TSLA - Tesla Motors

[Jurgis]

I own a tiny position in TSLA to support Musk.

 

We need Elon clone in biotech/drugs/medical devices. That's a sector that needs serious cleaning up.

[ERICOPOLY]

The Model 3:

 

It will likely be a $35,000 car that will do something like 0-60 in 4 seconds and win the highest marks on safety in it's class.

 

Nah, nobody will want that.

.

[jschembs]

The Model 3:

 

It will likely be a $35,000 car that will do something like 0-60 in 4 seconds and win the highest marks on safety in it's class.

 

Nah, nobody will want that.

.

 

Eric, I don't doubt it will receive great fanfare. Questions of when and at what level of profitability to shareholders are important, no?

[Liberty]

I own a tiny position in TSLA to support Musk.

 

We need Elon clone in biotech/drugs/medical devices. That's a sector that needs serious cleaning up.

 

Elizabeth Holmes seems to have the smarts, the ambition, the work ethics.. Time will tell if she succeeds in making a mark on her industry, but at least she's working on a big problem that could help humanity, and for that I wish her the best. Elon is 44 and she's 31, so she has about a little over a decade to show her stuff.

[merkhet]

The Model 3:

 

It will likely be a $35,000 car that will do something like 0-60 in 4 seconds and win the highest marks on safety in it's class.

 

Nah, nobody will want that.

.

 

If they can hit that price point, then, yea, it'll be hugely in demand. However, what's the likelihood that they can actually hit that price point?

[Jurgis]

I own a tiny position in TSLA to support Musk.

 

We need Elon clone in biotech/drugs/medical devices. That's a sector that needs serious cleaning up.

 

Elizabeth Holmes seems to have the smarts, the ambition, the work ethics.. Time will tell if she succeeds in making a mark on her industry, but at least she's working on a big problem that could help humanity, and for that I wish her the best. Elon is 44 and she's 31, so she has about a little over a decade to show her stuff.

 

Right, I know about her and wish her the best too. We will see how her company works out. :)

[Liberty]

If they can hit that price point, then, yea, it'll be hugely in demand. However, what's the likelihood that they can actually hit that price point?

 

Pretty high if the Gigafactory works out. Cut the cost of the batteries significantly + economies of scale from manufacturing a much larger number of vehicles, and it seems pretty plausible.

[Picasso]

What I was mostly getting at is how stupid it is to value Tesla on a price to earnings multiple.  It's illogical at this point in it's history.  This is a company which was insolvent around two years ago as a result of incredibly difficult engineering problems, and will continue to invest massively for it's future.  How do you even look at this from a P/E standpoint?

 

The question is how you want to value the company.  Maybe over the short-term it's overvalued based on the output of the next couple years.  But it's impossible to know whether it's a good short based on the output for the next ten or twenty years.  I've thought about this and I think the easiest way to value the company is based on the cost to start Tesla from scratch.  You also have to be able to hire the best people to work for you company.  That in itself is a feat.  J.B. Straubel is incredibly smart and hard working and probably knows battery tech better than any non-Tesla electrical engineers.  He lives and breathes electric cars and he's decided to team up with Elon because he thinks Elon gives him the best probability of success.  Tesla also bought the Fremont plant for almost nothing (which I have toured a few times).  Have you seen the new Fisker production facility?  It's a joke.  There are so many intangibles that are hard to price in the replacement value of Tesla.  How much will Apple have to spend to create this from scratch?

 

Then you have to add up all the future cash that Tesla will be able produce and reinvest.  Taken together I don't know how that's worth less than $15 billion or so in an industry this large.  So what if it trades for 2x the value of what we know today?  In a few years that value will move up and it makes shorting this incredibly dangerous.  Maybe you catch some upside on a short as people get nervous but long-term just seems like a terrible idea.

