TSLA Market Action: 2018 Investor Roundtable

[jw934]

What some judge decides has nothing to do what investors are willing to pay. You are apparenty quoting some discussion, whether LBO price is legally right or wrong. It is totally different question.

I was _only_ saying, that if stock price is only slightly sub 400, it is easier to find investors ready to finance privatisaion with 420 than if the stock price is 320.

My point is that Tesla/the special committee will get sued if they approve to go for a vote on 420, even if they find the right investor. 420 is too low.

 

[Matias]

My point is that Tesla/the special committee will get sued if they approve to go for a vote on 420, even if they find the right investor. 420 is too low.

Ok. We are speaking about different things

Isn't it almost a norm that buy out price gets sued?

 

[Xorbit]

I wonder what he's dying to tweet?

 

[Fact Checking]

I wonder what he's dying to tweet?

Must be super bad news, but Elon has to keep it secret!!!

 

[Fact Checking]

My point is that Tesla/the special committee will get sued if they approve to go for a vote on 420, even if they find the right investor. 420 is too low.

I can hardly think of a big corporate merger that didn't trigger some sort of lawsuit. The Solar City merger got challenged in court, the Dell buyout got challenged in court - pretty much any big merger gets challenged.

But if the TSLA price does not significantly exceed $420 before the shareholder vote is held then they wouldn't have much of a case: if TSLA is worth more than $420 then sure the market would reflect that, right?

If the price sustains beyond $420 that then they'll likely raise the offer, and that will be a happy problem to have for Tesla and the buyout consortium.

 

[SO16]

I have read the ARK analysis and I do believe they are nuts. Although the price target of $700 to $4,000 correlates with my opinion, I believe it is for entirely opposite reasons to the ones they state. I will try and explain why.

The ARK analysis relies heavily on the Maas first player opportunity. This is pretty reckless. We have no evidence that Tesla will be anywhere near ready to have fully automated taxis ever, nevermind be “launching the Tesla Network in the next 1-2 years”. I agree that once Tesla can demonstrate a car autonomously driving across the US then this should make the stock price pop because one autonomous taxi can make a lot of money each year, and they would have a complete monopoly on a novelty product, but it is too soon to price any of this in yet.

For me, we get to $700 and $4,000 purely for ramping the manufacturing of cars and batteries:

• In five years, Tesla will be manufacturing 1 million vehicles per year. At average price of $50k and 25% profit, this is $12.5b profits
• As mentioned in the last quarterly management call, they are aiming to scale the battery energy business at 100% per year. In 2018, battery storage will account for roughly $1b revenue at 10% profit. In five years, this is likely to be $32b at 20% profit (approaching parity with the vehicle business). Therefore $6.4b profits
• In 2023, we will have 3 million Teslas on the road, now we should see significant revenue from the superchargers. Lets say 20% of these cars supercharge once per week at an average cost of $30 per user. That is $1b in revenue. If Tesla can use their battery tech to either store solar energy or to siphon off excess energy from power stations at night, then we could see good profit margins here. For now, lets just say 20% again. Therefore $200m profits. This assumes that Tesla does not open up the superchargers to any other car company
• Apps and services. Paid for apps and services can only come once we have full autonomy with some exceptions with regards to possibly music or destination booking (restaurants, hotels etc). So probably we shouldn’t price this in now

So, we are looking at roughly $20bn profits in five years’ time. You can multiply this by 20-30 to get a market cap as the business will still have a long way to grow, so this would be $400bn-$600bn without any mention of Maas. Maas would take it over $1tn

I agree with you. There is way too much emphasis by ARK on self driving for Taxis. We are many years away from that.

- If the car gets into a situation it cannot figure out, what do the passengers do?

- how do you charge the car? It may have enough range for some destinations but not others. I don’t see any snake chargers anywhere. The battery swap may have been a possibility for this.

I want Tesla to be known for their software but moreso their hardware.

 

[SO16]

My point is that Tesla/the special committee will get sued if they approve to go for a vote on 420, even if they find the right investor. 420 is too low.

They will get sued no matter what.

 

[X Fan]

I have read the ARK analysis and I do believe they are nuts. Although the price target of $700 to $4,000 correlates with my opinion, I believe it is for entirely opposite reasons to the ones they state. I will try and explain why.

