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Why invest in Tesla (KarenRei)

Discussion in 'TSLA Investor Discussions' started by FS_FRA, Nov 6, 2018.

  1. FS_FRA

    FS_FRA Member

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    I've been looking around TMC (and I admit maybe I'm just to stupid to find it...), but is there a one-page summary or something like that here that gives all the rational reasons for investing in Tesla? For a first-time $TSLA investor.

    My wife is getting some cash freed-up, and I'm trying to convince her to put it in $TSLA....but she doesn't have the time to read through this forum etc. and I would prefer to give her a neutral view (or as neutral as we can be here on TMC), as oppose to my fan-boy slanted view...
     
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  2. Lessmog

    Lessmog Active Member

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    Cueing @TT007 ... ;) Just kidding! :cool:
    @ValueAnalyst ValueAnalyst (@ValueAnalyst1) | Twitter has a lot of valuable material both on Twitter and on their new Patreon channel.

    Apart from Saving the Planet etc, Tesla has a unique position, just leaving a phase of massive capital use for investment (which many call "cash burn") and starting to make money hand over fist on Model3, best-selling car in US it its own and adjacent categories before it even has debuted in other markets. Completely without paid ads. No more capital raise needed, all natural expansion! Projected profitable all quarters from here on out. Tesla is out of the woods, except for forces majeures.

    And that is ignoring all new products coming soon, some of which are known but others not (semi truck, solar roof, home, industrial and utility batteries). As well as the slowly awakening but gigantic Energy market, could be as big as the cars.

    Also ignoring the (slim) chance of a real short squeeze, pretty soon many more investors will see the value in tsla, and after a few quarters profit tsla will probably be included in stock indexes which many funds are bound to follow -- another large category of buyers to the few shares actually on sale! These factors must surely increase share price considerably within a year or less?

    But I think the absolutely best sell is a test drive. You may not find a 3 yet where you are, so try an S or X -- unless you already have; in which case the wife should not hesitate! :D

    Oh and what Carl and EVM said, I type too slow.
     
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  3. KarenRei

    KarenRei KarenRei KarenRei KarenRei KarenRei KarenRei

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    I'll throw in my two cents.

    Part 1: Why Invest In EVs?

    Overwhelmingly, people are realizing that EVs are the future. Even traditional automakers are acknowledging this, although many try to push out the timeline as far into the future as they can.

    New product launches tend to follow sigmoid functions (so-called "S-curves")

    [​IMG]

    EV growth rates are following the classic S curve that solar is in the middle of running and which wind took before it. In Norway, over half of all new vehicle sales are electric. Here's a graph from just last year that's already well obsolete:

    [​IMG]
    [​IMG]
    EVs are far superior to ICE vehicles in many ways. The battery cost is constant (and rapidly falling, with no signs of stopping any time soon), but adding more power is much cheaper than in ICE vehicles. EVs have low centres of gravity and low polar moments of inertia, giving them excellent driving dynamics. The lack of a large, incompressible engine block in the front means that there's more room that the frame can fold into up front, improving crash safety, while the low centre of gravity resists rollover. Despite the hyperventilating press, fires are nearly an order of magnitude less common in EVs - which should be expected, given that gasoline vehicles literally operate via having a big tank of highly flammable liquid and lines full of the stuff snaking around the car, up to an engine so hot that it can ignite brush. Also, despite the public perception of many people with no EV experience, an EV charged at home is a massive convenience benefit vs. ICEs. I've known people that for varying reasons have had to go back to driving an ICE, and they've gotten re-used to the rumbling and noise, having to "start" the thing, it trying to roll forward, no regen when stopping, etc, etc. But the one thing they almost never seem to be able to shake is the annoyance at being made to have to randomly detour to gas station

    Then of course there's the fact that numerous governments around the world are aggressively pushing for them due to climate and emissions reasons. Dieselgate moved this push into high gear. Many are looking at outright bans for ICEs 10-20 years in the future. The problem for ICEs is that even without this, as EVs take over on the streets, gas stations - which were already on a downtrend - will continue getting rarer, making operating an ICE more and more expensive and inconvenient, while EVs get cheaper and more convenient. It's a viscious cycle that will kill ICEs in many areas even if public opinion or governments wouldn't. Get used to "Last Chance For Gas" signs, ICE drivers.
     
