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

[The Accountant]

Why would you accept as low as 10% discount rate, when stocks have returned an average of 6.5 percent to 7 percent per year after inflation over the last 200 years. 10% is barely that.

Maybe getting too technical for this thread but I just want to try and clarify this point.

The discount rate used for NPV should be Tesla's Weighted Average Cost of Capital (WACC).
I use 11% in my calculation but I did a quick search just now and I see that Morgan Stanley uses 9% for Tesla while Piper Sandler uses 13%

BTW:
The discount rate used has a huge impact on the NPV.
The lower the discount rate the higher the share price. Changing my NPV calculation from 11% to 9% increases my share price by $500 per share (from $1,865 to $2,385). Increasing the rate to 13% reduces my price down by $385 (to $1,480)

 

[petit_bateau]

At an 11% discount rate, I get a share price of $1,865 at Dec 2022. This is the NPV of Cash Flow 2023 - 2042.
It's important to go out 20 years and then add a terminal value in year 21 ( I use 3 times year 20).
This is a lot of work and I short cut it a bit by doing a detailed 10 year forecast and then growing cash flow in years 11-20 by 10% tapering down to 5% as I get to year 20.

To be clear what I did was to assume zero growth beyond 2030, and to repeat the 2030 EPS until 2056. Essentially sum to infinity but let the discount rate taper off the NPV value towards zero. I think we get to much the same place by different paths. If I plug 11% in my Dec 2022 shareprice value is $741. When we looked at this last year my forecast was more pessimistic than yours which may account for the difference - my 2030 forecast is revenue of $1,278 bn and 17% NM.

Matias said:
Why would you accept as low as 10% discount rate, when stocks have returned an average of 6.5 percent to 7 percent per year after inflation over the last 200 years. 10% is barely that.

There is a lot of work on the declining returns on everything (https://academic.oup.com/qje/article/134/3/1225/5435538), so one can argue against the 7% number. But I won't argue too hard since it is also my own (lazy) simplistic benchmark. I guess it depends which way one phrases the question. If you say "I demand 20% for the risk of holding TSLA" then the answer is you will only be prepared to pay a $310 shareprice at Dec-2022. However what are you prepared to pay for the risk of not holding TSLA ? i.e. one can argue that the bigger risk is to be out of TSLA given that TSLA embeds a lot of what it takes to solve the future. Show me what does pay 20%pa and let us think about how risky those assets are by comparison. By the way the 7% number is $1,133 at Dec-2022 so if one were to be simplistic then that also makes for a valuation trinity of fwds PE = 46 and fwds PEG = 0.6, i.e. undervalued.

 

[petit_bateau]

Maybe getting too technical for this thread but I just want to try and clarify this point.

The discount rate used for NPV should be Tesla's Weighted Average Cost of Capital (WACC).
I use 11% in my calculation but I did a quick search just now and I see that Morgan Stanley uses 9% for Tesla while Piper Sandler uses 13%

BTW:
The discount rate used has a huge impact on the NPV.
The lower the discount rate the higher the share price. Changing my NPV calculation from 11% to 9% increases my share price by $500 per share (from $1,865 to $2,385). Increasing the rate to 13% reduces my price down by $385 (to $1,480)

Using the WACC is something of a circular definition, so I'm not sure I accept that. My view is that the market reveals its blended discount rate in the shareprice the market settles on.

 

[Matias]

To be clear what I did was to assume zero growth beyond 2030, and to repeat the 2030 EPS until 2056. Essentially sum to infinity but let the discount rate taper off the NPV value towards zero. I think we get to much the same place by different paths. If I plug 11% in my Dec 2022 shareprice value is $741. When we looked at this last year my forecast was more pessimistic than yours which may account for the difference - my 2030 forecast is revenue of $1,278 bn and 17% NM.

Matias said:
Why would you accept as low as 10% discount rate, when stocks have returned an average of 6.5 percent to 7 percent per year after inflation over the last 200 years. 10% is barely that.

There is a lot of work on the declining returns on everything (https://academic.oup.com/qje/article/134/3/1225/5435538), so one can argue against the 7% number. But I won't argue too hard since it is also my own (lazy) simplistic benchmark. I guess it depends which way one phrases the question. If you say "I demand 20% for the risk of holding TSLA" then the answer is you will only be prepared to pay a $310 shareprice at Dec-2022. However what are you prepared to pay for the risk of not holding TSLA ? i.e. one can argue that the bigger risk is to be out of TSLA given that TSLA embeds a lot of what it takes to solve the future. Show me what does pay 20%pa and let us think about how risky those assets are by comparison. By the way the 7% number is $1,133 at Dec-2022 so if one were to be simplistic then that also makes for a valuation trinity of fwds PE = 46 and fwds PEG = 0.6, i.e. undervalued.

