Short-Term TSLA Price Movements - 2016

[EinSV]

Quick back of the envelope calculation shows it does : 1 million car at $40k, gross margin 25%, is $10B gross profit. SG&A is $900M to sell 50k cars. Eficiency gain of 300% gives us SG&A of $6B. Throw in R&D and interest expenses and we are looking at $3B net profit. A market cap of $32B today is quite appropriate for a company that has a shot at running a $3B yearly net profit in 3-4 years time.

I have seen a few people make some version of the argument that Tesla executing on the Model 3 is already baked into the share price.

I believe this is clearly wrong. Here are some of the many reasons why:

• When Tesla announced plans to double production in 2020 from 500K to 1M the share price actually dropped due to perceived risks that the aggressive Model 3 ramp would be a failure.
  • If the market believed Tesla would hit its new targets the SP should have essentially doubled.
• Most major analysts have not updated their models to reflect 1M vehicles in 2020. If they did, the projected SP would be far higher.
• In fact, many analysts such as Adam Jonas have predicted that Tesla could not even meet their 500K by 2020 targets.
  • If you take Jonas' 300,000 vehicle by 2020 forecast and multiply it by 3 the SP target should be $735 instead of $245.
• With a few exceptions, analysts appear to be using about a 15% GM target for Model 3 yet SP did not move at all when Elon predicted 25% GM for the Model 3.
  • This factor alone would effectively double profits from the car business and therefore should roughly double the SP.
  • Doubling the SP due to higher margins and doubling or tripling it again for higher production suggests that the SP would be 4-6X higher if predicted margins and 1M in 2020 projection were accepted.
• The SP is lower than it was before the Model 3 was revealed (about $230) with preorders beyond almost everyone's wildest expectations.
• Virtually every press article on the Model 3 and post on TMC that discusses the Model 3 ramp suggests Tesla will not deliver on time, in the volumes projected or with the profits projected.
• The latest versions of Goldman's model I have seen projected a SP of $1800 by 2025 for their most optimistic projections, which use projected sales of 3.3 million vehicles in 2025 and roughly 16% margins. If you project 1M vehicles in 2020 and 50% growth through 2025 that results in sales of 7.6M vehicles, which would more than double the SP projection to over $4000. This is with zero contribution from TE, ridesharing etc. I explain in more detail in post 3767 in the LT thread: Long-Term Fundamentals of Tesla Motors (TSLA)
  • Increasing GM from 16%-25% in the Goldman model would result in another doubling to over $8000 per share. Again, this assumes zero value for TE, ridesharing, etc.

To look at it another way, people who actually credit Tesla with a good chance of meeting its automotive and other targets, like Ron Baron, project that the company will be worth 20-30X the current valuation. That is not priced into the stock, obviously.

 

[vgrinshpun]

Fidelity has plenty of shares...

Available to Short: 697,781 Shares
Est. Annual Interest Rate: 14.000%

As of 8:08am there are 1,009,814 shares available for shorting at Fidelity, interest rate still 14%.
Let's see if short sellers are ready to jump in. This increasing availability of shares for shorting could put downward pressure on the SP...

 

[myusername]

@myusername are you by any chance Shahid Haque ?

no.

 

[pGo]

I have seen a few people make some version of the argument that Tesla executing on the Model 3 is already baked into the share price.

I believe this is clearly wrong. Here are some of the many reasons why.

• When Tesla announced plans to double production in 2020 from 500K to 1M the share price actually dropped due to perceived risks that the launch would be a failure.
  • If the market believed Tesla would hit its new targets the SP should have doubled.
• Most major analysts have not updated their models to reflect 1M vehicles in 2020. If they did, the projected SP would be far higher.
• In fact, many analysts such as Adam Jonas have predicted that Tesla could not even meet their 500K by 2020 targets.
  • If you take Jonas' 300,000 vehicle by 2020 forecast and multiply it by 3 the SP target should be $735 instead of $245.
• With a few exceptions, analysts appear to be using about a 15% GM target for Tesla yet SP did not move at all when Elon predicted 25% GM for the Model 3.
  • This factor alone would effectively double profits from the car business and therefore should double the SP.
  • Doubling the SP due to higher margins and doubling or tripling it again for higher production suggests that the SP would be 4-6X higher if predicted margins and 1M in 2020 were accepted.
• The SP is lower than it was before the Model 3 was revealed (about $230) with preorders beyond almost everyone's wildest expectations.
• Virtually every press article on the Model 3 and post on TMC that discusses the Model 3 ramp suggests Tesla will not deliver.
• The latest versions of Goldman's model I have seen projected a SP of $1800 by 2025 for their most optimistic projections, which use projected sales of 3.3 million vehicles and roughly 16% margins. If you project 1M vehicles in 2020 and 50% growth through 2025 that results in sales of 7.6M vehicles, which would more than double the SP projection to over $4000. This is with zero contribution from TE, ridesharing etc. I explain in more detail in post 3767 in the LT thread: Long-Term Fundamentals of Tesla Motors (TSLA)
• Increasing GM from 16%-25% in the Goldman model would result in another doubling to over $8000 per share. Again, is assuming zero value for TE, ridesharing, etc.

