Short-Term TSLA Price Movements - 2016

[myusername]

Thanks for explaining your approach and thinking. There is one aspect of Tesla's prospects that I have never had adequately debunked by anyone who is long term bearish view on the stock. It is the intersection of demand, growth rate and valuation.

1) Demand - 373,000 deposits received for a $35K+ product based on one 30 minute webcast is unprecedented. To me it shows the depth of demand for the right product from a company that has created a very positive brand image. It is the equivalent of the lines outside the Apple stores when a new iPhone is released but at a 50x price point. Most CEO's would kill for that kind of latent demand.

2) Growth rate - Tesla has about $8B in revenue in 2016 including Solar City. At the point where it is delivering 500K cars in a year it will have at least $27B in automotive revenue plus Tesla Energy and Tesla Solar. So $30B+. Depending on whether you think that year is 2019 or 2020 the CAGR is 55% or 40%. On $8B. That even exceeds the growth rate of the FANGs at an equivalent size, which is truly rarefied company.

3) Valuation - If Tesla exceeds the growth rates of the FANGs and delivers $30B in revenue in 2019 or 2020, how should it be valued? It is likely to have lower margins than FNG, but equal or higher margins compared to AMZN. Do you value it on P/E or P/S? Certainly the market won't value it the same as BMW that is growing 9%/year. The market gives outsized valuations to companies that are growing exceptionally fast because the market is always projecting forward earnings. Can you justify why Tesla in this scenario would have a P/E or P/S less than Amazon's (179 and 3.5 respectively), other than you can't fathom that Tesla could command a $100B+ market cap in 3-4 years?

Based on what you said earlier my guess is you believe there is too much risk to bet on Tesla achieving this growth rate. I can identify 5 categories:

1) Demand - addressed above
2) Competitive - another long topic, but unless you consider the Bolt a threat the earliest we will see a potentially credible competitor is in 2018 with the Audi Q6, followed by Mercedes in 2019 and BMW in 2021. Plus there is the long distance charging infrastructure issue for all of them
3) Availability of capital - definitely a risk, hasn't been an issue in the past and it appears that Wheeler/Musk are de-risking here with more prudent management of capital and OCF growing now that they are at a 100K annual delivery rate.
4) Execution - This is the big one. We will know in 12 months.
5) Elon factor - Hard one to quantify. Will he get defocused again? Do another acquisition from left field? Thumb his nose at Wall Street?

I guess the bottom line is are the risks so great that you have to apply a huge discount factor to what Tesla could potentially achieve in revenue and valuation in 3-4 years? Otherwise, do you agree that if Tesla does reach $30B in revenue in 2019 or 2020 that it deserves a $100B valuation at that time? If not, why not?

I think my opinion differs from many of based on this: "If Tesla exceeds the growth rates of the FANGs and delivers $30B in revenue in 2019 or 2020, how should it be valued?"

i do not believe that if Tesla finally achieves it's short/medium term growth objectives, that it will be valued like the FANGs... it is simply not remotely in the same business category as these... and I believe it has been mistakingly categorized as such... that's just my opinion... I think I've stated my reasons in detail in the past on this... the summary is... I believe Tesla should be valued relative to BMW's current state until something interesting happens with TE... and TE is also a different business category than FANGs.

so my answer is no... I don't see a justification of a $100b market cap for Tesla putting it in the top valued auto companies in the world with revenues at $30b while Toyota sees revenues of $250b... to me that just doesn't make sense... but for those that anticipate Tesla taking out Toyota... i guess it does... but that's what I consider wishful thinking at Tesla's current stage in growth.

 

[racer26]

I think my opinion differs from many of based on this: "If Tesla exceeds the growth rates of the FANGs and delivers $30B in revenue in 2019 or 2020, how should it be valued?"

i do not believe that if Tesla finally achieves it's short/medium term growth objectives, that it will be valued like the FANGs... it is simply not remotely in the same business category as these... and I believe it has been mistakingly categorized as such... that's just my opinion... I think I've stated my reasons in detail in the past on this... the summary is... I believe Tesla should be valued relative to BMW's current state until something interesting happens with TE... and TE is also a different business category than FANGs.

so my answer is no... I don't see a justification of a $100b market cap for Tesla putting it in the top valued auto companies in the world with revenues at $30b while Toyota sees revenues of $250b... to me that just doesn't make sense... but for those that anticipate Tesla taking out Toyota... i guess it does... but that's what I consider wishful thinking at Tesla's current stage in growth.