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  4. FS_FRA

    FS_FRA Member

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    Thank you
     
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  5. avoigt

    avoigt Active Member

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    #5 avoigt, Nov 6, 2018
    Last edited by a moderator: Nov 6, 2018
    • Only company where customers wait years to get the product
    • No true competitors visible yet or even companies with a me too approach
    • Strongly loved product and true disruptor
    • Demand is unreal and just grows from here
    • Best test results ever in safety and efficiency
    • True vertical integrated company with lost of upside in costs
    • Only company with a global fast charging network on large scale in place today
    • Clean tech and good for environment with no real trade off
    • Unbeaten battery technology (charging and efficiency)
    • Only company who builds enough Battery production plants to deliver
    • Largest producer of EVs in the US by revenue and units
    • Only company that plans to produce carbon free vehicles end of 2019
    • Passionate CEO, Executive team and employees
    • Passionate customers who sell the cars and support delivery for free
    • Unbeaten margin in automotive for that size and output of a company
    • Cash cow M3 rolling out now to all continents
    • Most exciting and best product pipeline in the world (Y,Semi,Roadster2, Truck a.o.)
    • Managed profit in Q3 and will continue to print money in 2019
    • Unreal growth rate in units and revenue
    • Many moats including vertical integration, battery technology a.o.
    • Largest provider of autonomous technology in cars globally by units
    • Market leader in industry Battery technology
    • Only company with an own production facility in China in Automotive panned for 2019/20
    • Underrated TE unit with exciting products to be rolled out like solar roofs
    • Strong under expectation of the market in products, demand, growth revenue, profit and SP
    .....and many other I just do not have the time any more to list.

    If all of that does not help I offer to have a call with her in German. Feel free to PM me.
     
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  6. KarenRei

    KarenRei KarenRei KarenRei KarenRei KarenRei KarenRei

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    #6 KarenRei, Nov 6, 2018
    Last edited: Nov 6, 2018
    Part 2: Why Tesla, Specifically?

    All EV makers are not the same.

    Pretty much every automaker produces at least one electric vehicle. They need to - not just for PR reasons, but because it gains them access or discounts in various markets, due to ZEV regulations. But there's a difference between "making an electric vehicle" and "making a serious attempt to actually switch to EVs".

    Traditional automakers are heavily invested in ICE technology. Their existing platforms are all designed around ICEs. They usually make their own engines. Indeed, these two things are the vast majority of what a traditional automaker actually owns; they outsource most of the parts that can be used in either EVs or ICEs to other suppliers. If they undercut ICEs, they devalue their billions upon billions of investments; it would ruin them. It's in their best interests to slow down the EV conversion as long as possible, so that their existing facilities can depreciate on their own and go through their normal cycle lives.

    Enter the "compliance car".

    Making an EV profitable is very different from simply making an EV. A manufacturer could make EVs that cost them half a million dollars each to build, sell them for $15k, and so long as the volumes are low, justify that via the PR or ZEV benefits they get for those vehicles. That doesn't make them actually "$15k cars". Manufacturers limit sales by making only small volumes available. This is achieved in various ways - for example, "long waiting lists that don't diminish because production increases are kept slow", "We're going to pretend that it's actually available in your market although we're not actually sending many/any", or even just "Look, we're not even going to pretend; it's only going for sale in ZEV states where we need to move them." Oftentimes dealers are left uneducated about EVs and with financial incentive to drive EV buyers to ICE vehicles. Ads for EVs are often minimal or counterproductive or market-selective. And often the vehicles themselves are designed to only appeal to a narrow subset of buyers, such as by lacking range or true fast charging.

    This is not Tesla.

