TSLA - Tesla Motors

[ERICOPOLY]

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.

 

Why are they a Tesla competitor?

 

Should Ferrari be afraid of BYD?  BMW?  GM?

 

Why Tesla specifically?  Their E6 electric car is downright homely.  Was Heidi Fleiss afraid of street prostitutes doing $50 tricks?

[Liberty]

btw, they said the gigafactory would reduce battery costs 30% after the first year. I expect they'll keep going down as they ramp up to full production in 2020.

 

Next gen car will aim to be "mass-market". It's Musk's ultimate goal. It'll probably be at the higher end of the mass-market, but if you take into account the fuel savings, a 35k Tesla will compete with cheaper models and will probably be much more attractive to most people that the average car that sells for 25k-30k if we extrapolate from the Model S' reception so far. Musk said Gen III would be 'in family' with the S but smaller.

 

Doesn't mean the stock isn't overvalued -- I don't know how to value this company -- but I'm certainly rooting for them to succeed, especially because they're catalyzing the whole industry to follow them and up their game, and so can punch above their weight that way.

[thepupil]

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.”

 

How much assets and equity does Porsche employ to build 200k cars? What's its ROE?

[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.”

 

How much assets and equity does Porsche employ to build 200k cars? What's its ROE?

 

 

Are you constructive going to short it?  They are making more than $10k profit on each car, on volume of 200,000 next year.  Seems like you "constructive" believe the market can't support that right?

 

(I know, VW already bought them).

[ERICOPOLY]

VW values Porsche at more than 20 billion euros.

 

http://www.bloomberg.com/news/2012-07-04/volkswagen-to-purchase-remaining-porsche-stake-for-5-6-billion.html

 

And with volume of less than 200,000 vehicles at the time.

 

 

[wisdom]

I am not saying TSLA will not do well. But, statements about BYD are uninformed.

[ERICOPOLY]

I am not saying TSLA will not do well. But, statements about BYD are uninformed.

 

The car isn't homely?  That's the only statement made here.

 

BMW isn't going to lose 7 series sales to BYD.  And nor will Tesla lose a customer to BYD.

[constructive]

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.”

 

How much assets and equity does Porsche employ to build 200k cars? What's its ROE?

 

 

Are you constructive going to short it?  They are making more than $10k profit on each car, on volume of 200,000 next year.  Seems like you "constructive" believe the market can't support that right?

 

150k is a lot different from 500k. And as far as I can tell, Porsche is the only brand selling even 150k cars at $10k profit per car.

 

I would be much more likely to buy Porsche (now a holding company for VW) than short it. They have proven they can make huge amounts of money selling cars. Tesla hasn't.

[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.”

 

How much assets and equity does Porsche employ to build 200k cars? What's its ROE?

 

 

Are you constructive going to short it?  They are making more than $10k profit on each car, on volume of 200,000 next year.  Seems like you "constructive" believe the market can't support that right?

 

150k is a lot different from 500k. And as far as I can tell, Porsche is the only brand selling even 150k cars at $10k profit per car.

 

I would be much more likely to buy Porsche (now a holding company for VW) than short it. They have proven they can make huge amounts of money selling cars. Tesla hasn't.

 

Okay, the math....

 

Model S and Model X sell for $80k+ on average.  Gross margin to 27% later this year -- much higher when battery prices are halved -- let's say 50% margin at that time.

 

$40k profit per vehicle, let's say roughly 100,000 vehicles between the X and the S.  And I repeat, $40,000 per vehicle.

 

Oh, but I said $10,000 per 500,000 on average, right?

 

So I wonder how I got from $40,000 per vehicle down to just $10,000 on average?  Oh yes, it's because I'm assuming less than $10,000 per vehicle for the mass-produced car.

 

Aha!  Presto magic -- $40,000 per first 100,000 cars is the same as $10,000 per 400,000 cars.  Then you figure if they can make $2,500 on each mass-produced car then they can bring the average up to $10,000 per 500,000 cars.

 

BTW:  Porsche's gross margins were 50% -- so it's much more than $10,000 per car for them.

[thepupil]

Eric, I'm a little confused as to your point here. You said a strategic acquirer valued Porsche (the worlds highest margin big auto manufacturer I believe) at 20 billion euro (below TSLA's current market cap).

