Tesla, TSLA & the Investment World: the Perpetual Investors' Roundtable

[StealthP3D]

Actually, this is where people get it wrong. Elon's income, like every American's income, is taxed when he makes the money. Building a valuable business is different from making money. You can't spend a 'business', you have to sell it before you can realize it's value.

The claim that taking a loan against the unrealized value of your business should be a taxable event, that's an argument one can reasonably make. If that should be a taxable event, the failing is with American legislators, not Elon Musk, he doesn't make the tax code and his borrowing against his shares has more to do with a reluctance to give up the likely gains rather than any tax avoidance strategy.

This price action is puzzling as Tesla's future has never ever looked this good.
A backlog of many, many months (with some trims over one year out), price increases, two new factories, increasing battery supply, Semi & Cybertruck prototypes, etc. etc.
Record profits for 2022 are guaranteed. And this during a time when all other car makers are struggling.

In Q2, despite having sales much less than Ford and GM, Tesla showed it's operating efficiency by delivery Operating Income margin of 11% while Ford delivered 0% and GM 8%.

View attachment 744167

In Q3, not only did Tesla again deliver higher OpInc margins 15% (vs 4% and 6% for Ford and GM, respectively), they delivered more OpInc $$ with $2.0B vs Ford's $1.3B and GM $1.6B.

View attachment 744168

In Q4, I expect Tesla's OpInc margin to increase 17% with Operating Income of $2.8B.

The issue Legacy OEMs face, is that they will need to put new capital to work to establish their EV business meaning additional fixed costs while declining ICE sales will but a strain on the cost of production for these ICE vehicles as output declines potentially leading to stranded assets. I see restructuring charges in the future for Legacy auto.

Excellent post! And I recommend investors avoid thinking that share price should follow the fundamentals on a day-by-day, month by month basis. Yes, eventually the share price will align with the fundamentals but there is a lot more at play here than how much $$ Tesla will make next quarter. That is the perception of all investors rolled into one neat share price number, always fluid, always changing. And, how the supply and demand of the shares plays into this.

Another way to say this is I recommend investors not pay much attention to the fluctuations of the share price because these are relatively small moves we are talking about here. $1200 to $900 is only 25%. Anytime you have company growing this quickly, the value of that company will be somewhat indeterminate at any point in time, and it will not necessarily move in lockstep with the business's fundamentals. It will be a range, not a specific dollar amount. The market tells us what that range is.

Someone might tell you they live on a hill 95 feet above sea level. But the tide will cause sea level to change by up to 19 feet or more each day, depending upon where you live. These fluctuations are insignificant.

 

[The Accountant]

 

[StarFoxisDown!]

Excellent post! And I recommend investors avoid thinking that share price should follow the fundamentals on a day-by-day, month by month basis. Yes, eventually the share price will align with the fundamentals but there is a lot more at play here than how much $$ Tesla will make next quarter. That is the perception of all investors rolled into one neat share price number, always fluid, always changing. And, how the supply and demand of the shares plays into this.

Another way to say this is I recommend investors not pay much attention to the fluctuations of the share price because these are relatively small moves we are talking about here. $1200 to $900 is only 25%. Anytime you have company growing this quickly, the value of that company will be somewhat indeterminate at any point in time, and it will not necessarily move in lockstep with the business's fundamentals. It will be a range, not a specific dollar amount. The market tells us what that range is.

Someone might tell you they live on a hill 95 feet above sea level. But the tide will cause sea level to change by up to 19 feet or more each day, depending upon where you live. These fluctuations are insignificant.

For the next two 2-3 years, I still see there being volatility within a quarter of say 10-20% moves.......but I think the low's/high's progressively move up 15-20% every quarter. As in, if the low during Q1 2022 is say 1,150, the low for Q2 2022 will be around 1300, and the low for Q3 2023 will be 1500, and so on.

We're now at a point where earnings are going to backstop any lower lows quarter over quarter.

 

[henchman24]

View attachment 744205

Even at what the market has priced the last ~9 months (110x-125x) that is 1380-1570. Soon we will start having to use 23 as the year out EPS multiple. That usually switched after Q4 numbers through the end of Feb. My pure guess is the market starts at 100-110x consensus 23 EPS in Feb/March and they will start at ~12.50-13.25.

 

[tivoboy]

Record profits for 2022 are guaranteed. And this during a time when all other car makers are struggling.

To be fair, many of the OEM have been reporting record profits this year and will continue to in the coming quarters.. overall units sold is not going to be records since many high volume OEM had to cut ~100-250K from their production targets. But profit wise, at the manufacturer and of course the dealer networks have been strongly in the black and even with reduction in volumes, reported very strong years. So, I wouldn’t paint them all with the struggling brush.

 

[henchman24]

Well, it looks like today is the day we test that infamous TA-myth.
So far, it is not looking good: TSLA opened ($945) inside the gap ($910-950) and touched down to a low ($930) of roughly the middle of the gap, then rose above the top.
It was mentioned yesterday on this thread, that the top of a gap can act as support until its broken, but when its broken it would fill all the way.
It has clearly been broken, but only filled half-way. If we close above the gap today without filling it, then the myth is busted.

