TSLA - Tesla Motors

[Spekulatius]

A lot of folks here enjoy swimming naked. 8)

 

I took off my pants and placed Model 3 reservation today.

 

Pictures on request.  8)

I think buying a Tesla car is a better value than buying Tesla stock, but what do I know. I prefer a Pic with you and your new car to a pic of you with your pants down.

[Jurgis]

A lot of folks here enjoy swimming naked. 8)

 

I took off my pants and placed Model 3 reservation today.

 

Pictures on request.  8)

I think buying a Tesla car is a better value than buying Tesla stock, but what do I know. I prefer a Pic with you and your new car to a pic of you with your pants down.

 

Interestingly though, if every reservation is converted into sale, Tesla stock might be attractive... Although still not sure thing, since costs for these sales might be huge. And SCTY merger is another risk.

[Liberty]

This seems like a pretty amazing product:

 

https://www.tesla.com/en_CA/videos/powerwall2-and-solar-roof-launch

 

Could really help residential solar adoption.

[Liberty]

https://www.tesla.com/en_CA/blog/teslas-acquisition-of-solarcity-receives-shareholder-approval

 

Tesla’s shareholders have overwhelmingly approved our acquisition of SolarCity. Excluding the votes of Elon and other affiliated shareholders, more than 85% of shares voted were cast in favor of the acquisition. With SolarCity’s shareholders also having approved the acquisition, the transaction will be completed in the coming days

[Jurgis]

This seems like a pretty amazing product:

 

https://www.tesla.com/en_CA/videos/powerwall2-and-solar-roof-launch

 

Could really help residential solar adoption.

 

I'll consider this in 20 years when I have to replace my roof.  8)

[Liberty]

NatGeo interview of Elon Musk by Leonardo Dicaprio about the gigafactory:

 

[no_free_lunch]

Does anyone understand the financials well enough to comment on the share count?  There was a fairly big jump in the last quarter, some of it is in the "fully diluted" count where there was no prior increase.  I know there was a capital raise but that shows up in the regular share count, it looks like these are employee options.  Just trying to figure out if there have been above average shares disbursed this quarter or if that is old options that they are just now adding to the share count.

 

If you look at page 5 of the Q3 numbers you will see what I am talking about.  There was 129M basic, 129M fully diluted a year ago.  Now there is 149M basic, 157M full diluted.  Just trying to understand where the extra 8M shares came from.

[awindenberger]

Does anyone understand the financials well enough to comment on the share count?  There was a fairly big jump in the last quarter, some of it is in the "fully diluted" count where there was no prior increase.  I know there was a capital raise but that shows up in the regular share count, it looks like these are employee options.  Just trying to figure out if there have been above average shares disbursed this quarter or if that is old options that they are just now adding to the share count.

 

If you look at page 5 of the Q3 numbers you will see what I am talking about.  There was 129M basic, 129M fully diluted a year ago.  Now there is 149M basic, 157M full diluted.  Just trying to understand where the extra 8M shares came from.

 

Im not certain, but possible from Elon stock option awards for hitting certain targets.

[SlowAppreciation]

Does anyone understand the financials well enough to comment on the share count?  There was a fairly big jump in the last quarter, some of it is in the "fully diluted" count where there was no prior increase.  I know there was a capital raise but that shows up in the regular share count, it looks like these are employee options.  Just trying to figure out if there have been above average shares disbursed this quarter or if that is old options that they are just now adding to the share count.

 

If you look at page 5 of the Q3 numbers you will see what I am talking about.  There was 129M basic, 129M fully diluted a year ago.  Now there is 149M basic, 157M full diluted.  Just trying to understand where the extra 8M shares came from.

 

Im not certain, but possible from Elon stock option awards for hitting certain targets.