 

A strategic acquirer valued Porsche at 1.5x revenue, 8.3x operating profit. Porsche's total assets are above 20billion euro ( it takes a lot of shit to build cars and shit cost money). They do have a very high roe though so I was wrong there, the rest of the global autos are a 1-2x book and sub 10% roe businesses). A strategic acquirer valued a 70 year old or whatever it is legendary proven brand that makes money today (not in 5 or 10 or 30 years) for less than tesla currently trades.

 

I understand tesla can increase capacity with free capital (converts and options for everyone, lets issue shares to solve all our problems!!!) so that mitigates the bear case to some extent, but the bottom line is if you think tesla is a car company, its egregiously overvalued, unless it is building some ridiculous moat that will allow it to have roe's infinitely higher than its industry or it can somehow get around the capital intensive nature of the business.

 

It is a car company (maybe a battery company too, but hey that factory is going to cost $5b and they are sharing their upside with Panasonic. Amazon used option issuance (APIC from option issuance comprises AMZN's growth in book) and payables float to fund its growth and get over the capital intensive nature of distribution. Thus far, tesla has used almost free financing, government subsidies, and equity issuance, but can they do that forever?

 

I'm not saying I was not a total idiot to short this. I was, I am, and the market hath meted out its punishment. But to me you are proving tesla is overvalued rather than providing evidence to the contrary.

 

 

http://www.porsche.com/international/aboutporsche/overview/dataandfacts/

[ERICOPOLY]

I'm not saying I was not a total idiot to short this. I was, I am, and the market hath meted out its punishment. But to me you are proving tesla is overvalued rather than providing evidence to the contrary.

 

How did I prove it was overvalued?  I talked about $10k average per car on 500,000 volume.  And they only need 100,000 in volume to produce the numbers for the first 400,000.  So if they come up 20% short (they never deliver the GenIII at a profit), then so be it.  You get to 80% of my number from Model S and Model X alone if you get them to 50% gross margin on $80,000 average purchase price and 100,000 combined volume.

 

Their existing plant, which they already own, is capable of 500,000 annual production volume.

 

So, they can pull this off in their existing facility.

 

They expect to ship 35,000 of their Model S sedans in 2014.  The Model X is released next year, and they expect greater demand for that car.

 

Remember, SUVs account for 50% of Porsche sales.  The Model X is going to be in huge demand.

 

That easily takes their sales to north of 70,000 vehicles.

 

Then I merely assume they take that number up to 100,000 vehicles by 2020!  That's where $40,000 per vehicle comes from.

 

Then the rest of the 400,000 vehicles are assumed to earn just $2,500 each.

 

But look, it's not as if the model lineup ends there:

 

Boxster (Tesla has no similar offering)

911 (Tesla has no similar offering)

Panamera -- The Model S is the similar offering

Cayenne -- The Model X is the similar offering.

 

 

Tesla can easily blow away my 2020 numbers.  They could easily be producing more than 100,000 unit volume on "S" and "X" combined, six years from now.  And they can augment that with a 911 equivalent, and a Boxster equivalent. 

 

There is just... I was being relatively conservative.  I can't quite understand how it's not hard to see that I'm not putting out unreachable numbers.

 

And if it seems relatively attainable, then why short it?

 

This isn't Toys.com.  The model S is outselling the Panamera by a country mile.

 

 

 

[constructive]

Model S and Model X sell for $80k+ on average.  Gross margin to 27% later this year -- much higher when battery prices are halved -- let's say 50% margin at that time.

 

$40k profit per vehicle, let's say roughly 100,000 vehicles between the X and the S.  And I repeat, $40,000 per vehicle.

 

BTW:  Porsche's gross margins were 50% -- so it's much more than $10,000 per car for them.

 

 

BMW earns 20% gross margins, Audi 20%, Daimler 22%. Porsche doesn't report anymore but generally ran in the low 40s. In the auto manufacturing context, 50% gross margin is a very aggressive assumption.

 

TSLA's fixed costs will run higher than industry averages until they get to comparable scale. So knock off another $15k - $20k from those gross numbers to get a pretax profit.

 

Their existing plant, which they already own, is capable of 500,000 annual production volume.

 

Only after they invest many billions of dollars on equipment. To say it's capable of 500k is a bit ridiculous.

[Liberty]

BMW earns 20% gross margins, Audi 20%, Daimler 22%. Porsche doesn't report anymore but generally ran in the low 40s. In the auto manufacturing context, 50% gross margin is a very aggressive assumption.

