Tesla beyond 1000

[haid]

Even with flawless execution over the next 7 or 8 years, I think it is unlikely that Tesla can achieve more than 500 to 700 under its current plan.

Lets run a thought experiment where everything goes as we hope. They produce and sell the Model X and S at 50K to 80K per year. They produce the Model E at 500K per year. Maybe they produce a new Roadster. I'm no maven at the technicals, but my sense is that as Tesla starts to go mainstream, the valuation multiplier drops back from awesome growth stock toward great company stock. Under even this rosy scenario, Tesla's revenue may continue up, but I tend to think the stock price will likely taper or stall.

I left AAPL at about 305 and switched my investment to TSLA because I believed Apple's ability to double (yet again) was weak. Break-neck growth is just hard to sustain.

In order for the stock to move to 1000 or beyond, Tesla would have to flawlessly execute AND do something else (IMHO). What could that be?

Share your thoughts. Here is my daydream/speculation based on a EM comment in an interview released yesterday.

As the premiere consumer of batteries, Tesla gets to see the latest developments by startups/researchers. Elon has said that all existing battery production could, at best, support a few hundred vehicles per year. Tesla should take advantage of recent share prices and raise funds to set up a factory to mass produce a better battery cell.

Supporting arguments
1) Tesla has to encourage battery production anyway, to meet existing objectives
2) Tesla would lock up supply of the most critical component of its products (like what Apple has done for flash ram)
3) Tesla would gain some control over cell pricing.
4) Buying large quantities from another company is leaving money on the table.
5) This would become a barrier to entry of competitors, unless they buy from Tesla.
6) Currently all Tesla innovation has to be shared with Panasonic (or Samsung), which would likely end up in competitors products.
7) This looks like a technical challenge. And Elon and Tesla have some chops in that area.

Arguments against
1) Tesla might invest in the wrong tech
2) Tesla can't pit one supplier against another. SolarCity suggests EM is happy to take advantage of component suppliers who undercut each other. (Although there is little competition for supply now, as demand is so high)
3) It might become a distraction (how many balls can EM keep in the air?)

 

[DaveT]

Hi Haid, I'll address just the first part of your post, specifically TSLA above 1000. If Gen III demand is off the charts (which I expect) and if Tesla is super aggressive with planning right now, then it could be possible within 8 years we could see a China factory and a Europe factory both producing Gen III cars, in addition to the Fremont factory. Also, within 8 years Tesla could release their truck and open another factory in the U.S. Of course, in order to accomplish this in 8 years they would need to solve their battery challenge (that's the second part of your question which I'll leave for others to chime in on).

But if Tesla can overcome battery supply issues and set up China/Europe factories it might be possible they could be producing 1 million cars in 2021 (100k Model S/X, 400 Gen III in Fremont, 300 Gen III in China, 200k Gen III in Europe... more if they open up a truck factory in the U.S.). If they can pull that off TSLA stock will likely be well north of $1000/share in 2021 IMO since the stock price would reflect the massive growth trajectory they're on at that point (ie., trajectory to a few to several million cars by 2030).

I'm not counting on 1 million cars in 2021 for my personal price targets/expectations (I'm more conservative) but I think it's a scenario worth considering.

 

[Convert2013]

The biggest thing I am worried about on Tesla's long term prospects is if Elon sells the company or not after Gen 3. CNBC's interview with him this week specifically asked that question, and from what he said and his body language it seems to me he will do so. He really wants to use the funds for SpaceX so he can go to Mars, I think. Without ELon at the helm, growth prospects may run into trouble.

 

[StapleGun]

The biggest thing I am worried about on Tesla's long term prospects is if Elon sells the company or not after Gen 3. CNBC's interview with him this week specifically asked that question, and from what he said and his body language it seems to me he will do so.

Do you happen to have a link to that clip? I recall the exact same type of response about the same question from the Bloomberg interview a few months ago.

 

[Convert2013]

Here's the video Staple

Tesla millionaires? - CNBC

 

[sundaymorning]

If Tesla sells anything remotely close to 40k Model S next year I would advise Elon to build that battery manufacture he was talking about during the CNBC interview ASAP. GEN 3 will be bigger than anyone ever dreamed of. We will witness the entire world giving TESLA free advertisements as they will salivate for the safest/best car America has produced, all for just a mere $35K in change.

 

[uselesslogin]

The biggest thing I am worried about on Tesla's long term prospects is if Elon sells the company or not after Gen 3. CNBC's interview with him this week specifically asked that question, and from what he said and his body language it seems to me he will do so. He really wants to use the funds for SpaceX so he can go to Mars, I think. Without ELon at the helm, growth prospects may run into trouble.