 

I think his incentive structure is pretty crappy. It's for $1b, and rewards size above all else. In 2012, the Board of Directors approved an incentive plan for Elon Musk which awards him up to 5.3m shares—at $31.47/share—assuming 10 milestones are hit, and is accompanied by an increase of $4b in marketcap:

 

• Successful completion of the Model X Alpha Prototype;
  
• Successful completion of the Model X Beta Prototype;
  
• Completion of the first Model X Production Vehicle;
  
• Successful completion of the Model 3 Alpha Prototype;
  
• Successful completion of the Model 3 Beta Prototype;
  
• Completion of the first Model 3 Production Vehicle;
  
• Gross margin of 30% or more for four consecutive quarters;
  
• Aggregate vehicle production of 100,000 vehicles;
  
• Aggregate vehicle production of 200,000 vehicles; and
  
• Aggregate vehicle production of 300,000 vehicles.
  

 

To me, this plan rewards size—not value; so Musk is being incentivized to make the company bigger—not better.

[SlowAppreciation]

https://www.docdroid.net/liV1TEZ/stanphyl-capital-presentation-on-tesla-robinhood-2016.pdf.html

[no_free_lunch]

Based on the latest quarter numbers this is definitely a GARP stock now.

 

Revenue increase of 145% year over year.

 

Gross margin was 27.5%.  If you look at competitors, they are generally in the 10-20% range.  Tesla states in the Q3 that the goal is to increase the gross margin % over time.  Apparently his compensation is tied to a 30% figure so there is a clue for you.

 

SG&A, R&D were up 34% vs revenue increase of 145%.  The goal is a 30% increase in these expenses next year.  Sales could ballpark double next year as well.

 

If they are able to double sales next year they should be looking at an earning rate of $1.5-2B.

 

The way that the margins are gearing it could get very interesting if they are able to grow as anticipated.  They have already grown from nothing to 100k cars so I don't see why it will end anytime soon.

[rkbabang]

Does anyone understand the financials well enough to comment on the share count?  There was a fairly big jump in the last quarter, some of it is in the "fully diluted" count where there was no prior increase.  I know there was a capital raise but that shows up in the regular share count, it looks like these are employee options.  Just trying to figure out if there have been above average shares disbursed this quarter or if that is old options that they are just now adding to the share count.

 

If you look at page 5 of the Q3 numbers you will see what I am talking about.  There was 129M basic, 129M fully diluted a year ago.  Now there is 149M basic, 157M full diluted.  Just trying to understand where the extra 8M shares came from.

 

Im not certain, but possible from Elon stock option awards for hitting certain targets.

 

I think his incentive structure is pretty crappy. It's for $1b, and rewards size above all else. In 2012, the Board of Directors approved an incentive plan for Elon Musk which awards him up to 5.3m shares—at $31.47/share—assuming 10 milestones are hit, and is accompanied by an increase of $4b in marketcap:

 

• Successful completion of the Model X Alpha Prototype;
  
• Successful completion of the Model X Beta Prototype;
  
• Completion of the first Model X Production Vehicle;
  
• Successful completion of the Model 3 Alpha Prototype;
  
• Successful completion of the Model 3 Beta Prototype;
  
• Completion of the first Model 3 Production Vehicle;
  
• Gross margin of 30% or more for four consecutive quarters;
  
• Aggregate vehicle production of 100,000 vehicles;
  
• Aggregate vehicle production of 200,000 vehicles; and
  
• Aggregate vehicle production of 300,000 vehicles.
  

 

To me, this plan rewards size—not value; so Musk is being incentivized to make the company bigger—not better.

 

It's really only the last three that reward size.  The first 6 reward bringing medel X and III products to market and the 30% gross margin one is a good incentive.

 

[Guest Schwab711]

Gross margin was 27.5%.  If you look at competitors, they are generally in the 10-20% range.

 

My understanding was TSLA does not include R&D expenses in COGs while all other major autos do. A quick search showed F and GM do. I would be careful relying on the above comparison without confirming whether it is apples-to-apples.

 

If you add R&D for TSLA, then GM% is:

FY2015: 5.1%

LTM: 10.2%

 

*These may not be apples-to-apples either. I just did a quick back of the envelope calc. Please do your own DD.

[SlowAppreciation]

Gross margin was 27.5%.  If you look at competitors, they are generally in the 10-20% range.

 

My understanding was TSLA does not include R&D expenses in COGs while all other major autos do. A quick search showed F and GM do. I would be careful relying on the above comparison without confirming whether it is apples-to-apples.