 

Buying the stock isn't a sure thing but at least the risk stops when the stock hits zero.  I remember watching an interview with Elon where he talked about a 2008 lunch with Charlie Munger and how heartbreaking it was to hear his hero tell him the 30 different ways he was going to fail.  This is a guy who has an insane pain and risk threshold to solve very difficult problems and we've already seen Tesla survive the times that should have killed them.  Maybe it doesn't make sense to go long at this valuation if you don't agree with the long-term potential, but it makes absolutely no sense to go short.  The slower the other auto companies are to make this shift, the riskier the Tesla short becomes.  And based on what I've seen so far, they aren't moving very fast.

 

 

[Picasso]

If they can hit that price point, then, yea, it'll be hugely in demand. However, what's the likelihood that they can actually hit that price point?

 

Pretty high if the Gigafactory works out. Cut the cost of the batteries significantly + economies of scale from manufacturing a much larger number of vehicles, and it seems pretty plausible.

 

This has also been the Elon playbook across all his companies.  He tries to see where technology might be in the future (cost of solar going down, battery technology improve/cost going down, network capacity to handle money, etc..) and then matches up the growth of the company to that cost curve or what the technology allows.  The gigafactory will be the first time he's able to influence that cost curve, aside from creating a reason for more battery tech R&D.  I think a base model can easily get to $35k, but when people add all the cool features they want that's where it might cost close to $50k without tax incentives.

[Liberty]

I still think there's a 50/50 chance that Apple buys Tesla at some point.

 

Musk won't want to do this job full-time forever, he's going to Mars. But he really cares about his goal being accomplished (making sustainable transport mainstream) and about the products staying excellent over the long-term. Apple is much better aligned with the Tesla culture and technology than Google (which almost bought Tesla a few years ago). In fact, Musk has clearly based a lot of the Tesla approach on Apple's approach.

 

If he sold Tesla to Apple, he'd know that the culture/products has the best chance of staying good, and he'd back his large scale goals with the best balance sheet in the world.

 

By buying Tesla, Apple would not only buy its fiercest competitor for the high-end in EVs, but it would also combine two very good teams that would probably do better things together than apart (lots of ex-tesla employees at Apple and vice versa anyway) and get the gigafactory supply.

[ERICOPOLY]

The Model 3:

 

It will likely be a $35,000 car that will do something like 0-60 in 4 seconds and win the highest marks on safety in it's class.

 

Nah, nobody will want that.

.

 

Eric, I don't doubt it will receive great fanfare. Questions of when and at what level of profitability to shareholders are important, no?

 

Yes, and with regards to shareholders, and the stock...  I just want to comment that I don't see this as a value investing stock because it's track record is more ahead of us than behind us.

 

I think it's speculative just as much for short sellers as for longs.

 

It isn't a company with a long established track record where you can more accurately grasp it's future returns (and hence IV) -- when you have such a company that's relatively predictable, then you have some degree of insight into when it's expensive or cheap.

 

This stock is loaded with biases anywhere from "they can do anything" to "it's an auto company and it's worthless based on their present sales volumes which are unlikely to get off the ground with any sustainable margins".  There are more tempered opinions in between, but I say just call a spade a spade -- it's speculation either way.

 

I really admire Buffett because he doesn't guess around on these kind of things and I'm trying to aspire to be more like him (I've not even close yet though).

 

[thepupil]

 

I am one of those idiotic short sellers who lost 300 bps or so shorting this in 2013, broke even in 2014...moved on..at the very least i knew to not size it to a crippling amount.

 

I still have $100 of risk in that if TSLA builds 100K cars in 2016 I donate $100 to sanjeev's charity. Ericopoly will donate if less.

 

Eric, it looks like it will be close!!!

[jschembs]

The Model 3:

 

It will likely be a $35,000 car that will do something like 0-60 in 4 seconds and win the highest marks on safety in it's class.

 

Nah, nobody will want that.

.

 

Eric, I don't doubt it will receive great fanfare. Questions of when and at what level of profitability to shareholders are important, no?

 

Yes, and with regards to shareholders, and the stock...  I just want to comment that I don't see this as a value investing stock because it's track record is more ahead of us than behind us.

 

I think it's speculative just as much for short sellers as for longs.

