TSLA - Tesla Motors

[gary17]

Byd is supposedly selling buses in London if I recall.  I just don't se tesla. I do see them in Vancouver only. But that's because we are on the west coast, more "green" ...

 

Not disagreeing tesla might be doing better. But counting on the street in one region is not a good test.  Same test as counting bb10 phones in Canada means nothing.

[ERICOPOLY]

Byd is supposedly selling buses in London if I recall.  I just don't se tesla. I do see them in Vancouver only. But that's because we are on the west coast, more "green" ...

 

Yep, no BYD cars in the "green" area, where electric cars have the most promise.

[JBird]

I did some math on what Tesla the business has to do to justify the current market cap of $31 billion.

 

The question I'm asking myself is if I bought Tesla today for $31 billion, can the company deliver enough profit to me, soon enough, to make it a sensible investment.

 

I'll define "soon enough" as 30 years, and "sensible investment" as one that delivers a 10% annual return (as it happens this has been the approximate market return from equities over the past 50 years). I'm going to define "profit" not as GAAP Net income, but as owner earnings. That is, the amount of money the company earns that could theoretically be paid out to owners as a dividend and still leave the company healthy enough to maintain it's unit volume production and competitive position.

 

Last year Tesla made zero GAAP net income, but if they spent 50% less in research and development, they could have paid out roughly $30 million in dividends. This figure is a sensible estimate for owner earnings and we'll use this as a base going forward.

 

I'll start by estimating next year's owner earnings (Year 1 of 30) to be $30 million. The question then becomes, how fast must owner earnings rise over the following 29 years to justify a purchase price of 31 billion dollars?

 

Well, the answer is 32% compounded annually. Is this type of growth achievable? We're going to find out.

 

Given our investment return parameters and the $31 billion price tag, Tesla needs to be earning 360 million dollars after-tax in 10 years. Given corporate tax rates, this means it needs to be earning 550 million pre-tax. How many cars does it need to sell in Year 10 to earn $550 million? If the gross margin on their mass-market car is an optimistic 25%, they can sell a car for 40k that they make for 32k, and every car will generate an 8k gross profit.

 

Now I'm going to estimate that SG&A expenses as a percentage of gross profit run at 50%. (The average among BMW, Volkswagen, Toyota, Ford, and Hyundai is 60%) I'm going to rather optimistically say that SG&A expenses cover all operating expenses. How many mass market cars must be sold to generate a pre-tax profit of $550 million in 10 years? The answer is 137,500 cars. Achievable? Yes.

 

In 20 years, Tesla must be making 5.8 billion after-tax, or $8.9 billion pre-tax. How many cars must be sold that year? 2,225,000. Achievable? It's possible.

 

In 30 years, Tesla must make $94 billion after-tax, or $144.6 billion pre-tax. How many cars must be sold in year 30? 36.15 million. To put this number in perspective, in the entire world, 82.84 million vehicles were sold last year. In 30 years Tesla must occupy 43.6% of today's global automobile market.

[rkbabang]

Anyone on this board make a lot of money on tesla stock?

I made zero as I never bought  a share.

I thought about buying a small amount after the ridiculous media coverage over the fires but never did.

The stock has doubled since then.

 

This is in the exact same category as Amazon.com, in that I've been following it since the beginning and never bought a single share.  Like Amazon, I'll probably follow it for decades (and maybe even be a customer eventually), but never own it.  I have a feeling that regardless of how much it grows or how well the company does the stock will never be cheap, because people like the story and they like Musk. It will be cheap if something happens to Musk (he gets hit by a bus or something), or it fails miserably (another company emerges with a much better technology and Tesla can't keep up), and if either of those things happen I wouldn't want to own it anyway.  People will post all kinds of things about what it would need to do to justify its price, the problem is that people where saying that when it was $30/share and they may still be saying that still in 10 years.  This just isn't a value stock and it won't be.

 

[Liberty]

Gigafactory details:

 

http://www.teslamotors.com/sites/default/files/blog_attachments/gigafactory.pdf

 

+

 

http://www.teslamotors.com/about/press/releases/tesla-announces-16-billion-convertible-notes-offering

[ERICOPOLY]

I did some math on what Tesla the business has to do to justify the current market cap of $31 billion.

 

The question I'm asking myself is if I bought Tesla today for $31 billion, can the company deliver enough profit to me, soon enough, to make it a sensible investment.

 

I'll define "soon enough" as 30 years, and "sensible investment" as one that delivers a 10% annual return (as it happens this has been the approximate market return from equities over the past 50 years). I'm going to define "profit" not as GAAP Net income, but as owner earnings. That is, the amount of money the company earns that could theoretically be paid out to owners as a dividend and still leave the company healthy enough to maintain it's unit volume production and competitive position.