Not completely filling and closing above would be a bullish sign.

 

[StealthP3D]

And to be fair to any individual Senator, they are 1 out of 100 people working within a horrible political system.

Any senator blaming Elon Musk for following the tax code is part of the problem, not the solution. I'm not sure why you would absolve a senator for placing the blame in the wrong place (Elon Musk) when they are part of the system that is broken, not Elon.

Although, with Tesla shares, there's something of an irony. Tesla doesn't pay dividends, and Musk said they have no plans to issue dividends, which means that the shares currently have no inherent value.

And that would be wrong, and it's based on the inability of many humans to see beyond their own little bubble. Having no actual plan to pay a dividend is not the same thing as never paying a dividend.

 

[Nocturnal]

I hope the decision to build a factory in Germany works out, but so far it's not been great. They really want to push their country into 2nd tier economic status. Of course the nearby coal mine uses far more water but that's ok.

For the next two 2-3 years, I still see there being volatility within a quarter of say 10-20% moves.......but I think the low's/high's progressively move up 15-20% every quarter. As in, if the low during Q1 2022 is say 1,150, the low for Q2 2022 will be around 1300, and the low for Q3 2023 will be 1500, and so on.

We're now at a point where earnings are going to backstop any lower lows quarter over quarter.

Well hopefully once we get added to the S&P500 that volatility will decrease.

 

[MP3Mike]

Thanks for the clarity on how the step up basis works. Are we sure that is exactly how it is handled. As for double tax I have no problem with the tax paid being a non refundable credit when the loan is repaid.

Yes, that is how it works. Why non-refundable? So if the asset carters and becomes worthless you are OK with the double tax? (Tax on withdrawal, tax on the money used to repay the loan.) You realize that would mean that you should start collecting tax on other loans as well right? Tax on your new mortgage. Tax on your new car purchase loan, etc... It's just silly.

 

[traxila]

View attachment 744205

Let’s take a moment to be contrarian.

What is the situation at the end of 2022 that allows TSLA to be awarded a 150 or even 100 PE as opposed to what some here may view as a pedestrian 50 PE. Many would argue that this is still a generous valuation given the laws of large numbers that TSLA is rapidly achieving. And it is hard to argue that interest rates will not be higher than they are now.

If we were to go with Peter Lynch’s definition for PEG a fair PE for TSLA’s advertised 50% growth rate would be 50.

What can we throw in there that blows the PE up to a justifiable 150X 12 months from now? Will TE start hitting sustained 100% growth rates? Will FSD finally become a reality? Will Avis issue a press release?

What say you?

 

[Artful Dodger]

When he agreed to the plan, full discretion was given to the broker.

I'm starting to suspect that this broker is leaking Elon's daily sales plan to hedge funds. We've seen multiple sales days now where there was a large drop in the pre-market on zero news (literally 12-hrs before the SEC Form 4 was released).

Take for example yesterday, Mon Dec 13, 2021. There was a huge bear raid in the pre-market from about 9 a.m. causing the SP to Open at a $20 discount, followed by heavy short selling throughout the day (4x multiple on macros vs the more typical 2x multiple):

It's not the first time either that shortzes have jumped on the pre-Market on days when Elon was selling. But it's illegal for brokers to share private information on selling plans, right? Because they'd get in trouble with the SEC, right?

/S

 

[StarFoxisDown!]

Let’s take a moment to be contrarian.

What is the situation at the end of 2022 that allows TSLA to be awarded a 150 or even 100 PE as opposed to what some here may view as a pedestrian 50 PE. Many would argue that this is still a generous valuation given the laws of large numbers that TSLA is rapidly achieving. And it is hard to argue that interest rates will not be higher than they are now.

If we were to go with Peter Lynch’s definition for PEG a fair PE for TSLA’s advertised 50% growth rate would be 50.

What can we throw in there that blows the PE up to a justifiable 150X 12 months from now? Will TE start hitting sustained 100% growth rates? Will FSD finally become a reality? Will Avis issue a press release?

What say you?

You're kinda confusing revenue growth with earnings growth here.

Revenue growth could only be 50% but on that 50% revenue growth, earnings grow 150%. That's why it would get a P/E of 150. Based on how Tesla has been growing earnings/profits for every dollar of revenue growth, that may be conservative.

 

[thx1139]

Yes, that is how it works. Why non-refundable? So if the asset carters and becomes worthless you are OK with the double tax? (Tax on withdrawal, tax on the money used to repay the loan.) You realize that would mean that you should start collecting tax on other loans as well right? Tax on your new mortgage. Tax on your new car purchase loan, etc... It's just silly.