 

Remember that Tesla makes electric cars, though. A lot fewer moving parts than in a gasoline car (not for nothing that they have enough space for a trunk in the back and in the front). If they can bring the battery's cost way down, that takes care of a big chunk of their production costs.

[ERICOPOLY]

BMW earns 20% gross margins, Audi 20%, Daimler 22%. Porsche doesn't report anymore but generally ran in the low 40s. In the auto manufacturing context, 50% gross margin is a very aggressive assumption.

 

So Tesla margins, without the Gigaplant, already exceed BMW, AUDI, DAIMLER.

 

You're a smart guy though -- don't you think that's because the Model S is selling on average for $80k+ and Audi/Daimler/BMW don't average those kind of numbers?  I mean, I know you know that already.  I don't have to tell you that of course.  So why the fuss?

 

50% gross margin is very aggressive, and 100,000 volume by 2020 is very conservative.  Call it 150,000 volume and 33.5% gross margin.  Much more realistic on both counts.  They are hitting 27% later this year -- with battery cost optimization, they easily get to 33.5% and higher.

 

[ERICOPOLY]

Only after they invest many billions of dollars on equipment. To say it's capable of 500k is a bit ridiculous.

 

I've been on the factory tour -- I've seen the vast, darkened corner of the building.  The building is indeed capable.

 

They will need more robots.  You know, what are we talking about here relative to market cap?  5% dilution?  10% dilution?  How much will robots cost to finish the job?  That's not a short thesis.

 

[ERICOPOLY]

(not for nothing that they have enough space for a trunk in the back and in the front).

 

It doubles as a safety feature -- enhanced crumple zone in the front.

 

Those big internal combustion engines are hazardous to your health in a frontal impact crash.  They just don't crumple.  Even worse, I hate it when the entire car explodes like in Paul Walker's case.

 

 

[TwoCitiesCapital]

I was originally short and was fortunate to close at a small profit. The problem now is the market is literally giving them so much money in the way of equity value that they can literally make the miracles happen.

 

A year ago, Tesla wasn't worth $3 billion and there is no way they could afford to build a massive batter factory to reduce the production costs of their cars. Today, the market values them at $32 billion allowing them to spend $3-5 billion in cash (along with whatever their partner puts up) to flood the world with batteries and reduce the cost of 50% of their inputs into a car. The market believes they can execute well, so it provides them an equity value that then makes it possible to execute well which then supports the share price.

 

It's a virtuous cycle (or a vicious one if you're short). I'm just going to watch from the sidelines from here on out.

[ERICOPOLY]

I was originally short and was fortunate to close at a small profit. The problem now is the market is literally giving them so much money in the way of equity value that they can literally make the miracles happen.

 

A year ago, Tesla wasn't worth $3 billion and there is no way they could afford to build a massive batter factory to reduce the production costs of their cars. Today, the market values them at $32 billion allowing them to spend $3-5 billion in cash (along with whatever their partner puts up) to flood the world with batteries and reduce the cost of 50% of their inputs into a car. The market believes they can execute well, so it provides them an equity value that then makes it possible to execute well which then supports the share price.

 

It's a virtuous cycle (or a vicious one if you're short). I'm just going to watch from the sidelines from here on out.

 

It's reflexivity.

 

Plus, making a car isn't like making a reusable rocket... oh wait, he's doing that too.

[Grenville]

It's reflexivity.

 

Plus, making a car isn't like making a reusable rocket... oh wait, he's doing that too.

 

That's where it's tough to bet against Musk. He's trailblazing on multiple fronts and showing impressive success.

[wisdom]

http://www.forbes.com/sites/michelinemaynard/2014/02/26/elon-musks-risky-5-billion-plan-to-control-teslas-fate/?partner=yahootix

 

It is smart to control battery production as it has been the biggest bottle neck in the industry.

[thepupil]

Only after they invest many billions of dollars on equipment. To say it's capable of 500k is a bit ridiculous.

 

I've been on the factory tour -- I've seen the vast, darkened corner of the building.  The building is indeed capable.

 

They will need more robots.  You know, what are we talking about here relative to market cap?  5% dilution?  10% dilution?  How much will robots cost to finish the job?  That's not a short thesis.

