TSLA - Tesla Motors

[Liberty]

I don't think it's been posted here (sorry if it has), but right before the Gigafactory announcement, Consumer Reports published it's Top Picks for 2014:

 

http://www.consumerreports.org/cro/magazine/2014/04/top-picks-2014/index.htm

 

The Model S is "Best Overall Car", and that's after it received the highest mark ever earlier this year in a review (99/100) and a later consumer satisfaction survey of Tesla owners also gave it 99/100 (these almost make it seem like they have a policy against perfect scores...).

[value-is-what-you-get]

 

Anything else?

 

All aluminum body won't rust so it supports high resale.

 

Highest safety score ever recorded has nothing to do with electric car but everything to do with company's integrity.

 

How can all these automotive manufacturers with hundreds of years of combined experience be outdone in safety by a startup?  What do they think of this at Volvo?

 

 

[sys]

this has been a very interesting thread the last few days.  i'm glad i'm not forced to take either a long or short position in tsla.

[hyten1]

the new ford truck coming out later this year or is it early next year will be aluminum body as  well.

 

 

 

 

Anything else?

 

All aluminum body won't rust so it supports high resale.

 

Highest safety score ever recorded has nothing to do with electric car but everything to do with company's integrity.

 

How can all these automotive manufacturers with hundreds of years of combined experience be outdone in safety by a startup?  What do they think of this at Volvo?

[ERICOPOLY]

i guess tsla taking over the world is a forgone conclusion. even the most optimistic projection they will be selling 100k so car by 2016 or something

 

Keeping in mind that the most-optimistic projection is for just two $80,000+ luxury models -- the "S" and the "X".

 

Just wait until the Gen III comes out -- the "E" (for "everyone").

 

Once we have "S" "E" "X" there will be Tesla cars everywhere!

 

[Palantir]

I think highest safety has more to do with a fact that there is no engine, which saves a lot of weight so giving it a heavier build quality would raise safety......just a guess though.

[Liberty]

I think highest safety has more to do with a fact that there is no engine, which saves a lot of weight so giving it a heavier build quality would raise safety......just a guess though.

 

There seems to be lots of factors, the front crumple zone being one, the high mass of the battery at a very low center of gravity being another one. But they did extremely well in tests that didn't have anything to do with the engine (roof strenght, side impacts, rollover).

 

It just seems like an extremely well engineered car all around.

[ERICOPOLY]

I think highest safety has more to do with a fact that there is no engine, which saves a lot of weight so giving it a heavier build quality would raise safety......just a guess though.

 

 

Much LARGER crumple zone.

 

Engines don't crumple!

 

However, that's just frontal impact.  They also aced the rest of the crash tests, such as the pole side-impact test.

 

And the heavy battery keeps it very bottom-heavy -- so it resists rolling over.

[Grenville]

i guess tsla taking over the world is a forgone conclusion. even the most optimistic projection they will be selling 100k so car by 2016 or something

 

Keeping in mind that the most-optimistic projection is for just two $80,000+ luxury models -- the "S" and the "X".

 

Just wait until the Gen III comes out -- the "E" (for "everyone").

 

Once we have "S" "E" "X" there will be Tesla cars everywhere!

 

That's hilarious.

 

I have a feeling this thread and your bet will eventually come to the attention of Mr. Musk. Given that you are an owner of both cars, I'm sure he'll do his best to blow past those numbers, influencing what is in his control.

[rkbabang]

- sure its possible, but anything is possible, so what is the point?

- sure EV might be the future, but i think all major automaker are aware of this and have been working on it for years.

- i don't think the smartphone is the best analogy (but that is another discussion). iphone have the network effect amongst other etc., replace cycle its a lot faster, its a $500 item vs $50k.

 

If the all the major automakers are aware of this and have been working on it for years, how is it that a start up beat them to market with a long range electric vehicle with good performance?  Not by a month mind you, but it's been 6 years since Tesla started selling the Roadster, almost 2 years for the Model S, and the large automakers still are nowhere to be found and a competing car isn't even on the horizon at any of them. Meanwhile Tesla will be releasing the Model X soon as well.  When its 3rd generation $35K car comes on the market where will the major automakers be?  My guess is that they will be just as absent.  It takes them 5-7 years to design and build a new ICE vehicle, something which they have decades (centuries in some cases) of experience.  My guess is that Tesla has this market largely to itself for at least the next 6-8 years.