    Tesla, as a company, lives or dies on EVs. It has no ICE infrastructure. It must profit healthily on EVs, and its EVs must be appealing, made widely availalble, and marketed by people who are not just going to try to push people to ICEs. And this shows. As you can see in their most recent Q3, Tesla earns over 20% margins (and growing) on its automotive business, well en route to 25+% (many automakers are happy to get 10-15%). Shorts will (rightfully) point out that this is misleading because Tesla has to pay for stores, while other automakers pass such costs off to dealerships. But this is only a small portion of Tesla's expenses. Tesla is now profitable - having a free cash flow of nearly a billion dollars last quarter - and now has the resources to direct money into pretty much whatever it sees fit. These resources will only continue to grow. Model 3 margins are far from maxed out. Q3 Model 3 volumes can double at minimal cost (no new lines) at Fremont, to an average of 7k per week on the limiting lines, and 10k per week on the non-limiting lines (the output of which can be used to speed up the start of new factories in China and Europe).

    Do people actually want Teslas? Um... let's let this speak for itself:

    10 Nasty Tesla Model 3 Charts | CleanTechnica

    upload_2018-11-6_12-22-35.png

    upload_2018-11-6_12-23-33.png

    upload_2018-11-6_12-24-31.png

    [​IMG]

    Note how obscenely Tesla is crushing its competition. This is not a coincidence. They make great cars. Not simply fast and long range, but with a vastly superior (years ahead) charging network (one that actually enables realistic roadtrips, unlike the barely-visible "competition"), OTA updates, etc. Tesla leads every year in consumer satisfaction surveys, over 90%, versus an industry average closer to 2/3ds.

    Shorts inevitably launch into the "Meh, demand will dry up soon!" argument. But of course, it's the same nonsense argument they make every time. The reality is:
    • Tesla is far from selling its cheapest version yet (independent teardowns suggest that the $35k Model 3 will cost $28k to make once production volumes hit their peak). Market size grows vastly as prices drop
    • Tesla is only selling to a fraction of its global market (US + Canada)
    • Tesla is not yet offering leases - the way that most people buy cars
    • Stores are currently spread far and wide, as Tesla has had no need to push the vehicles more
    • Much of the world remains entirely untouched by Tesla.
    • Tesla does not advertise at all
    • Most people prefer not to buy cars in their first model year or two
    • Word of mouth spreads exponentially over time as the number on the roads grows.
    Even the main thing that they hold against Tesla - the notion that the US (note: just the US) tax credit will start expiring for them isn't certain.

    The best way you can tell how serious an automaker is about EVs, vs. just being hype, is their secured battery capacity. As batteries are everything to EVs. Gigafactory alone makes half of the world's total battery supply. And that fraction is growing. Add in the Panasonic 18650s that are exclusively made for Tesla and they have 60% of the world's total supply. How can you take the "competition hypothesis" seriously when one company so utterly dominates the market?

    While the shorts have been out screaming "Tesla has been burning money", Tesla has been investing that money in tech and infrastructure. And it's payed off in a several year advantage over its next closest competitors. Check out the teardowns of the Model 3s; people seeing how they tick for the first time have been describing them like encountering tech from another planet. Nobody is even close. Now we keep seeing automakers targeting "where Tesla is today" with vehicles that will be out "several years from now". Except Tesla is not, and never will, just rest on its laurels; this show is only getting started. Unlike other automakers, Tesla does not pay a dividend, and will not until it's basically "taken over the world". This lets them redirect all of their profits into tech and growth.
     

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  7. 9837264723849

    9837264723849 Member

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    What's your investment horizon? How would you react if you lose everything? I'm asking this because I'd first explain to her that TSLA remains a very risky investment (however worthwhile it is). Your relationship / your mutual trust is far more valuable that potential gains, so you've got to make sure that you both know that Tesla might go banwupt at some point.

    NB: TSLA ismy only financial assets I own (since 2012) so rest assured that I'm not trying to dissuade you in any way. Just my 2 cents.
     
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  8. KarenRei

    KarenRei KarenRei KarenRei KarenRei KarenRei KarenRei

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    Part 3: But Wait, There's More

    There's a curious notion that a back-of-a-napkin valuation for Tesla can be gotten by taking the world's most valuable automaker - Toyota - treating it as though that's the most valuable an automaker can get, then slashing the price way down to account for the risk in Tesla getting to that point - and bam, you get that Tesla is only worth $20-70B.

    Except it doesn't work that way.

    First off, the entire global auto industry is growing, as the developing world industrializes; this will continue to grow the largest automakers. But the more key aspect is that EVs are a technological shakeup of the auto industry. Whenever a new tech takes over an industry, those who were late to the party die off and/or get gobbled up by the winners; the largest players get bigger while the smaller players disappear. This also increases the maximum market cap.

