What's already baked in to the share price?

[green1]

One of the items that analysts frequently cite in regards to TSLA is that the price can't be justified by today's production. And I don't think any of us really disagree. The valuation of TSLA isn't for what they are doing right now, it's for what they are doing in the future. The risk of course here is that it's hard for a stock to go "up" if you're already factoring in quite a bit of the future, and even more so, it means any slight miss causes a huge fall, even if the company is doing really well.

So I guess my question is, where do you think the price is now? Are we priced to include Model X? Gigafactory? Model III? Vehicles even beyond that? Grid storage?

How much are we already priced in to TSLA? and just what do they need to be able to do to be worth an even higher valuation?

(Disclosure, I believe strongly in Tesla, and I'm long TSLA)

 

[uselesslogin]

One of the items that analysts frequently cite in regards to TSLA is that the price can't be justified by today's production. And I don't think any of us really disagree. The valuation of TSLA isn't for what they are doing right now, it's for what they are doing in the future. The risk of course here is that it's hard for a stock to go "up" if you're already factoring in quite a bit of the future, and even more so, it means any slight miss causes a huge fall, even if the company is doing really well.

So I guess my question is, where do you think the price is now? Are we priced to include Model X? Gigafactory? Model III? Vehicles even beyond that? Grid storage?

How much are we already priced in to TSLA? and just what do they need to be able to do to be worth an even higher valuation?

(Disclosure, I believe strongly in Tesla, and I'm long TSLA)

I think Tesla guided to ultimately reaching 10-15% net margins since their IPO so if you figure out how many cars they will make and what the ASP will be you can see how much they will earn. My opinion is they are priced for what they say they will do right now. That is 100,000+ cars in 2016 and 500,000 cars in 2020. So in my case I think the stock is a good deal because I think they will be releasing an 800+ HP AWD Model S supercar, Model X will be considerably better than the Model S, Model 3 will sell 1,000,000 by 2020, grid storage will be big, etc.,etc., etc.

 

[gg_got_a_tesla]

I think the first couple of years of the X and the Gigafactory planning and initial buildout alone are factored in currently. Looking at it from a market cap point of view, I'm looking at a 60B number for Tesla in 2018 when the 3 is out and selling in numbers and the GF is humming along nicely.

 

[Robert.Boston]

Everything is factored in--but at various discount rates. It's all about probabilities, not 0/1 factors.

 

[pz1975]

Everything is factored in--but at various discount rates. It's all about probabilities, not 0/1 factors.

This is exactly what I was thinking but couldn't come up with such a nice concise explanation.

 

[green1]

But what sort of discounts?

Where do you see the stock value if Tesla executes exactly everything that they have guided so far (and assuming the extremely unlikely event that no new announcements are made beyond what is already known)

 

[flashflood]

But what sort of discounts?

Where do you see the stock value if Tesla executes exactly everything that they have guided so far (and assuming the extremely unlikely event that no new announcements are made beyond what is already known)

I really like Tesla as a company, so I'd love to buy a ton of TSLA as a gesture of support. But I've learned the hard way to separate love and money. A couple of observations:

(1) In general, growth gets harder with size. Growing from a market cap of $1B to $10B is fairly common. Growing from $10B to $100B is rare. Growing from $100B to $1T has never been done. The reason it gets hard is that at some point, you can't just scale what you already have: you have to add something new, and creating a new line of business worth billions takes time. With a market cap of $30B, the easy part of the growth curve is over. To get 10x from there, you're talking Apple and Google valuation levels -- and those are companies that touch everyone.

(2) The current valuation can only be justified if Model 3 is a huge success. If the total Model S/X market is say 100,000 new vehicles per year, and Tesla nets $10,000 on each sale, that's $1B in earnings. That gives them a P/E of 30, which is pricey unless they're growing at 30% annually (which gets harder every year due to point (1) above). One can debate the exact numbers, but they're in this ballpark. Model 3 is the potential game changer because it's a volume product. If they sell 1M cars a year at $5k profit each, that's another $5B in earnings, and all of a sudden a valuation of $100B doesn't look crazy. But that will take some time. Any future upside due to new lines of business (e.g. grid storage) is even further out, and more speculative.

(3) Success isn't linear, and markets are fickle. Both TSLA in particular, and the market as a whole, feel like bubble territory. History may prove me wrong, but I'm mostly in cash right now because I just don't see the next year as a smooth ride. When everyone agrees that we're in a bull market, and the only real risk is being left behind by not buying in, that's the time to sell. I'd be willing to bet money -- well, actually, I *am* betting money -- that there will be much better buying opportunities in the next 12-18 months.

