Short-Term TSLA Price Movements - 2013

[DaveT]

Very strong day for TSLA, closing at $102.23.

My suspicion was the 90s was too low of a price to stay there for long. I'd expect it to trade in the 100s this upcoming week and wouldn't be surprised if it hit $110 sometime before the June 20 announcement. Of course all this is speculation, but hey isn't that what this thread is about?

 

[Cattledog]

Agree. Really impressed with the solidity of the last few days. Juggernaut.

I am extremely pleased with the stock's behavior these past few days. It has been an orderly move. I'm becoming increasingly convinced that Elon and co. were successful at installing a floor around $90 which is remarkable.

 

[anticitizen13.7]

Nice end to the week!

I think there's going to be some gain due to anticipation of the June 20th news. Depending on what the demo is, and how it goes, I can see prices above $110.

 

[michael1800]

I was going to wait for the next drop to pick up another load, but now I'm not so sure hesitating is good--it's stable-ish. I think it will go up *before* the announcement on the 20th as that's supposed to be the last major announcement and Elon isn't likely to end the series on a weak note...then going up again. I hope I didn't miss all the good times to 'stock' up on TSLA.

 

[haid]

After the announcement on the 20th, how long before the Q2 sales rumors start?

 

[Causalien]

Doubled down before I got on the plane. Finally got the chance to read the quote. Needless to say, I had to drink a lot of wine on the flight to not go insane. If only we can see the future, life would be so much more stress free.

 

[napabill]

Whatever you guys do, don't look at the fundamentals. Reminds me of the insanity in 2007. Will we never learn.

 

[marvinat0rz]

You can't look at fundamentals when you're investing in stocks that have a chance of extreme growth. Let's say Tesla will have an EPS of 2$ this year (optimistic number pulled out of my ass). Assume for simplicity a P/E of 10 for an established company. Tesla is obviously worth way more than $20 a share, since there is a significant probability that it will in the future have much higher earnings. Earnings is a trailing indicator for growth stocks.

You could have made the same argument about every single publicly traded start-up company that has grown into a large business, and following a strategy based on this would have made you either miss out or lose a lot of money. Think probability, not fundamentals.

 

[Johan]

Whatever you guys do, don't look at the fundamentals. Reminds me of the insanity in 2007. Will we never learn.

Doubled down before I got on the plane. Finally got the chance to read the quote. Needless to say, I had to drink a lot of wine on the flight to not go insane. If only we can see the future, life would be so much more stress free.

You can't look at fundamentals when you're investing in stocks that have a chance of extreme growth. Let's say Tesla will have an EPS of 2$ this year (optimistic number pulled out of my ass). Assume for simplicity a P/E of 10 for an established company. Tesla is obviously worth way more than $20 a share, since there is a significant probability that it will in the future have much higher earnings. Earnings is a trailing indicator for growth stocks.

You could have made the same argument about every single publicly traded start-up company that has grown into a large business, and following a strategy based on this would have made you either miss out or lose a lot of money. Think probability, not fundamentals.

Marvinat0rz: I agree with you at this point in time. However, eventually reality must catch up. P/E cannot continue being in the hundreds or thousands for a company as it matures. Even if Tesla (later intertwined with other Elon ventures) becomes the largest car manufacturer in the whole world, even if they become the absolute leader in battery technology, energy storage, electric airplanes, solar energy, hyperloop, space travel etc. the market that you can capture, and hence your market capititalization, will be finite. The question of course is when does a company mature and "settle". In my eyes there is still enormous growth potential that is not fully priced in as the coming years will show.

 

[marvinat0rz]

Yeah, obviously earnings have to catch up at some point, or the stock price has to fall back down. A high P/E ratio is always temporary. It's just a measure of an assumed probability of growth. From my perspective Tesla seems like a decent bet even at $100/share, but that's obviously speculative and arguably a much risiker bet than at $30/share. And there's no question that there will be high volatility from here on.

 

[gameon]

Yeah, obviously earnings have to catch up at some point, or the stock price has to fall back down. A high P/E ratio is always temporary. It's just a measure of an assumed probability of growth. From my perspective Tesla seems like a decent bet even at $100/share, but that's obviously speculative and arguably a much risiker bet than at $30/share. And there's no question that there will be high volatility from here on.

you nail it. It was job report push the market nothing else. Even supercharger announcement didn't push stock too high (in fact went different way)

Now on earning and profit should drive the stock but wall street (bull in particular) don't follow logic

 

[CapitalistOppressor]

I am extremely pleased with the stock's behavior these past few days. It has been an orderly move. I'm becoming increasingly convinced that Elon and co. were successful at installing a floor around $90 which is remarkable.