 

There is some network effect with the iphone, but you can communicate with people who do not have one, so that isn't the only reason for its success.  I wasn't trying to compare a vehicle to a phone, I was making an analogy with how RIM management stuck its head in the sand for years and didn't want to disrupt their current business in anyway by changing, with how the large auto manufacturers have been and will continue to react to Tesla.

 

Jim Balsillie (on the iPhone in 2007): "It's kind of one more entrant into an already very busy space with lots of choice for consumers ... But in terms of a sort of a sea-change for BlackBerry, I would think that's overstating it."

 

 

[Palantir]

I think highest safety has more to do with a fact that there is no engine, which saves a lot of weight so giving it a heavier build quality would raise safety......just a guess though.

 

 

Much LARGER crumple zone.

 

Engines don't crumple!

 

However, that's just frontal impact.  They also aced the rest of the crash tests, such as the pole side-impact test.

 

And the heavy battery keeps it very bottom-heavy -- so it resists rolling over.

 

Certainly, but what I meant was that the weight savings from the engine being gone could be used to beef up the construction of the rest of the frame. The car weighs about as much as a 7 series while being smaller.

[ERICOPOLY]

I think highest safety has more to do with a fact that there is no engine, which saves a lot of weight so giving it a heavier build quality would raise safety......just a guess though.

 

 

Much LARGER crumple zone.

 

Engines don't crumple!

 

However, that's just frontal impact.  They also aced the rest of the crash tests, such as the pole side-impact test.

 

And the heavy battery keeps it very bottom-heavy -- so it resists rolling over.

 

Certainly, but what I meant was that the weight savings from the engine being gone could be used to beef up the construction of the rest of the frame. The car weighs about as much as a 7 series while being smaller.

 

I think the battery is 700 lbs.

 

[thepupil]

http://money.cnn.com/2014/02/27/investing/tesla-stock/

 

I guess there is one guy who agrees

 

"We believe it is important for investors to remember that Tesla is an auto manufacturer, first and foremost, which is an inherently capital intensive business," Lovallo wrote in a note to clients Thursday. "In our view, the Gigafactory investment will translate to even more capital intensity and add further pressure to margins and returns."

 

So we've got $320 Morgan Stanley (who is actually bull case: $500, base case: $320, bear case $100) on one end talking about autonomous utopian penetration and 27% volume CAGR for 14 years, and then we've got $75 Bank of America saying "hey guys, they still kind of sort of look like an auto manufacturer"

 

the two illustrate the extremes quite nicely.

[ERICOPOLY]

Interesting comment from the latest conference call transcript Q&A:

 

 

Elon Musk - Co-Founder, CEO and Product Architect: So, I think (indiscernible) we want to price the Gen 3 vehicle at around the $35,000 price point. When you consider the savings from gasoline, today when we consider gasoline to be at that point, I mean it's effectively like buying a gasoline car in U.S. for maybe $28,000 or a gasoline car in Europe for maybe $22,000. So that makes it pretty competitive. Then, as we – over time, we're going to get better and better at our lease offerings with lower interest rates and just better access to capital with a track record and more visibility into residual values. I mean I think our residual value is going to be very good. But to get loads of cost capital you have to come prove that. I think long-term, just like with Solar City, I see leasing as being overwhelmingly the path to go for electric cars, because it just brings the cost of transportation – it makes it immediate, because you have the lease and you look at your – the amount you are paying per month, you might plus you might pay for electricity versus your gasoline car lease plus gasoline cost, and I think gasoline cars also really inherently require more maintenance, there is that as well. With a lease, you don't have to worry about like capturing savings over some period of time or worry about the battery life or anything like that. You just experience the savings immediately. So, until I see leasing as being the main way that people buy our car, and then it's going to seem like a very compelling value proposition.

 

 

[hyten1]

- GM had the ev1, sure they kill it, the point is, its no like EV are not on auto makers radar

- they have been working on it for years, volt don't just appear out all of a sudden (as well as other cars like it, the underlying technology have similarities), sure you can argue they are slow, or they didn't think it will be as successful, that i would agree.