I think that it is evident that discount rate for a single stock has to be higher than stock markets combined. A single stock has higher risk than stock market combined. BTW, the data (table II) that you linked shows post 1950 real returns for equity to be 8.3 and nominal 12.97.

 

[jkirkwood001]

In what I have seen in my career, ex CEO's rarely take a regional role at a competing company; their ego could not allow for it.
The only roles I could see being acceptable to Deiss at Tesla would be as President (reporting to the CEO/Technoking) or as a Board Member.
Also - Deiss may leave with a severance package that does not allow for him to work for a competitor for 1-2 years.

Obviously I don't know Deiss at all, perhaps he does not have a huge ego . . .but my opinion is that he would not be interested in a Tesla Europe role.

I might have missed it, but has anyone suggested he'd be a good catch for a competitor that hasn't got its EV *sugar* together? Like BMW, or if farther afield, Toyota or Mazda? Toyota is such a blown lead case with the Prius, and is big enough that it would be an equal challenge for Diess. I'm not sure whose culture he fits if he rubs people the wrong way (maybe especially not Japan), but we have seen with Elon that it takes perhaps excessive exec "determination" to get an EV program through its paces and to counter all the industry resistance. All good speculation only if, as you point out @The Accountant , he's not contractually prevented.

 

[Drezil]

Obviously I don't know Deiss at all, perhaps he does not have a huge ego . . .but my opinion is that he would not be interested in a Tesla Europe role.

Small tidbit from Autobild to that: the last time similar happened to a ceo they gave him a new contract some time before and noone has seen him work afterwards - but the contract got fulfilled fully!
Diess contact got extended by one year some months ago. On fulfillment he will be 67 - exactly the retirement age in Germany.
I think they will keep him on paid leave until retirement and he does not need to change to any other company.

It is up to diess if he wants to rodeo again or just chill for the rest of his life

 

[Artful Dodger]

Even if I agree with you, Gary Black is the closest thing we have to see inside Wallstreet analysts way of reasoning. We might not agree with the way Gary Black is expecting catalysts or negative factors but that’s probably how wallstreet sees events too.

Or, perhaps a few of these Wall St. names?

• Canaccord / Jed Dorsheimer
• Citi / Itay Michaeli
• Credit Suisse / Dan Levy
• Deutsche Bank / Emmanuel Rosner
• Global Equities Research / Trip Chowdhry
• MorganStanley / Adam Jonas
• New Street Research / Pierre Ferragu
• Piper Sandler / Alex Potter
• Oppenheimer / Colin Rusch
• RBC / Joseph Spak
• Roth Capital Partners / Craig Irwin
• Truist Securities / William Stein
• UBS / Patrick Hummel
• Wedbush / Dan Ives

Not one these (systemically conflicted) analysts is worth a single Retail Investor like Dave Lee or Rob Maurer, with their purity of purpose and clarity of thought.

And all of these Analysts combined don't match the brain trust we have here on TMC. The big differerce? We call out B.S. while Wall St. creates *sugar*. And tweak the Mods...

Cheers!

 

[traxila]

Or, perhaps these people to name a few?

• Canaccord / Jed Dorsheimer
• Citi | Itay Michaeli
• Credit Suisse / Dan Levy
• Deutsche Bank / Emmanuel Rosner
• Global Equities Research / Trip Chowdhry
• MorganStanley / Adam Jonas
• New Street Research / Pierre Ferragu
• Piper Sandler / Alex Potter
• Oppenheimer / Colin Rusch
• RBC / Joseph Spak
• Roth Capital Partners / Craig Irwin
• Truist Securities / William Stein
• UBS | Patrick Hummel
• Wedbush / Dan Ives

Not one these analysts is worth a single Dave Lee or Rob Maurer (full-time Retail Investors).

All of these analysts together don't match the brain trust here on TMC. The big differerce? We call out B.S. / Wall St. creates it.

View attachment 832208

Cheers!

They are paid to create perceptions and realities rather than acknowledge them.

People keep posting GoJo here ad nauseam. He is the epitome of a paid gun for hire. He is probably paid for the number of times his nonsense is repeated, so keep that in mind. Repeating their nonsense is both a win and a payday for them.

This applies to all WS analysts. Their script is provided by their masters. It does seem a good number of them are in the throes of Stockholm syndrome though.

 

[CLK350]

FYI - best report I have seen on how /why VW's Herbert Diess was let go in a secret to the last minute coup.

