with no internet.

GSP

 

[electracity]

The article raises good questions. While there are many unknowns, my concern is that lack of additional structure being added to the gigafactory. 2020 ends in less than five years now. If Tesla has such huge battery demand, including the Powerwall, it seems to me that construction should be continuous. Inability to hit target battery prices would be one reason to not rush construction. No reason to make battery products that lose money.

I don't believe Tesla should try to produce a $35K base car anyways. Let Chevy build the common car and Tesla Motors continue as a luxury brand.

 

[roblab]

The article raises good questions. While there are many unknowns, my concern is that lack of additional structure being added to the gigafactory. 2020 ends in less than five years now. If Tesla has such huge battery demand, including the Powerwall, it seems to me that construction should be continuous. Inability to hit target battery prices would be one reason to not rush construction. No reason to make battery products that lose money.

I don't believe Tesla should try to produce a $35K base car anyways. Let Chevy build the common car and Tesla Motors continue as a luxury brand.

What bothers me is that all these statements are NOT raising questions, are not called unknowns, but stated as fact:
.... "it's clear that the pilot facility now under construction is inadequate." (Uh, that's why it's called a "pilot" factory)
.... "500,000 Tesla vehicle sales in 2020 is unachievable." (Well, 50 per cent growth per year for five and one half years is 500,000, but we KNOW)
etc.

There doesn't seem to be any question, but as to whether or not anyone will bow down to this superior knowledge.

Typical. I won't click on it.

 

[jerry33]

I don't believe Tesla should try to produce a $35K base car anyways. Let Chevy build the common car and Tesla Motors continue as a luxury brand.

Certainly that's one way for the Tesla mission (sustainable transportation) to fail. If Tesla did that, GM would pull the plug on the Bolt faster than you can blink your eyes.

 

[jordanthompson]

Here's an interesting video about disruptive technologies and how experts have trouble forecasting their impact. Interesting to note that we went from a street full of buggies and horses and a single automobile to a street full of automobiles and a single horse and buggy in four years: BMC Engage 2014 closing keynote with Tony Seba -- Anticipating Leading Market Disruption - YouTube

 

[AlexT]

Here's an interesting video about disruptive technologies and how experts have trouble forecasting their impact. Interesting to note that we went from a street full of buggies and horses and a single automobile to a street full of automobiles and a single horse and buggy in four years: BMC Engage 2014 closing keynote with Tony Seba -- Anticipating Leading Market Disruption - YouTube

Thanks for that link. Very nice to watch. Also would like to point out another one of his lectures, mostly on solar energy. I didn't realise yet how fast this was improving:

Solar Clean Energy Myths - YouTube

 

[electracity]

Here's an interesting video about disruptive technologies and how experts have trouble forecasting their impact. Interesting to note that we went from a street full of buggies and horses and a single automobile to a street full of automobiles and a single horse and buggy in four years: BMC Engage 2014 closing keynote with Tony Seba -- Anticipating Leading Market Disruption - YouTube

EV doesn't add functionality to a users daily life. The mass market car changed everything in ground transportation.

But I'm still optimistic that there will be a tipping point in the general public's desire for EV. The space inside the Bolt looks impressive, and should be desirable. Especially to new buyers outside North America.

A successful Bolt on the low end, plus the Euro luxury makers concerns about Tesla will hopefully lead to a decent CCS charging network in NA and western Europe this decade.

 

[jordanthompson]

EV doesn't add functionality to a users daily life. The mass market car changed everything in ground transportation.

Spoken like an expert:wink:

 

[wdolson]

The article raises good questions. While there are many unknowns, my concern is that lack of additional structure being added to the gigafactory. 2020 ends in less than five years now. If Tesla has such huge battery demand, including the Powerwall, it seems to me that construction should be continuous. Inability to hit target battery prices would be one reason to not rush construction. No reason to make battery products that lose money.

I don't believe Tesla should try to produce a $35K base car anyways. Let Chevy build the common car and Tesla Motors continue as a luxury brand.

Which is totally contrary to Elon Musk's plan and it would severely limit Tesla's growth. The more expensive a company's cars, the more limited their market will be.

Tesla will probably remain a company with a "Cadillac" sort of reputation like HP had back in the day. For electronic test equipment, calculators, printers, and a number of other things, if you wanted the best, you bought HP. They cost a little more than other brands, but not horribly more, but people paid the price because it was worth it. HP doesn't have that kind of rep today.