The ARK analysis relies heavily on the Maas first player opportunity. This is pretty reckless. We have no evidence that Tesla will be anywhere near ready to have fully automated taxis ever, nevermind be “launching the Tesla Network in the next 1-2 years”. I agree that once Tesla can demonstrate a car autonomously driving across the US then this should make the stock price pop because one autonomous taxi can make a lot of money each year, and they would have a complete monopoly on a novelty product, but it is too soon to price any of this in yet.

For me, we get to $700 and $4,000 purely for ramping the manufacturing of cars and batteries:

• In five years, Tesla will be manufacturing 1 million vehicles per year. At average price of $50k and 25% profit, this is $12.5b profits
• As mentioned in the last quarterly management call, they are aiming to scale the battery energy business at 100% per year. In 2018, battery storage will account for roughly $1b revenue at 10% profit. In five years, this is likely to be $32b at 20% profit (approaching parity with the vehicle business). Therefore $6.4b profits
• In 2023, we will have 3 million Teslas on the road, now we should see significant revenue from the superchargers. Lets say 20% of these cars supercharge once per week at an average cost of $30 per user. That is $1b in revenue. If Tesla can use their battery tech to either store solar energy or to siphon off excess energy from power stations at night, then we could see good profit margins here. For now, lets just say 20% again. Therefore $200m profits. This assumes that Tesla does not open up the superchargers to any other car company
• Apps and services. Paid for apps and services can only come once we have full autonomy with some exceptions with regards to possibly music or destination booking (restaurants, hotels etc). So probably we shouldn’t price this in now

So, we are looking at roughly $20bn profits in five years’ time. You can multiply this by 20-30 to get a market cap as the business will still have a long way to grow, so this would be $400bn-$600bn without any mention of Maas. Maas would take it over $1tn

Good write up.

Only caveat I’ll offer is that the world is due for an economic correction some time in next 5 years.

 

[Fact Checking]

- If the car gets into a situation it cannot figure out, what do the passengers do?

There's three main cases:

• If there's some sort of hard failure (vehicle damage or malfunction). In this case passengers are asked to get out of the car safely and wait for another taxi.
• If it's the AI getting confused, then assuming mostly urban/sub-urban environments with ubiquitous network access and GPS fencing for the vehicles I suspect the easiest solution is for there to be a remote/VR interface so that fleet operators can remotely 'drive' the car out of such situations back to a place where the AI can take over again. As long as it's "rare" it's not an expense that should be a problem.
• In the rare cases where a vehicle AI gets stuck where there's no network access then it's similar to the hard failure scenario: service personnel will recover the vehicle and the customers get reimbursed.

Some self-driving solutions can already clock hundreds of miles between "disengagements".

- how do you charge the car? It may have enough range for some destinations but not others. I don’t see any snake chargers anywhere.

I suspect there would be a fleet base. Even without automation of charging the cars could be charged/serviced by personnel at the fleet base. Plugging/unplugging the cars in the stalls won't require a lot of personnel.

I.e. self-driving doesn't have to be 100% automated for it to be an obscenely profitable business, it only has to be much safer than human taxi drivers and has to be automated above a certain critical threshold - and the rest can be bridged with human work. Whoever gets there first and makes the economics work will make a lot of money.

 

[Yggdrasill]

I suspect there would be a fleet base. Even without automation of charging the cars could be charged/serviced by personnel at the fleet base. Plugging/unplugging the cars in the stalls won't require a lot of personnel.

I.e. self-driving doesn't have to be 100% automated for it to be an obscenely profitable business, it only has to be much safer than human taxi drivers and has to be automated above a certain critical threshold - and the rest can be bridged with human work. Whoever gets there first and makes the economics work will make a lot of money.

Agree. A 100 stall supercharger at fleet base with one minimum wage employee responsible for plugging cars in/out would likely be cheaper than any automated solution.

And autonomy doesn't have to work in every condition to be wildly profitable. If you make it work in non-winter conditions in a 30 mile radius of the 20 biggest cities in the world, you can do billions in revenue every month.

 

[Fact Checking]

I feel like the news of the new Tesla chip is huge and along with the hardware updates scheduled to be implemented in the next few months could very well lead to full autonomy within the next two years.

Agreed.

Also note that Elon cautiously mentioned it during Q2 conference call that maybe they'll be able to do the coast-to-coast drive (not a demo!) later this year. Even multiplying that deadline by the usual 2x-3x Elon Time Dilation Factor we could have coast-to-coast FSD sometime in 2019.

And Tesla has a fleet of 200,000+ vehicles they can upgrade to the new 10x faster Tesla AI-chip hardware.

