TSLA Market Action: 2018 Investor Roundtable

[dqd88]

Volkswagen acquired Porsche for $10 billion. Porsche is a niche luxury brand, which doesn't get you to a $200 billion market cap like Toyota.



Apple's primary moat is the app ecosystem. Users attract developers attract users attract developers. It's a network effect. It's hard for a third mobile OS to break into the market for the same reason it's hard for a new social network to compete with Facebook or Twitter.



Could happen! In this scenario, I still think EVs would get commoditized.

I'm not comparing market cap of Porsche and Tesla. I'm saying Porsche has relatively high margins. A better comp would have been BMW or Mercedes. Yes, no car maker in the world has the market cap that us bulls believe Tesla can get to. I base my numbers on Tesla becoming bigger than Toyota, and being a conglomerate of many brands. And then add in all the other stuff (batteries, solar, rideshare... and more!)... and easily $1T mc.

Disagree on Apple; way before apps and iPhones they had a moat; they've always been the sexier, costlier option, and a large part of the moat is due to design and image, which they have meticulously crafted.

 

[gora321]

Some interesting walk trough markbspiegel history.
It bring awareness of influence and lessons to be learned.

Thread by @LateNever2: "Where did it all go wrong for @markbspiegel? A deep dive on his Tesla history $TSLA $TSAQ 2013 - Mark is Short on Tesla early July. He publi […]"

 

[NicoV]

I test drove a Volt before I got my Model S. It drove like crap. The Bolt is ugly as hell. Prius is tiny. We leased a Leaf waiting for the Model X but it drove like crap on the highway, etc. Most people aren't willing to get an EV if it is a crappy car! I bought a Model S because it was better than my Porsche. Why can't you understand this Donn?!? This is not complicated and obvious to 99.9% of the population. Yet you continue to argue. WHY DONN?!?

I ‘ve never been a car guy. Always bought Toyota (evidence that I only cared about the most cost effective way to get from point A to B). Almost a decade ago I bought my last Toyota: a Prius. My first car with an automatic transmission, and also the first one with a electric drive component. My wife and I were so in love with that car, after the first day we drove it we couldn’t imagine buying anything else than a Prius in the future.

Then came the long nothing at Toyota. We found it silly to buy the same car( Prius 2015) again 5 years after we bought the Prius 2010. It took Toyota to 2017 the release an updated Prius, and we couldn’t wait that long to buy our next car.

In the end (I’ve mentioned the details here in the past, even several times, and I’m not going to repeat that again) we bought a Model S. After driving the Model S a couple of days we relalized what kind of crap the Prius was. I’m still not a car guy, but buying the Model S raised my awareness about what a comfortable nice riding car is. I’m never going to settle for less anymore. Most likely we’re becoming a Tesla family for life.

Conclusion: you don’t have to be a car guy (i.e. the majority of the population) to realize how good a Tesla is once you drive it, and more importantly, that a Tesla is above and beyond other cars. Before Tesla, I couldn’t convince myself to pay more than 35K for a car, even though a car double that price wouldn’t have been a financial issue for me. Now I’m only buying nicely equiped Tesla’s anymore.

 

[dqd88]

So you want Tesla that makes 7k cars per week to start working on becoming a blend of VW-GM?

Skoda
VW
GMC(Pickup Truck)
Audi
Porsche
Bentley
Lamborghini
Bugatti
MAN (Semi Trucks)

And for good measure Ducati Motorcycles.

You know a lot of people on the Street already Elon as a megalomaniac?

Yeah sorta. Prob more like BMW group, but bigger.

I just don't see enough other brands coming online fast enough. It can't be all Tesla so Tesla must create or buy other brands. This will move the transition faster than waiting for everyone to catch up. Only Tesla has the know-how/platform to properly execute.

 

[Fact Checking]

True, but consider that they reduced inventory considerably in Q3, which (of course) inflated the cash flow numbers some.

Actually, Tesla kept inventory effectively flat between Q2 and Q3: $3,324,643 at the end of Q2, $3,314,127 at the end of Q3 - only a $10m reduction.

They had roughly ~3000 fewer Model 3's in inventory at the end of Q3, but at Q3 ASP of $60k+, while at the end of Q2 they had a mix of early-Q2 and late-Q2 priced production. If we estimate the end-of-Q3 ASP at $61k and the inventory ASP end of Q2 at $55k then the difference is only ~$70m more cash from that. This got further reduced by a probable increase in unfinished goods and materials due to a fuller ramp-up to the ~4.3k/week rate - which all have a significant cash cost, despite the payables delay.

So the net cash effect from good inventory management at the end of Q3 is probably closer to ~$30-$40m, possibly lower (i.e. close to the nominal $10m improvement) - not a big factor at all.

So yes, the $1.4b cash generated in Q3 is a genuine equilibrium figure, while Model 3 production is only ~50% ramped up!