His exit was planned about a year ago behind his back - critics claim he wasn't good at communications or managing his employees.
IMHO whitewashing for Porsche to go on with their dream of keeping their gas engines. powered by "clean" hydrogen.
In the end the German government will bail them out, or they become a relic of the past. Leaving BYD, NIO and maybe Ford as Tesla's only alternatives in the future.

He still has to work for VW till the end of his contract in 2025, so not clear what other non VW jobs he can take on till then. A previous VW employee (od Dieselgate fame) has a similar contract and he apparently doesn't even show up, keeps a low profile

https://twitter.com/x/status/1550778604660875265

 

[heltok]

Maybe getting too technical for this thread but I just want to try and clarify this point.

The discount rate used for NPV should be Tesla's Weighted Average Cost of Capital (WACC).
I use 11% in my calculation but I did a quick search just now and I see that Morgan Stanley uses 9% for Tesla while Piper Sandler uses 13%

BTW:
The discount rate used has a huge impact on the NPV.
The lower the discount rate the higher the share price. Changing my NPV calculation from 11% to 9% increases my share price by $500 per share (from $1,865 to $2,385). Increasing the rate to 13% reduces my price down by $385 (to $1,480)

These high discount rates usually assume high inflation. If so then earnings should also be inflated by this amount. Does your model take that into account? Imo it does even out somewhat. Fwiw I generally agree with the Austrian school of economics at least as a descriptive tool to understand inflation and monetary policy, other schools of thought might disagree.

 

[Artful Dodger]

Another batch of Starlink birds fly in about 10 minutes:

Starlink Mission

 

[The Accountant]

He still has to work for VW till the end of his contract in 2025, so not clear what other non VW jobs he can take on till then

Often referred to as "Garden Leave". You are still an employee but you are expected 'tend to your garden at home'.
Keeps you from going to a competitor and keeps you out of the office where you could be a distraction.

I knew a Divisional CEO that was once fired, given a nice separation package but had a small garden leave of 30 days or so.
Just to stick it to the company, he came in to the campus the last week and sat in the lobby of the executive building with a coffee and read a newspaper saying hello to everyone coming and going. It was the happiest I had ever seen him.

 

[TN Mtn Man]

Or, perhaps a few of these Wall St. names?

• Canaccord / Jed Dorsheimer
• Citi / Itay Michaeli
• Credit Suisse / Dan Levy
• Deutsche Bank / Emmanuel Rosner
• Global Equities Research / Trip Chowdhry
• MorganStanley / Adam Jonas
• New Street Research / Pierre Ferragu
• Piper Sandler / Alex Potter
• Oppenheimer / Colin Rusch
• RBC / Joseph Spak
• Roth Capital Partners / Craig Irwin
• Truist Securities / William Stein
• UBS / Patrick Hummel
• Wedbush / Dan Ives

Not one these (systemically conflicted) analysts is worth a single Retail Investor like Dave Lee or Rob Maurer, with their purity of purpose and clarity of thought.

And all of these Analysts combined don't match the brain trust we have here on TMC. The big differerce? We call out B.S. while Wall St. creates *sugar*. And tweak the Mods...

View attachment 832208

Cheers!

I'm relatively new here, and to following TSLA (or other individual stocks) in detail. Most of my investing has been through IRA/401k investments in a limited number of funds. Retired and converted to self-directed IRA last year, so much more interested now. My point, or takeaway. Even I can follow Tesla's demand curve, look at there rate of increase in production and watch FSD videos and see the progress over the last year, and see the promise of TSLA stock.

My point after that long-winded, non-value added preface? If the "financial experts" are this far off on TSLA and ignoring developments at the company, are any of their other analysis or predictions any more valid or less biased? I find many to have lost credibility. TSLA offers a pretty unique opportunity for retail investors because of the expertise offered by independent voices, such as this board, and the more credible Youtubers such as Dave Lee and some others. It's a shame more companies aren't drawing this level of attention.

 

[Chunky Jr.]

I'm relatively new here, and to following TSLA (or other individual stocks) in detail. Most of my investing has been through IRA/401k investments in a limited number of funds. Retired and converted to self-directed IRA last year, so much more interested now. My point, or takeaway. Even I can follow Tesla's demand curve, look at there rate of increase in production and watch FSD videos and see the progress over the last year, and see the promise of TSLA stock.

My point after that long-winded, non-value added preface? If the "financial experts" are this far off on TSLA and ignoring developments at the company, are any of their other analysis or predictions any more valid or less biased? I find many to have lost credibility. TSLA offers a pretty unique opportunity for retail investors because of the expertise offered by independent voices, such as this board, and the more credible Youtubers such as Dave Lee and some others. It's a shame more companies aren't drawing this level of attention.