To look at it another way, people who actually credit Tesla with a good chance of meeting its automotive and other targets, like Ron Baron, project that the company will be worth 20-30X the current valuation. That is not priced into the stock, obviously.

And yet we are at the same place as 2 years back when Tesla was producing 5k a quarter and now at 25k a quarter. A 5 fold increase. Valuation is tricky.

I think the issue with Tesla has been execution lately. A few good quarters like q3, and the trust will show up. Dilution has been my biggest concern so far. So far my $ invested has shrunk in terms of market perception. Hope to see a different color now.

 

[AlMc]

@myusername: You may have missed it a couple pages back but I would like your read on what you think the SP *should be* since you feel that TSLA is overvalued at $210ish?

Clearly most on this forum are mostly bullish and feel the stock is undervalued. However, we represent a small amount of the total stock ownership. Institutions hold most of the shares and have the most influence on the SP. Do you believe they are all wrong in their analysis?

 

[EinSV]

And yet we are at the same place as 2 years back when Tesla was producing 5k a quarter and now at 25k a quarter. A 5 fold increase. Valuation is tricky.

I think the issue with Tesla has been execution lately. A few good quarters like q3, and the trust will show up. Dilution has been my biggest concern so far. So far my $ invested has shrunk in terms of market perception. Hope to see a different color now.

I agree that market perception of Tesla's ability to execute is a big issue. I also believe there is an atmosphere of fearfulness that is contributing to the market overweighting the risks and underweighting the opportunities.

Well played by the shorts so far, but they seem to be running low on ammo (air pollution permits, really??). In any case, steady Tesla execution can do a lot to change market sentiment in its favor IMO.

 

[Irishjugg]

How was it in the middle? The most bullish analyst predicted 22k deliveries.

And everyone here thought they were stupidly low with their projections.

Water is wet, analysts continue to be quite bad at their jobs.

 

[BobSk]

I agree that market perception of Tesla's ability to execute is a big issue. I also believe there is an atmosphere of fearfulness that is contributing to the market overweighting the risks and underweighting the opportunities.

Well played by the shorts so far, but they seem to be running low on ammo (air pollution permits, really??). In any case, steady Tesla execution can do a lot to change market sentiment in its favor IMO.

I agree shorts have been trying to play us. However, I think the end result is we are playing them. They push the price lower, we load more shares. It's really a gift.

 

[Gerardf]

As of 8:08am there are 1,009,814 shares available for shorting at Fidelity, interest rate still 14%.
Let's see if short sellers are ready to jump in. This increasing availability of shares for shorting could put downward pressure on the SP...

Wow !
And with the DMA 200 and DMA 50 both at 214.8, just 2.5 above current pre-market SP, we can expect some action at opening.

 

[EinSV]

I agree shorts have been trying to play us. However, I think the end result is we played them. They push the price lower, we load more shares. It's really a gift.

I agree with this 100%.

Edit: One caveat is that IMO opinion Tesla is not demand constrained, it is capital constrained. A higher SP would make it easier to raise capital to accelerate Model Y, Master Plan Part Deux, GFs 2, 3, 4 and 5, etc.

 

[30seconds]

Quick back of the envelope calculation shows it does : 1 million car at $40k, gross margin 25%, is $10B gross profit. SG&A is $900M to sell 50k cars. Eficiency gain of 300% gives us SG&A of $6B. Throw in R&D and interest expenses and we are looking at $3B net profit. A market cap of $32B today is quite appropriate for a company that has a shot at running a $3B yearly net profit in 3-4 years time.

Why would the company have $3B in R&D expense and not have future growth plans beyond this?

 

[myusername]

I have seen a few people make some version of the argument that Tesla executing on the Model 3 is already baked into the share price.

I believe this is clearly wrong. Here are some of the many reasons why.