OK, though what do you mean about Elon selling the company? It looks fairly clear that he is stepping down once Tesla is a high volume producer from that video. But Bill Gates still owns 40% of Microsoft and he hasn't been involved in years. Also, SpaceX is making plenty of money to fund itself and if they succeed with rapidly reusable rockets there will be huge profits for them. Plus if Tesla is successful they will probably be a little too big for anyone to realistically buy. They already have a high market cap.

 

[ItsNotAboutTheMoney]

You are also ignoring the potential to be a drivetrain supplier. If Tesla wins it will be because they have a drivetrain and charging system with which others cannot compete. I feel that with a successful Gen 3 Tesla will use its manufacturing capacity at Fremont and then take a look at the market. If there's manufacturer interest Tesla could stay in the luxury segment and then have the mass market manufacturers license and build around Tesla tech. The other path would be to try to keep pushing down on the price and then expand themselves.

I think that the talk about perfect execution is nonsense. They just have to be ahead of the competition in key technology.

I think that part of Tesla's share success is that Elon Musk has very clearly stated aims and target gross margin. So, as it grows (negative to oositive ex-ZEV last quarter) you get to put it in context and the positive vibe continues. If they get over 25% with the Model S they can then basically do what they want with the money without inducing any panic in the market because it'll be "spare".

 

[Robert.Boston]

As the premiere consumer of batteries, Tesla gets to see the latest developments by startups/researchers. Elon has said that all existing battery production could, at best, support a few hundred vehicles per year. Tesla should take advantage of recent share prices and raise funds to set up a factory to mass produce a better battery cell.

Supporting arguments
1) Tesla has to encourage battery production anyway, to meet existing objectives
2) Tesla would lock up supply of the most critical component of its products (like what Apple has done for flash ram)
3) Tesla would gain some control over cell pricing.
4) Buying large quantities from another company is leaving money on the table.
5) This would become a barrier to entry of competitors, unless they buy from Tesla.
6) Currently all Tesla innovation has to be shared with Panasonic (or Samsung), which would likely end up in competitors products.
7) This looks like a technical challenge. And Elon and Tesla have some chops in that area.

Arguments against
1) Tesla might invest in the wrong tech
2) Tesla can't pit one supplier against another. SolarCity suggests EM is happy to take advantage of component suppliers who undercut each other. (Although there is little competition for supply now, as demand is so high)
3) It might become a distraction (how many balls can EM keep in the air?)

I think the arguments against are much stronger than the arguments for this strategy. Why?

• Cells are a low-margin business and would dilute Tesla's gross margin even if successful
• Too much tech uncertainty. Tesla has succeeded by using the end-result of a long and expensive commercial development program, funded by others, and building a great product that uses it.
• Tesla has no comparative advantage in producing cells. It should focus on segments that leverage its core IP.

Tesla has a trivial market share of the world car market, and an even smaller share of the world's transportation market -- there's no shortage of things it can do with its capital, talent, and expertise right in that industry.

 

[borat99]

I believe that giga battery cell production factory needs to happen for $TSLA to even achieve the $500-700 range.

 

[anticitizen13.7]

The biggest thing I am worried about on Tesla's long term prospects is if Elon sells the company or not after Gen 3. CNBC's interview with him this week specifically asked that question, and from what he said and his body language it seems to me he will do so. He really wants to use the funds for SpaceX so he can go to Mars, I think. Without ELon at the helm, growth prospects may run into trouble.

Model E (Generation 3) is supposed to launch around 2017, and I can't see Elon leaving Tesla management before the Model E is firmly established in the automotive marketplace. I don't think we have to worry about this until sometime after 2018.

 

[Convert2013]

Model E (Generation 3) is supposed to launch around 2017, and I can't see Elon leaving Tesla management before the Model E is firmly established in the automotive marketplace. I don't think we have to worry about this until sometime after 2018.

I think under Elon a market cap of 50 to 60 billion is achievable after Model E is launched. However if he sells Tesla after that, march towards mega-cap status ($100 Billion +) for Tesla may stall if leadership is not strong. That is my concern.

 

[vfx]

Model E (Generation 3) is supposed to launch around 2017, and I can't see Elon leaving Tesla management before the Model E is firmly established in the automotive marketplace. I don't think we have to worry about this until sometime after 2018.

Anyone think that Elon will stand aside when they build the Mclaren killer?

 

[Krugerrand]

Anyone think that Elon will stand aside when they build the Mclaren killer?

Stand aside doesn't have to mean 'gone'. I suspect he won't just up and rebox his desk one day, but rather gradually pass the controls over to someone he hand picks and that he'll at least still show up like he does for Solar City. I also think he'll maintain enough control that should he see things going in the wrong direction he'll do some firing and rearranging and may even take back the controls for a period of time. I don't see him simply 'abandoning' Tesla...until, of course, he's on his way to Mars. There's a possibility that one or more of his sons become heavily involved as well.