 

This is basically our disagreement in a nutshell. The short thesis is that Tesla is indeed a car company and a capital intensive and competitive one. The short thesis is that Tesla's long term earnings power will be constrained by the industry in which it operates. This is not toys.com, it is a very real, awesome company doing wonderful things for America (using its practically negative cost of capital and other people's money but nevertheless doing big things). But it is not microsoft either. It does not have 0 growth capex requirements, it is not creating a monopoly (it can be argued they have a monopoly on luxury EV's but surely a competitor with 10X the R+D budget can come up with something in 5 years. Batteries are a heavy industrial good also.

 

This looks like capital intensity to me

http://www.greencarreports.com/news/1089205_tesla-to-add-production-capacity-for-35000-more-electric-cars

http://www.forbes.com/sites/hannahelliott/2013/11/05/tesla-up-9-as-production-hinders-growth/

 

So if we accepts Tesla is a car company and an asset intensive one, then we can evaluate what is implied by its current market cap of $40B (after options adjustment and 5/2013 convert note conversion, do you disagree with this adjustment?).

 

The way I view it is there is a price/book, an expected long term ROE, and a required rate of return.  Let's ignore all liabilities (because deducting liabilities is for people without vision). So TSLA has 2.4B of Assets as of 12/2013. Let's quadruple that to 10B assuming Tesla plays the sell ridiculous converts and equity at ridiculous prices game to get to 10B of assets immediately. So TSLA would be trading at 4X "book" (i use quotes as there are no liabilities in the land of Musk and no corresponding increase in market cap or shares).

 

With a 0% payout ratio and  7% required rate of return and convergence to book value in 20 years, a 4X book company must make a 14.25% ROE in order to be "fairly valued". So TSLA is not overvalued if you give them $7.5B of free capital, deduct all liabilities and they can make an industry destroying ROE (admittedly not as high as Porsche's) for 20 consecutive years. What component of ROE will TSLA destroy its industry in (Asset Turnover, Net Margin, or Leverage?). Is 7% too high a discount rate? Or is 14% too low an ROE (ROA in this case actually)?

 

Have you looked at Morgan Stanley's 15 year DCF that they use to justify Tesla's price? I'm reluctant to post a sell side report but i'll throw in some highlights. It goes without saying that the model ignores any notion of mean reversion, of economic cyclicality, of competition, of capital constraints, and all the other real world stuff that those who do not get paid to sit behind a computer and make promotional, downright Panglossian projections have to deal with.

 

Can you provide me with an example of a company that has grown volume by 27X and revenue by 18X in 13 years? What industry was said company in? How much capital was involved? What was the company's ROE and did it make money while it grew? In 1990 MSFT did 1.1B of revenue. In 2004 the  did about 33X that. So does TSLA have 50% of the growth story of Microsoft in 1990? Does it share its economics?

 

I can't tell if you are serious or trolling when you throw out your 500K/year and profit number and ignore the nature of the business, what it will cost to get there and that that is about 20X what they did last year and 15X what they'll do next year on Musk's projections. I can't tell if you are serious when you use Porsche as a comp when Porsche is (using MS's numbers) 7-8 years ahead of Tesla in terms of production, capital, profitiability etc. completely proven in concept, has been around for 70 years or whatever and was being taken over by a long term strategic partner (strategics pay the mos, right?). So if TSLA kills it for 8 years it will be worth 20 billion euro?? $28B?? It trades for 1.4X that today. In terms of valuation (not that one should short on valuation, i've learned that here) isn't there an enormous margin of safety in saying that TSLA is worth less than $40B today?

 

 

 

Unit volume: We expect Tesla’s unit volumes to

grow at a CAGR 29% from 2013 through 2027. By

2015, we forecast unit volumes of almost 65k,

expanding to over 1mm by 2027.

 

Revenues: We expect auto revenue to grow at a

25% CAGR through 2027. As Tesla introduces more

mainstream models such as the Model S, Model X,

and eventually the Gen 3, we forecast average selling

price (ASP including powertrain units) will drop from

$93,000 in 2013 to roughly $60,000 by 2027.

 

[ERICOPOLY]

Only after they invest many billions of dollars on equipment. To say it's capable of 500k is a bit ridiculous.

 

I've been on the factory tour -- I've seen the vast, darkened corner of the building.  The building is indeed capable.

 

They will need more robots.  You know, what are we talking about here relative to market cap?  5% dilution?  10% dilution?  How much will robots cost to finish the job?  That's not a short thesis.