It's exactly what happened after the secondary in September. It established a new permanent floor, and the stock spent the next 6+ months trading between $28-$36. I expect much the same thing this time around, only scaled up to current prices. Until we get some news that allows for a step-change, I just expect a lot of trading in the range that we established over the past couple of weeks.

I doubt the June 20th announcement will break us out above the current mid teens ceiling (though it might depending on whether the market is baking the right product in).

However, a better than expected earnings report looks increasingly likely, because the Street's revenue targets are back to ~$400m, which is probably much too low, even accounting for the hinky lease accounting.

Aside from ZEV revenue, which could still be substantial/unchanged, the Feds just upped the social cost of carbon target to ~$36 from $22, which will eventually raise the "steady" GHG/CAFE income from ~$17m to ~$28m. And gross margins likely started the quarter somewhere in the mid-teens (excluding credits) and have been moving up from there. With credits, Tesla will likely report GM around 25% for Q2.

Anyways, it's still possible that Tesla will report a GAAP loss because of how the lease revenue is recognized, but that is completely dependent on what proportion of sales you think leasing represents. Regardless, a sale is a sale, so that revenue eventually comes down to the bottom line, and the only risk is the residual guarantee, which is pretty safe so far because used vehicles which have been driven for a couple of months are selling on e-bay at essentially new car prices.

 

[woof]

Massive volume spike on the buy side. Either a bit short position covering or some leaked news that hasn't revealed yet...

I don't understand what it means to have volume on the "buy side". Doesn't every share traded have a single buyer and a single seller? Volume would be the sum of all the shares sold/bought, so for every million shares sold there would have to be a million shares bought.

Will someone please explain what I'm misunderstanding?

Thanks!

 

[Johan]

I don't understand what it means to have volume on the "buy side". Doesn't every share traded have a single buyer and a single seller? Volume would be the sum of all the shares sold/bought, so for every million shares sold there would have to be a million shares bought.

Will someone please explain what I'm misunderstanding?

Thanks!

You are misunderstanding nothing. I agree it's wrong to state "volume on the buy side" - a better way to put would be: there is massive pressure on the buy side [as opposed to the sell side] - i.e. more demand than supply which causes price to increase.

 

[CapitalistOppressor]

You are misunderstanding nothing. I agree it's wrong to state "volume on the buy side" - a better way to put would be: there is massive pressure on the buy side [as opposed to the sell side] - i.e. more demand than supply which causes price to increase.

"Pressure" is just a euphemism for demand, and "demand" is just a product of the number of buyers and the number of shares they want to buy. I am entirely comfortable with "volume on the buy side" because it is an accurate expression of what is occurring. Prices go up when there are more buy orders than there are sellers willing to sell at that price. Hence "volume on the buy side".

 

[Johan]

"Pressure" is just a euphemism for demand, and "demand" is just a product of the number of buyers and the number of shares they want to buy. I am entirely comfortable with "volume on the buy side" because it is an accurate expression of what is occurring. Prices go up when there are more buy orders than there are sellers willing to sell at that price. Hence "volume on the buy side".

Granted, if you consider not the actual trades that take place, but the orders submited to the exchange (not yet filled) it would be entirely correct to state that there can be much bigger volume on the buy side than on the sell side. A lot of buyers competing for fewer sellers.

 

[Causalien]

With regards to PE 100. There are two ways it could equalize. Most people only look at one side of the coin. It either decrease because earnings will catch up, or it decrease because stock price goes down. Same thing for any fundamental analysis metric.

 

[kenliles]

It's exactly what happened after the secondary in September. It established a new permanent floor, and the stock spent the next 6+ months trading between $28-$36.

I doubt the June 20th announcement will break us out above the current mid teens ceiling (though it might depending on whether the market is baking the right product in).

