The "Is Tesla Going Bankrupt?" thread

[CuriousSunbird]

I think it's more because suppliers have been willing to wait for payment (about $2.2bn owed to suppliers compared to $850 million to depositors).

 

[bak_phy]

The only reason Tesla has not filed chapter 11 is people giving them free loans in the form of deposits for cars they may never get.

That's only ~5% of their total liabilities.

 

[AZ Desert Driver]

This hedge fund manager manages $25 million.

For perspective, most brokers manage $100 million. Most hedge funds are measured in the billions and most mutual funds are too...some in the trillions.

At $25 million this guy is a nobody.

Still, the tesla math doesn't really make sense. Here's my simplified way of looking at it.

• Imagine Tesla sold 2 million cars a year.
• Imagine they sold those cars for $60,000 each on average (some low volume S/X/Roadster...some high volume 3 and Y)
• Imagine then that they had a 5% profit margin on those cars on average.

That's $6 billion a year in profit.

It's currently trading at $48 billion in market cap. Which would be 8x earnings on that scenario I outlined where the company is selling 20x as many cars as it did last year, and is doing so very profitably.

Some might argue 'but growth mandates a bigger multiple'...sure that's the argument today when they're tiny. But that scenario I outlined is a mature Tesla that is sized with BMW, Mercedes or Audi. Those companies took 100 years to get there by the way.

What would their growth prospects be AFTER they reached 2 million cars a year? Growth beyond that 2 million cars a year level is tough thanks to competition and the economic limitations of selling fancy cars that the marjority of the world could never afford.

So they need to hit on all cylinders to get to that level, and be profitable, and remain solvent for a decade on the way there...to get to a fair valuation and market cap for today's stock price.

So either you think Tesla is going to grow way beyond 2 million fancy cars a year and have loads of faith in their other businesses...or you hate money because you're paying today what the company will maybe be worth in 10 years. I have trouble with that. I'm not a growth investor/gambler though so temper my thoughts with that.

Just a tad snark - how does an electric car hit on all cylinders?
Now - I thought Tesla was aiming at a higher profit percentage than 5%. I thought 25% was the target. But lets say that that fat margin erodes with scale and competition down to 20%. Lets also factor in that the Gigafactory is built out and is no longer a "cash burn". Factor in the investment of building a production line for the Semi, Model 3, Model Y and pickup are paid for and not being a cash burn. [Will 10 years be enough time to mature the capital investment? ]Now with lower burn, and a higher profit...what does the share price look like?

 

[Struja]

This hedge fund manager manages $25 million.

For perspective, most brokers manage $100 million. Most hedge funds are measured in the billions and most mutual funds are too...some in the trillions.

At $25 million this guy is a nobody.

Still, the tesla math doesn't really make sense. Here's my simplified way of looking at it.

• Imagine Tesla sold 2 million cars a year.
• Imagine they sold those cars for $60,000 each on average (some low volume S/X/Roadster...some high volume 3 and Y)
• Imagine then that they had a 5% profit margin on those cars on average.

That's $6 billion a year in profit.

It's currently trading at $48 billion in market cap. Which would be 8x earnings on that scenario I outlined where the company is selling 20x as many cars as it did last year, and is doing so very profitably.

Some might argue 'but growth mandates a bigger multiple'...sure that's the argument today when they're tiny. But that scenario I outlined is a mature Tesla that is sized with BMW, Mercedes or Audi. Those companies took 100 years to get there by the way.

What would their growth prospects be AFTER they reached 2 million cars a year? Growth beyond that 2 million cars a year level is tough thanks to competition and the economic limitations of selling fancy cars that the marjority of the world could never afford.

So they need to hit on all cylinders to get to that level, and be profitable, and remain solvent for a decade on the way there...to get to a fair valuation and market cap for today's stock price.

So either you think Tesla is going to grow way beyond 2 million fancy cars a year and have loads of faith in their other businesses...or you hate money because you're paying today what the company will maybe be worth in 10 years. I have trouble with that. I'm not a growth investor/gambler though so temper my thoughts with that.

In another thread on the same subject someone posted his rating as a hedge fund manager and it was something like -13% gains on his fund and a ranking near the bottom of hedge fund managers.

This guy being a nobody might even be an understatement, although I am not sure how you get to less than a nobody.

 

[Scott7]

Imagine then that they had a 5% profit margin on those cars on average.

Why would we imagine 5% when Telsa's gross profit margin is publicly known to be much higher than that?

 

[CuriousSunbird]

But the real problem is that they are running out of cash:

Moody's Thinks Tesla Will Soon Be Out Of Cash - Tokyo Picker | Seeking Alpha

 

[sakimano]

Why would we imagine 5% when Telsa's gross profit margin is publicly known to be much higher than that?

gross profit margin? huh?

earnings...I'm talking EBITDA. You're forgetting the loads of other drags on their business that make that 'gross profit margin' an irrelevant figure. Tesla lost 550 million dollars last year on a little over 3 billion in revenue. -17% if you'd like lol. That's the number I'm talking about now and in the future.

I'm also talking about a mature automaker making 2 million cars a year that are largely commoditized with every tom dick and harry spewing out their own electric car lineup. Selling for a premium doesn't really exist in that environment. It's a race to the bottom margin wise unfortunately.

I'm just making my back of napkin view of why I think $250 a share is crazy. That's all.