 

If you add R&D for TSLA, then GM% is:

FY2015: 5.1%

LTM: 10.2%

 

*These may not be apples-to-apples either. I just did a quick back of the envelope calc. Please do your own DD.

 

Bingo

[no_free_lunch]

Fair enough but it is not material to my argument.  What you saw this quarter was that they have the ability to control their costs relative to their revenue growth.  As the revenue grows they are going to start to generate substantial profits. 

 

Normally I don't like to depend on a company growing their revenue by 100%+ but honestly, tesla is differerent.  They have already shown so much growth and the limiting factor still appears to be their ability to produce.  They have already shown they know how to scale their production so I don't see what will stop them.  This is not the fad stock people are making it out to be, there are some very real reasons to believe they will be successful and the risk / reward is tilted in your favor at these prices.

[Spekulatius]

Gross margin was 27.5%.  If you look at competitors, they are generally in the 10-20% range.

 

My understanding was TSLA does not include R&D expenses in COGs while all other major autos do. A quick search showed F and GM do. I would be careful relying on the above comparison without confirming whether it is apples-to-apples.

 

If you add R&D for TSLA, then GM% is:

FY2015: 5.1%

LTM: 10.2%

 

*These may not be apples-to-apples either. I just did a quick back of the envelope calc. Please do your own DD.

 

Since TSLA runs their own dealer and service  business, they capture this margin to, while other car makers don't, but also need much less capital/vehicle as well.

[no_free_lunch]

A new short thesis came out on Tesla this week:

 

http://fortune.com/2016/12/02/tesla-model-3-stock-elon-musk/

 

I skimmed it and it hasn't changed my opinion but it is worth seeing what the shorts are saying.

[no_free_lunch]

I get that the cars are nice, and Musk is innovative and all, but I'm surprised(new here obviously) to see a thread on this on a value investing forum. Is there a rational bull case for this stock here?

 

I think you can make a bull argument on tesla.  It all comes down to Tesla's forecast of 500k cars per year in 2018.  If you believe that they can achieve that number then:

 

Sales: $30B (currently $9B), assuming an extra 400k cars (currently 100k cars) at $50k rev avg.

Gross Margin: 27.5%, $8.25B

Operating Expense: $4B

Taxes/Interest: $0.75B

 

Net Profit in 2018/2019: $3.5B, $22/share

 

 

If you apply a 25 PE then you have a $550 / share TSLA.

 

If gross margin can get to the 30% target it would put the share price at around $625.

 

This gives zero value to the gigafactory other than the effect it should have on margins.

 

Also assigning zero value for solar city.

 

I think it's very compelling at these prices.

[rkbabang]

I get that the cars are nice, and Musk is innovative and all, but I'm surprised(new here obviously) to see a thread on this on a value investing forum. Is there a rational bull case for this stock here?

 

I think you can make a bull argument on tesla.  It all comes down to Tesla's forecast of 500k cars per year in 2018.  If you believe that they can achieve that number then:

 

Sales: $30B (currently $9B), assuming an extra 400k cars (currently 100k cars) at $50k rev avg.

Gross Margin: 27.5%, $8.25B

Operating Expense: $4B

Taxes/Interest: $0.75B

 

Net Profit in 2018/2019: $3.5B, $22/share

 

 

If you apply a 25 PE then you have a $550 / share TSLA.

 

If gross margin can get to the 30% target it would put the share price at around $625.

 

This gives zero value to the gigafactory other than the effect it should have on margins.

 

Also assigning zero value for solar city.

 

I think it's very compelling at these prices.

 

I agree, that is the best case scenario though. The danger is that they are 1-3 years late with the model 3 and investors panic once it becomes clear that those timeframes will not be met.  The stock could get a lot cheaper in that case.

 

[no_free_lunch]

I agree that it is better case but the stock can ALWAYS get cheaper.  However, this is definitely, definitely not a best case scenario.

 

The thing is, who cares if it is 1 year late?  I don't see it delaying longer than that.  Longer than 1 year delay is a 1 in 4 bear case in my mind.  They went from 5k 3 years ago to 25k last quarter.  Why can't they go from 25k to 125k?  Model 3 was engineered from the get go to be easier to manufacture.

