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

[Tommy O]

I have never thought about getting a pickup truck but I really want one of these if the price is right. Only deal breaker (besides price) is that it may be too big for my garage.

I measured it out for my garage. Barely fits. But that’s not a problem. Going to park it on my boss’s front lawn.

 

[lafrisbee]

I was actually sad to find the Cybertruck only has 5 seatbelts and is no longer a 6-occupant vehicle, and also has a 2nd touchscreen for rear passengers like the S+X. Less of the wirey, lean & productive worktruck I was hoping for. The rear touchscreen must surely have serious costs that would be better left out in some customers's situations

Elon allowed his personal preference instead of "First Principles" when it came to that stupid mini-screen in the back? Then again I do believe Elon has made the right decision more often than not so perhaps it isn't expensive,and is there to control lighting, windows, HVAC, and the music as well as the big front screen if you are watching it from the back seats.

 

[Cosmacelf]

This question has been vigorously debated since most to the Glass-Steagall Act was repealed in 1999, showing the most consequential banking de regulation in the US came from a Democrat administration, just as did the act itself come as the FDR administration tried to eradicate the causes of the Great Depression.
The biggest problem with mark to market rules is that they introduce very high volatility in traded assets while making non-traded assets seem more stable. That has consistently proven to be an insurmountable challenge. Faced with repeated banking crises and most acutely the failure of Bankhaus Herstatt the Basel Committee was established to solve the problem:

History of the Basel Committee

Information about the history of the Basel Committee

www.bis.org

After deliberations (one US Treasury designee was from the Open Market Committee of the NY Fed and lived in Basel more a year working on this) they produced the Basel Accords, now is Basel 3, that all major banks globally must file. That is the best solution thus far, but still does not really solve the biggest risks.
Deutsche Bank has almost failed a couple of times since then, Swiss Bank Corporation failed and was merged, Credit Swiss has caused havoc and we still had 2008, in which Nobel Prize winners and the entire US mortgage industry behaved badly and nearly brought down the global systems.
So, brilliant as they were (I'm biased but I think they have been) they could not solve mark to market.

Now, back to TSLA. Part of the market to market issue complexity is the stuff of which this thread is built. People here devote inordinate energy and dedicated skill to value TSLA. We rant and rave about algorithm trading, short sellers and the rest. Now imagine a bank properly valuing such an investment! Imagine any volatile, rumor driven market, say, interest rate futures. Imagine properly valuing US Treasury fixed rate securities when nobody actually knows what future rates to be, so cannot actually know whether values are any given thing at any given market price.

We see that dilemma with cryptocurrencies too, of course and those as many others have GAAP solutions that standardize the errors.

So, frankly, after having had one of those Nobel Prize winners teach me market dynamics, and having had a very close look at Basel negotiations I can say definitively "I haven't a clue how to cope with this issue". That is true.

Were it up to me I'd prohibit insured financial institutions from taking and unhedged interest rate risk. I'd then establish Basel 4 style structure to refine credit risk evaluation and restrict types of risk they could accept. In short, I'd return to something quite like Glass-Steagall. Impact, absolutely, but much less opportunity for unrestrained stupidity or fraud.

Isn’t the fundamental “problem” fractional reserve banking? Where banks can lend out more in loans than they have in deposits? Making any bank a potential target for a depositor bank run? I’m not saying we shouldn’t have fractional reserve banking, it does speed up money velocity and that’s a good thing in a growing economy. But if we made it policy that the fed would backstop ALL deposits (which it de facto does now anyways) wouldn’t that solve things? You’d still have regulation and take overs for poorly run banks…

 

[dm28997]

Last I read that isn’t a thing with the CT.

https://twitter.com/x/status/1634225807282540545

I have never thought about getting a pickup truck but I really want one of these if the price is right. Only deal breaker (besides price) is that it may be too big for my garage.

And I was in the camp that thought it was completely ridiculous when they first revealed it.

This is a bullet proof and hard shell truck. We will park ours in the front. Might be protection against drive by (jokingly) and it is all recorded.