 

[uselesslogin]

I think under Elon a market cap of 50 to 60 billion is achievable after Model E is launched. However if he sells Tesla after that, march towards mega-cap status ($100 Billion +) for Tesla may stall if leadership is not strong. That is my concern.

I didn't really get any indication he would sell. I mean SpaceX makes money and if they get rapidly reusable rockets working they will make more money than Tesla can dream of or at least enough to fund his goals there without dipping into his Tesla stock. For that matter he can borrow more money with Tesla stock as collateral if he needed to. Bill Gates still owns 40% of Microsoft and he hasn't been involved in years.

 

[sleepyhead]

• Cells are a low-margin business and would dilute Tesla's gross margin even if successful

I have heard this argument from someone on here before and it couldn't be further from the truth. Battery cells are a Cost of Goods Sold (COGS) item and producing your own will potentially decrease your COGS, in return enhancing gross margin and not diluting it as you claim.

If Tesla made batteries and then sold them, then yes it could lower gross margin. But they will be producing them for their own purposes. So if they can make the cells for $100/kWh instead of buying them for $120/kWh, this will increase their gross margin.

 

[fjm9898]

The problem with producing their own as we have said many times before, you run the danger of falling behind in battery tech.
I still think the best idea would to join in some sort of agreement with a major producer, Panasonic, who ever where they build a factory, if alot of tesla money, that makes cells for them and as that company does the R&D to improve their cells you get the new cells too.
So in a sense you pay Panasonic alot to make a Tesla Specific factory. I think this is the best idea, that way to can get cells cheap but then let Panasonic (or whoever) spend the R&D cash to make better cells.

 

[haid]

I have heard this argument from someone on here before and it couldn't be further from the truth. Battery cells are a Cost of Goods Sold (COGS) item and producing your own will potentially decrease your COGS, in return enhancing gross margin and not diluting it as you claim.

If Tesla made batteries and then sold them, then yes it could lower gross margin. But they will be producing them for their own purposes. So if they can make the cells for $100/kWh instead of buying them for $120/kWh, this will increase their gross margin.

Good point. Similarly, Apple isn't designing its own chips to make money on chips. It has more to do with doubling down on its primary product than making money on a new line of business.

 

[EVNow]

Good point. Similarly, Apple isn't designing its own chips to make money on chips. It has more to do with doubling down on its primary product than making money on a new line of business.

The problem is - Tesla isn't generating any money from operations - and thus has no funds to invest in manufacturing cells. May be down the line - when they are selling Gen 3 and making significant profits, they can.

 

[wayno]

In getting back to the original poster's question of what will potentially be Tesla's next big thing to propel it beyond the existing business case fo selling cars, I can think of a couple of different ideas to keep Tesla going to the next big thing. The firt idea I have is that I think it's going to be in terms of what to do with all of this excess battery capacity in the future. I do completely agree with Sleepyhead above though about building their own battery factory as increasing margins and decreasing COGS, but I'm talking about all of the batteries in 6-8-10 years from now as people trade in their Model S or X and Tesla upgrades the battery to the latest tech to sell it on the used market as their CPO S or X Sales. I think they are going to have potential for a huge supply of slightly used 50-70kwh remaining capacity battery packs in suprlus looking for applications.

I think the market could be huge to use these as local power storage units, residential or otherwise, especially combined with Solar City. THere would really be no reason at all for someone to need a home backup power generator if you've got some solar panels and a couple of monster batteries ready for it. I see this capability being huge for someone like SOlar City whose business model seems built on energy arbitrage to/from the power company. Once the power company changes the regulations to charge more for maintaining the lines and less for the generation of power, then the need for home power stoarge will be critical. And there's Tesla with this huge market for batteries more than qualified to do the trick that have essentially already been paid for and now able to be sold again.

The second growth vector I see along similar lines is the peaker power demand model for the larger supercharger sites. Being able to have enough power and capacity for grid storage to help the power companies reduce the need to maintian the peaker power plants currently maintained for that very small level of demand when the power needs are highest, could ultimately prove to be a potentially large income source in my mind for Tesla.

The next thing I see which hasn't been mentioned in a while is the SC network itself. I think licensing that technology to another major automanufacturer once it is compeletely rolled out and operational has potential again to be as much of a moneymaker as their primary business of making and selling cars.

I think the market potential in all three of these ancillary growth vectors are enough to keep me extremely bullish on Tesla's prospects as a company. I'm not a Teslanair just yet, but by maintaining my long term bullish stance through their announced plans for making and selling the greatest cars in the world, and my optimistic belief in the above, I hope to be joining that club sooner rather than later. I've been very bullish and a stockholder since 2011.

Thanks,
Wayne