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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.
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.
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.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.
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
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
Spoken like an expert:wink:EV doesn't add functionality to a users daily life. The mass market car changed everything in ground transportation.
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.
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.
And the impartial math suggests it should be worth about $25 per share.
Tesla can be a niche high-end EV company.
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.
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.
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 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.
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.