However, a better than expected earnings report looks increasingly likely, because the Street's revenue targets are back to ~$400m, which is probably much too low, even accounting for the hinky

While I agree the Street estimates are too low which will help. Comparing September behavior to now is likely a mismatch. We're no longer in the same behavioral universe. If TSLA reports any loss at all in Q2 (a reasonable probability as you point out), there's no way enough dumb money stay long TSLA to hold the current valuation (price) IMO. Unless the June 20 raises price to $120 (unlikely in my view as well), Q2 report will drop the price below current levels IMO. (Warning to all readers, I'm sure I'm wrong - I'm nearly always wrong - so if you want to believe otherwise you'll likely be right)

 

[DaveT]

It's exactly what happened after the secondary in September. It established a new permanent floor, and the stock spent the next 6+ months trading between $28-$36. I expect much the same thing this time around, only scaled up to current prices. Until we get some news that allows for a step-change, I just expect a lot of trading in the range that we established over the past couple of weeks.

I agree that it looks like a new permanent floor's been established at $90. But I don't think we'll spend a long time trading at the current levels ($90-110).

I think now is a completely different situation compared with September. Back in September, Tesla was forecasting 5000 cars by the end of the year but had to reduce it to 3000. They had given a $560-600 million revenue guidance for 2013 (in July 2012), but ended up with $413 revenue for the year. They had a difficult time ramping up production and had to under-deliver on expectations and guidance. People were questioning if Tesla would be around in 5 years. Others were doubting if demand after the first early adopters would still be there.

All of those factors led to a stall in the stock price at the roughly $30 level.

Now, Tesla is in a position of strength. In fact, a very strong position. They've ramped up production to 20k annual run rate (and seem to be able to go higher). Demand is much higher than they expected. And people are loving their cars like no tomorrow.

In other words, I think there's a lot of opportunity for Tesla to over-deliver on expectations because they're in a strong position (vs back in September they were under-delivering on expectations). Some potential upside drivers in the next few months:
1. June 20th announcement - if it's better than expected I think it will drive up the price. Even if it's worse than expected, I can't see the stock going below $90.
2. 2nd Quarter results (roughly July 22) - I think Tesla will likely beat expectations and this probably will drive up the stock price. I think people will be surprised at how fast the gross margins are increasing toward their 25% goal.
3. European investors - as the Model S gets delivered to Europe we might see a new crop of new investors from Europe, both institutional and retail.

I also think there's a possibility of some large fund or billionaire buying up $1+ billion worth of Tesla as a long-term investment and word of it getting out.

Finally, the nail in the coffin IMO is when Tesla reaches 25% gross margin (excluding ZEV credits). I can't see the stock being under $120 at that point. Elon has promised 4Q 2012 (earnings report due in early March 2014). I personally think that once Tesla reaches 25% gross margin, that will have a psychological impact on people who doubted Tesla could be profitable and can encourage more institutions/funds to invest. If Europe sells better than expected in second half of 2012 and Tesla reaches 25% gross margin by the end of the year, I wouldn't be surprised if the stock is at $150+ by March of next year when they report 2013 earnings. But with a hot stock, often these forward events get priced into the stock so I wouldn't be surprised if TSLA hits $150 by the end of the year.

 

[DaveT]

Here are the long term numbers I modeled last year, and why I bought a boatload of TSLA:

2017
200,000 Gen 3 sales x $39,000 avg sales price x 0.17% gross margin
30,000 Model S&X x $80,000 ASP x 0.25% gross margin

That puts us right at $2B in profit. Subtract out $600M in operating expenses and you're left with $1.4B in earnings. With 116,000,000 shares outstanding, that puts us at $12 EPS. Applying a 15 P/E, a bit above Ford and GM but well less than other growth companies, you're at $180/share. It seems that a company with as solid a business model as Tesla and good chance of hitting its targets down the road is hardly overpriced at $100 now.

I had similar numbers for my modeling last year (and also bought as much TSLA as I could then). However, what changed the game was Q1 2013 earnings report. Demand for Model S is beyond what Tesla or almost anyone was expecting. So, growth into 2017 is at a much faster pace, thus Gen III sales also will be larger.

Tesla now seems to be aiming at 80k-90k Model S/X sales in 2017. And more people are buying the larger packs then they expected. So ASP is coming out probably closer to $90k than $80k/car.

For Gen III, 200k in 2017 is a fair number, but with 80-90k Model S/X sales so quick we're looking at huge Gen III numbers by 2020. Also, there's the Gen III SUV too. So we're looking at at least 500k cars total by 2020.

Gen III pricing is likely to be closer to $50k than $39K/car. Tesla will likely release it as a $40k car (making it close to $30k with tax credit). Add in options, larger battery pack, then you get average $50k/car.

Lastly, 15 P/E is way too conservative because Tesla will be growing super fast in 2017. I'd give it at least a 40-80x P/E in 2017 (and that's probably conservative).