[randomep]

I agree that it is better case but the stock can ALWAYS get cheaper.  However, this is definitely, definitely not a best case scenario.

 

The thing is, who cares if it is 1 year late? 

 

I have no skin in the game but this sounds like Horsehead to me.  As new information comes in the followers think the falling price is an indication the stock is undervalued.  And they keep giving reasons why the market is mispricing the great potential of this stock. A year late in a technological industry is no big deal? I would say it is enough to make a company go under.

 

I just  have a feeling 2-3 years from now we will have  a lot of soul-searching on this thread about what went wrong in the thought process, like Horsehead and Theranos.

 

[no_free_lunch]

I agree that it is better case but the stock can ALWAYS get cheaper.  However, this is definitely, definitely not a best case scenario.

 

The thing is, who cares if it is 1 year late? 

 

I have no skin in the game but this sounds like Horsehead to me.  As new information comes in the followers think the falling price is an indication the stock is undervalued.  And they keep giving reasons why the market is mispricing the great potential of this stock. A year late in a technological industry is no big deal? I would say it is enough to make a company go under.

 

I just  have a feeling 2-3 years from now we will have  a lot of soul-searching on this thread about what went wrong in the thought process, like Horsehead and Theranos.

 

 

Well you never really know anything for certain.  Maybe they meet their targets maybe they don't.  I do know that investors rely on a company's track record to assess the likeliness of a given outcome.  Tesla's track record is excellent and does give reason to believe they will meet their targets.

 

In general your comments your comments on "new information" make it sound as though the bulls are ignoring something.  But what?  They crushed it in their most recent quarter.  They have 400k pre-sales for the model 3.  They pulled their 500k production back from 2020 to 2018.  If anything the bears are ignoring positive news and the company's prior accomplishments.

[Jurgis]

I just  have a feeling 2-3 years from now we will have  a lot of soul-searching on this thread about what went wrong in the thought process, like Horsehead and Theranos.

 

Why?

 

There's one person (no_free_lunch) invested in this based on some kind of fundamental analysis.

There are couple people (myself included) who bought the stock to support Elon.

 

If Tesla fails, I won't have to do any soul searching or examine my thought process. I know very well what I got into. I don't expect any return on the money I put in.

[rkbabang]

I agree that it is better case but the stock can ALWAYS get cheaper.  However, this is definitely, definitely not a best case scenario.

 

The thing is, who cares if it is 1 year late? 

 

I have no skin in the game but this sounds like Horsehead to me.  As new information comes in the followers think the falling price is an indication the stock is undervalued.  And they keep giving reasons why the market is mispricing the great potential of this stock. A year late in a technological industry is no big deal? I would say it is enough to make a company go under.

 

I just  have a feeling 2-3 years from now we will have  a lot of soul-searching on this thread about what went wrong in the thought process, like Horsehead and Theranos.

 

 

Well you never really know anything for certain.  Maybe they meet their targets maybe they don't.  I do know that investors rely on a company's track record to assess the likeliness of a given outcome.  Tesla's track record is excellent and does give reason to believe they will meet their targets.

 

In general your comments your comments on "new information" make it sound as though the bulls are ignoring something.  But what?  They crushed it in their most recent quarter.  They have 400k pre-sales for the model 3.  They pulled their 500k production back from 2020 to 2018.  If anything the bears are ignoring positive news and the company's prior accomplishments.

 

Actually his track record is what I'm worried about.  Tesla has delivered all of its products significantly late.

 

[no_free_lunch]

The recent delays haven't  been too bad.

 

This is from the 2011 annual report:

 

We are designing Model S for a significantly broader customer base than the Tesla Roadster. Accordingly, we currently intend to target an annual production rate of approximately 20,000 cars per year beginning in 2013 from our Tesla Factory.

 

In reality they didn't get to the 20k rate until 3rd quarter instead of 1st quarter.

 

Similar story with the model X, where they were delayed by about 9 months from their earlier forecasts.

 

The model 3 is a simpler version of their vehicles, and they now have experience with scaling.  I think there is a lower risk of delays.  Nevertheless, even if you do have a 6-9 month delay to get to the numbers they are targeting, it is still a very attractive investment.