 

[Matias]

Flashflood, exatly my thoughts on 1 and 2. I'm Tesla (and SpaceX) fan, but I think TSLA is not a good buy at the moment.

 

[Robert.Boston]

But what sort of discounts?

Where do you see the stock value if Tesla executes exactly everything that they have guided so far (and assuming the extremely unlikely event that no new announcements are made beyond what is already known)

If we knew for certain that everything was going to go just as Elon has foreseen, out to 2020, then I think the stock is a good buy. In that world, Tesla is selling 1M units with an ASP of $60k and net margins of 15%, or $9B in annual profits. At a P/E of 20, the company's value would be $180B, about the same as Toyota's today. Allowing for some dilution as new capital is raised to build factories, that would put a 2020 stock price at $750-$1,100. That would support a current price of 2x-3x of where we are now.

So, the market is applying a 70-50% discount factor to the perfect execution case, in round numbers.

I'm more bullish than that, so I'm way overweight in TSLA. Certainly not all-in, however, or even close to all-in.

 

[ecarfan]

I would keep in mind that Tesla is not simply a car company, it's an energy storage management company that happens to sell cars. The energy grid storage market is, long term, possibly a potentially bigger market than vehicles. While Tesla is not actively promoting and selling battery storage products right now, they have systems that are operational and work well, and once battery supply constraints are lifted over the next ten years I believe they will be able to create phenomenal growth and revenue from grid storage products.

 

[green1]

Thank you everyone for your thoughts, and specifically to Robert Boston for answering just what I was looking for. I understand the risks well, and I am well aware that it is much simpler to go from small to medium than it is to go from medium to huge. What I was looking for here was not the likelihood of success, or where they plan to go next (that's discussed many other places) but simply an understanding of where today's stock price is in relation to where it would be if Tesla did everything it had already committed to doing.
This was mainly just out of curiosity though, I have the stock I bought just after the battery fires when it was in the 130 range, and plan to keep that, but I'm always leary of putting too much of my portfolio in any one stock, regardless of what I think of the company, so until my portfolio grows some more, it's unlikely I will be growing my position any.

 

[CHGolferJim]

Green1 - a wise approach, even while in agreement with Robert.Boston. I'm late to the party on the stock, but still considering purchase at these lofty levels of a 1.0%-1.5% position. Will probably place in Roth IRA = long-term money. I'm trying to convince myself that the recent news in the 2Q results and conference call (particularly GF details) are confirmation that several of the major initiatives will indeed occur.

I believe a share price reflects the weighted average view of buyers and sellers re FUTURE prospects, each of which has their own view of the probabilities of each event. Some things are overlooked, there are +/- surprises, and most peoples' projections are wrong, so whether any current price is a stretch or a good value relates to where the individual buyer is vs. the consensus view, and of course the future actual results. Then we all sit back and watch the unexpected happen. If the stock goes to $750, it doesn't matter whether you purchased at $200 or $240.

 

[ItsNotAboutTheMoney]

I would keep in mind that Tesla is not simply a car company, it's an energy storage management company that happens to sell cars. The energy grid storage market is, long term, possibly a potentially bigger market than vehicles. While Tesla is not actively promoting and selling battery storage products right now, they have systems that are operational and work well, and once battery supply constraints are lifted over the next ten years I believe they will be able to create phenomenal growth and revenue from grid storage products.

I think energy stirage is the really big deal because
a) energy storage would be far more cost-sensitive to battery pricing than cars, so low pricing with any kind of measurable lead could give them a dominant position.
b) Tesla and SolarCity have a very deliberate and strategic tie-up
i) should SolarCity maintain its lead and growth Tesla could have a large, reliable market
ii) Successful PV+backup would essentially eliminate limits on PV capacity with potential to disrupt the current electricity pricing model. Any shift in pricing to service+demand+supply for residential consumers would favor BEV, and long-range BEV in particular.

 

[Robert.Boston]

While I agree that the energy storage business could be a big and complementary business, it's not formally announced, so I didn't bake it into my calculation. That's an example of further upside available to Tesla investors; of course, there are a lot of potential downsides, too, though none that take the stock below ~$120 IMO. So, it's a very asymmetric risk, skewed towards big payoffs.