 

[bkp_duke]

Isn’t the fundamental “problem” fractional reserve banking? Where banks can lend out more in loans than they have in deposits? Making any bank a potential target for a depositor bank run? I’m not saying we shouldn’t have fractional reserve banking, it does speed up money velocity and that’s a good thing in a growing economy. But if we made it policy that the fed would backstop ALL deposits (which it de facto does now anyways) wouldn’t that solve things? You’d still have regulation and take overs for poorly run banks…

I disagree, respectfully. If banks think they can do anything and lend as much as they want without consequence of possibly failing, then it sets up the entire system for a huge collapse, instead of just a few banks that were poorly managed.

 

[lafrisbee]

As to this bank mess.
Money.
Money has scrambled the brains of these "financial institutions" that call themselves banks.
The incomprehensible amount of money/power that bankers see/feel/touch/smell/taste has made them lose sight of the simple financial model.
Banks should accept no risk. And only make a little profit. It is NOT their money. They are not supposed to risk anything of theirs. They pay people to use their money to make loans. And they charge more for people to borrow that money. They charge a difference between the two to cover the risk, and make a small profit. The only way a bank should lose money is if they were not charging enough to borrow.
All these schemes and crap make banks huge profits. The FDIC should not offer any type of safety net to any bank that plays games with customers money. Period.
yeah, all you geniuses will tell me it is not like that. I know. I am just telling you what it should be. Not how ephed up the government has allowed it to become.

 

[LodiEVFan]

This question has been vigorously debated since most to the Glass-Steagall Act was repealed in 1999, showing the most consequential banking de regulation in the US came from a Democrat administration, just as did the act itself come as the FDR administration tried to eradicate the causes of the Great Depression.
The biggest problem with mark to market rules is that they introduce very high volatility in traded assets while making non-traded assets seem more stable. That has consistently proven to be an insurmountable challenge. Faced with repeated banking crises and most acutely the failure of Bankhaus Herstatt the Basel Committee was established to solve the problem:

History of the Basel Committee

Information about the history of the Basel Committee

www.bis.org

After deliberations (one US Treasury designee was from the Open Market Committee of the NY Fed and lived in Basel more a year working on this) they produced the Basel Accords, now is Basel 3, that all major banks globally must file. That is the best solution thus far, but still does not really solve the biggest risks.
Deutsche Bank has almost failed a couple of times since then, Swiss Bank Corporation failed and was merged, Credit Swiss has caused havoc and we still had 2008, in which Nobel Prize winners and the entire US mortgage industry behaved badly and nearly brought down the global systems.
So, brilliant as they were (I'm biased but I think they have been) they could not solve mark to market.

Now, back to TSLA. Part of the market to market issue complexity is the stuff of which this thread is built. People here devote inordinate energy and dedicated skill to value TSLA. We rant and rave about algorithm trading, short sellers and the rest. Now imagine a bank properly valuing such an investment! Imagine any volatile, rumor driven market, say, interest rate futures. Imagine properly valuing US Treasury fixed rate securities when nobody actually knows what future rates to be, so cannot actually know whether values are any given thing at any given market price.

We see that dilemma with cryptocurrencies too, of course and those as many others have GAAP solutions that standardize the errors.

So, frankly, after having had one of those Nobel Prize winners teach me market dynamics, and having had a very close look at Basel negotiations I can say definitively "I haven't a clue how to cope with this issue". That is true.

Were it up to me I'd prohibit insured financial institutions from taking and unhedged interest rate risk. I'd then establish Basel 4 style structure to refine credit risk evaluation and restrict types of risk they could accept. In short, I'd return to something quite like Glass-Steagall. Impact, absolutely, but much less opportunity for unrestrained stupidity or fraud.

Thank you unk45 for that very thorough and considered response. I like what you would do if you were in charge.

 

[Singuy]

There was no need to reply, you stated your opinion like I stated mine. There are millions of people in the country and my decisions do not have to make sense to you, and neither yours to me. But I will explain in more detail as you wish.