• When Tesla announced plans to double production in 2020 from 500K to 1M the share price actually dropped due to perceived risks that the launch would be a failure.
  • If the market believed Tesla would hit its new targets the SP should have doubled.
• Most major analysts have not updated their models to reflect 1M vehicles in 2020. If they did, the projected SP would be far higher.
• In fact, many analysts such as Adam Jonas have predicted that Tesla could not even meet their 500K by 2020 targets.
  • If you take Jonas' 300,000 vehicle by 2020 forecast and multiply it by 3 the SP target should be $735 instead of $245.
• With a few exceptions, analysts appear to be using about a 15% GM target for Tesla yet SP did not move at all when Elon predicted 25% GM for the Model 3.
  • This factor alone would effectively double profits from the car business and therefore should double the SP.
  • Doubling the SP due to higher margins and doubling or tripling it again for higher production suggests that the SP would be 4-6X higher if predicted margins and 1M in 2020 were accepted.
• The SP is lower than it was before the Model 3 was revealed (about $230) with preorders beyond almost everyone's wildest expectations.
• Virtually every press article on the Model 3 and post on TMC that discusses the Model 3 ramp suggests Tesla will not deliver on time, in the volumes projected or with the profits projected.
• The latest versions of Goldman's model I have seen projected a SP of $1800 by 2025 for their most optimistic projections, which use projected sales of 3.3 million vehicles in 2025 and roughly 16% margins. If you project 1M vehicles in 2020 and 50% growth through 2025 that results in sales of 7.6M vehicles, which would more than double the SP projection to over $4000. This is with zero contribution from TE, ridesharing etc. I explain in more detail in post 3767 in the LT thread: Long-Term Fundamentals of Tesla Motors (TSLA)
  • Increasing GM from 16%-25% in the Goldman model would result in another doubling to over $8000 per share. Again, this assumes zero value for TE, ridesharing, etc.

To look at it another way, people who actually credit Tesla with a good chance of meeting its automotive and other targets, like Ron Baron, project that the company will be worth 20-30X the current valuation. That is not priced into the stock, obviously.

just a quick sanity check: $4000 per share because Tesla sells 7.6m vehicles would make them the largest company in the world today. $8000 per share would make them 2x the largest company in the world today. and that's your high numbers because Tesla achieved 1/10th of the auto industry while still selling fewer cars than GM and Toyota do today?

and then this is how the circular reenforcement works... now someone will come along and say "I can live with $1800/share... but $4000 and $8000 are just ridiculous"

and now all the sudden $1800/share looks small and is accepted as reasonable.

$1800/share would make Tesla 3x the largest auto company in the world and 1/3rd the largest company in the world. and that's without any further dilution... for selling LESS cars than Toyota and GM today. (i am aware the argument is... old auto companies have pension funds and unions to deal with... so will Tesla... in one respect or another when they have 250k employees)

now where does a 7.6m/year auto market come from?... you think they'll be selling M3s at 25% gross margin all the way up to 7.6m?... the reason why Toyota and GM hit those sales numbers are because they are selling high volume low margin vehicles... do you think all the sudden Tesla can just change the economic distribution of the planet and start selling high volume high margin vehicles?

you are using simple proportions... extreme sell-side analyst recommendations... and base data of a company selling less than 100k luxury cars per year... and trying to very simply extrapolate to 7.6m/year.

and then the common mistake of underestimating the impact of expiring federal and state incentives... if the ASP is $40k... and in California or Colorado you get a combination of greater than $10k... then the entire GM you speak of is incentives!

there was a survey done in April after the reservations were tallied that resulted in 40% of reservation holders would question buying the M3 if they didn't get the tax credits.

other than all that... many of your proportional extrapolations are based on "the share price of TSLA was X when Y happened... so if Z happens then it should be 5X!"

there are more people than not that believe Tesla is currently trading well above reasonable levels for its current state. so to use TSLA share price as input data to any formula is simply not good analysis.

Turning point for auto sales?

"There's these beautiful cars out there... and then there's the share price... and they're not related at all."

 

[EinSV]

<snip>

I just took you off Ignore long enough to put you back on it. Have a nice day.

 

[vgrinshpun]

As of 8:08am there are 1,009,814 shares available for shorting at Fidelity, interest rate still 14%.
Let's see if short sellers are ready to jump in. This increasing availability of shares for shorting could put downward pressure on the SP...

We are already down 81,000 shares - as of 9:10am 928,814 available to short, with interest rate at 14%. I expect short pile-on right out of the gate at market open...