- strange there are already ev cars on the market from other auto makers, high end luxury, no, that is true. but there are many EV, nissan leaf, chevy spark, prius electric etc.

- i never said the only reason for iphone's success is network effect. i am comparing the dynamics of iphone to an tsla which i believe was brought up in previous posts.

- sure i agree RIMM had its head in its sand, but others did not, i do believe andriod is the most popular smartphone os

 

i am not arguing tsla is not a good car or tsla have not been innovative. its one thing to say its a good car, but its a entirely another thing to say they will dominate and be the #1 car maker in 30 years. what was 1984 like compare to today. i think its a bit far fetch to extrapolate what they have done so far to dominate in 30 years. i can't even comfortably say that about the iphone/apple in 30 years.

 

hy

 

- sure its possible, but anything is possible, so what is the point?

- sure EV might be the future, but i think all major automaker are aware of this and have been working on it for years.

- i don't think the smartphone is the best analogy (but that is another discussion). iphone have the network effect amongst other etc., replace cycle its a lot faster, its a $500 item vs $50k.

 

If the all the major automakers are aware of this and have been working on it for years, how is it that a start up beat them to market with a long range electric vehicle with good performance?  Not by a month mind you, but it's been 6 years since Tesla started selling the Roadster, almost 2 years for the Model S, and the large automakers still are nowhere to be found and a competing car isn't even on the horizon at any of them. Meanwhile Tesla will be releasing the Model X soon as well.  When its 3rd generation $35K car comes on the market where will the major automakers be?  My guess is that they will be just as absent.  It takes them 5-7 years to design and build a new ICE vehicle, something which they have decades (centuries in some cases) of experience.  My guess is that Tesla has this market largely to itself for at least the next 6-8 years.

 

There is some network effect with the iphone, but you can communicate with people who do not have one, so that isn't the only reason for its success.  I wasn't trying to compare a vehicle to a phone, I was making an analogy with how RIM management stuck its head in the sand for years and didn't want to disrupt their current business in anyway by changing, with how the large auto manufacturers have been and will continue to react to Tesla.

 

Jim Balsillie (on the iPhone in 2007): "It's kind of one more entrant into an already very busy space with lots of choice for consumers ... But in terms of a sort of a sea-change for BlackBerry, I would think that's overstating it."

[Liberty]

EV1 only existed because Californian regulations forced it (same with the Toyota RAV4 EV). GM killed it as soon as the regulation changed (this is documented in many places, including the documentary Who Killed the Electric Car? -- there's a sequel, Revenge of the Electric Car that has a lot of what Musk went through at Tesla during 2008-2009). Musk actually says in interview that this was one of his reasons for getting into EVs; when he saw the EV1 he was really happy and thought they would keep getting better (EV2, EV3, EV4), but when GM killed it (and people held a candle-lit vigil for a GM product), he knew he'd have to do it himself.

 

As for the Volt, Bob Lutz, the father of the Volt at GM (he was vice-chairman, now working at Via Motors iirc), said in interview that the reason why GM made the volt was because they saw what Tesla was doing.

[ERICOPOLY]

I got the following text from a friend yesterday:

 

My friend just leased a Chevy Spark EV. He already has a Tesla S and Volt lease. Here's what he said:

 

I dropped off my daughter at a practice Saturday morning. Had 1 1/2 hour to kill. Went to Chevy dealer, and left with it.

I have a GM card, they did a top off bonus to $3,000 (I had around $1,800 in points, GM card is 5% back). Deal I got for Spark EV 2LT:

 

$0 drive off

12k miles per year

36 months lease

$152 per month plus tax for 35 months

GM also will rebate $500 for a Bosch L2 EVSE (charger), making charger basically free

 

So my cost for the Spark EV is

$165 (with tax) x 35 months = $5,775

California will send me a $2,500 check and a carpool sticker for being a treehugger in about a month.

So my cost for 3 years is $3,275 plus I get a free L2 charger.

