TSLA - Tesla Motors

[Liberty]

 

 

I suspect this company will succeed, given what I am seeing elsewhere in the market

 

 

Succeed at WHAT exactly? In a capitalist mindset the goal is to make a profit on each car. Right now they have never done so, and they have been around how many years?  If you think eventually they will make a profit per car, can we put a estimate on when? at the 400,000th Model 3?  or the next model, or the next model after that?

 

Musk has always said that his primary goal with Tesla was to accelerate the transition to electric transportation. That's why he opened up all his patents to other companies, not something he'd have done otherwise. On that front he's pretty successful so far. Even Bob Lutz said that GM would never have done the Volt if Tesla hadn't shown EVs could be desirable with their original Roadster, and there's no doubt that the legacy automakers with huge sunk cost investments in ICEs would be taking their time A LOT more for EV if Tesla didn't exist. He's probably accelerated the transition to EVs by multiple years, and the EVs we'll get are going to be of a much higher calibre than they otherwise would be become of the Tesla benchmark (otherwise automakers would've made crippled EVs that cannibalize their ICEs as little as possible, like Nissan did with the LEAF).

 

I'm sure Musk also wants Tesla to be profitable and sustainable. That's not proven yet, but I think that if the company can make it through to scaled production of Model 3, I don't see a reason why they'd lose money selling cars. Right now it's not like Model S and X couldn't be profitable, it's that they've invested billions in new factories and developing new models and complex software and such. If they were just making Model S/X and nothing else, you think they couldn't be profitable (with battery costs dropping each year, etc)?

 

Now whether the stock will do this or that is another question. I have no opinion on that.

[rkbabang]

 

 

I suspect this company will succeed, given what I am seeing elsewhere in the market

 

 

Succeed at WHAT exactly? In a capitalist mindset the goal is to make a profit on each car. Right now they have never done so, and they have been around how many years?  If you think eventually they will make a profit per car, can we put a estimate on when? at the 400,000th Model 3?  or the next model, or the next model after that?

 

It is perfectly reasonable for a "capitalist" to invest a lot of money now for an expected return in the future.  As long as those earnings do eventually materialize.  Do you think that Tesla is the first company in the history of capitalism to not be immediately profitable from day 1?

 

[Cardboard]

"It is perfectly reasonable for a "capitalist" to invest a lot of money now for an expected return in the future.  As long as those earnings do eventually materialize.  Do you think that Tesla is the first company in the history of capitalism to not be immediately profitable from day 1?"

 

It is certainly not the first company and it is among many right now. However, I would say that never in history did people wait for so long for earnings to appear.

 

In the late 90's, the same phenomenon appeared and came crashing down when the Internet bubble did pop. Today, it seems that investors have seen a few of these companies come down, then survive this initial crash, to eventually dominate and are now assuming that many more of these will emerge.

 

The obvious question is how long is too long?

 

Cardboard

 

 

[Liberty]

I think it has happened a lot before, but what has changed is the size of these companies. From startup, it's not been that weird to see companies develop products and production and distribution channels and invest in brands and such for many years, but that more often happened at the micro to small cap level, and these were not in the public eye. Now, with the internet and globalized markets and large capital markets, companies can go through that phase at a much bigger scale, but mostly because they're also chasing bigger markets, but also because they can be more visible on the net. Tesla isn't spending much on marketing (if at all), but people are excited enough about their products that they're constantly in the public eye. That couldn't really have happened before the internet.

[rkbabang]

I think it has happened a lot before, but what has changed is the size of these companies. From startup, it's not been that weird to see companies develop products and production and distribution channels and invest in brands and such for many years, but that more often happened at the micro to small cap level, and these were not in the public eye. Now, with the internet and globalized markets and large capital markets, companies can go through that phase at a much bigger scale, but mostly because they're also chasing bigger markets, but also because they can be more visible on the net. Tesla isn't spending much on marketing (if at all), but people are excited enough about their products that they're constantly in the public eye. That couldn't really have happened before the internet.

