Cameron, I invested in Tesla in 2012 based on valuation and I'm holding my shares tight based on valuation.
Valuation is always about determining a fair price to pay for future earnings, thus always a forecasted earnings (think about it, in 2008, would it make any difference to you what GM's trailing earnings were as they headed toward bankruptcy? it's a companies future earnings that matter for valuation (of course you don't want to buy a company buried in debt or in a massive lawsuit, but fundamentally, value is all about future earnings.)
What is unusual, and
extremely compelling, about Tesla is how far into the future you can forecast compelling future earnings with a high level of confidence.
The articles decrying Tesla on valuation imply that investor's only do their valuation analysis vs. next year's earnings, with Tesla I look at 2018, and too a lesser extent I do rough numbers for 2025.
This is absolutely value investing, just on a further reaching time horizon.
this is a massive advantage to value investing in Tesla, not a disqualification from value investing.
Tesla's secret sauce?
1. they have at least a 3 year competitive advantage (I actually suspect 5+ years). this allows me to feel as confident about their market position 5 years from now as one might feel about another company one year from now (that is do my value investing on Tesla based on 2018 earnings rather than 2014 earnings critics imply is the only way to value Tesla).
It is very unusual for such a large competitive advantage to exist or be so transparent. The auto sector has a practice of revealing concept cars at auto shows and taking about 3 years to bring them to the market place. There's a dozen large global automakers... a new entry like Tesla happens with great rarity. Add in the billions of dollars in commitment to EVs to scale up battery production, and any competitive threat can be seen from a mile away. Looking at news like the suggested $135,
000 2017 Audi SUV EV with 370 miles range gives visibility to the length of Tesla's advantage (it is easy to estimate that Tesla could make a 350 mile Model X and sell it for about $90,000 in 2017; obviously years ahead of Audi's theoretical SUV).
2. high confidence that they will deliver. from point 1 above, you can see the market place is wide open for Tesla to sell as many Gen III cars as they can make... if they can make the car they say they will make (a 200+ mile EV starting around $35K, with performance similar to a BMW 328i). based on what I've come to know about Tesla and Elon Musk over the last two years, when he says there is a clear path to the Gen III car, no miracles needed, I assign a very high probability that this will prove to be true. the battery factory and car may have a stumble, may overrun initial capital investment expense expectations, but I have very high confidence that a they will produce a Gen III car that will have a supply rather than demand problem.
Bottom line, I see 80% chance of eps in the $20 range in 2019, 20% in $12 range. I assign expected pe's to these scenarios and think the stock is worth $190 today (with a big margin of error, and huge upside beyond 2019, I do not sell at $191). to be fair, much of these earnings will likely be plowed into future growth, so $20 in eps may not be reported, but I like the earnings plowed back into massive expansion!
fwiw, the dichotomy I've suggested between looking at next years earnings typically and 5 years out for Tesla, is really a dichotomy between what those who want to talk down Tesla portray value investing to be, and what is possible for Tesla. anyone with a solid grasp of value investing will project earnings as far into the future as there is visibility for a given company. one other note, Elon has discussed Gen III as similar size to a BMW 3 series, the performance like a BMW 328i is something I've inferred (and seen others do likewise) from the size of battery this smaller car will likely have.
