TSLA - Tesla Motors

[DTEJD1997]

I feel like these "Tesla is the Apple/Amazon of cars" analogies are just totally backwards and inappropriate. It is not that simple. Given the tough economics of the car industry, why are so many willing to assume high profit margins - let alone domination of the industry - is even possible?

 

This is a value investing forum so we of all people should be looking to the numbers for evidence, not just making grand claims based on hypotheticals. When has Apple or Amazon ever had such ugly financials as Tesla? If Tesla is the Apple of cars, shouldn't they have huge margins? This is not some startup, they've been doing this for a long time, so what evidence have we seen that Tesla = Apple? Apple prints money despite having tons of competition. Tesla has done nothing but incinerate money despite having very little competition. What value is there to a brand when it does not translate to margins?

 

These are all very good points!

 

One that I would add is that what happens when/if TSLA gets into financial shape and is operating normally?

 

Car companies are selling for mid single P/E's.  Some of them even have good balance sheets (FCAU), which TSLA does not.

 

Is TSLA going to increase sales by 10X and have double the profitability of the average car company?  Maybe, but I would say the odds are so very much against it.  TSLA has never really been able to make a profit.  To increase their sales they are going to have to buy/build another factory.  To get to 10X sales, they might have buy/build 10 more factories!  Where is the capital going to come from?  Even if sales profitability goes way up, they still won't have enough $$$ for new factory and tool & die.  So then they have to borrow more and/or float more stock.

 

They also aren't going to do this tomorrow, or next month, or even in the next year.  As time progresses, their competitors are getting better.  As time progresses, their competitors are becoming more numerous.

 

So go back to distant future valuation...TSLA has about $800/share in sales.  They are making 6% net on sales.  $48/share in earnings.  Put a 7 P/E on it, and you've about $330 share price.  How is TSLA going to trade for such a significantly higher P/E than their competitors when sales/profits are normalized?

 

At this point in time, TSLA is arguably the most eligible candidate in the auto industry for bankruptcy...

[Dalal.Holdings]

At this point in time, TSLA is arguably the most eligible candidate in the auto industry for bankruptcy...

 

Never underestimate the potential for traditional automakers to go through bankruptcy (after all, it would not exactly be a new experience for them)...all it would take is a sustained spike in oil prices just like in '07-'08 (because hey, we only make profit selling pickup trucks and sedans aren't worth building anymore, amirite?). Guess how Tesla would do under such a scenario...

 

All the stuff about established competition "catching up" could have been said about Apple 20 years ago (when it brushed close to bankruptcy). Somehow Apple came out on top of the "established" competitors (namely MSFT, Dell) who could never quite catch up with its products that its customers loved (unlike those beige PCs). Yeah, Dell made PCs commoditized and low margin, yet AAPL was able to earn consistently high margins on its computers for some reason...

[rb]

All of this talk of the next apple. Why don't you think it'll be the next Novell? I've heard so much talk when it comes to silicon valley companies about how this is the next apple, that is the next apple. You'd figure that by now there's gonna be a bunch of Apples around. Yet there's still only one.

[oddballstocks]

Apple almost earned a place along with Novell.  If they hadn't pivoted to consumer products, the iPod, iPhone etc they would have.

[Liberty]

Apple almost earned a place along with Novell.  If they hadn't pivoted to consumer products, the iPod, iPhone etc they would have.

 

It's the iMac that first saved them. It was about focus and making better products first, not only going into non-personal computers.

[ERICOPOLY]

Assessing deterioration of brand equity from grumbles on message boards is flawed IMO.  There is self-selection bias involved.

 

Today I asked a friend (who has a number of friends who own Model 3s) if they like their cars and whether they've needed things fixed.

 

One of his friends got one of the early deliveries and needed a couple of things fixed (and he loves the car), but the more recent deliveries have been fine.

 

My friend is a car enthusiast -- races Miatas as his past-time.

 

Attached is our conversation from today.

 

Separately, I ask people as they are stepping into or out of their Model 3s if they are happy -- nobody has been unhappy with their car. 

 

I believe that my method of assessing brand equity is a completely normal method without selection bias -- asking friends and people on the street.  I feel that this is the method that prospective buyers will use to learn about the car and I feel that owners are recommending the car to people they speak to.

Model3Reputation.pdf

[ERICOPOLY]

All of this talk of the next apple. Why don't you think it'll be the next Novell? I've heard so much talk when it comes to silicon valley companies about how this is the next apple, that is the next apple. You'd figure that by now there's gonna be a bunch of Apples around. Yet there's still only one.