    But we're just getting started.

    Tesla is not just an automaker; some people jokingly refer to it as a battery maker that also happens to make cars. And while its grid storage products are currently not the profit stream its cars are, it's looking more and more like these are going to turn into a massive, massive market. We're talking a multi-trillion dollar market that Tesla is in effect creating. Powerpacks have shown themselves capable of providing much better quality of service, at a lower cost, than traditional fossil fuel-powered peakers. Meaning, they're going to be putting these peakers out of business around the world. Yet this is with Powerpacks selling for ~$300/kWh. Tesla's cell costs are rapidly approaching $100/kWh, and will be less than that next year. Now we're not talking just replacing peakers to give baseload a chance to ramp, we're talking about things like storing the power for an area all night.

    Cheap batteries are going to revolutionize almost everything. Not just transportation (picture the gigawatt-hour-sized battery packs in a Maersk Triple-E cargo ship running on electricity!), but a whole host of random things you wouldn't even think of. A random example can be seen in Musk's Boring Company. A significant cost in boring a tunnel is laying kilometers of the ~1-2 MW power lines to run the TBM. But assuming a 2-hour swap cycle, you could run them with batteries (2-4 MWh) which cost less than half a million dollars. All across industry, opportunities like this are going to start presenting themselves; it's a complete game changer.

    Meanwhile, let's talk solar roof. It often gets derided as a no-show, as Tesla has kept testing low-key while focusing its money on ramping the more short-term revenue source that is the Model 3. This will change next year. And I bring up this product for one key reason. Increasingly, the cost of rooftop solar is not solar panels (which keep falling in price), but rather labour. When you make a solar roofing product, you change out "labour to build a roof plus labour to add on panels" to simply "labour to build a roof". For new construction, add-on panels simply will not be able to compete, so long as Tesla can get its tile prices down enough over time. And since the tiles look "normal", there's little reason not to install them at build time. Tesla could in effect be creating the default way we make home roofs. Another multi-trillion dollar market out of thin air.

    Then there's autonomous driving. I'm a timeline pessimist when it comes to this, but even I can see that whenever they get it done - and IMHO, it is just a matter of time, of refining neural nets, increasing their power, amassing an ever-larger dataset, dealing with edge cases, enhancing sensor suites when deficiencies are found, etc etc - we're talking about another multi-trillion dollar industry. Uber on steroids.

    Then there's the product streams that haven't even been announced yet. Because come on, let's not kid ourselves, this is Elon we're talking about.

    Just the automotive side alone is reason that this company is vastly undervalued (by people who just can't believe that the world could be changing this quickly and that an upstart could do it - which is always the way these things go). But some of these other product streams might even eclipse the automotive side some day.

    ----------------------------

    Anyway, this is the Cliffs Notes of my investment thesis.
     
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  9. FS_FRA

    FS_FRA Member

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    Investment horizon is long term (10-20 years if need be)
     
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  10. Fact Checking

    Fact Checking Active Member

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    Fantastic post!

    Small update: in Q3 Tesla generated $1.4b of cash from operations on $6.8b of sales, which is a 20.5% cash generation margin, corporate-wide.

    I.e. it's twice as good as ICE automotive, which generates about 10% of cash. Stores overhead included. I.e. by vertically integrating car dealerships Tesla is able to catch both types of profits with a single sale - while offering superior customer experience.

    But it's even better: GM and Ford generate about half of their free cash and profits from ''captive financing", i.e. loans and leases offered through GM Financial, etc. If we take out that source of income, which Tesla doesn't fully utilize yet, their margins are 5-6% only. Tesla's 20-25% is obscenely high that allows them to grow much faster - without having to worry about undermining its ICE product.

    i.e. Tesla generates cash like Apple does - the Model 3 is truly an "iPhone moment", except that Tesla is growing into a 10-20x times larger market than all of Apple's markets combined...
     