 

It isn't a company with a long established track record where you can more accurately grasp it's future returns (and hence IV) -- when you have such a company that's relatively predictable, then you have some degree of insight into when it's expensive or cheap.

 

This stock is loaded with biases anywhere from "they can do anything" to "it's an auto company and it's worthless based on their present sales volumes which are unlikely to get off the ground with any sustainable margins".  There are more tempered opinions in between, but I say just call a spade a spade -- it's speculation either way.

 

I really admire Buffett because he doesn't guess around on these kind of things and I'm trying to aspire to be more like him (I've not even close yet though).

 

Good points, don't disagree with anything you said.

[Picasso]

Tesla has a habit of rolling out a product with flaws and then fixing them later.  I'm not exactly sure that the culture of Apple and Tesla would fit in that well based on how quickly Elon likes to operate.  Elon is also very close with Sergey and Page, not including Google's 5% stake in SpaceX.  There are some barriers to integrating with Apple aside from the capital intensive nature of what Tesla is doing.  But who knows.... It seems like Elon has very fluid relationships with various friends and colleagues so nothing is off the table.

 

SpaceX will require a lot of capital to get to Mars, so I have always expected Musk to maximize the value of Tesla to give him the best odds of getting to Mars.  He's no dummy when it comes to finance and he plans fairly far into the future.  A funny e-mail he sent to SpaceX employees who were complaining about remaining private (valuation is now over $70 btw):

 

[ERICOPOLY]

]

My 2013 Tesla will be getting improved performance via a software update when v7 rolls out.  Really incredible what they are doing.

 

I tried to find info on that.  Curious what area of performance is being improved?  I have a 2013 as well.

[Picasso]

http://electrek.co/2015/09/18/tesla-releases-second-version-of-its-beta-v7-0-software-update-with-autopilot/

 

The leaked release notes are at the bottom, RWD improvements are under "Additional Improvements."

[Phaceliacapital]

It's a bit like those who thought that Bezos just wanted to sell books online. His ambition is so much larger than that...

[benhacker]

For the record just shorted a few days back (first time for me for TSLA - love the company).

 

Agree with much of the bull thesis, just think that TSLA is in a highly reflexive stock situation, and while the assets being built I believe are truly valuable, I do not necessarily think they are as valuable as the EV (enterprise value :) ) of this company, combined with cash burn likely to come.

 

As a citizen, I love Elon and his various entities as they just burn cash hand over fist and do wonderful things for society and technology.  That makes them seem very very amazing when they can raise their cash at nice premiums to value / book / future cash or whatever, but I think the amount of cash TSLA consumes will not change with this stock price... so if it goes down, effective dilution will accelerate.

 

Of course it may not go down, it may go up.

 

I am speculating that now, at these prices, it is probably not a great idea to be long.

 

Also I tend to agree with Picasso on the Apple buyout likelihood... I don't think the culture is that great of a fit, I also am not sure that Apple really wants to own the factory here, but they do like control, and that may be a shift for them in a lot of areas, so maybe they do end up making the end product here as well with their own factories.

 

Anyway, I'm rooting for Elon!

 

Cheers,

[Liberty]

Wait, you're rooting for Elon and like that he can raise capital at a good price but are shorting the stock? Or did I misread that?

[Picasso]

Elon built up Tesla with about $100 million of his own capital plus multiple equity offerings between $17-33 from the private markets, aside from outside investments before the IPO.  If you look at what he's built today using a relatively small amount of capital, I don't think volatility in the share price affects his ambitions very much.  It might change how fast he can roll out his strategy, but it seems unlikely to dampen the prospects of the company.

 

One example would be the gigafactory.  He basically paid for it will a 6-7 year bond costing 0.5% with a stock conversion at $350 or so.  Tesla produces a 25% gross margin on the cars they sell, but they invest extra in other areas.  Elon himself said that if he wanted, Tesla could be profitable if they stopped investing in various areas.  I think Reuter's put out an article recently saying they lost $8k per vehicle sold.  That just isn't true.

