Tesla

[Wildreamz]

Why Tesla's valuation "makes sense": http://seekingalpha.com/article/3994790-...g-currency

Summary

* When the SolarCity acquisition was announced, even Tesla shareholders were slightly confused.
* After announcing his 'master plan', Tesla shareholders seem to have completely ignored some of the large underlying problems at SolarCity.
* While shorts see this as the nail in the coffin for Tesla, what Musk is doing may resemble a strategy used by master capital allocator, Henry Singleton.
* Why use dollars when you have your own form of overvalued currency?

Market Cap of Tesla: $38.75B
Market Cap of Uber: $68B 

Both companies do not make a profit since inception, but are perceived to be likely to disrupt the auto industry (~$2 trillion annual global sales). 

Every fund raising (by issuing new stock) by Tesla is a reaffirmation of it's current market cap; book value per share after cash infusion increases after every capital raise, even after taking into account dilution. 

[Image: XhfUzCr.png]

Moat of Tesla: 
* Elon Musk (cult of personality around him, easier to push regulation, raise capital etc.)
* Tesla brand (cult following like Apple; 400,000 cash-backed pre-orders years before Model 3 official release)
* Gigafactory (vertical integration, billions of capex spent over several years, lowest cost to manufacture and largest battery density)
* Supercharger Network


Strength of Tesla:
* Disruption/optimization at every point of supply chain and business (direct to consumer sales, issue own car insurance, self-driving capabilities, viral marketing, desirable car design, financial engineering)
* Cross-selling Powerwall and Solar Panels with Tesla Cars using same retail store
* Leadership in Battery Technology and Self-Driving Technology, 2 inevitable industry trends

Risks
* Highly over-value by traditional valuation matrics (P/E, P/S, P/B etc)
* Still loss making (and high cash-burn rate; due to capex investment for production ramp)
* Regulatory challenges (Trump believes Climate Change is a Chinese hoax)
* Auto-industry highly competitive and capital intensive

[cyclone]

The investment should be more than tenbagger.

Toyota Says It Sold Entire Stake in Tesla in 2016

Bloomberg News
June 3, 2017, 7:07 PM GMT+8

Toyota Motor Corp. has sold its stakes in Californian electric carmaker Tesla Motors Inc., a spokeswoman for Japan’s largest carmaker said Saturday.

The sale marks the end of collaboration between the two companies for now, Toyota spokeswoman Akiko Kita said by phone. Toyota held 1.43 percent in Tesla as of July 2016, according to data compiled by Bloomberg.

In 2010, Toyota acquired a $50 million stake in Tesla as automakers were competing to introduce less-polluting vehicles in the U.S. and sold a shuttered California factory to Tesla for $42 million. The two companies then started to jointly develop RAV4 electric vehicles in Canada in 2011 and later sold about 2,500 units over three years amid culture clashes and recalls.

More details in https://www.bloomberg.com/news/articles/...la-in-2016

[weijian]

Nobody can forget the boom (that was partly triggered by Gov subsidies) in solar energy just a couple of years back and the subsequent bust that was triggered by overcapacity. Anyways, this is not specific to Tesla, but to the general electric car market on the problem of government subsidies that inflates demand (which is artificial).

It is still a wild wild west market for electric cars and it doesn't seem like the traditional car majors (GM/Ford/Toyota) are resting on their auras. They too, have tons of cash to come up with electric car models, while leveraging on their existing sales channels to sell. The manufacturer-distributor sales channel model has been existent since Henry Ford's era - let manufacturers do what they do best (ie. manufacture) and someone else who knows the local market to distribute..not sure if it would change.

100 years ago, Thomas Edison's battery-powered car was just no match for (cheap) gasoline powered internal combustion engine. Electric cars will be the future, no doubt about that. But then again, it is hard to fathom that the car majors will not be part of the party. If the future of self driving+sharing economy etc takes root, really the current entire size of the global market may be even smaller than the existing one. The market for electric cars will just be on a replacement basis for gasoline cars at best.

Denmark Is Killing Tesla (and Other Electric Cars)

The electric car has dropped out of favor in the country that pioneered renewable energy.

Sales in Denmark of Electrically Chargeable Vehicles (ECV), which include plug-in hybrids, plunged 60.5 percent in the first quarter of the year, compared with the first three months of 2016, according to latest data from the European Automobile Manufacturers Association (ACEA). That contrasts with an increase of nearly 80 percent in neighboring Sweden and an average rise of 30 percent in the European Union.