 

Last year Tesla made zero GAAP net income, but if they spent 50% less in research and development, they could have paid out roughly $30 million in dividends. This figure is a sensible estimate for owner earnings and we'll use this as a base going forward.

 

I'll start by estimating next year's owner earnings (Year 1 of 30) to be $30 million. The question then becomes, how fast must owner earnings rise over the following 29 years to justify a purchase price of 31 billion dollars?

 

Well, the answer is 32% compounded annually. Is this type of growth achievable? We're going to find out.

 

Given our investment return parameters and the $31 billion price tag, Tesla needs to be earning 360 million dollars after-tax in 10 years. Given corporate tax rates, this means it needs to be earning 550 million pre-tax. How many cars does it need to sell in Year 10 to earn $550 million? If the gross margin on their mass-market car is an optimistic 25%, they can sell a car for 40k that they make for 32k, and every car will generate an 8k gross profit.

 

Now I'm going to estimate that SG&A expenses as a percentage of gross profit run at 50%. (The average among BMW, Volkswagen, Toyota, Ford, and Hyundai is 60%) I'm going to rather optimistically say that SG&A expenses cover all operating expenses. How many mass market cars must be sold to generate a pre-tax profit of $550 million in 10 years? The answer is 137,500 cars. Achievable? Yes.

 

In 20 years, Tesla must be making 5.8 billion after-tax, or $8.9 billion pre-tax. How many cars must be sold that year? 2,225,000. Achievable? It's possible.

 

In 30 years, Tesla must make $94 billion after-tax, or $144.6 billion pre-tax. How many cars must be sold in year 30? 36.15 million. To put this number in perspective, in the entire world, 82.84 million vehicles were sold last year. In 30 years Tesla must occupy 43.6% of today's global automobile market.

 

Some more math:

 

500,000 vehicle volume in 2020

$10,000 average profit per vehicle before tax

 

That's $5 billion profit, before tax.

 

Give it a 25% tax rate, for $3.75b.

 

So the stock today trades at 8.3x 2020 earnings.

 

2020 vehicle volume estimate comes from here:

http://www.teslamotors.com/sites/default/files/blog_attachments/gigafactory.pdf

 

So it's cheaper than the index.  Assuming the above math/assumptions is right.

 

[blainehodder]

I did some math on what Tesla the business has to do to justify the current market cap of $31 billion.

 

The question I'm asking myself is if I bought Tesla today for $31 billion, can the company deliver enough profit to me, soon enough, to make it a sensible investment.

 

I'll define "soon enough" as 30 years, and "sensible investment" as one that delivers a 10% annual return (as it happens this has been the approximate market return from equities over the past 50 years). I'm going to define "profit" not as GAAP Net income, but as owner earnings. That is, the amount of money the company earns that could theoretically be paid out to owners as a dividend and still leave the company healthy enough to maintain it's unit volume production and competitive position.

 

Last year Tesla made zero GAAP net income, but if they spent 50% less in research and development, they could have paid out roughly $30 million in dividends. This figure is a sensible estimate for owner earnings and we'll use this as a base going forward.

 

I'll start by estimating next year's owner earnings (Year 1 of 30) to be $30 million. The question then becomes, how fast must owner earnings rise over the following 29 years to justify a purchase price of 31 billion dollars?

 

Well, the answer is 32% compounded annually. Is this type of growth achievable? We're going to find out.

 

Given our investment return parameters and the $31 billion price tag, Tesla needs to be earning 360 million dollars after-tax in 10 years. Given corporate tax rates, this means it needs to be earning 550 million pre-tax. How many cars does it need to sell in Year 10 to earn $550 million? If the gross margin on their mass-market car is an optimistic 25%, they can sell a car for 40k that they make for 32k, and every car will generate an 8k gross profit.

 

Now I'm going to estimate that SG&A expenses as a percentage of gross profit run at 50%. (The average among BMW, Volkswagen, Toyota, Ford, and Hyundai is 60%) I'm going to rather optimistically say that SG&A expenses cover all operating expenses. How many mass market cars must be sold to generate a pre-tax profit of $550 million in 10 years? The answer is 137,500 cars. Achievable? Yes.

 

In 20 years, Tesla must be making 5.8 billion after-tax, or $8.9 billion pre-tax. How many cars must be sold that year? 2,225,000. Achievable? It's possible.