 

The following two years will be the first time Tesla will earn between $1.5-2 billion of gross profit.  There will probably be equity raises once in a while but I think they can fund the vast majority of the projects from the existing product line.  There are other areas which may pay off, like Energy (powerwall) or infrastructure (Supercharger access to other EV's), or who knows what else. 

 

If the Model 3 kicks in and is successful then they probably will never need to issue capital again.  I would think that based on what they've accomplished during very difficult capital market conditions (2008, GM bankruptcy, IPO'd at 1/10th the current price, etc.) that raising capital isn't going to be a problem for them.  In fact the last equity offering resulted in the stock going up, not down.

 

But who knows.... I personally think it's hard to short a guy like Elon given how much adversity he's seen. 

 

By the way benhacker, what do you think your upside/downside on the short position?  I'm curious to your thinking because I find a lot of $30 price targets or so by the bears. 

[benhacker]

Hey Liberty,

 

Wait, you're rooting for Elon and like that he can raise capital at a good price but are shorting the stock? Or did I misread that?

 

I'll reframe my thinking and then answer at the end, maybe it wasn't clear.  I think the base case for investors today assumes very very good business outcomes, a reduction quickly in cash burn, hitting model 3 on schedule, and Gigafactory ramping as planned.  My view is that in that scenario, TSLA still needs to raise some more capital.

 

My guess says that the base case by bulls, is probably too optimistic.

 

My comment about rooting for Elon is simply this - I think / hope he will build some very nice for humanity, and I wish him luck.  However, I think (and again, I think Picasso is explicitly saying this) that Elon's goal is to change the world, not to make money.  I think this is 100% distinctly different than Bezos who was getting the comparison up thread (I have owned AMZN in the past, and I admire Bezos a lot)... Bezos is doing what he feels will maximize his long term returns... his time horizon is simply much longer than that of many so called value investors, so I think they miss(ed) what he was doing.  Conversely, I think many TSLA longs are missing what Elon is doing as well... I think he is explicitly exploiting capital markets (very very well) in all his businesses to build a better world.  However, I think he build what he aims to build regardless of capital price (as long as capital is available).

 

I do not believe he would build *less* with TSLA at $100 / share than he will with TSLA at $240 / share... which seems to be the implication.  I think that he will build the same, in fact he may accelerate sales of stock, reprice stock options, etc if the stock begins to drop... thus I think the valuation of the shares relative to my expectation of true value (an area we can disagree on of course) is in fact highly correlated to direction of the stock.  What I guess makes me different is that I feel like the stock price today is pricing in all the good things I mentioned, but *also* pricing in this positive reflexivity.

 

I think a few things have lead me to short right now:

1) Gas is at $2

2) Literally even the most clueless non-tech friends I have now understand Elon's vision and pitch me on SCTY and TSLA stock at every turn (I'm short SCTY as well, earlier this year, and higher)

3) It seems to me, there are few(er) folks involved in (statistically) high momentum / valuation names which I think bodes poorly for support for TSLA's stock in a downturn.

4) The market is generally weak, and Tesla even as a very volatile stock with a very wide DCF value, is not down nearly as much as I would have thought

5) I know many many folks who were short TSLA around $30, $60, $90, and $150, and I also know (personally) a few intelligent longs who clearly articulated the disruption that TSLA was wreaking on this industry and profited from their view -- in case of the bears, few I know have a position (TSLA is heavily shorted yes, but a lot of that is convert arb I believe) today because of their deep deep wounds.  For my friends who were long and strong... many are still long, but no long talk as much about TSLA, and not currently bullish on the current price.

6) Lastly, I felt during the recent downturn, funds were derisking by closing TSLA shorts which kept the stock higher than it otherwise would have been. (I only shorted a few days ago ~$247)

 

What these data points say to me is that in the near-ish term (call it 1 year or so - sorry to make such a bold non-fundamental prediction on this board, but shorting is a different animal than going long), I see many many reasons for the stock to go down, and I see a limited number of folks who are going to be interested to buy more or any Tesla for quite a few % down.  On the other hand, I see many many bears who still (foolishly) believe that TSLA is worth $30 / share because of "no profits" (idiots)... but these bears have dry powder in this name, and may want to "make it back the way they lost it".