[ERICOPOLY]

Today's news:

 

Tesla raises $2bn in convertible bond sale

 

http://www.ft.com/intl/cms/s/0/2f2387a0-a00a-11e3-9c65-00144feab7de.html#axzz2ua7oZhIq

 

Tesla sold $800m in five-year notes and $1.2bn in seven-year notes as part of the deal on Thursday, according to a person familiar with the matter. The five-year notes will carry a coupon payment of 25 basis points and the seven-year notes will pay 125 basis points. Both bonds have an equity conversion premium of 42.5 per cent.

The company had originally sought to raise $1.6bn, but the deal was increased due to heavy demand from investors, according to a person familiar with the matter.

 

[hyten1]

wow, nice

 

looks like a good deal for the consumer,  but for GM? hmmm.

 

hy

 

I got the following text from a friend yesterday:

 

My friend just leased a Chevy Spark EV. He already has a Tesla S and Volt lease. Here's what he said:

 

I dropped off my daughter at a practice Saturday morning. Had 1 1/2 hour to kill. Went to Chevy dealer, and left with it.

I have a GM card, they did a top off bonus to $3,000 (I had around $1,800 in points, GM card is 5% back). Deal I got for Spark EV 2LT:

 

$0 drive off

12k miles per year

36 months lease

$152 per month plus tax for 35 months

GM also will rebate $500 for a Bosch L2 EVSE (charger), making charger basically free

 

So my cost for the Spark EV is

$165 (with tax) x 35 months = $5,775

California will send me a $2,500 check and a carpool sticker for being a treehugger in about a month.

So my cost for 3 years is $3,275 plus I get a free L2 charger.

[hyten1]

http://gm-volt.com/2014/02/25/volt-fleet-to-cross-400-million-ev-miles-today/

 

some interesting info

 

 

[hyten1]

fyi, consumer report didn't have a "best overall car" in the past (i check for 2011,2012,2013 none) why all of sudden adding this category for 2014?

 

also i thought consumer report don't usually recommend a car until it has some sort of maintenance history?

 

chevy impala got a score of 95/100 just give you some perspective (the top 3 score ever were tesla model s 99/100, bmw 1 series coupe 97/100, chevy imapla 95/100)

 

hy

 

I don't think it's been posted here (sorry if it has), but right before the Gigafactory announcement, Consumer Reports published it's Top Picks for 2014:

 

http://www.consumerreports.org/cro/magazine/2014/04/top-picks-2014/index.htm

 

The Model S is "Best Overall Car", and that's after it received the highest mark ever earlier this year in a review (99/100) and a later consumer satisfaction survey of Tesla owners also gave it 99/100 (these almost make it seem like they have a policy against perfect scores...).

[Liberty]

Yeah, they waited a while before giving the "recommended" seal:

 

http://www.consumerreports.org/cro/news/2013/10/tesla-model-s-recommended-reliablity/index.htm

[ERICOPOLY]

The CC Q&A has a little bit of talk about the challenges of 100,000 vehicle production.

 

The expectation is to be producing 1,000 Model S units per week by the end of this year.  But then the "X" also comes into play around that time:

 

Patrick Archambault - Goldman Sachs: If I can, just one more just on how you are going to configure your manufacturing sort of going into the end of this year? Does your current line have flexibility or will it have flexibility to build Model Ss and Xs, going through the same line or are you going to have to build a parallel one? Ultimately, I think the original expectations you put out was 40 to 50 global units of demand for S. So clearly, that would probably tax at some point the setup you have now but just kind of wondering when that additional capacity would go in and how it might be configured?

 

Elon Musk - Co-Founder, CEO and Product Architect: We have a game plan on that front because, obviously, if we're doing 40 to 50 in Model S volume, if Model X turns out to have a comparable demand and we're on the order of 100,000 units then clearly our current production line is not going to do the trick. So we're going to need something else and we are looking at reconfiguring a part of the factory, maybe using one of the moving production lines that's still there from the (indiscernible) days. But I feel pretty confident. I mean it's not going to be – the production of vehicles is not going to be constraint. That's not a limiting factor. No doubt, I think we have got some sort of huge[man] capital, training thing that's going to need to happen. I think we've got a handle on how to get there.