If managed correctly, I can see Tesla remaining a premium brand but one that many average people can stretch their budget a bit to afford.

People think of BMW as a premium brand, but nobody thinks the 3 Series (which has a base model selling for $35K) sullies the reputation of the brand.

 

[valuationmatters]

I like the model S and applaud a new US-based automobile company.

Model S has a great exterior look and great performance. Inside, I hate giant touch screens and I prefer buttons and knobs. I also think the interior is somewhat unimpressive for the price.Model X is ugly like an inflated Prius. Falcon Wing Doors are a ridiculously complicated solution to a problem that did not exist.From an investment perspective, the current market valuation is ludicrous. My valuation analysis shows the stock worth about $25 per share based on my discounted cash flow analysis, which assumes Tesla actually sells 300,000 cars in 2020 and somehow actually makes 10% gross margins on the M3, and achieves overall company operating margins of about 4% (even though F and GM have massive economies of scale and still manage only 4% margins on $100 billion in sales). I think these are optimistic assumptions for Tesla, and still it says TSLA is worth $25 per share.I put my money where my mouth is and am short via owning long-dated puts and shorting the shares directly.

The gigafactory seems like a terrible idea, since Tesla has zero experience manufacturing batteries, and others (LG Chem, Panasonic) have massive economies of scale and minimal margins.

Nothing against the company. But basic impartial math suggests the stock is 8x overpriced.

 

[svp6]

I like the model S and applaud a new US-based automobile company.

Model S has a great exterior look and great performance. Inside, I hate giant touch screens and I prefer buttons and knobs. I also think the interior is somewhat unimpressive for the price.Model X is ugly like an inflated Prius. Falcon Wing Doors are a ridiculously complicated solution to a problem that did not exist.From an investment perspective, the current market valuation is ludicrous. My valuation analysis shows the stock worth about $25 per share based on my discounted cash flow analysis, which assumes Tesla actually sells 300,000 cars in 2020 and somehow actually makes 10% gross margins on the M3, and achieves overall company operating margins of about 4% (even though F and GM have massive economies of scale and still manage only 4% margins on $100 billion in sales). I think these are optimistic assumptions for Tesla, and still it says TSLA is worth $25 per share.I put my money where my mouth is and am short via owning long-dated puts and shorting the shares directly.

The gigafactory seems like a terrible idea, since Tesla has zero experience manufacturing batteries, and others (LG Chem, Panasonic) have massive economies of scale and minimal margins.

Nothing against the company. But basic impartial math suggests the stock is 8x overpriced.

Thank you for showing how copy-paste works. You managed to say the same thing in your 3 posts on 3 different threads. Great start on this forum!

 

[valuationmatters]

Thanks for attacking the author rather than addressing the valuation arguments. Do you have anything to say about the valuation? What does your analysis suggest the stock price should be? Or should it just be "higher"? Why not $300? $500? $1000?

Again, I think Tesla is a cool brand, great model S car. And the impartial math suggests it should be worth about $25 per share.

- - - Updated - - -

Funny thing is I think Tesla deserves credit for accelerating the shift to electric cars, either PHEV vehicles or fully electric. I just think Tesla is going up against much more established competitors and the odds are stacked against Tesla. If I were in charge of Tesla I would keep it a very high end brand which means scrapping the model 3. I would source batteries from multiple suppliers and let them eke out razor thin margins on batteries. So ditch the gigafactory since Tesla has no experience making batteries. I would find a way to trim the losses or break even. This means cutting the least efficient sales costs. Tesla does not need to make tons of money for several years. In fact I think they are fine as long as they break even and grow sales as quickly as possible with premium vehicles. But I think Tesla has lost its focus which should be on electric vehicles. Not autonomous driving. Not gigafactories which are albatrosses. Not needlessly complicating the vehicle doors (falcon wing doors). Tesla can be a niche high-end EV company.

 

[Krugerrand]

And the impartial math suggests it should be worth about $25 per share.

It's 'your' math, therefore not impartial. But there's been plenty of valuation discussion on this forum if you do a search. Check out jhm's posts for instance...can't think of the name of the thread. Somebody?

 

[1101011]

Tesla can be a niche high-end EV company.

Tesla already is a niche, high-end EV company. But that's not the goal. The company was created to accelerate the world-wide use of sustainable transportation.