I bought a lemon 3. The car had many issues the service center couldn't fix, including unacceptable rattles and build quality issues with the car being out of service for many months waiting on parts. I had to part ways with it for that as the main reason. The other was I just felt like it was too basic and limiting.

The X is the only desirable car Tesla makes for me at the moment. The 3/Y feel too cheap and lack too many basic car features at their price points. I want a screen in front of the wheel. One screen is just too minimalistic to me. I was in the market for a BMW IX, Mercedes EQS, Audi E-Tron, or Model X. The Model X has the best design, in my opinion. It has the best SC network and It's been 5 years since my Model 3. I figured why not give the Model X a go, see if Tesla's service has improved and their car quality.

I do like the brand and I do like the product. Everyone deserves a second chance, and that is what I am giving Tesla. But I was very close to getting the IX.

Anyways you asked about why other auto makers trade at book value and why Tesla is trading way beyond that.

First thing you have to know is that the market is forward looking only. People make predictions what will happen in the future and guess what, people are kind of right. Tesla beating GM and Ford's valuation way before they managed to make more profit than them combined, and have managed to match Toyota's profit Q3. The market predicted that 2 years ago when everyone was crying overvalued.

As for why legacy auto are trading at low PEs and at book value. Again the market is forward looking. One must know how big auto makes money. They make money via

1. Selling cars...kinda

2. As a financial service

3. Parts

So lets break those down on why the market is so bear.

Selling cars: Each of these big auto have reached their saturated market share. Now with the advent of electric cars, the market believes, by forward looking, that these legacy auto must spend 10s of billions of dollars for this transition. A lot of these companies have already announced their plans on a powerpoint, however are reluctant to spend that money. The reason? Because after dumping 10s of billions, these companies will end up selling THE SAME AMOUNT OF CARS (if they are lucky). So these investments return almost NOTHING besides keeping them from being wiped out as the world bans ICE.

Financial service: This is where they make money...for now. However you and I know that legacy auto loan out money on DEPRECIATING assets ONLY at a pretty low interest rate. Their only hope is that people continue to pay because a car is required to generate income for these folks. However if defaults start happening in a recession, legacy auto are upside down a boatload and hopefully gap insurance can fulfill..even PMI for houses didn't keep banks from tanking during the financial crisis. Want to know another crazy thing? Legacy auto PAID the "market adjustment" price gouging to the dealerships and now is on their books in the form of "good debt". Yeah...nothing can go wrong here. So the forward looking market knows that Tesla will be fine if a recession is bad because they were paid in full, while legacy auto could potentially fail like a bank with only bad debt...lol yeah 100% of their loans are depreciating assets ...lol.

Parts: EVs are more simple, Tesla is trying to get rid of parts and not have service be a profit center. Legacy auto must follow to be competitive so this arm of their profit just dies in the future.


So you see big auto are trading at book value because the forward looking market feels like they are kind of F-ed. We should remember that volkswagen or toyota generates almost the same amount of revenue as Apple. They could be trillion dollar companies if they were making the same operating margins. Tesla strives to get there, while the rest of the industry struggles to make their cars profitable. Before these auto makers had nowhere to grow, but at least they are paying a dividend. Now we know for certain they still have no where to grow, but must massively spend on capex for the transition which possibility can cancel the dividend once they are serious about the transition. Currently they are just nibbling while still trying to retain the only purpose why people would buy their stock, which is for the dividends.

 

[Electroman]

As to this bank mess.
Money.
Money has scrambled the brains of these "financial institutions" that call themselves banks.
The incomprehensible amount of money/power that bankers see/feel/touch/smell/taste has made them lose sight of the simple financial model.
Banks should accept no risk. And only make a little profit. It is NOT their money. They are not supposed to risk anything of theirs. They pay people to use their money to make loans. And they charge more for people to borrow that money. They charge a difference between the two to cover the risk, and make a small profit. The only way a bank should lose money is if they were not charging enough to borrow.
All these schemes and crap make banks huge profits. The FDIC should not offer any type of safety net to any bank that plays games with customers money. Period.
yeah, all you geniuses will tell me it is not like that. I know. I am just telling you what it should be. Not how ephed up the government has allowed it to become.