 

There is still only one Tesla as well.

 

Regarding the comparisons to Apple, I think they are really good comparisons.  Owners of iMacs insist that they are far superior to PCs and they are willing to pay a premium for an iMac.  Yet, despite this, there are PC enthusiasts as there will always be ICE enthusiasts.

 

This comparison will be different if there are lots of well-executed fully electric competitors to Tesla -- I don't see the Taycan or the E-Tron getting in the way of the Model 3 adoption.  Somebody will need to build a Model 3 competitor to slow down Tesla.

 

People chose to pay a premium for iMacs despite there being a lack of software for it compared to a PC.  People paid a premium for a Tesla despite there being a lack of charging options on the road compared to buying a cheaper gasoline model with a gas station everywhere.

[Aqul]

What do people think of the 2025s? Decent yield at very low LTV and the potential  for a near-term move to par that might juice up the IRRs.

[Spekulatius]

Brand equity is determined by the premium a company can charge for selling the same product. By that measure, I don’t  think Tesla has brand equity. At least I would prefer to purchase the same car that Tesla builds currently from another car company, because I would be more assured of service and the quality of the product.

 

I think Tesla’s brand equity is their ability to raise a lot of capital much cheaper than any other company can. Thats the Elon halo.

 

I do concede that Tesla cars are top in terms of specifications for their product and the autopilot, but that means there engineering is strong, plus they are willing to sell a lot of product at a loss. I also believe they the regular car companies are poised to catch up in the next 2-3 years.

[rkbabang]

Brand equity is determined by the premium a company can charge for selling the same product. By that measure, I don’t  think Tesla has brand equity. At least I would prefer to purchase the same car that Tesla builds currently from another car company, because I would be more assured of service and the quality of the product.

 

I think Tesla’s brand equity is their ability to raise a lot of capital much cheaper than any other company can. Thats the Elon halo.

 

I do concede that Tesla cars are top in terms of specifications for their product and the autopilot, but that means there engineering is strong, plus they are willing to sell a lot of product at a loss. I also believe they the regular car companies are poised to catch up in the next 2-3 years.

 

People were saying exactly that 3 years ago.

[Dalal.Holdings]

Lol--Tesla has been selling thousands of Model 3's successfully at high margins. In fact, they have yet to sell even one base price $35K Model 3. They've sold plenty of very expensive (relative to ATPs even from luxury players like BMW) model X and S vehicles. They should continue delaying that base model production as long as possible (and most who expect to only pay $35k will actually probably spend closer to $40k once they get to selecting options). Must seem so strange that people would pay $45K and up for a vehicle with such a simple interior (compared to what a BMW/Benz would get at that price point) to many on here...but here we are. I guess those customers must be crazy because Tesla has no "brand equity", right? I mean, based on what some people are saying, Tesla's should be beneath Kia's in consumer consciousness, after all right?

 

The analogy of Macs vs PCs is there. Like I said--reminds me of Apple 15-20 years ago. Its customers loved the product so much (which is unique compared to all other "conventional", low margin, commoditized competitors Dell, HP, ThinkPad/Lenovo, Sony, Asus, etc etc) that they are willing to make what seems like "unreasonable" compromises to outsiders (lack of software/compatibility for Mac vs Windows, "slower" processor speed, etc etc). A product and a brand's "value" is so much more than one dimensional spec sheets and pro/con tables (though the roadster will be the fastest production car ever made at 0-60 in less than 2s and the world has never seen a truck like Tesla's Semi... so Tesla's got them specs too because electrons will always flow faster than gears, gas, and pistons  8))

[Ahab]

https://www.nasdaq.com/press-release/tesla-announces-date-for-third-quarter-2018-financial-results-and-webcast-20181022-01379

 

Unexpectedly early reporting, I wonder what this will amount to. Highly leveraged business, check. Overhyped product, check. Erratic management, check. Large upcoming maturities, check.

 

[colinwalt]

https://www.bloomberg.com/news/features/2018-10-17/tearing-apart-teslas-to-find-elon-musk-s-best-and-worst-decisions

[Investmentacct]

https://www.nasdaq.com/press-release/tesla-announces-date-for-third-quarter-2018-financial-results-and-webcast-20181022-01379

 

Unexpectedly early reporting, I wonder what this will amount to. Highly leveraged business, check. Overhyped product, check. Erratic management, check. Large upcoming maturities, check.

 

Possibly , Tesla Model 3 shocking high order, delivery and reservation numbers.  Highest VIN now tracks to 156129.