 

[dqd88]

I agree with you that tracker needs to be dumped. It has no value.

Actually I'm trying to learn and to understand the influence points where the market gets the difference between SP and the value of the company (market irrationality). This is the reason why I track also ratings and also some negative media.
This creates opportunity to earn the money from knowledge when you see the illusion.

Now it would be interesting to see how quickly public opinion change, how quickly medias will change their stories especially when medias earn no money from Tesla in opposite earning money from ICE, oil worlds. They know that they are wrong, they will have to admit it on long term, but no $ for them so you came to the real problems of media.

I kinda gave up on the tracker when just before Q3 numbers they had weekly VINs at like 1900... then the day of they corrected it. But I was furious that they had sandbagged it for probably many weeks or months. Given their high level of FUD output, I'd guess it was intentional. So f them

 

[RobStark]

Tesla won't have to go to Wall Street in 2019, and I argue they shouldn't. Their biggest problem is going to be to not grow too fast.

I am not suggesting Tesla is capital constrained nor that they have to go to Wall Street.

I would go from 95% confident in Tesla to 100% confident if they had an extra $5B they don't need for CapEx expansion.

Again, a nice rainy day fund in case of Great Recession/Depression.

 

[strangecosmos]

I base my numbers on Tesla becoming bigger than Toyota

Okay, well that makes sense as a thesis

I kinda gave up on the tracker when just before Q3 numbers they had weekly VINs at like 1900... then the day of they corrected it. But I was furious that they had sandbagged it for probably many weeks or months. Given their high level of FUD output, I'd guess it was intentional. So f them

It's a computer model. They just set it up and let it run, occasionally making updates which they detail on the blog (on the same page as the tracker). They don't manually adjust the numbers at all.

 

[RobStark]

I agree generally and love his sense of humor but... he's been on quite the run the past day or two... it's getting to be a bit much. He's the CEO of the highest valued car company in America. And his twitter is becoming a meme junk yard for 15 year olds. Now when he does a business tweet the replies are dank memes. Too much commingling of stuff. Not good for image.

Not a good image if you are targeting Senior Citizens.

If you are targeting Generation Z for your next customers not so much.

 

[Thekiwi]

My fellow SA contributor Paulo Santos articlulated the change in the short thesis very well, I thought: "Why I Won't Sell Tesla Short Going Forward" It's
no longer a bankruptcy thesis, it's an overvaluation thesis.

I actually don't think it's wildly unreasonable to believe that Tesla is overvalued. I think Benedict Evans (a partner at Andreessen Horowitz and a student of S-curves and disruptive technologies) makes a strong argument that in the long run (think 10-20 years) the EV business — without autonomy — will probably become just as commoditized as the ICE vehicle business. Without autonomy, there are no network effects and no other obvious ways to avoid commoditization. I actually think that Tesla fans are often too cavalier in their dismissal of this argument, and I respect Bendict's systematic thinking.

On a shorter time horizon — let's say within the next 5 years — it seems to me like there's a good chance Tesla will kick ass. Supercharging, battery costs, and U.S. direct sales are all hard competitive advantages on Tesla's side. Maybe also electric drivetrain engineering.

But even if it takes 10 years or more, I think other automakers will eventually catch up on all those things. It seems like Tesla's lead in EVs can't be sustained forever and ever.

Apple has a network effect: the app ecosystem. That's the barrier to entry that makes smartphone OSes an iOS/Android duopoly. Without autonomy, EVs have no network effect and a barrier to entry as low as ICE vehicles.

If you fundamentally accept this, it becomes harder to articulate why Tesla should be in any way exceptional 15 years from now — leaving aside autonomy, and talking only about EVs.

Which is why I wrote this article yesterday: "Tesla Is Now A Self-Funding AI Lab" Tesla can become a much larger company than any automaker ever has been by capturing a 10%+ global market share in autonomous ride-hailing. This is the only way I see Tesla getting to an Apple-like or Google-like valuation, as opposed to a Toyota-like or GM-like valuation.

Disagree - There are numerous examples of companies in highly commoditized industries that are able to maintain higher than industry average margins due to good management & strong brand created by non-commiditizable things like commitment to excellent product design, service and ancillary products, and continuing innovation.

FYI - Benedict Evans these days is usually “talking his book” (often without disclosing the interest the VC company he works for has in particular companies in an industry he is discussing)

 

[dqd88]

My advice would be to put the Battery Factory in Oklahoma or Louisiana then have the Auto Factory a yard over in Texas.

Leverage next American GF to get two States to fully allow Tesla to sell vehicles.

They should def shop it around the way Amazon shopped around HQ2.
Elon was in Indiana recently, I wonder if it was to scope out a potential site. That wouldn't be a bad proximity.