Do you not see the multiple reports of TE steak coming in from around the world with absolutely zero fanfare from Tesla about it? How many more installations haven't we heard about?4Q16 is when TE starts contributing meaningful numbers to the bottom line, and 1Q17 is when it's ramp goes vertical.

I actually feel like once again, Elon is playing chess 10 moves ahead of everyone else, and the "pie" last quarter was nothing more than a set up. He knew the SCTY merger would go off, that TE deliveries would be starting, that MX demand is off the hook, that solar roof demand would be huge, and that the factory was primed for a blowout in the 4th.

All that discounting and showboating about making sales for the end of 3Q was a diversion from the setup happening 3 months down the road. Elon has every intention of delivering a massive 2017, starting with a bang at the 4Q16 ER.

 

[dennis]

I think my opinion differs from many of based on this: "If Tesla exceeds the growth rates of the FANGs and delivers $30B in revenue in 2019 or 2020, how should it be valued?"

i do not believe that if Tesla finally achieves it's short/medium term growth objectives, that it will be valued like the FANGs... it is simply not remotely in the same business category as these... and I believe it has been mistakingly categorized as such... that's just my opinion... I think I've stated my reasons in detail in the past on this... the summary is... I believe Tesla should be valued relative to BMW's current state until something interesting happens with TE... and TE is also a different business category than FANGs.

so my answer is no... I don't see a justification of a $100b market cap for Tesla putting it in the top valued auto companies in the world with revenues at $30b while Toyota sees revenues of $250b... to me that just doesn't make sense... but for those that anticipate Tesla taking out Toyota... i guess it does... but that's what I consider wishful thinking at Tesla's current stage in growth.

Okay, so now I understand the disconnect. Let's look at Amazon, the new-age retail leader, and compare it to Walmart, the current retail king:

Stock Rev CAGR P/S P/E
WMT $440B 2.7% 0.5 15.6
AMZN $110B 25.6% 2.9 176.5

So although Amazon is 1/4 the size of Walmart it is valued 6x-10x higher on P/S and P/E metrics because it is growing 6x faster and is the future of retailing

Now let's look at the same metrics for Tesla, the new-age car company (in 2019), and compare it to Toyota, the current automotive kingpin:

Stock Rev CAGR P/S P/E
TM $250B 8.4% 0.8 11.0
TSLA $30B 55% 1.0 ??

According to you, Tesla should be valued in 2019 at 1 times sales, about the same as Toyota, even though it is growing 7x faster than Toyota and is the future of automobiles. That is the crux of the disconnect. You don't ascribe any value to growth and disruption in the automobile space, while the market has historically given tremendous value to both. Witness Amazon (and Netflix, remember Blockbuster?). My bet is that the market will place that same kind of superior valuation on Tesla if it grows at 40%-55% over the next 3-4 years, regardless of what happens with Tesla Energy.

Finally, can you name me another industry segment where the market doesn't assign a superior valuation for superior growth? I can't think of one. Or do you think there is something unique about the automotive space that makes it immune to this type of differentiation between slow growth and fast growth companies?

 

[Alketi]

I see four risks for Tesla shareholders:

1. Execution
2. Profitability of Model 3
3. Cash balance
4. Valuation like it's a regular company

Execution
Every company needs to execute, however, lets remember that Tesla is betting the company on the Model 3, as they did with the Roadster and the Model S. They have to deliver the Model 3 (relatively) on time and the Gigafactory needs to be functional in advance. But, further, given the dearth of Service Centers, they can't endure any significant reliability / part problems.

Profitability of Model 3
This is the whole company. Tesla can't afford to lose money on the Model 3 the way GM is with the Bolt. This has to be profitable, or at least break even, at $35K. And, it has to generate enough cash to fund continuing operations.

Cash Balance
I'm less concerned with cash burn for M3/Gigafactory and more for the massive wildcard that is Solar City. We'll find out more in the call and I suspect we'll hear of a re-org in January, aimed at reducing costs and overlap.

Valuation
This is my least concern. I think the growth rate and diversity of products will keep it from being valued like a regular car company, but many, including Mr. Wonderful from Shark Tank, cite this as Tesla's #1 downfall.

Of the four, Execution and Profitability of the Model 3 are my biggest concerns.

But, it also has to be noted that Tesla has ZERO competition for the Model 3.

Not now.
Not next year.
Not in 2018.

Everything that's been announced from the majors are high-end compliance vehicles. The earliest competition for Model 3 arrives in the 2019 - 2021 timeframe, assuming Volkswagen chooses to play at the $35K price point and has the battery supply to release it everywhere.

Thus, I believe Tesla will sell every Model 3 they can make.