[rb]

https://www.nasdaq.com/press-release/tesla-announces-date-for-third-quarter-2018-financial-results-and-webcast-20181022-01379

 

Unexpectedly early reporting, I wonder what this will amount to. Highly leveraged business, check. Overhyped product, check. Erratic management, check. Large upcoming maturities, check.

 

Possibly , Tesla Model 3 shocking high order, delivery and reservation numbers.  Highest VIN now tracks to 156129.

Shocking! 156k vehicles sold! In total. Stock price should be through the roof. Never mind most other automakers deliver way more units in a single year? Quarter?

[rb]

What do people think of the 2025s? Decent yield at very low LTV and the potential  for a near-term move to par that might juice up the IRRs.

Given the setup of Tesla there is a great investment opportunity if one can figure it out. Because there is mispricing.

 

The way things stand, either the stock is mispriced or the bonds are mispriced. So if you think that the stock is worth the value, you should buy the bonds. Because then the bonds are then seriously mispriced. If you think that the bonds are fairly priced then you should be short the stock.

[A Dhandho Investor]

Possibly , Tesla Model 3 shocking high order, delivery and reservation numbers.  Highest VIN now tracks to 156129.

 

The VIN numbers are useless for tracking #delivered cars because they are not assigned in sequential order.

 

Would be very surprised if the reservation number is high because they did not provide any update on the reservation count 3 weeks ago in the Q3 deliveries report (in contrast to Q2, when they referred to the magical 420k reservation number) and they had to announce the lower priced M3 (why would they do that already now if demand is still high for the higher priced model?).

 

I also understand that they are emailing and calling the current reservation holders to try to persuade them into buying this lower priced version instead of waiting for the 35k model, so not really positive news with respect to demand..

 

 

[SHDL]

Re: Tesla vs Apple

 

I see quite a few similarities too, at least if you just focus on the company-product-consumer part (you know, differentiated/innovative/disruptive products sold by a company led by a maverick entrepreneur with a cult-like following among early adopters). But at the same time it’s also true that when you look at the companies’ financials there’s no comparison. 

 

My current take on this is that a key thing to look out for, long term, is whether if Tesla ever manages to make a transition to a more Apple-like business model where the company focuses on the most profitable parts of the value chain (product design, software development, and maybe production of a few crucial components) and outsources the manufacturing and other not-so-good-but-necessary parts to another company (like Foxconn in Apple’s case).  If that happens, that should change the economics of the company quite dramatically for the better.

 

As I understand, Apple went through this type of transition in the early 2000s, which roughly coincides with when their profitability started to take off.  The company’s revival is usually (and correctly IMO) attributed to Steve Jobs’ return and their vastly improved product lineup, but I really do think that the shareholders would not have done anywhere nearly as well if Apple had kept doing their own manufacturing in their own factories.

[ERICOPOLY]

Possibly , Tesla Model 3 shocking high order, delivery and reservation numbers.  Highest VIN now tracks to 156129.

 

The VIN numbers are useless for tracking #delivered cars because they are not assigned in sequential order.

 

Would be very surprised if the reservation number is high because they did not provide any update on the reservation count 3 weeks ago in the Q3 deliveries report (in contrast to Q2, when they referred to the magical 420k reservation number) and they had to announce the lower priced M3 (why would they do that already now if demand is still high for the higher priced model?).

 

I also understand that they are emailing and calling the current reservation holders to try to persuade them into buying this lower priced version instead of waiting for the 35k model, so not really positive news with respect to demand..

 

To answer the question, one theory is that Panasonic has not been able to supply them with enough battery cells.  The lower priced model uses a mid-range battery that likely contains 20% fewer cells and therefore they could produce 25% more cars.

 

Another theory is that they have lowered their cost of production of the Model 3 such that they can produce the lower priced mid-range version profitably.  Elon previously stated that they have to wait on delivering the $35k model until they can do so without losing money on it.

 

Their behavior is consistent with the second theory.

 

This company does not even advertise, is not yet offering the Model 3 to international markets, and people wonder if they are scrambling due to a demand problem.

[Liberty]

Andrew Left went from shorting and suing Tesla to this...

 

https://www.cnbc.com/2018/10/23/short-seller-who-is-suing-tesla-changes-his-mind-tesla-is-destroying-the-competition.html

 

"Citron is long Tesla as the Model 3 is a proven hit and many of the TSLA warning signs have proven not to be significant," said Left in a blog post Tuesday. "Plain and simple – Tesla is destroying the competition."