Again I said at a certain level of wealth. Many of the billionaires have been very public with the dont take any income and live entire life on very low interest loans with stock wealth as collateral. Easy to say an actual mortgage isnt subject to this, easy to say car loan isnt subject to this. I say non-fundable as to avoid games being played when they choose to pay off loan(s).

 

[TheTalkingMule]

If we were to go with Peter Lynch’s definition for PEG a fair PE for TSLA’s advertised 50% growth rate would be 50.

By the end of 2022, today's share price would likely result in a PE lower than either of the previous two years of growth or guidance for the one ahead.

$944/$12.56 = 75.16

 

[StarFoxisDown!]

I'm starting to suspect that this broker is leaking Elon's daily sales plan to hedge funds. We've seen multiple sales days now where there was a large drop in the pre-market on zero news (literally 12-hrs before the SEC Form 4 was released).

Take for example yesterday, Mon Dec 13, 2021. There was a huge bear raid in the pre-market from about 9 a.m. causing the SP to Open at a $20 discount, followed by heavy short selling throughout the day (4x multiple on macros vs the more typical 2x multiple):

View attachment 744210

It's not the first time either that shortzes have jumped on the pre-Market on days when Elon was selling. But it's illegal for brokers to share private information on selling plans, right? Because they'd get in trouble with the SEC, right?

/S

Pretty much exactly what I think is going on. There's been zero element of surprise.....they know exactly when to front run.

 

[StealthP3D]

Please could one of you experienced folk explain to my simple logical brain why is there always an obsession with gap-filling?
It really feels like an OCD thing more than anything!

Seriously, why is it That important to make sure every dollar is covered by a stock at some point during a trading day. Why does it matter if the stock gaps up or down, really?
This has been really bugging me!

Thanks!

I'll make it really simple:

Stocks go up and down, it's called 'volatility'. More volatile stocks go up and down more than less volatile stocks. The nature of these 'gaps' is that they tend to be filled over time by the volatility. It's just a function of how volatile each stock is and how large the gap.

Over time traders started noticing these gaps almost always get filled. One exception is when sudden and important news comes out the stock might have such a large gap it never gets filled by the natural volatility. But, other than that, the gaps tend to get filled in, not always, but the odds are good. Traders, being a superstitious lot, ascribed meaning to this and may mistakenly believe the share price has a natural 'pull' towards these gaps when in actuality, the volatility of a stock, the speed at which it's growing and the size of the gap will define the odds whether that gap gets filled or not.

That's the simple version. You can make it more complicated by considering that the sum of all traders belief that a gap will be filled could become a self-reinforcing mechanism.

All you really need to know is that gaps do tend to be filled but there is no rule that says gaps must be filled.

 

[Mengy]

Even at what the market has priced the last ~9 months (110x-125x) that is 1380-1570. Soon we will start having to use 23 as the year out EPS multiple. That usually switched after Q4 numbers through the end of Feb. My pure guess is the market starts at 100-110x consensus 23 EPS in Feb/March and they will start at ~12.50-13.25.

Exactly. When you do the long term financial math and take Tesla's growth and near term trajectory into account, the roadmap for the share price going up becomes pretty clear. This $940 will look utterly silly by this time next year, some devastating act of God notwithstanding.

 

[traxila]

You're kinda confusing revenue growth with earnings growth here.

Revenue growth could only be 50% but on that 50% revenue growth, earnings grow 150%. That's why it would get a P/E of 150. Based on how Tesla has been growing earings/profits for every dollar of revenue growth, that may be conservative.

You are correct.

This can be hard to argue with past saying that OMs will come down. I see them increasing as Berlin and Austin finally ramp. Not to mention all them pressy things y’all are talking about all the time.

 

[StarFoxisDown!]

I'll make it really simple:

Stocks go up and down, it's called 'volatility'. More volatile stocks go up and down more than less volatile stocks. The nature of these 'gaps' is that they tend to be filled over time by the volatility. It's just a function of how volatile each stock is and how large the gap.

Over time traders started noticing these gaps almost always get filled. One exception is when sudden and important news comes out the stock might have such a large gap it never gets filled by the natural volatility. But, other than that, the gaps tend to get filled in, not always, but the odds are good. Traders, being a superstitious lot, ascribed meaning to this and may mistakenly believe the share price has a natural 'pull' towards these gaps when in actuality, the volatility of a stock, the speed at which it's growing and the size of the gap will define the odds whether that gap gets filled or not.

That's the simple version. You can make it more complicated by considering that the sum of all traders belief that a gap will be filled could become a self-reinforcing mechanism.

All you really need to know is that gaps do tend to be filled but there is no rule that says gaps must be filled.

Exactly......what Wall St really is......is just them reinforcing their own beliefs. They've done it so much now that they know they can trade off of it.

 

[traxila]

By the end of 2022, today's share price would likely result in a PE lower than either of the previous two years of growth or guidance for the one ahead.

$944/$12.56 = 75.16

Looking backwards can cost ya.

Of course TSLA PE will come down as potential is realized and growth slows. But when does that happen?