A friend in the financial business said that most analysts are basically doing marketing for their firm, not any serious analysis. Buy recommendations are made to curry favor with a particular company (or fans of the company). "Look at us, we believe in you! Do your business with us!!". Sell recommendations are the opposite - trying to curry favor with competitors (or detractors of the company). "Look at us, we think one of your prominent competitors suck! Do your business with us!!"

Since he told me that, the various "analysts" recommendations started making more sense.

 

[Discoducky]

Or, perhaps a few of these Wall St. names?

• Canaccord / Jed Dorsheimer
• Citi / Itay Michaeli
• Credit Suisse / Dan Levy
• Deutsche Bank / Emmanuel Rosner
• Global Equities Research / Trip Chowdhry
• MorganStanley / Adam Jonas
• New Street Research / Pierre Ferragu
• Piper Sandler / Alex Potter
• Oppenheimer / Colin Rusch
• RBC / Joseph Spak
• Roth Capital Partners / Craig Irwin
• Truist Securities / William Stein
• UBS / Patrick Hummel
• Wedbush / Dan Ives

Not one these (systemically conflicted) analysts is worth a single Retail Investor like Dave Lee or Rob Maurer, with their purity of purpose and clarity of thought.

And all of these Analysts combined don't match the brain trust we have here on TMC. The big differerce? We call out B.S. while Wall St. creates *sugar*. And tweak the Mods...

View attachment 832208

Cheers!

A select few of those names are really trying; Tesla is such a transformative company (unlike anything the planet has ever seen) that I do give them a 'break' for screwing things up very badly from time to time.

Even working there, IMHO, didn't do justice to some of the amazing stuff that is coming out of this company. Battery day was mindblowing and continues to be. Optimus is a crazy moonshot of an idea that, like a rocket landing, will become reality as will the fully autonomous car. Trying to put a valuation on 'mission impossible late-ness' or when it will actually arrive is nearly as impossible.

One of the only things I can see very clearly is how nuts Q3 production will be (400k to 450k is totally on the table), after that I look to @Gigapress and @The Accountant for clarity and @DaveT and @avoigt and Rob (only person I give money to monthly through Patreon). No one else has really proven themselves to me, IMHO, that they have a good great grasp on this transformation.

For instance, none of us on the Autopilot team saw the falcon wings coming on the X. I even worked very closely with the X PM (removing ounces off my radar assembly to ensure the X met its weight quota) who ran the entire team *AND* he then turned around and asked if we would please do all the work to implement the underpanel sonar puck in the door.

 

[betstarship]

Weekend topic, I thought this was fascinating to read through

Modeling the Human Trajectory | Open Philanthropy

In arriving at our funding priorities—including criminal justice reform, farm animal welfare, pandemic preparedness, health-related science, and artificial intelligence safety—Open Philanthropy has pondered profound questions. How much should we care about people who will live far in the future...

www.openphilanthropy.org

 

[JimS]

I believe Tesla’s promotion to “investment grade” is right around the corner, maybe in “two weeks.” (Thank you @MmeAlexandraS ). I also believe TSLA will have a nice spike higher when it does. (Not to where it should be, but higher just the same.) If I were a hedge fund or portfolio manager, I would think that now would be an excellent time to make an exception to any internal rule against investing in companies with below investment grade ratings. How difficult would that be?

 

[lascavarian]

Clearly, Quad-CT is the 1st priority for 4680 Tesla-made cells. Then perhaps Semi; having partners like Panasonic and LG beginning to deliver 4680 cells in mid-2023 will help with vehicle production ramps.

I will offer a bit of blue sky speculation to this post.

My preface is that 3, Y, S, X of current production are possible to be viewed as perfecting of designs from 2014 ish era.

I offer that with 4680 cells, will be introduced a glimpse of a new design springing from AI + robotic progress.

Imagine a CT that incorporated early features of Optimus technology Into a “Smart bed” that could advance security and possibly loading tech.

Imagine a Semi that included robotic loading tech building on FSD tech.

I don’t expect refined tech but the beginning of an early platform from which to build.

Our FSD tech today is delivering mobility advancements and by next Summer we may see the latch lifted on an extension of this agency extended to object manipulation.

Think Big.

 

[The Accountant]

Margins on both the Energy and Service segments were record breaking this quarter.
This is not getting enough attention by the media (surprise, surprise).
Look at those numbers ! 11.2% margin for Energy . . . .3.8% margins for Service. This is a big deal if it's sustainable.

It may take a repeat in Q3 for analysts to update their models but I'm doing it now.

 

[Mengy]

I believe Tesla’s promotion to “investment grade” is right around the corner, maybe in “two weeks.”

I believe it will happen this year yet, in 2022. There really isn't any viable reason NOT to upgrade Tesla anymore, it's almost become comical at this point.