 

I don't think I've ever seen a company with this scale of ambitiousness (if that's a word).  I'm still not sure if Musk is a genius or a crazy person. Or most likely both, because the only company I can think of with crazier and loftier ambitions than Tesla is Space-X.  The stock price shows that, at least for now, the capital markets are willing to support him.  I don't know why he isn't taking advantage of that and issuing shares like crazy to fund everything he wants to do.  Maybe he succeeds or maybe it all blows up spectacularly, but one way or the other it will be fun to watch.

 

[Jurgis]

Yeah, I agree, issue shares like crazy.

 

Although there's always an argument from Internet Bubble days that the moment company does secondary, it crashes since the momo guys abandon it.

 

I doubt it's true. So, yeah, secondary baby asap.  8)

[Liberty]

I think it has happened a lot before, but what has changed is the size of these companies. From startup, it's not been that weird to see companies develop products and production and distribution channels and invest in brands and such for many years, but that more often happened at the micro to small cap level, and these were not in the public eye. Now, with the internet and globalized markets and large capital markets, companies can go through that phase at a much bigger scale, but mostly because they're also chasing bigger markets, but also because they can be more visible on the net. Tesla isn't spending much on marketing (if at all), but people are excited enough about their products that they're constantly in the public eye. That couldn't really have happened before the internet.

 

I don't think I've ever seen a company with this scale of ambitiousness (if that's a word).  I'm still not sure if Musk is a genius or a crazy person. Or most likely both, because the only company I can think of with crazier and loftier ambitions than Tesla is Space-X.  The stock price shows that, at least for now, the capital markets are willing to support him.  I don't know why he isn't taking advantage of that and issuing shares like crazy to fund everything he wants to do.  Maybe he succeeds or maybe it all blows up spectacularly, but one way or the other it will be fun to watch.

 

Agreed on the ambition. I think he's very aggressive but also I think he feels back-stopped. If things went wrong and he needed cash and couldn't access the capital markets, he would probably do a deal with Google (they almost bought Tesla in 2012, Larry Page is a friend of Musk) or Apple or Tencent or whatever. Might not be the greatest deal for him personally, but I think the company would carry on.

[Guest Cameron]

I don't see how this company or any other of the high flyers are any different from the companies that went bust during the tech bubble. Without even talking about valuations, a book could be written about the aggressive accounting that they all employ.

 

I understand companies investing, that makes total sense, what doesn't make sense is investing at any cost to spur revenue growth no matter what type of return the invested capital will get.

 

 

 

 

[Jurgis]

I understand companies investing, that makes total sense, what doesn't make sense is investing at any cost to spur revenue growth no matter what type of return the invested capital will get.

 

I'm happy that Jeff Bezos does not listen to you, since I think we all have enormously benefited from his investing at any cost to spur revenue growth no matter what type of return the invested capital will get.

 

Same for Elon Musk.

 

Can we have more of such people?

 

 

[Liberty]

Who believes Bezos doesn't care about the returns he's getting on his invested capital?  ???

[Guest Cameron]

I didn't even mention any names.

[Guest Cameron]

Who believes Bezos doesn't care about the returns he's getting on his invested capital?  ???

 

Since you asked, me.

 

AWS capital base is increasing just as fast if not more than its revenue and profit is growing. Its not a tech company, it gets the same margins and EBITDA with the same amount of PPE as a utility.

 

 

[Cardboard]

"I'm happy that Jeff Bezos does not listen to you, since I think we all have enormously benefited from his investing at any cost to spur revenue growth no matter what type of return the invested capital will get."

 

Unless you have invested in the stock over many years, or an employee benefiting from stock options, I don't see who has enormously benefited from any of his actions.

 

And blindly buying on Amazon.com without shopping elsewhere is a recipe to pay more.

 

Cardboard

[Liberty]

Who believes Bezos doesn't care about the returns he's getting on his invested capital?  ???

 

Since you asked, me.

 

AWS capital base is increasing just as fast if not more than its revenue and profit is growing. Its not a tech company, it gets the same margins and EBITDA with the same amount of PPE as a utility.