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  11. neroden

    neroden Model S Owner and Frustrated Tesla Fan

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    Very brief summary:
    (1) electric cars are flat-out better than gasoline cars
    (2) There is far more demand for electric cars than there is supply, so there are waiting lists for electric cars
    (3) Tesla has the best electric cars
    (4) Tesla has the cheapest manufacturing process for electric cars, so the highest profit margin on them
    (5) Tesla is making the most electric cars
    (6) Except for some Chinese companies, other companies are dragging their feet and trying to avoid making electric cars
    (7) THEREFORE, Tesla will end up with a very large market share and very high profit margins of the future all-electric car industry

    (8) Something very similar is happening with stationary storage batteries.

    I hope this is a sufficiently simple bull case to explain to your wife.
     
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  12. winfield100

    winfield100 Active Member

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    @neroden @FS_FRA
    you left out the absolute number of kWh and % of batteries used in pure EV's in 2018
    upload_2018-11-6_8-49-50.png
     
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  13. FS_FRA

    FS_FRA Member

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    Vielen Dank!
     
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  14. FS_FRA

    FS_FRA Member

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    Thank you @neroden
     
  15. FS_FRA

    FS_FRA Member

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  16. schonelucht

    schonelucht Active Member

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    That'd explain it. But then it's pretty misleading to use those numbers to build an investment thesis for an international competitive market.
     
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  17. Intl Professor

    Intl Professor Active Member

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    Absolutely brilliant and eloquent display of talent on TMC in defending investment in Tesla. All, battery, technology, trend setting, etc., are persuasive to me because of their practicality, especially as an investor in Tesla since 2010 based principally on battery technology as of then, and ownership now of an M3 since I'm an unsafe driver due to age.

    I don't mean to denigrate my wife's approach or your wife to the car, but our concern here only for those practical benefits. I never buy for aesthetic reasons. Thus remarkable to me is the cars are good to look at. My wife insisted on a red car, I always buy white ones since they don't advertise dirt so well. My wife insisted on the cyclone wheel upgrade (or whatever they are called) and now remarked how well the wheels show off the car. (That aesthetic appeal is a pain in the butt for me because it is very difficult to get in and out due to the low profile, obesity, arthritis, yada, yada, but I'm continually amazed that people like the looks of the car!)

    There are a lot of reasons to compare Apple and Tesla, some apt, some just wish fulfillment. One common characteristic is that both Elon Musk and Steve Jobs demand(ed) beauty in the products of their companies. Musk has formidable additional advantages in technical and financial brilliance.
     
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  18. Buckminster

    Buckminster Member

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    I have thought the same many a time. The answers that you have received certainly do the job. However, I still believe there a remains a gap in the market for a 5 page document that relatively succinctly pulls together some of the more nuanced information in a simpler manner and in one place. In could include:
    1) Top level worldwide politics/tariffs - why we are going Elec etc. plus change of laws already made
    2) Roadmap of technology and products linked to:
    3) Basic finance estimates going out 5 years
    4) Share price projection based on finances - DCF from 5 years etc.
    Plenty of quality infographics to make it readable for the average fund manager.
    What is Mr Factchecker doing this weekend?
     
  19. Rockster

    Rockster Active Member

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    I apologize if someone suggested this up-thread and I missed it but the Citron whitepaper in which Citron Research reverses their position on Tesla is a compelling read.

    There's something specifically compelling about a former Tesla bear eating crow and becoming a bull. (Did I incorporate enough animal references in that sentence?)
     

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  20. EinSV

    EinSV Active Member

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    #20 EinSV, Nov 6, 2018
    Last edited: Nov 6, 2018
    To add to some of the points above, Tesla has consistently been the fastest growing large technology company by far in the U.S. (maybe anywhere), growing at well over 50% per year over 3, 5 and 8 year periods. No one else comes close, not Amazon, Google, Netflix or even Facebook.

    With just the known pipeline and the competitive advantages outlined in posts above, IMO there is every reason to believe similar growth can continue for the foreseeable future -- at least the next five years. If it can execute on its product roadmap, in five years (2023) Tesla could have revenues of $130B+ and operating margins of 10%+ (they were already at 6.1% in Q3). Depending on what valuation metrics you apply that could easily translate into a company worth 5-10X+ more than the market cap today, and still with plenty of room to grow.

    More details are in this thread Tesla is an Undervalued Growth Juggernaut
     
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