 

In 30 years, Tesla must make $94 billion after-tax, or $144.6 billion pre-tax. How many cars must be sold in year 30? 36.15 million. To put this number in perspective, in the entire world, 82.84 million vehicles were sold last year. In 30 years Tesla must occupy 43.6% of today's global automobile market.

 

Some more math:

 

500,000 vehicle volume in 2020

$10,000 average profit per vehicle before tax

 

That's $5 billion profit, before tax.

 

Give it a 25% tax rate, for $3.75b.

 

So the stock today trades at 8.3x 2020 earnings.

 

2020 vehicle volume estimate comes from here:

http://www.teslamotors.com/sites/default/files/blog_attachments/gigafactory.pdf

 

So it's cheaper than the index.  Assuming the above math/assumptions is right.

 

Of course, why stop there?

 

-Maybe they earn incremental on the battery build out?

-Maybe they earn on charge stations

-Maybe the multiple is higher than 8 by 2020. Surely if they scale up production at that speed it would trade higher than 8. Musk is at the helm!

-Perhaps they partner with Google and the cars drive themselves? Surely that is worth 30 times earnings?

 

It is a fun guessing game indeed.  I'll cheer them on from the sidelines. It is impossible for me to handicap. I certainly wouldn't be a value short against this without seeing a reversing trend in both price and growth.

 

The cars are certainly cool.

[Liberty]

Everybody's talking about Google because they demo their stuff all the time, but I don't think Tesla needs to partner with them for self-driving car. They already have that technology, and Musk said he thought they had the best tech in that area of any other player (including Google). They call it 'autopilot' though, so people think more of autopilots in planes, rather than a 'driverless' car, which sounds scarier.

[ERICOPOLY]

Tesla is expecting 27% pre-tax margin on the Model S in Q4 2014.

 

I wonder what the margin will be when they halve the cost of their battery pack (Gigafactory driving down the cost).

 

[JBird]

Some more math:

 

500,000 vehicle volume in 2020

$10,000 average profit per vehicle before tax

 

That's $5 billion profit, before tax.

 

Give it a 25% tax rate, for $3.75b.

 

So the stock today trades at 8.3x 2020 earnings.

 

2020 vehicle volume estimate comes from here:

http://www.teslamotors.com/sites/default/files/blog_attachments/gigafactory.pdf

 

So it's cheaper than the index.  Assuming the above math/assumptions is right.

 

I came back to edit, having read the Gigafactory release, and you beat me to it. Hitting those numbers would be an amazing feat. And that kind of growth makes my numbers irrelevant. I'm hoping they achieve it.

 

I think you've got a great point about gross margins on Model S increasing with battery innovation. But is a 25% margin on the Gen III realistic?

 

[ERICOPOLY]

I think you've got a great point about gross margins on Model S increasing with battery innovation. But is a 25% margin on the Gen III realistic?

 

 

I kept it at $10k profit per vehicle average as just a guess.  The fully loaded Model S might be more than $60k profit.  The Gen III vehicle, far less than that.  So just average around $10k maybe. 

 

Who knows?  The short sellers don't know.  They "know", what they really don't know.  They are just speculating.

 

[constructive]

500,000 vehicle volume in 2020

$10,000 average profit per vehicle before tax

 

The car market can't support that many vehicles with $10k average profit. That much profit on 500,000 cars doesn't exist in the current luxury market.

 

The bullish assumptions are based on complete lack of EV competition, and a serious underestimate of ICE competition, whether they admit it or not.

 

So the stock today trades at 8.3x 2020 earnings.

 

If you use a 0% discount rate, of course every stock is cheap.

[constructive]

Tesla is expecting 27% pre-tax margin on the Model S in Q4 2014.

 

I wonder what the margin will be when they halve the cost of their battery pack (Gigafactory driving down the cost).

 

Tesla's PDF you linked suggests the Gigafactory will reduce battery costs 30%.

 

Considering the plant isn't designed yet, it's clear that this is a rough guess.

[fenris]

So the stock today trades at 8.3x 2020 earnings.

Are you sure it's not 4.7x 2030 earnings?

 

[constructive]

In case anyone missed it, the highlight of yesterday's Morgan Stanley report was their prediction that Tesla would create a "utopian society". Is the bearish thesis speculative compared to that?

 

http://static1.businessinsider.com/image/530ca0d569bedd37177aab24-788-590/cotd-130.jpg

[JBird]

In case anyone missed it, the highlight of yesterday's Morgan Stanley report was their prediction that Tesla would create a "utopian society". Is the bearish thesis speculative compared to that?