 

Sounds like a great short, then, no?

 

Guess he's just lucky to have gotten away with it for 20 years and personally made 95 billion in the process of not caring about returns on his invested capital...

[Guest Cameron]

Who believes Bezos doesn't care about the returns he's getting on his invested capital?  ???

 

Since you asked, me.

 

AWS capital base is increasing just as fast if not more than its revenue and profit is growing. Its not a tech company, it gets the same margins and EBITDA with the same amount of PPE as a utility.

 

Sounds like a great short, then, no?

 

Guess he's just lucky to have gotten away with it for 20 years and personally made 95 billion in the process of not caring about returns on his invested capital...

 

20 years? AWS has only made a real impact on the company since 2012, and has since grown into a much larger piece.

 

 

 

 

[Liberty]

Who believes Bezos doesn't care about the returns he's getting on his invested capital?  ???

 

Since you asked, me.

 

AWS capital base is increasing just as fast if not more than its revenue and profit is growing. Its not a tech company, it gets the same margins and EBITDA with the same amount of PPE as a utility.

 

Sounds like a great short, then, no?

 

Guess he's just lucky to have gotten away with it for 20 years and personally made 95 billion in the process of not caring about returns on his invested capital...

 

20 years? AWS has only made a real impact on the company since 2012, and has since grown into a much larger piece.

 

We were talking about Bezos and Amazon, not just AWS. In any case, I don't want to re-do this, we've already done it in the AMZN thread, this isn't the place.

[Guest Cameron]

I genuinely hope you are right and I'm 100% wrong.

 

 

 

 

[John Hjorth]

Business Insider [November 15 2017]: GOLDMAN SACHS: Selfdriving trucks will kill 300,000 jobs per year.

 

Truck platooning is not a Tesla thing at all. Let's just hope it is truly selfadjusting, like this topic.

 

ABC News [November 17 2017]: VW to spend $40B on electric cars, tehcnology through 2022.

 

Yup, VW actually makes money, despite dieselgate. Please just look it up. Earnings on cars based on legacy technology, allocated into development of cars based on the technology of the future.

 

Other car producers are doing the same.

 

How will Tesla compete with that? Issuance of stock or debt instruments?

 

- - - o 0 o - - -

 

Now we just need Valuehalla to step in to this topic with a post like this: "Buy German - I do!", and this topic will go into self-oscillation again.

[oddballstocks]

Business Insider [November 15 2017]: GOLDMAN SACHS: Selfdriving trucks will kill 300,000 jobs per year.

 

Truck platooning is not a Tesla thing at all. Let's just hope it is truly selfadjusting, like this topic.

 

ABC News [November 17 2017]: VW to spend $40B on electric cars, tehcnology through 2022.

 

Yup, VW actually makes money, despite dieselgate. Please just look it up. Earnings on cars based on legacy technology, allocated into development of cars based on the technology of the future.

 

Other car producers are doing the same.

 

How will Tesla compete with that? Issuance of stock or debt instruments?

 

- - - o 0 o - - -

 

Now we just need Valuehalla to step in to this topic with a post like this: "Buy German - I do!", and this topic will go into self-oscillation again.

 

To convoy they'll need to get state laws changed, they're illegal in most if not all states.  This is in response to some of the union convoys in the 1970s that ran amuck.  There was a movie Convoy that captures some of this.

 

Seems like this is another SV invention. "Imagine if we chained a bunch of trucks together with one engine and made them go to the same destination. It's new!" Or it's called a train, and we've have them for hundreds of years.

 

[rb]

I think it'll be a lot harder for Tesla to sell unproven rigs to truckers. Also good luck trying to get truckers to plop down deposits for trucks that don't exist to reserve delivery at a hypothetical date in the future. Trucks are a professional tool bought by professionals not luxury cars sold to fan boys.

 

From an operational perspective starting two new programs - the roadster and semi - while model 3 production is a mess is not very wise.

[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.