 

[dc_h]

We are already down 81,000 shares - as of 9:10am 928,814 available to short, with interest rate at 14%. I expect short pile-on right out of the gate at market open...

Seems likely that the institutional holders that pulled loaned shares back, slowly, are now slowly putting them back out there. Hard to justify not taking the interest.

 

[TrendTrader007]

I have seen a few people make some version of the argument that Tesla executing on the Model 3 is already baked into the share price.

I believe this is clearly wrong. Here are some of the many reasons why:

• When Tesla announced plans to double production in 2020 from 500K to 1M the share price actually dropped due to perceived risks that the aggressive Model 3 ramp would be a failure.
  • If the market believed Tesla would hit its new targets the SP should have essentially doubled.
• Most major analysts have not updated their models to reflect 1M vehicles in 2020. If they did, the projected SP would be far higher.
• In fact, many analysts such as Adam Jonas have predicted that Tesla could not even meet their 500K by 2020 targets.
  • If you take Jonas' 300,000 vehicle by 2020 forecast and multiply it by 3 the SP target should be $735 instead of $245.
• With a few exceptions, analysts appear to be using about a 15% GM target for Model 3 yet SP did not move at all when Elon predicted 25% GM for the Model 3.
  • This factor alone would effectively double profits from the car business and therefore should roughly double the SP.
  • Doubling the SP due to higher margins and doubling or tripling it again for higher production suggests that the SP would be 4-6X higher if predicted margins and 1M in 2020 projection were accepted.
• The SP is lower than it was before the Model 3 was revealed (about $230) with preorders beyond almost everyone's wildest expectations.
• Virtually every press article on the Model 3 and post on TMC that discusses the Model 3 ramp suggests Tesla will not deliver on time, in the volumes projected or with the profits projected.
• The latest versions of Goldman's model I have seen projected a SP of $1800 by 2025 for their most optimistic projections, which use projected sales of 3.3 million vehicles in 2025 and roughly 16% margins. If you project 1M vehicles in 2020 and 50% growth through 2025 that results in sales of 7.6M vehicles, which would more than double the SP projection to over $4000. This is with zero contribution from TE, ridesharing etc. I explain in more detail in post 3767 in the LT thread: Long-Term Fundamentals of Tesla Motors (TSLA)
  • Increasing GM from 16%-25% in the Goldman model would result in another doubling to over $8000 per share. Again, this assumes zero value for TE, ridesharing, etc.

To look at it another way, people who actually credit Tesla with a good chance of meeting its automotive and other targets, like Ron Baron, project that the company will be worth 20-30X the current valuation. That is not priced into the stock, obviously.

Wow! This is a super cool post, one that I will read over and over again
Thx!

 

[TrendTrader007]

Shorts are about to get their just desserts

 

[BobSk]

Canadian carbon tax and Saudi policy change are big deals.

 

[FredTMC]

Canadian carbon tax and Saudi policy change are big deals.

Wow. Wasn't following the Saudi news that closely. Looks like they may be finally crying "uncle" with the glut they created.

And Iran back in the world oil market...

 

[esk8mw]

I think, and it's something what a lot of people on this board are missing, is that the good news is already priced in. Tesla simply already trades at a level that assumes it will grow at least 50% for the foreseeable future. When a valuation bear like @myusername challenges the price level of Tesla by pointing out other car makers, he's not even taken seriously. "GM/BMW isn't a growth company like Tesla", such is the entrenchment of the idea that Tesla will grow in the market. Well then, if everyone knows Tesla will grow, then that truth is priced in the market. And when Tesla does actually grow, there is no reason for the price to move up or down by a lot.

I must say, that I am strictly speaking about Tesla Automotive in the above. I don't think the same growth expectation is already baked in for Tesla Energy. Should Tesla come out this or next quarter with out of the world nice numbers on that part of the business, then I think there is a possible repeat of 2013 in the cars with the stock price moving up very significantly. That said, I am a bear on Tesla Energy, so I don't believe in it as much as some here (both on the size and on the margins of the business). At least the last few weeks Tesla Energy partners have been able to announce some good utility scale project wins so maybe I must reconsider if they can keep that up.

This is rather obviously incorrect. You really think a valuation of $30 billion implies 50% growth "for the foreseeable future" in an auto company? Hell, just 10 years of 50% growth would put them at over 4 million deliveries/year. 4 million deliveries a year, with Tesla's lead on EVs, would basically dominate market share. Putting aside TE, you think a $30 billion valuation prices this in? I don't even know what to say.