 

[Dan Detweiler]

I wonder what he's dying to tweet? View attachment 328089

Whatever it is, he needs to just keep it to himself at this point. He's been doing great these last few days. Concentrate on running the business, let all the legal crap run its course, keep your head down for now. Giving the haters the silent treatment has gone a long way to keeping the stock at a reasonable level rather than plummeting below $280.

Dan

 

[cricketman]

I do take some issue with the concept of autonomy. Tesla has stated several times that they could have easily done the cross country demonstration as much as a year ago if they had simply programmed the route. This would, however, create a false positive among the public. By your analysis then they could have reaped the benefits of such a demonstration long ago but instead they chose to go with the bigger picture rather than mislead the public into believing the system was "ready"

I meant that if Tesla demonstrated full autonomy then the share price should pop dues to the potential of MaaS. A pre-programmed route wouldn't do that.

We could be two years away from full autonomy, or it could still be 10 years away. We know Elon sets aggressive timelines to help drive innovation among the engineers, hence "Elon time"

 

[Fact Checking]

Whatever it is, he needs to just keep it to himself at this point. He's been doing great these last few days. Concentrate on running the business, let all the legal crap run its course, keep your head down for now. Giving the haters the silent treatment has gone a long way to keeping the stock at a reasonable level rather than plummeting below $280.

His reply tweet from a few minutes ago says:

Elon Musk on Twitter​

"So many saved drafts. So … so many."​

So he's writing tweets but not sending them - which is a really good method!

 

[KarenRei]

What do cruise passenger tourists with 8.5 hours ashore do in either Djupivogur or Seyðisfjörður; no self drive options anywhere near?

Hmm, I'm not sure what car rental options are available in Djúpivogur and Seyðisfjörður are, or what tour companies operate out of the area; I live in the Reykjavík area. Generally when people want to get out and explore the countryside, they use a car.

Now, if you *can* get ahold of a car, I'd be glad to recommend things within driving distance to see

 

[KarenRei]

His reply tweet from a few minutes ago says:

Elon Musk on Twitter​

"So many saved drafts. So … so many."​

So he's writing tweets but not sending them - which is a really good method!

And it's clearly painful to him to be muzzled like this.

It's human nature to want to talk with people. We're social animals. I mean, look what we're all doing here....

 

[Fact Checking]

I have a hypothesis about the hidden meaning behind two recent tweets from Elon:

Elon Musk on Twitter

The Red and The Black

Elon Musk on Twitter

[ Three rows of objects: a globe of the red planet Mars, a black Model S, plus 'snap!', 'crackle!' and 'pop!' Rice Krispies. ]​

I think it's a reference to Tesla profit and loss.

The obvious interpretation of the image would be that Elon now sees (perhaps from internal accounting snapshots) Tesla having passed from red into black, and as a result the fourth, fifth and sixth derivatives of the price (called 'snap', 'crackle' and 'pop') will go insane: i.e. a TSLA price spike, a step function of TSLA gapping up.

Speculation only.

 

[jw934]

But if the TSLA price does not significantly exceed $420 before the shareholder vote is held then they wouldn't have much of a case: if TSLA is worth more than $420 then sure the market would reflect that, right?

Dell paid $13.96 per share to match the highest competing bid, which was a 28% premium over the stock price on the day before news of the merger deal first leaked, and a 39% premium over the 90-day average stock price before that date. But they lost the case. The judge determined the "fair value" at $17.62 using the method I quoted. The company then had to pay the difference to shareholders who voted No. If Dell only won by 51% of the vote then the penalty would come to $3B. But they got lucky in that most voted Yes and the net penalty was only $35 million. Tesla will need to work out the math on the chance that the plaintiff will win, the % that will vote No, and what the judge will decide as the "fair value" minus the offer price.

 

[Fact Checking]

The judge determined the "fair value" at $17.62 using the method I quoted.

Note that Dell had robustly positive cash flow leading up to the private buyout, while Tesla does not.

Unless Q3 are Q4 are going to be blow-out quarters pretty much any cash flow based valuation would undervalue Tesla.

 

[jw934]

Hmm, I'm not sure what car rental options are available in Djúpivogur and Seyðisfjörður are, or what tour companies operate out of the area; I live in the Reykjavík area. Generally when people want to get out and explore the countryside, they use a car.

Now, if you *can* get ahold of a car, I'd be glad to recommend things within driving distance to see

Instead of driving we hired a driver/local guide to take us around. Worked out great for my group of 8. If only 2 guests then it would have been much too expensive.