A sporty, high-tech, self-driving, 200+ mile EV at a $35K base price will pull in the entire A4/3-series/C-Class/Lexus IS market plus up-sell the $25-30K buyers. Considering 373K reservations and the hint that they're possibly ~450K now, all based on a 30-minute webcast and no advertising, I believe the real demand for Model 3, once your co-worker or neighbor owns one, will be 500K-1.5M / year.

Conclusion: LONG

 

[sub]

Tesla the company isn't at risk with model 3 timeline. If they have been late with everything in the past and survived as a much weaker company then they will survive Model 3 being late.

It's amusing to me to read opinions regarding the profitability of Model 3. You either have to believe that you are smarter than Elon/Tesla, or that they are a bunch of liars. I've seen no proof of either, and this is in reference to anyone who questions what has been publicly said by Elon.

You guys can work those calculators until your fingers fall off but the problem is you have zero information to work with and Elon/Tesla has 100%. Give it a rest already.

Simple investment thesis, trust the man or don't, the fantasy number crunching is irrelevant.

 

[erthquake]

I believe the real demand for Model 3, once your co-worker or neighbor owns one, will be 500K-1.5M / year.

And if the Model 3 is a success, I think it bodes very well for the Model Y. The Y will likely be just as easy to build as the 3, but will attract buyers who were hesitant because they wanted more cargo room and a hatchback. Plus, by the time the Y is released, there will be so many Model 3s on the streets that the Y will also appeal to buyers who just want something different. Perhaps the Y will be the higher-margin version of the 3.

I can't but wonder if Tesla should put out a $40k minivan (aka a Pacifica that doesn't suck). Wouldn't they sell like hotcakes?

 

[dennis]

I can't but wonder if Tesla should put out a $40k minivan (aka a Pacifica that doesn't suck). Wouldn't they sell like hotcakes?

With or without falcon wing doors and a folding second row?

 

[Tslynk67]

I see four risks for Tesla shareholders:

Execution
Every company needs to execute, however, lets remember that Tesla is betting the company on the Model 3, as they did with the Roadster and the Model S. They have to deliver the Model 3 (relatively) on time and the Gigafactory needs to be functional in advance. But, further, given the dearth of Service Centers, they can't endure any significant reliability / part problems.

I don't agree that Tesla is betting the company on M3. Certainly it's the master-plan, but the diversification into TE acts as a safety-net, these products alone would keep Tesla running for a long time, IMO. I neither see any lessening of demand for the MS and MX as there are a hell of a lot of high-end Porsche, Merc and BM drivers out there who haven't yet experienced a Tesla - hard to resist once you've actually drive, one.

 

[erthquake]

With or without falcon wing doors and a folding second row?

Definitely w/out FWD. Sliding doors are fine and proven tech. And yes, it should have folding second and third rows that lay flat. Being able to fit 4x8 sheets of plywood or sheetrock would be awesome. Even if it was a modernized electric version of a Toyota Sienna from 10 years ago, that would be more than sufficient. You might have to build it off an S/X sized platform, but they could also use that for the pickup truck. You could pull some serious market share away from Toyota if they're unable to get their act together in time.

 

[Tslynk67]

With or without falcon wing doors and a folding second row?

Also here in Europe there's massive demand for small city cars - BW i3 size - again, Tesla could sell every single car they could produce.

 

[larmor]

I don't agree that Tesla is betting the company on M3. Certainly it's the master-plan, but the diversification into TE acts as a safety-net, these products alone would keep Tesla running for a long time, IMO. I neither see any lessening of demand for the MS and MX as there are a hell of a lot of high-end Porsche, Merc and BM drivers out there who haven't yet experienced a Tesla - hard to resist once you've actually drive, one.

Totally agree here. M3 is purely a volume play and all of this is mitigated by the GF and battery production.

TE is the unknown, and what is unknown is how willing or reticent are utilities, industry, and homeowners to adopt TE. If allowed to sell power beyond the regulation and restriction of the grid system and laws with it, then TE has a huge market.

 

[WarpedOne]

TE market is beyond huge.
It is not about how huge it is, it is about how big a number you are comfortable to write down. It's a Rockefeller situation all over again. In a much more developed world and not limited to America but whole world (and also beyond that - you think they will be burning oil on Mars? Mars will be totally battery based operation)

TE is not a tiny bit limited by market size, it is totally limited by its own capability of growth. How fast can they add additional suppliers of all the things that are needed to produce.

 

[Gtoffo]

Tesla the company isn't at risk with model 3 timeline. If they have been late with everything in the past and survived as a much weaker company then they will survive Model 3 being late.