 

"TSLA is not just pulling customers from BMW and Mercedes but also from Toyota and Honda. Like a magic trick, while everyone is focused on Elon smoking weed, he is quietly smoking the whole automotive industry," Left said.

[Dalal.Holdings]

Agree with Andrew Left—I too was a Tesla critic not too long ago. It doesn’t take much to see that the laws of traditional auto companies may not necessarily apply here.

 

Yeah, Apple outsourced its manufacturing to China (COO Tim Cook the master behind that). Hope Tesla can find a way to keep that Fremont plant running for a long time (GM and Toyota sure couldn’t after decades of failure).

 

Omg Tesla emailing people who were gonna pay $35k to market to them higher end versions at $45k or more? What a travesty. What’s next—social media based targeted ads? Let’s hope they don’t resort to creating dealerships where the “dealer” puts on a whole bunch of last minute markups to the MSRP and subsequently rips you off on every servicing/repair interaction (a.k.a. The standard for the auto industry).

[ERICOPOLY]

Omg Tesla emailing people who were gonna pay $35k to market to them higher end versions at $45k or more? What a travesty. What’s next—social media based targeted ads? Let’s hope they don’t resort to creating dealerships where the “dealer” puts on a whole bunch of last minute markups to the MSRP and subsequently rips you off on every servicing/repair interaction (a.k.a. The standard for the auto industry).

 

Upselling "can be simply exposing the customer to other options that were perhaps not considered ".

 

https://en.wikipedia.org/wiki/Upselling

 

I believe they waited to start these emails until they had a $45,000 offering because it magically gets to their $35,000 reservation price point after the tax credits.  It isn't unreasonable to think that some buyers may have a budget of $35,000 and not realize there are $10,000 in potential tax credits.

[Dalal.Holdings]

Omg Tesla emailing people who were gonna pay $35k to market to them higher end versions at $45k or more? What a travesty. What’s next—social media based targeted ads? Let’s hope they don’t resort to creating dealerships where the “dealer” puts on a whole bunch of last minute markups to the MSRP and subsequently rips you off on every servicing/repair interaction (a.k.a. The standard for the auto industry).

 

Upselling "can be simply exposing the customer to other options that were perhaps not considered ".

 

https://en.wikipedia.org/wiki/Upselling

 

I believe they waited to start these emails until they had a $45,000 offering because it magically gets to their $35,000 reservation price point after the tax credits.  It isn't unreasonable to think that some buyers may have a budget of $35,000 and not realize there are $10,000 in potential tax credits.

 

I was being sarcastic. This practice of attempting the upsell is not nearly as shady as some of the common practices in the “traditional” auto industry.

[A Dhandho Investor]

Omg Tesla emailing people who were gonna pay $35k to market to them higher end versions at $45k or more? What a travesty. What’s next—social media based targeted ads? Let’s hope they don’t resort to creating dealerships where the “dealer” puts on a whole bunch of last minute markups to the MSRP and subsequently rips you off on every servicing/repair interaction (a.k.a. The standard for the auto industry).

 

Chillax, is just a sidenote that while existing customers have to wait sometimes 2 hours to reach Tesla customer service, there seem to be employees available for cold calling and convincing reservation holders while Tesla states that demand is not an issue.

 

Seems consistent with this "let fires burn" playbook: https://twitter.com/ad8871/status/1054732768465305600

[ERICOPOLY]

Omg Tesla emailing people who were gonna pay $35k to market to them higher end versions at $45k or more? What a travesty. What’s next—social media based targeted ads? Let’s hope they don’t resort to creating dealerships where the “dealer” puts on a whole bunch of last minute markups to the MSRP and subsequently rips you off on every servicing/repair interaction (a.k.a. The standard for the auto industry).

 

Upselling "can be simply exposing the customer to other options that were perhaps not considered ".

 

https://en.wikipedia.org/wiki/Upselling

 

I believe they waited to start these emails until they had a $45,000 offering because it magically gets to their $35,000 reservation price point after the tax credits.  It isn't unreasonable to think that some buyers may have a budget of $35,000 and not realize there are $10,000 in potential tax credits.

 

I was being sarcastic. This practice of attempting the upsell is not nearly as shady as some of the common practices in the “traditional” auto industry.

 

I realize that you were being sarcastic about the shady practices from "traditional" dealers but in doing so I felt as though it was distracting attention from a likely justified reason for them to send these emails.  The $35,0000 reservation holders have been frustrated with the waiting time so attempting to offer them another configuration that they may be pleased with was possibly the primary motivation.