 

[svp6]

Thanks for attacking the author rather than addressing the valuation arguments. Do you have anything to say about the valuation? What does your analysis suggest the stock price should be? Or should it just be "higher"? Why not $300? $500? $1000?

True - I just find repetition in posts not helpful; suffice to state one time your feelings.

One could argue that the true price of any object is the price at which that object sells. I do not plan to purchase a $30-50k watch (and I find the price completely insane), yet much to my disbelief there are plenty of people who do. What you and I think matter very little, the market price is probably the only real one - whether supported by analysis or not.

As for the "if I were in charge", it sure sounds a little dismissive towards people who are in charge at Tesla. I imagine they kind of took all those possibilities into consideration before deciding on a strategy; after all, decisions they made in the past seemed to work. They are not a bunch of incompetent people, you know.... Somehow getting older makes me understand that decisions I personally disagree with are in fact many times correct upon further intimate knowledge of the facts.

Glad you like Tesla design, and I promise you that once you own one you will love the big screen too. Owned / drove several high end cars, to me this is the best user interface in any car I have tested.

 

[valuationmatters]

True - I just find repetition in posts not helpful; suffice to state one time your feelings.

One could argue that the true price of any object is the price at which that object sells. I do not plan to purchase a $30-50k watch (and I find the price completely insane), yet much to my disbelief there are plenty of people who do. What you and I think matter very little, the market price is probably the only real one - whether supported by analysis or not.

As for the "if I were in charge", it sure sounds a little dismissive towards people who are in charge at Tesla. I imagine they kind of took all those possibilities into consideration before deciding on a strategy; after all, decisions they made in the past seemed to work. They are not a bunch of incompetent people, you know.... Somehow getting older makes me understand that decisions I personally disagree with are in fact many times correct upon further intimate knowledge of the facts.

Glad you like Tesla design, and I promise you that once you own one you will love the big screen too. Owned / drove several high end cars, to me this is the best user interface in any car I have tested.

Thanks svp6, I suspect I would love the Model S if I took a test drive. I already love the design. But for me personally, I just would not spend that kind of money on a car. I prefer to have all my wealth invested. But hey that's just me.

I'm sure the people at Tesla know more than me about Tesla. So using that argument maybe we should never question any management team.

I put forth my assertion that Tesla is worth $25 per share, and my supporting assumptions. Your responded by essentially saying, "the stock is worth what a market of buyers and sellers think it is worth based on supply and demand." That is technically true in the short term. The same was true about tulips in the 17th century, railroad stocks in the 19th century, the "Nifty Fifty" in the 1970's, internet stocks in the late 1990's, 3d printing stocks and nanotechnology stocks more recently. Eventually the reality of those companies' financial performance failed to live up to anything close to the expectations, and the stock prices all collapsed. Tesla appears to be in the middle of just such a bubble.

So again, someone, anyone, please tell me the math by which you get to $200 per share? $300 per share? $500 per share? Do you think powerwalls will sell in huge volumes? What about the 40-year payback period? Do you think the model 3 will sell millions? Based on what? What about competition? What about the fact that Tesla at best makes 25% gross margins on the model S and therefore it seems unlikely they can make even 10% margins on model 3. Maybe you think Tesla will ultimately make 20% operating margins and sell a million vehicles in 2020 even though there is virtually no precedent.

I'd love to hear some math.

 

[Krugerrand]

So again, someone, anyone, please tell me the math by which you get to $200 per share? $300 per share? $500 per share? Do you think powerwalls will sell in huge volumes? What about the 40-year payback period? Do you think the model 3 will sell millions? Based on what? What about competition? What about the fact that Tesla at best makes 25% gross margins on the model S and therefore it seems unlikely they can make even 10% margins on model 3. Maybe you think Tesla will ultimately make 20% operating margins and sell a million vehicles in 2020 even though there is virtually no precedent.

And again, there's all kinds of discussion already on this forum about all those questions you ask. Do a search. You'll find plenty of math. I pointed you in one direction already.

 

[ecarfan]

?.. I think Tesla has lost its focus which should be on electric vehicles. Not autonomous driving. Not gigafactories which are albatrosses. Not needlessly complicating the vehicle doors (falcon wing doors). Tesla can be a niche high-end EV company.