The figures suggest clean-energy vehicles still aren’t attractive enough to compete without some form of subsidy..

https://www.bloomberg.com/news/articles/...ctric-cars

[Wildreamz]

@weijian By "Albert Edison", I suppose you meant Thomas* Edison. Minor typo.

Back to Tesla, Tesla has a few fundamental advantage going for them:
1. Gigafactory - Theoretically, vertical integration and volume production will allow them to produce batteries more efficiently and cheaply. That cost advantage would allow them to make mass market (sub $35k USD) electric cars profitable before their competitors at high volume (>500,000 per years). As far as I know, no other manufacturer in the US has made similar scale investment yet. The time is ticking. 

2. Consumer Demand - No other automobile manufacturer could command 400k pre-orders for a car that is only available a few years down the road. This is Apple-esque brand power. Clearly the consumer wants their car, and they can sell as many car as they can produce. 

3. Elon Musk - Visionary CEO. Once in a generation. So far he has demonstrated extraordinary vision to invest in electric vehicle before anyone wants to take the risk and great execution; exploiting the high share price to raise capital cheaply.

And Donald Trump just pulled out of Paris Agreement as expected. Millennials want Tesla to win, so that we can show Trump and Big Oil the finger. 

"Tesla is a 'dangerous stock to be short,' says Social Capital CEO Palihapitiya"
http://www.cnbc.com/2017/05/09/social-ca...tesla.html

(Vested in Tesla)

[weijian]

@wildreamz, it is a major typo. Thanks for your correction as i was not doing justice to two of the greatest inventors of the last century.

Just a couple of my own comments in response to your points (each numeric denotation is a reply to the same numeric value in your previous post)

1. Would you be implying that the car majors will not have the necessary "vertical integration and volume production"? If they don't have it now, they have the capital to build it in future. A capital intensive business is not a sustainable competitive moat, as long as someone else has the same capital to do so. Furthermore, car majors have existing distribution channels and transferable technology/know-how of gasoline cars, readily available to leverage from. The transition from gasoline cars to electric cars, will not come as fast as the transition from the keypad "dumb" phone to touch-screen smart phone....There are full of people in the market that has learnt about the Nokia/Kodak case studies in business school.

2. It would be dangerous to assume status quo in a dynamic car market, and especially with "pre orders". While i am not an expert in the evolution of the car market , i know there has been many instances of changes in market leadership. Let's say in the US alone - Henry Ford dominated the budding car market with his low cost/value for money Model T for the mass markets. But after the Great Depression, GM correctly called that US consumer's tastes were changing and with the market evolving from mass market first time purchases to replacement/loan financing (existing car owners trade in their cars and able to get better/more expensive cars via loans), they made the necessary production/marketing adjustments and took over as market leader for the next few decades. There has also been many studies on how Toyota/Honda came and took US automobile and autobike market share respectively, by focusing on quality and smaller sized autos. In the autos world, we also have our minis and harleys that occupy niche markets. When I was in Japan, i saw very small cars were dominating the city. When i was in US, i saw gas guzzling SUVs/big cars. When i was in Indonesia, i mainly saw SUV/MPVs...It is a diverse and changing market.

3. For every Henry Ford, there could jolly well be another "visionary" person like Walter Chrysler, or (heck) a Alfred Sloan (GM) who isn't as talented (in visions) but able to read/call/react/feedback/make adjustments to data. Nonetheless, i'm glad you didn't put "Elon Mask's name" as the first advantage going for Tesla!

P.S. All stocks are dangerous to short because while it is easy to see which stocks are over priced, it is hard (costlier than buy/hold) to call when their share price will drop.

[Vlx]

I think the successful execution of the model 3 (2017) is key to Tesla future at least for the next 1-2 years timeframe. As with any growth stock investing, its a combination firstly of the leadership and employees of the company whom they have choosen to hire that determines if they will be successful, assuming that the market is ready for the product.

We should not be quick to jump to the conclusion that the major car companies today have what it is to deal properly with the changes. But it looks already like Tesla is on track to seriously disrupt the incumbents. Having capital is not a key advantage today. It takes a combination of deep knowledge in the key process, marketing, and IP. iP for electric vechicles are a completely different animal from ICE cars.