 

Hahahahaha

[thepupil]

Would just like to add that TSLA has 123MM shares outstanding on the 10-K (260*123=$32B), so Tesla's market cap is at least $32B

 

But in my opinion we need to add the 4.81MM from the July converts (whose conversion conditions were recently met : http://blogs.marketwatch.com/thetell/2014/02/26/tesla-warns-early-note-conversions-could-have-material-adverse-effect/ )

 

And we definitely should add the 22 million of options related to the incentive plan found on page 112 of the 10-K with a weighted average exercise price of $26/share

 

While only 10MM of these are vested, the remaining vest over the next few years.  I believe the 22MM is not included in the 123MM because TSLA loses money and therefore it is not necessary to use them in order to calculate EPS. If my understanding is incorrect on this, please educate me.

 

So is it unfair to say that there are actually 123+4.8+22=149MM shares outstanding? This would bring us to an options/convertible adjusted market capitalization of $40B.

 

So, to me, it appears that TSLA is trading at 20X trailing revenue (positively SaaS like), is in a capital intensive highly competitive industry in which there previously have been no moats created (I'm not saying they can't build one, just saying it hasn't happened), has no book value (though it is working on that with its repetitive capital raises at negative cost) and is currently being pumped by an equity analyst who includes a projection of 60X revenue growth over the next 14 years (which would be better than all tech companies that i looked up when they started from 2B revenue, Apple did 66X in 26 years, think about that).

 

Yes the shorts are speculating. They are speculating that the future stream of Tesla profits is not worth $40B. I have lost 2-3% of my net worth thus far on this unfortunate speculation, but it's attractiveness grows as the stock becomes all the more parabolic and 1999-esque.

 

 

[ERICOPOLY]

So the stock today trades at 8.3x 2020 earnings.

Are you sure it's not 4.7x 2030 earnings?

 

Me?  Hah!

 

I stay out of this fight (no dog) because I admit that nobody knows what the IV is.

 

The 500,000 car scenario is perfectly rational.  In which case, the stock is not above IV.  But we don't know.  A 200,000 car scenario is also possible.

 

Porsche seems to sell quite a few luxury cars.  I think they sold something like 130,000 luxury cars in 2012.

[ERICOPOLY]

Tesla is expecting 27% pre-tax margin on the Model S in Q4 2014.

 

I wonder what the margin will be when they halve the cost of their battery pack (Gigafactory driving down the cost).

 

Tesla's PDF you linked suggests the Gigafactory will reduce battery costs 30%.

 

Considering the plant isn't designed yet, it's clear that this is a rough guess.

 

Oh, no, it's a very precise statement of a fact, several years out  ;)

[ERICOPOLY]

The car market can't support that many vehicles with $10k average profit. That much profit on 500,000 cars doesn't exist in the current luxury market.

 

A car company can't make a $10k profit on a car?

 

500,000 luxury cars?  Scratches head... Is the Gen III is a luxury car???

 

 

If you use a 0% discount rate, of course every stock is cheap.

 

Good point.  I have one for you too...  if the discount rate is 100%, every stock is expensive.  I hope that helps!

[ERICOPOLY]

Porsche is actually up to 200,000 per year:

 

Porsche AG Chief Executive Officer Matthias Mueller said the high-end automaker will exceed 200,000 in annual deliveries in 2015, three years earlier than first targeted, on demand for the Macan compact sport-utility vehicle going on sale later this year.

 

http://www.bloomberg.com/news/2014-02-10/porsche-to-exceed-200-000-in-sales-next-year-on-macan.html?cmpid=yhoo

[alertmeipp]

What stop other manufacturers from push harder on electric? and if that happens, what will happen to the margin and sales

[ERICOPOLY]

What stop other manufacturers from push harder on electric? and if that happens, what will happen to the margin and sales

 

How much margin does Porsche make on a car?  What's to stop competitors from making ICE's to compete with them?  And if other car makers make ICE's, then what happens to Porsche's margin and sales?

 

 

 

[ERICOPOLY]

It's interesting -- 200,000 cars for a maker that reported 50% gross margins on a technology (InternalCombustionEngine) with lots of competition:

 

Porsche, which in past years had a gross margin of more than 50 percent on its luxury sports cars, was acquired by Volkswagen AG (VOW) and no longer reports that ratio separately.

 

http://www.bloomberg.com/news/2013-06-05/musk-says-tesla-s-gross-margin-can-approach-porsche-over-time-.html

 

Musk Says Tesla Gross Margin to Approach Porsche’s

 

“On gross margin, I think we can get close to exceeding Porsche’s over time.”

 

 

 

[wisdom]

I would add BYD is being underestimated on the TSLA thread. BYD virtually is setting up a global presence - Europe, Sth America, Nth America and Asia.

 

Plus they have been profitable for years.