 

This is basically our disagreement in a nutshell. The short thesis is that Tesla is indeed a car company and a capital intensive and competitive one. The short thesis is that Tesla's long term earnings power will be constrained by the industry in which it operates. This is not toys.com, it is a very real, awesome company doing wonderful things for America (using its practically negative cost of capital and other people's money but nevertheless doing big things). But it is not microsoft either. It does not have 0 growth capex requirements, it is not creating a monopoly (it can be argued they have a monopoly on luxury EV's but surely a competitor with 10X the R+D budget can come up with something in 5 years. Batteries are a heavy industrial good also.

 

This looks like capital intensity to me

http://www.greencarreports.com/news/1089205_tesla-to-add-production-capacity-for-35000-more-electric-cars

http://www.forbes.com/sites/hannahelliott/2013/11/05/tesla-up-9-as-production-hinders-growth/

 

So if we accepts Tesla is a car company and an asset intensive one, then we can evaluate what is implied by its current market cap of $40B (after options adjustment and 5/2013 convert note conversion, do you disagree with this adjustment?).

 

The way I view it is there is a price/book, an expected long term ROE, and a required rate of return.  Let's ignore all liabilities (because deducting liabilities is for people without vision). So TSLA has 2.4B of Assets as of 12/2013. Let's quadruple that to 10B assuming Tesla plays the sell ridiculous converts and equity at ridiculous prices game to get to 10B of assets immediately. So TSLA would be trading at 4X "book" (i use quotes as there are no liabilities in the land of Musk and no corresponding increase in market cap or shares).

 

With a 0% payout ratio and  7% required rate of return and convergence to book value in 20 years, a 4X book company must make a 14.25% ROE in order to be "fairly valued". So TSLA is not overvalued if you give them $7.5B of free capital, deduct all liabilities and they can make an industry destroying ROE (admittedly not as high as Porsche's) for 20 consecutive years. What component of ROE will TSLA destroy its industry in (Asset Turnover, Net Margin, or Leverage?). Is 7% too high a discount rate? Or is 14% too low an ROE (ROA in this case actually)?

 

Have you looked at Morgan Stanley's 15 year DCF that they use to justify Tesla's price? I'm reluctant to post a sell side report but i'll throw in some highlights. It goes without saying that the model ignores any notion of mean reversion, of economic cyclicality, of competition, of capital constraints, and all the other real world stuff that those who do not get paid to sit behind a computer and make promotional, downright Panglossian projections have to deal with.

 

Can you provide me with an example of a company that has grown volume by 27X and revenue by 18X in 13 years? What industry was said company in? How much capital was involved? What was the company's ROE and did it make money while it grew? In 1990 MSFT did 1.1B of revenue. In 2004 the  did about 33X that. So does TSLA have 50% of the growth story of Microsoft in 1990? Does it share its economics?

 

I can't tell if you are serious or trolling when you throw out your 500K/year and profit number and ignore the nature of the business, what it will cost to get there and that that is about 20X what they did last year and 15X what they'll do next year on Musk's projections. I can't tell if you are serious when you use Porsche as a comp when Porsche is (using MS's numbers) 7-8 years ahead of Tesla in terms of production, capital, profitiability etc. completely proven in concept, has been around for 70 years or whatever and was being taken over by a long term strategic partner (strategics pay the mos, right?). So if TSLA kills it for 8 years it will be worth 20 billion euro?? $28B?? It trades for 1.4X that today. In terms of valuation (not that one should short on valuation, i've learned that here) isn't there an enormous margin of safety in saying that TSLA is worth less than $40B today?

 

 

 

Unit volume: We expect Tesla’s unit volumes to

grow at a CAGR 29% from 2013 through 2027. By

2015, we forecast unit volumes of almost 65k,

expanding to over 1mm by 2027.

 

Revenues: We expect auto revenue to grow at a

25% CAGR through 2027. As Tesla introduces more

mainstream models such as the Model S, Model X,

and eventually the Gen 3, we forecast average selling

price (ASP including powertrain units) will drop from

$93,000 in 2013 to roughly $60,000 by 2027.

 

 

I think you are getting blinded by the growth projection and just saying "that's not possible, that's not possible, that's not possible".  You reference Microsoft even.  To me, I just see a window into the psychology of what's driving you to short it.  So, instead, I'm trying to talk you through what looks reasonable to me from an execution standpoint.