 

[sakimano]

Just a tad snark - how does an electric car hit on all cylinders?
Now - I thought Tesla was aiming at a higher profit percentage than 5%. I thought 25% was the target. But lets say that that fat margin erodes with scale and competition down to 20%. Lets also factor in that the Gigafactory is built out and is no longer a "cash burn". Factor in the investment of building a production line for the Semi, Model 3, Model Y and pickup are paid for and not being a cash burn. [Will 10 years be enough time to mature the capital investment? ]Now with lower burn, and a higher profit...what does the share price look like?

please, find me a mature automaker selling 2 million cars a year with EBITDA of 20% of revenue. Remember, we're talking about earnings, not the gross margin on the parts vs selling price of the car.

Who really talks about gross margins when valuing a business anyway?

 

[dhanson865]

Musk has always run Tesla near the edge of bankruptcy which is probably why he can't hold onto the senior financial officers. As an officer you are responsible and if you take actions that are not in the best interests of your shareholders you risk civil and criminal liability.

There is some truth that the low and fast flight path Elon uses does scare people. You also have to consider some of the people that left went to higher job titles and would have left no matter what for that opportunity they got elsewhere.

 

[jackbowers]

Some hedge funds try to make money shorting stocks, but lately there haven't been many weak stocks to short. So to compensate some will make a large short bet on a popular stock like Tesla, and invent a compelling story that's tied to a recent event (it worked well two years ago, when the invented story was Elon getting a margin call). Today's invented story revolves around the Moody's bond downgrade, but it ignores the fact that Tesla is sitting on a large sum of cash that wouldn't be exhausted for several quarters, and that the firm's secondary stock offerings have always been well-received. Full disclosure, I am long Tesla.

 

[BluestarE3]

But the real problem is that they are running out of cash:

Moody's Thinks Tesla Will Soon Be Out Of Cash - Tokyo Picker | Seeking Alpha

Er... Seeking Alpha

 

[sakimano]

Some hedge funds try to make money shorting stocks, but lately there haven't been many weak stocks to short. So to compensate some will make a large short bet on a popular stock like Tesla, and invent a compelling story that's tied to a recent event (it worked well two years ago, when the invented story was Elon getting a margin call). Today's invented story revolves around the Moody's bond downgrade, but it ignores the fact that Tesla is sitting on a large sum of cash that wouldn't be exhausted for several quarters, and that the firm's secondary stock offerings have always been well-received. Full disclosure, I am long Tesla.

what's your base case for being a shareholder at $250/share? Not sure what your cost was but assume you were evaluating your position today and had to support it in front of the investment committee.

What do you say?

Thanks

 

[jeffro01]

Man the continuance of this thread certainly give me less and less confidence about Tesla's ability to survive very much longer... Granted I'm not making any purchase decisions until I have to and I want another Tesla but...

Jeff

 

[jackbowers]

gross profit margin? huh?

earnings...I'm talking EBITDA. You're forgetting the loads of other drags on their business that make that 'gross profit margin' an irrelevant figure. Tesla lost 550 million dollars last year on a little over 3 billion in revenue. -17% if you'd like lol. That's the number I'm talking about now and in the future.

I'm also talking about a mature automaker making 2 million cars a year that are largely commoditized with every tom dick and harry spewing out their own electric car lineup. Selling for a premium doesn't really exist in that environment. It's a race to the bottom margin wise unfortunately.

I'm just making my back of napkin view of why I think $250 a share is crazy. That's all.

Tesla has gone to great lengths to integrate vertically so they can enjoy relatively large margins on their vehicles, and has installed substantial manufacturing capacity and vehicle charging capacity. Other automakers have actually warned their shareholders that the electric revolution will cut their margins, and as such their investments in manufacturing capacity pale in comparison to Tesla. These automakers are also relying on "co-ops" to handle their charging networks, which can only end badly. As such, if the electric revolution catches on in a big way, Tesla is likely to end up with a large share of the vehicle market. And even if non-Tesla electric vehicles are worthy, Tesla's competitors won't have enough manufacturing capacity to satisfy demand, and the experience taking a non-Tesla electric vehicle on a road trip will be anything but pleasant.

 

[comanchepilot]

Why would we imagine 5% when Telsa's gross profit margin is publicly known to be much higher than that?

Profit margin is zero on cars parked out back and undelivered because of all sorts of undisclosed problems. . .

 

[comanchepilot]

Enterprise Value down to $43.54B today. . . .

2 year low is about 180. If it makes it to $200 I'm in. But not if it gets there tomorrow.

 

[Tforme]

Tesla Bonds Are in Free Fall

Seems like the bad news stories really pile on whenever there’s any sign of trouble. Really makes it hard for Tesla to “right the ship” when these are continually being written.

 

[comanchepilot]

Tesla Bonds Are in Free Fall

Seems like the bad news stories really pile on whenever there’s any sign of trouble. Really makes it hard for Tesla to “right the ship” when these are continually being written.

There is a reason for bad news - they lost an amount in excess of the refundable Model 3 deposits the last two quarters. You cannot keep doing that.

Plus - in the past when they had problems - they issued new stock which diluted the value of what shareholders already owned.

Now - all of Elons compensation shares are underwater - just issued last week.

 

[NCAviator]

One major difference to owning a Tesla than any other car. Tesla owns your propulsion. If they stop being; no Superchargers. Also if Tesla stops being; then your phone apps and your car will not work. If their network, APP, ability to transfer car accounts stops. Then all the cars stop. No other car is tied to these servers and network. No Third Party or new company that get them back working. The creditors will take the assets. That includes all that computer equipment.

 

[CuriousSunbird]

I suspect a new owner buying through the Chapter 11 process would choose to keep all that going, although they might charge the vehicle owners a fee for it (and they wouldn't honor the free supercharging).