[thepupil]

Just to clarify (since maybe i do a terrible job of explaining my view), I don't think your growth targets are impossible. I just think they will have to reinvest all money back into the business to grow and that no one will stand still for 15 or 30 years to allow them to make outsized returns on reinvestvestment and high ROE's year after year after year. I don't think it's impossible to grow. I think it's impossible to grow into the current $40B valuation because of the capital intensity and generally low ROA's and ROE's in the industry; so far i see no evidence for TSLA to overcome that, even if it gets to Porsche profitability, Porsce still utilizes $20B of assets to make its cars.

 

I also think projecting 14 years of uninterrupted profitable 27% volume growth is pretty insane for a cyclical business. I think TSLA is cyclical, which also gets back to my BV, ROE, Expected return discussion. A 15 year DCF gives no nod to cyclicality. I also looked through MS's model more last night and it looks pretty insane in that it models $200MM of capex for 2014. TSLA's 10-K projects $650-$860MM. The MS model only takes about 3 years to get to $900MM capex, so there are very big differences between the model and reality and the PT uses the model.  unfortunately, I have no access to this or any analyst but i'd love for him to walk me through it.

 

So I may lose your bet Eric, and be right on the valuation. I may be wrong. The future is obviously unknowable.

 

What I can't seem to reconcile is you are a spectacular investor. I would assume a spectacular investor is good at analyzing business models, capital intensity, focuses on owner earnings, acknowledges cyclicality, and uncertainty. But you seem certain that TSLA is a terrible short and don't seem to admit that it is egregiously overvalued. So I take it seriously when you say that, given your well documented record. But so far, I haven't seen you or anyone articulate how TSLA is a good capital lite business or how TSLA is a capital intensive business that wil earn very high ROE's for the next 20-30 years.

 

Capital intensity itself is not a bad thing, look at railroads! But railroads enjoy high ROE's (UNP=20%, trades 4X book because higher payout ratio reduces long term returns as they don't have unlimited reinvestent opportunities) and are regulated monopolies. So to earn a high ROE  almost indefinitely (which is priced in), TSLA must do something much much better than potential competitors. Mathematically they must either lever more, have more sales / assets, or earn a higher margin.

 

ROE = Asset Turnover * Margin * Leverage

 

I see porsche margins as kind of the ceiling (maybe this is a mistake) but TSLA's own management says they target mid teens EBIT margins (which would be similar to porsche's) and leverage is not a sustainable advantage (though tSLA certainly has cheap capital for now), so the real juice in my humble opinion needs to come from asset turnover. There needs to be something unique about TSLA's manufacturing of its unique cars that allow it to drive more Sales / assets than any other car company has, can or will do.

 

I hope that clarifies my points. I don't mean to be combative and i got a little frustrated yesterday and I desperately want to be challenged on this and leverage the massive amounts of brainpower on this board. But I want to be challenged on the innards of Tesla's business.

 

 

 

John Lovallo - BofA Merrill Lynch, Research Division

 

First question would be, Deepak, just on kind of your outlook for free cash flow in 2014 and maybe in 2015, given the requisite investment that's going to go into the business. How are you guys kind of thinking about that?

Deepak Ahuja - Chief Financial Officer and Principal Accounting Officer

 

Yes. Well, I think in 2014, we certainly expect to generate significant cash flow from operations. And our CapEx then, which then feeds into free cash flow, will depend quite a bit on how we continue to expand and what opportunities we see globally throughout the rest of the year. So it's a bit early for me to call and give you clear guidance for certainly 2015 and potentially all of 2014, but we said we see this as really a great year for growth as we look forward.

[thepupil]

And just to clarify Porsche does put up a great ROE using nice leverage, asset turnover and margin; I just think that if TSLA gets there and won't compound far into the future and TSLA is currently valued at a greater price and far greater metrics when it is 8 years behind.

 

http://books.google.com/books?id=DPK43Sku2PsC&pg=PA207&lpg=PA207&dq=porsche+ebit+margin&source=bl&ots=YYbkdPIeTe&sig=-IHW6Ffg08lrCv84-Sjso9T2FLQ&hl=en&sa=X&ei=RrIQU5_jAabZ0QHNxoHABg&ved=0CCkQ6AEwAA#v=onepage&q=porsche%20ebit%20margin&f=false