+100%

Banks should not get the freedom to gamble with other peoples money. That is the job of Wall street and hedge funds.

 

[Knightshade]

I disagree, respectfully. If banks think they can do anything and lend as much as they want without consequence of possibly failing, then it sets up the entire system for a huge collapse, instead of just a few banks that were poorly managed.

But with this current bailout there is a consequence of failure.

Going out of business.

The feds bailed out the depositors- not the bank. The investors/owners of the bank are not being bailed out and will suffer a loss. The depositors won't.

This is why this bailout is so different from 2008, where they bailed out the banks rather than the banks customers.

 

[bkp_duke]

But with this current bailout there is a consequence of failure.

Going out of business.

The feds bailed out the depositors- not the bank. The investors/owners of the bank are not being bailed out and will suffer a loss. The depositors won't.

This is why this bailout is so different from 2008, where they bailed out the banks rather than the banks customers.

I'm not seeing where we disagree.

This current bailout, which is limited, is not a blank check like what I was replying to.

 

[Cosmacelf]

I disagree, respectfully. If banks think they can do anything and lend as much as they want without consequence of possibly failing, then it sets up the entire system for a huge collapse, instead of just a few banks that were poorly managed.

I wasn’t advocating throwing capital ratios, Basel 3, and all other regulation out the window. I specifically said you’d still have regulation. So, no, banks would not be able to lend as much as they would like…

 

[ZeApelido]

Wow

https://twitter.com/x/status/1635386413771378688

 

[bkp_duke]

I wasn’t advocating throwing capital ratios, Basel 3, and all other regulation out the window. I specifically said you’d still have regulation. So, no, banks would not be able to lend as much as they would like…

Politically, backstopping all deposits (even though that's what the Fed usually does - just not "guaranteed") would probably have political ramifications of with cries of "bailing out the rich". Right now, no one thinks the 250k FDIC guarantee is a bad thing or the limit is set too high. But you push that up to infinite, or even a few million, and you will get political pushback.


Ironically, my sister (who was a bank stress tester for E&Y) texted me this a few hours ago:
"Everyone is suddenly a banking expert"

Followed by:
"There are going to be good buying opportunities"

(not financial advice)

 

[Cosmacelf]

Wow

https://twitter.com/x/status/1635386413771378688

Wow is right. Btw, supposedly Tesla had not yet used the blade batteries in actual products. Anyone know otherwise?

 

[Singuy]

Wow

https://twitter.com/x/status/1635386413771378688

View attachment 917241

Haha, more like quality concerns with their integrity. Suck it BYD for all your lies about Tesla.

 

[M|S|M MYP]

And here i thought i was smart knowing why $TSLA was down for most of the day today due to this:

Silicon Valley Bank Causes EV Stocks to Slump - TipRanks.com

Without question, the biggest economic event of the last few days was Silicon Valley Bank (NASDAQ:SIVB) and its massive plunge. It was the largest bank failure sinc...

www.tipranks.com

 

[unk45]

.


Ironically, my sister (who was a bank stress tester for E&Y) texted me this a few hours ago:
"Everyone is suddenly a banking expert"

Followed by:
"There are going to be good buying opportunities"

(not financial advice)

Your sister probably has seen these cycles before, if she’s old, but has studied them if not

 

[bkp_duke]

Your sister probably has seen these cycles before, if she’s old, but has studied them if not

She's old enough to have worked through the 2008 collapse and tested many banks after the reforms put in place from that, and studied the rest. She's retired, but in the past 3-4 weeks her old contacts have come out of the woodwork asking her to either consult or come to work for them full time. The only other time that happened was 2008. She reads that as other banks still have considerable risk they are exposed to.

 

[unk45]

She's old enough to have worked through the 2008 collapse and tested many banks after the reforms put in place from that, and studied the rest. She's retired, but in the past 3-4 weeks her old contacts have come out of the woodwork asking her to either consult or come to work for them full time. The only other time that happened was 2008.

Excellent! I respected the old E&Y. I worked with some of them 2008/2009, none directly
since the UK in early 2980’s