 

If the market rallies 5-10% up and TSLA is flat, I'd probably close this short.  If TSLA announces a Model 3 pull in that was credible, I'd probably close this short, if oil prices go nuts up, I'd probably close this short.

 

But in absence of these things I hope to close this short maybe down 30-40% from here.  I think at that level, absent some big change (huge stock sale), I may feel less inclined to hold.  Tesla is most definitely (to me) worth >$30 just in option value.

 

Back to Liberty's question:

 

I hope Elon succeeds.  I think what it will take for him to succeed will still require a lot of capital.  He will raise that capital at prices I (as a short seller) will find attractive.  I also think he will succeed, but not as quickly as the bulls think.  Finally, as a short seller, I hope he succeeds in what I think his vision is, which is build an amazing technology company that makes only limited profits.  ;-)

 

Kind of using some hyperbole, but I hope you understand the gist.

 

As always guys, I hope my short selling tone is not the kind that turns folks off.  I've commented on LULU, HCG.T, and now TSLA (I've mentioned other, but these are the "high quality" ones) on these boards wrt to shorting.  Each one was / is a loved name by some / a few, and each one I feel was simply catastrophically overpriced and had catalysts to adjust downward in the timeframe I care about.

 

As a buddy of mine says, we can both be right if our timeframes are different. :)

 

I personally feel that the timeframes of many investors have extended out too far... it is no longer "long term" investing, in a lot of companies it grows into something more resembling "faith".

 

Tesla is valued on faith in Elon, IMO.

 

Sorry for the length, hope that captures my thoughts accurately. 

[Picasso]

I would have to agree that you have a strong thesis for the next several months.  Trading the sentiment against expectations on Tesla has almost always been the best way to time short-term movements.  I sold all my shares over the past year and so I hope you're right because I've wanted to reload somewhere in the $12-15B valuation range.

 

I'm curious to how you view Elon as exploiting the capital markets?  He's significantly participated in the last two equity offerings and massively diluting the shares would reduce his control over the company.  He's been in two different situations before where not having control nearly cost him his companies (PayPal and Tesla).  In the case of SpaceX, he could take the company public but he doesn't.  He has stated a couple times that he views Tesla stock as short-term overpriced (while also saying over the long-term he could possibly get the company to a size of Apple), which is not what someone says if they're trying to sell stock to the public.

 

Elon mentioned in a talk once that minimizing profits in a disruptive and attractive business actually creates the most value over the long-term.  And he's going to need a lot of capital to get to Mars which might not come 100% from SpaceX.  I personally think that he looks very closely at maximizing the value of Tesla.  Especially since massively diluting his stake and minimizing the value of Tesla will open up the possibility of losing his company and losing Tesla's mission to force change on the industry.

 

But the next several months are anyone's guess.  A massive recall, problems with the gigafactory, or who knows what else can really hurt the stock.

[benhacker]

Hey Picasso,

 

I'm curious to how you view Elon as exploiting the capital markets?

 

I guess this is a matter of terminology.  "Exploiting" is a loaded term.  I guess the best way to frame this is irregardless of the returns capital providers have received by investing with SCTY / TSLA (I'll ignore Space X as I don't really know enough financial details to say something super intelligent), I think the risks they have been taking have been higher than otherwise would have been required (it's basically venture capital).  Now, I think the converse of my statement is compelling, which is that Musk is really doing what capital markets want, he is creating value, so you can argue that someone shoveling him money at a certain valuation is overpaying or not,  it's the issue of whether he builds something of value over time.  So if he is taking smart venture capital risks, and the market is will to accept returns that are positive, but lower than venture capital class / risk returns, then it's really a win win.