It's amusing to me to read opinions regarding the profitability of Model 3. You either have to believe that you are smarter than Elon/Tesla, or that they are a bunch of liars. I've seen no proof of either, and this is in reference to anyone who questions what has been publicly said by Elon.

You guys can work those calculators until your fingers fall off but the problem is you have zero information to work with and Elon/Tesla has 100%. Give it a rest already.

Simple investment thesis, trust the man or don't, the fantasy number crunching is irrelevant.

This.

Elon's track record should more than suffice as a long term investment thesis.

However... the short term is another matter.

It's interesting that shorts are "starting to see the stars align". I think the delusion of seeing TSLA under 100$ is melting away even for the staunchest shorts.

This shift in beliefs may be what is driving this trend. The nail in the coffin would be Q4 with deliveries within expectations. No need to beat. Just need to show Q3 wasn't just a cheap trick.

I have not researched any info (I've decided the best way to handle the pressure from my 210$ JAN17 calls is to just stick my head in the sand). But it looks like the market thinks there is a good chance of at least an average Q4 happening.

End of the week will be interesting and might help confirming the unicorn pattern has formed.

 

[Drax7]

Okay, so now I understand the disconnect. Let's look at Amazon, the new-age retail leader, and compare it to Walmart, the current retail king:

Stock Rev CAGR P/S P/E
WMT $440B 2.7% 0.5 15.6
AMZN $110B 25.6% 2.9 176.5

So although Amazon is 1/4 the size of Walmart it is valued 6x-10x higher on P/S and P/E metrics because it is growing 6x faster and is the future of retailing

Now let's look at the same metrics for Tesla, the new-age car company (in 2019), and compare it to Toyota, the current automotive kingpin:

Stock Rev CAGR P/S P/E
TM $250B 8.4% 0.8 11.0
TSLA $30B 55% 1.0 ??

According to you, Tesla should be valued in 2019 at 1 times sales, about the same as Toyota, even though it is growing 7x faster than Toyota and is the future of automobiles. That is the crux of the disconnect. You don't ascribe any value to growth and disruption in the automobile space, while the market has historically given tremendous value to both. Witness Amazon (and Netflix, remember Blockbuster?). My bet is that the market will place that same kind of superior valuation on Tesla if it grows at 40%-55% over the next 3-4 years, regardless of what happens with Tesla Energy.

Finally, can you name me another industry segment where the market doesn't assign a superior valuation for superior growth? I can't think of one. Or do you think there is something unique about the automotive space that makes it immune to this type of differentiation between slow growth and fast growth companies?

Besides growth , Amazon has an unassailable moat. Tesla has the growth, the unassailable
Moat they must cultivate. A broad moat gives them a competitive advantage that
Translates into a huge market cap.

Battery cost, battery management, battery pack, autopilot , safest vehicle rating, supercharging
Infrastructure, dreadnaught manufacturing, etc all keep broadening their moat.

 

[N5329K]

I don't agree that Tesla is betting the company on M3. Certainly it's the master-plan, but the diversification into TE acts as a safety-net, these products alone would keep Tesla running for a long time, IMO. I neither see any lessening of demand for the MS and MX as there are a hell of a lot of high-end Porsche, Merc and BM drivers out there who haven't yet experienced a Tesla - hard to resist once you've actually drive, one.

They're betting everything on Model 3. We're all betting heavily on its success. I don't think there's a big bright future for Tesla as just the manufacturer of niche cars and energy products. The Model 3 is the necessary bridge to transforming transportation, bringing about peak demand in oil, and growing up as a company from startup to market dominance.
They can exist as a niche player, yes. They can sell relatively modest numbers of luxury vehicles to people who might otherwise choose high end German cars. But that's not the Plan. Owning the middle market, with millions of cars sold, is.
Robin

 

[RobStark]

But that's not the Plan. Owning the middle market, with millions of cars sold, is.

That is the plan.

They can also be a massive company selling niche automobiles, Tesla solar, and Tesla battery energy storage. Bigger than GM and Ford combined big.

 

[moe.salih]

 

[madodel]

This it what the trolls see.

 

[vgrinshpun]

About 76K share were borrowed today so far at Fidelity:

View attachment 206981

About 67k shares were borrowed so far at Fidelity. BTW, both yesterday and on Tuesday there were large blocks of shares returned mid morning: 150k on Tuesday, 143k on Wednesday. Looks like some short sellers starting to close their positions.

 

[larmor]

Where did they ever get so many toy and model cars? said the analyst...