You have completely failed to understand that Tesla is not only an EV company, it is also an energy storage and management company whose first product was an EV. Obviously batteries are critical to EVs, and as such Tesla needs to have a reliable and highly scalable source of the most efficient batteries available. But you ignore the fact that the potential for Tesla Energy products is at least as great if not greater than the potential for selling EVs across all automotive market segments (which is a vast market). Tesla Energy storage and and energy management systems have incredible market potential. But your analysis does not include them.
I am long TLSA.

 

[wdolson]

Thanks svp6, I suspect I would love the Model S if I took a test drive. I already love the design. But for me personally, I just would not spend that kind of money on a car. I prefer to have all my wealth invested. But hey that's just me.

I'm sure the people at Tesla know more than me about Tesla. So using that argument maybe we should never question any management team.

I put forth my assertion that Tesla is worth $25 per share, and my supporting assumptions. Your responded by essentially saying, "the stock is worth what a market of buyers and sellers think it is worth based on supply and demand." That is technically true in the short term. The same was true about tulips in the 17th century, railroad stocks in the 19th century, the "Nifty Fifty" in the 1970's, internet stocks in the late 1990's, 3d printing stocks and nanotechnology stocks more recently. Eventually the reality of those companies' financial performance failed to live up to anything close to the expectations, and the stock prices all collapsed. Tesla appears to be in the middle of just such a bubble.

So again, someone, anyone, please tell me the math by which you get to $200 per share? $300 per share? $500 per share? Do you think powerwalls will sell in huge volumes? What about the 40-year payback period? Do you think the model 3 will sell millions? Based on what? What about competition? What about the fact that Tesla at best makes 25% gross margins on the model S and therefore it seems unlikely they can make even 10% margins on model 3. Maybe you think Tesla will ultimately make 20% operating margins and sell a million vehicles in 2020 even though there is virtually no precedent.

I'd love to hear some math.

I heard an analyst draw the same conclusions about Amazon in the late 90s. It was a bubble stock and the price was going to collapse. It closed at around $590 on Friday. Analysts were writing off Apple in 2000 and it has the highest market valuation in the world now.

You don't understand the players in the Gigafactory. Panasonic is the partner who will actually be making batteries. If they spread out their sourcing of batteries to multiple sources, they risk inconsistent quality problems, battery chemistries are vastly different between manufacturers with vastly different characteristics, and they have squeezed Panasonic about as far as any battery maker can go. Pretty close to 100% of Panasonic's battery production goes to Tesla and they make no profit from it.

The Powerwall is just the consumer side of Tesla Energy and probably only 10% of the business. The real customers are utilities who badly need large battery farms. Right now there is no virtually storage on the electrical grid and that leads to a lot of inconsistencies. Electric utilities have to anticipate demand and have peaking power plants idling all the time ready to spin up to supply power. That not only wastes energy, they have to pay to keep those plants active with people and maintenance. Replacing those peaking plants with battery farms saves the utilities a lot of money in the long run. Utilities will be able to even out their daily load, running the most efficient plants and storing the energy at night when it isn't needed as much.

With new clean air regulations that will be making coal plants either shut down or rebuild the plant, utilities can close some of their most polluting plants and replace the need with batteries.

The primary focus of Tesla Energy has been on supporting renewable energy which is the fastest growing segment of energy production. The problem with wind and solar with no backup batteries is the inconsistent nature of production. You get energy when the wind is blowing or the sun is shining and that's it. With storage, that energy can be more evenly distributed throughout the day.

The potential market for energy storage is massive, and it could end up being a bigger profit center for Tesla than the car business, even if other players start getting into that market. The biggest limit on building these battery farms for utilities has been the battery supply and to some extent price. With the Gigafactory Tesla can use up all the extra capacity that isn't being used to build cars supplying batteries for stationary storage. Powerwalls will be popular with home solar installations, but ultimately it's the utilities that are the big customers.

Elon Musk is a gambler, but he's a calculated gambler. He doesn't invest a dime in anything without running both the numbers and the science to the ground first. That's why he's had 4 successful tech start ups and most people have none. I suggest reading Ashley Vance's biography of Musk. It's about a year old now, but he interviewed Musk and many people who knew him for the book. He lays out Musk's strengths and faults quite well.

If you're shorting Tesla, you might end up losing your shirt, just like the people who shorted Amazon and Apple back in the day.