 

[strangecosmos]

Disagree - There are numerous examples of companies in highly commoditized industries that are able to maintain higher than industry average margins due to good management & strong brand created by non-commiditizable things like commitment to excellent product design, service and ancillary products, and continuing innovation.

What are some examples?

FYI - Benedict Evans these days is usually “talking his book” (often without disclosing the interest the VC company he works for has in particular companies in an industry he is discussing)

Huh?

 

[UnknownSoldier]

I agree generally and love his sense of humor but... he's been on quite the run the past day or two... it's getting to be a bit much. He's the CEO of the highest valued car company in America. And his twitter is becoming a meme junk yard for 15 year olds. Now when he does a business tweet the replies are dank memes. Too much commingling of stuff. Not good for image.

He's not allowed to tweet about the company anymore. This is the result. I hope the Shortsellers Enrichment Commission is happy at least, tweets about anime aren't actionable by shorts.

 

[dqd88]

I am not suggesting Tesla is capital constrained nor that they have to go to Wall Street.

I would go from 95% confident in Tesla to 100% confident if they had an extra $5B they don't need for CapEx expansion.

Again, a nice rainy day fund in case of Great Recession/Depression.

I agree on the rainy day fund. I've listened to many analysts and that's a common thread. They want Tesla to raise to cushion against a potential softening economy, black swan, etc... they wouldn't view this as a negative. A company like Tesla needs a decent cash cushion to give big investors peace of mind; they want to know that there's a small probability of running out of cash. Most tech peers have tons of cash. And ford/gm have lots of cash too; they learned their lesson in 2008 and now keep enough cash to weather another recession.

 

[Krugerrand]

I agree generally and love his sense of humor but... he's been on quite the run the past day or two... it's getting to be a bit much. He's the CEO of the highest valued car company in America. And his twitter is becoming a meme junk yard for 15 year olds. Now when he does a business tweet the replies are dank memes. Too much commingling of stuff. Not good for image.

And still more judgement about the man. People complaining he shouldn’t tweet about Tesla on a personal Twitter account. He should stick to fun stuff. Now he’s having too much fun and is being too childish.

If you don’t like the image he portrays then go find a CEO that portrays themself to your standards and invest in that company.

 

[Fact Checking]

I am not suggesting Tesla is capital constrained nor that they have to go to Wall Street.

I would go from 95% confident in Tesla to 100% confident if they had an extra $5B they don't need for CapEx expansion.

Again, a nice rainy day fund in case of Great Recession/Depression.

Yeah, so I think Tesla's business model is counter-cyclical for the next ~10 years, i.e. they'll grow even faster during recessions.

I also think that starting in 2019 I think they'll start hoarding cash like Apple, because there's a limit to how fast they can expand on a natural trajectory. So there is going to be a de facto rainy day fund, in practice utilized to opportunistically snatch up somewhat aging but otherwise well equipped factory buildings from cash starved, downsizing competitors in liquidity crisis.

 

[Jayjs20]

Some interesting walk trough markbspiegel history.
It bring awareness of influence and lessons to be learned.

Thread by @LateNever2: "Where did it all go wrong for @markbspiegel? A deep dive on his Tesla history $TSLA $TSAQ 2013 - Mark is Short on Tesla early July. He publi […]"

I always thought we needed one of these for all the major bears, but I don't have the time or resources to do it myself.

 

[RobStark]

Yeah sorta. Prob more like BMW group, but bigger.

I just don't see enough other brands coming online fast enough. It can't be all Tesla so Tesla must create or buy other brands. This will move the transition faster than waiting for everyone to catch up. Only Tesla has the know-how/platform to properly execute.

Before the Hydrogen folks in Utah, I wanted to create the Nikola brand for the sub Model 3 car.

BMW Group is Mini, BMW, Rolls Royce, and BMW Motorcycles. Plus the M Series Brand.

I think a Rolls Royce competitor is pointless. Neither EVs nor Tesla need more of a halo effect.

I would go for Musk mainstream cars. "Musk" already has a lot of brand equity.

Maybe an L Series for a high performance sub brand.

Toyota seems to do just fine with Toyota and Lexus. There isn't much brand awareness around the F Series performance brand.

 

[strangecosmos]

Yeah, so I think Tesla's business model is counter-cyclical for the next ~10 years, i.e. they'll grow even faster during recessions.

Huh? Why?

 

[RobStark]

Yeah, so I think Tesla's business model is counter-cyclical for the next ~10 years, i.e. they'll grow even faster during recessions.

I also think that starting in 2019 I think they'll start hoarding cash like Apple, because there's a limit to how fast they can expand on a natural trajectory. So there is going to be a de facto rainy day fund, in practice utilized to opportunistically snatch up somewhat aging but otherwise well equipped factory buildings from cash starved, downsizing competitors in liquidity crisis.

So you have gone full VA on us?

I would rather have an extra $5B in the bank than your projections for Apple like cash generation.

Although I find your projections excellent reads.