 

I guess by "exploiting" what I mean is that Musk is highly promotional, and I think he raises funds at prices which would not be available to others of his ability with his infrastructure around him.  You could argue that is an invalid statement, because there is no comparable.  I would generally agree, but I stand by my statement.  And luckily, you lead me in like you are the straight man in a joke... :)

 

He has stated a couple times that he views Tesla stock as short-term overpriced (while also saying over the long-term he could possibly get the company to a size of Apple), which is not what someone says if they're trying to sell stock to the public.

 

Read that sentence again, and imagine it's any company other than Tesla, and you tell me if you agree with what you wrote.

 

*anyone* who thinks that sentence / sentiment / statement is NOT promotional, is drunk on Musk :) (zero offense intended, I think you are sharp, and clearly you aren't long now, so you are certainly as objective or more than I am given I have a position).

 

Musk has enough history of being very aggressive (and wrong / early) with his claims that I think he's generally acknowledged as being promotional and too aggressive (which in his industry and situation I think is the right side to error on), this is an area I didn't think I was contrarian on.

 

Keep me posted on your valuation thoughts though on this thread.  I love to hear new takes as the news flow on Tesla comes out.  It's a dynamic company I have and will follow for a long time regardless of my position in the stock.

 

Ben

 

PS - I did forget to mention recall risk so thanks for mentioning.  Not sure how big of a deal it is, probably not much, but who knows...

 

[Picasso]

Elon is sort of an optimist, or what some would say promotional, because he projects on his team what he himself could do.  He gets the time frames off by a wide margin but he's generally been able to complete the task.  I think he understands the first principles and physics well, but getting it delegated through mortals causes delays for various reasons.  The autonomous driving capabilities are going to take longer than he stated for sure, and I know a lot of Tesla owners are upset by this.  I spoke with an engineer working on that team and you could tell how hard it was to get certain things to work.  They're trying to do a lot with hardware that isn't the $150k kit Google uses.

 

He also made the valuation comments separately.  I mean, I sort of think it isn't hard to argue that Tesla can be as big as Apple if they start selling half a million cars a year and disrupt the industry.  It was him thinking out loud on the potential valuation but maybe I am just drunk on Musk, ha!

[rkbabang]

Hey Liberty,

 

Wait, you're rooting for Elon and like that he can raise capital at a good price but are shorting the stock? Or did I misread that?

 

I'll reframe my thinking and then answer at the end, maybe it wasn't clear.  I think the base case for investors today assumes very very good business outcomes, a reduction quickly in cash burn, hitting model 3 on schedule, and Gigafactory ramping as planned.  My view is that in that scenario, TSLA still needs to raise some more capital.

 

My guess says that the base case by bulls, is probably too optimistic.

 

My comment about rooting for Elon is simply this - I think / hope he will build some very nice for humanity, and I wish him luck.  However, I think (and again, I think Picasso is explicitly saying this) that Elon's goal is to change the world, not to make money.

 

 

You do realize that by shorting you are in a tiny way inhibiting him from achieving his goals.  That is the root of Liberty's question.  When you hope someone succeeds at something you don't actively try to throw up a road block in their way simply because you think you are likely to make a little money doing it.  All Liberty was pointing out is that the two statements "I hope he  builds something very nice for humanity and I wish him luck" and "I'm shorting the stock" are at odds with one another.  The action of shorting the stock (again, in a tiny way) tries to inhibit  the outcome you are hoping for from happening.

 

  I think this is 100% distinctly different than Bezos who was getting the comparison up thread (I have owned AMZN in the past, and I admire Bezos a lot)... Bezos is doing what he feels will maximize his long term returns... his time horizon is simply much longer than that of many so called value investors, so I think they miss(ed) what he was doing.  Conversely, I think many TSLA longs are missing what Elon is doing as well... I think he is explicitly exploiting capital markets (very very well) in all his businesses to build a better world.  However, I think he build what he aims to build regardless of capital price (as long as capital is available).

 

You realize that these could be distinctions without a difference.  There is not necessarily any difference in outcome between someone who uses the capital markets to build something with an extreme long term view (on the order of a human lifetime) and someone who believes they are just using the capital markets to achieve something great for humanity.  The motivations may differ greatly, but both the actions they take and the long term outcome will likely be the similar.