 

They're going to sell 35,000 this year, yet that's a lot of growth versus just two years ago.  Then it will soon double again with the "X" sales.  They will soon be at 100,000 in annual vehicle sales.

 

When I talk about 500,000 in annual sales, 80% of the profit margin is coming from those first 100,000 -- 150,000 vehicles.  That's the high-end price tag "S" and "X" cars.  These two cars will not be the last of the luxury cars in their lineup.  There will be new models.  The Roadster for example is not in production. 

 

You are getting hung up on the cost of scaling out to 500,000, but that's only 20% of the picture.  For now, just focus on getting to 150,000 for the Model S and Model X (and throw in new sporty "Roadster" models to help achieve this figure). 

 

I am not trolling.  I am trying to help people understand that Tesla is a difficult short.  You need to really cross your fingers.

 

I think I got someone's attention when they looked at Porsche's margins and sales volume -- it was likely completely new information given the prior comments about how luxury car market can't support those kinds of numbers on average profit margin per vehicle.  I don't think the articles on shorting Tesla like to dwell on it much because it begins to validate a good portion of the share price. 

 

The new mantra I'm now hearing is "but it's already worth more than 20 billion Euros" -- so now I've got your attention.  20 billion Euros is real money.  That's what a car company can be worth on VW's books with less than 200,000 vehicles in sales.  I believe that was in 2012 when the company was selling less than 150,000 vehicles.

 

Meanwhile, it's a long road to wait.  The stock can be optimistically valued for years and years as the company continues to grow and blow away expectations.  Remember what the expectations were two years ago? 

 

 

 

[thepupil]

How is the Microsoft reference irrelevant? I tried to find the most successful growth story of all time and show its performance from its early stage? Should I use another example? Or am i just completely idiotic and focusing on precedent way too much? is 1/2 Microsoft 1990-2004 at all a reasonable expectation? Is Tesla's business model at all comparable?

 

I do not think I need to cross my fingers to doubt the numbers put forth by the sell side as they are completely unprecedented and would represent a kind of positive black swan. From a mark to market perspective, one absolutely has to cross his fingers and i've learned a thing or two about the psychology and sizing of positions when shorting these types of things. By no means am i shouting from the mountaintop that I'm a genius for shorting TSLA. I am far from that. But I am shouting from a mountain top that what is priced in is somewhere between optimistic and utopian.

 

Even Morgan Stanley acknowledges that if TSLA is just a niche car manufacturer it is worth far less than its current price. By no means do i think the scenario you put forth is completely impossible. But I just don't get how you (who has compounded capital at some ungodly rate) can just give Musk and TSLA the benefit of the doubt like you are doing. Will the market seriously allow Musk to not make money and suck up capital for 8 years while they get there? will  money always be free? 

 

 

Base Case $320

Successful commercialization of Model S, X and Gen 3 with combined volume

surpassing 1.1 million units by 2028. A thriving company with OP margins peaking at

16.4%, normalizing at 15%. A successful Model S and X with combined volume nearly 150k

units by 2020. Gen 3 volume reaching 220k units by 2020 and 775k by 2028. 8% OP margin

reached in 2014, peaking at 16.4% by 2019, normalize at 15.3%. Our valuation includes $15

for regulatory credits (a $1.9bn EV).

 

BearCase$100

Tesla limited to niche premium brand status. A thriving, but small, company with OP

margins normalizing at 13%. A successful Model S and X with combined volume over 70k

units by 2020. Gen 3 volume reaching 150k units by 2020 and 330k by 2028. Valuation

excludes any further benefits from the sale of ZEV credits.

[hyten1]

folks anyone have stats on auto sales broken down by price? how many vehicle are sold over 80k, 50k, 35k etc.?

 

i have not  been able to find it, so far

 

hy

[rkbabang]

But I just don't get how you (who has compounded capital at some ungodly rate) can just give Musk and TSLA the benefit of the doubt like you are doing. Will the market seriously allow Musk to not make money and suck up capital for 8 years while they get there? will  money always be free? 

 

Eric can correct me if I'm wrong, but I don't believe he has compounded capital by shorting wildly popular and successful companies with excellent and unique products, founded and run by some of the most successful CEOs on Earth.  I'm pretty sure he uses a different formula.

 

Take a look at Amazon.com.  These types of companies can be overvalued for decades.  And Amazon.com has never really been profitable.