 

 

Just pointing out that this debate about TSLA's profitability, R&D versus competitors, capital intensity, etc. has been ongoing for a long time. I searched my own post just because I remember it and the debate, not because it is particularly interesting or unique.

 

Since I wrote this, the stock's up 6% / year, compared to 11.4% S&P, 8% Russell 2000 and 19%/year Russell 3000 Technology, so the stock's underperformed significantly (particularly tech), but the company has also tripled sales and made tremendous operational strides and lit a fire under the industry's ass.

 

Note: 2/2014 is a bit unfair of a start point to pick since 2/2014 was just after a big run in the stock. My TSLA short did not underperform the market over the hold and was not profitable. This is not to gloat but rather to point out that the debate about TSLA biz quality will probably continue until they run out of cheap capital or actually start making money.

 

 

[Liberty]

Since I wrote this, the stock's up 6% / year, compared to 11.4% S&P, 8% Russell 2000 and 19%/year Russell 3000 Technology, so the stock's underperformed significantly (particularly tech), but the company has also tripled sales and made tremendous operational strides and lit a fire under the industry's ass.

 

Note: 2/2014 is a bit unfair of a start point to pick since 2/2014 was just after a big run in the stock. My TSLA short did not underperform the market over the hold and was not profitable. This is not to gloat but rather to point out that the debate about TSLA biz quality will probably continue until they run out of cheap capital or actually start making money.

 

What was the cost to borrow TSLA stock to short over that period? I imagine it must have been pretty material, since it's so heavily shorted?

[oddballstocks]

Since I wrote this, the stock's up 6% / year, compared to 11.4% S&P, 8% Russell 2000 and 19%/year Russell 3000 Technology, so the stock's underperformed significantly (particularly tech), but the company has also tripled sales and made tremendous operational strides and lit a fire under the industry's ass.

 

Note: 2/2014 is a bit unfair of a start point to pick since 2/2014 was just after a big run in the stock. My TSLA short did not underperform the market over the hold and was not profitable. This is not to gloat but rather to point out that the debate about TSLA biz quality will probably continue until they run out of cheap capital or actually start making money.

 

What was the cost to borrow TSLA stock to short over that period? I imagine it must have been pretty material, since it's so heavily shorted?

 

The long dated puts are cheaper than a short

[thepupil]

Since I wrote this, the stock's up 6% / year, compared to 11.4% S&P, 8% Russell 2000 and 19%/year Russell 3000 Technology, so the stock's underperformed significantly (particularly tech), but the company has also tripled sales and made tremendous operational strides and lit a fire under the industry's ass.

 

Note: 2/2014 is a bit unfair of a start point to pick since 2/2014 was just after a big run in the stock. My TSLA short did not underperform the market over the hold and was not profitable. This is not to gloat but rather to point out that the debate about TSLA biz quality will probably continue until they run out of cheap capital or actually start making money.

 

What was the cost to borrow TSLA stock to short over that period? I imagine it must have been pretty material, since it's so heavily shorted?

 

Good point. I don't know, covered a long time ago.

[Morgan]

I think it'll be a lot harder for Tesla to sell unproven rigs to truckers. Also good luck trying to get truckers to plop down deposits for trucks that don't exist to reserve delivery at a hypothetical date in the future. Trucks are a professional tool bought by professionals not luxury cars sold to fan boys.

 

From an operational perspective starting two new programs - the roadster and semi - while model 3 production is a mess is not very wise.

 

I think that most individual truckers won't buy these right off the bat simply because they can't afford to take the chance on a work tool that may not work as well as the status quo. WalMart has already ordered 10 or 20 of the Semi's and if they're cheaper to operate I guarantee WalMart (and everyone else) will order a lot more.

 

Large trucking companies that have 1,000 trucks or 10,000 trucks or whatever can afford to spend a million or two on an unproven technology to see if it's actually more efficient or not. They don't want to be a competitive disadvantage. Presumably Tesla's calculations are correct and the truck will pay for itself in 2.5 years over ICE trucks. WalMart will test and track the costs and figure out what is most economical.