Just to share what my observation. Elon Musk has the ability get very talented people to join Tesla since its founding and over the years. They are not just building electric car but replacing the current mode of transportation, factory as a product, energy consumption and generation. Electric cars work far better than internal combustion engine cars and its just a matter of building out the infrastructure. The stock price will reflect if model 3 is successfully executed in the next couple of months.

[Value Explorer81]

Tesla shares has been soaring through the roof since it was listed. However the company is burning so much cash without any signs of profitability in the near future. No doubt Elon Musk is a genius and also a good sales person. He seems to be only using the stock market to further his own agenda. His agenda may be good to make transport and energy cheaper for everyone but until Tesla show's signs of profitability and generating cashflow i think its still prefer to keep it in WL for now.

[Wildreamz]

@wildreamz, it is a major typo. Thanks for your correction as i was not doing justice to two of the greatest inventors of the last century.

Just a couple of my own comments in response to your points (each numeric denotation is a reply to the same numeric value in your previous post)

1. Would you be implying that the car majors will not have the necessary "vertical integration and volume production"? If they don't have it now, they have the capital to build it in future. A capital intensive business is not a sustainable competitive moat, as long as someone else has the same capital to do so. Furthermore, car majors have existing distribution channels and transferable technology/know-how of gasoline cars, readily available to leverage from. The transition from gasoline cars to electric cars, will not come as fast as the transition from the keypad "dumb" phone to touch-screen smart phone....There are full of people in the market that has learnt about the Nokia/Kodak case studies in business school.

2. It would be dangerous to assume status quo in a dynamic car market, and especially with "pre orders". While i am not an expert in the evolution of the car market , i know there has been many instances of changes in market leadership. Let's say in the US alone - Henry Ford dominated the budding car market with his low cost/value for money Model T for the mass markets. But after the Great Depression, GM correctly called that US consumer's tastes were changing and with the market evolving from mass market first time purchases to replacement/loan financing (existing car owners trade in their cars and able to get better/more expensive cars via loans), they made the necessary production/marketing adjustments and took over as market leader for the next few decades. There has also been many studies on how Toyota/Honda came and took US automobile and autobike market share respectively, by focusing on quality and smaller sized autos. In the autos world, we also have our minis and harleys that occupy niche markets. When I was in Japan, i saw very small cars were dominating the city. When i was in US, i saw gas guzzling SUVs/big cars. When i was in Indonesia, i mainly saw SUV/MPVs...It is a diverse and changing market.

3. For every Henry Ford, there could jolly well be another "visionary" person like Walter Chrysler, or (heck) a Alfred Sloan (GM) who isn't as talented (in visions) but able to read/call/react/feedback/make adjustments to data. Nonetheless, i'm glad you didn't put "Elon Mask's name" as the first advantage going for Tesla!

P.S. All stocks are dangerous to short because while it is easy to see which stocks are over priced, it is hard (costlier than buy/hold) to call when their share price will drop.

1. "Would you be implying that the car majors will not have the necessary "vertical integration and volume production"" 

Basically yes. It not only takes capital, but supply chain for specialized parts, time (years), know-how, a huge appetite for risk, and tolerance for making huge losses in the short to mid term. This is in addition to the fact that most of their existing facilities would not be applicable for electric vehicle manufacture (hence a liability): https://avt.inl.gov/sites/default/files/...ompare.pdf

"According to CALSTART, the advanced transportation consortium in California, 70% of an electric vehicle‘s component parts may be different from a gasoline-powered vehicle."

In other words, they would need to write down a lot of their existing assets in the process, once the demand for ICE cars fades (either due to the car sharing economy, or EV demand). As for how fast the transition to EV, well, it all depends on how quickly Tesla (and other EV manufacturers) scale. It may take a long time to replace all cars on the road, but demand for ICE could fall off relatively quickly.

2. "It would be dangerous to assume status quo in a dynamic car market, and especially with "pre orders""

You are right that it is impossible to predict consumer taste for many years. GM and Ford could, in theory, become "cool again" and distrupt Tesla. That said, I would not bet on that:



Just like I would bet on Bezos and Jack Ma in understanding the dynamics of Ecommerce in their respective geography, I would bet on Elon, on grasping consumer taste in EVs and related product: https://www.inverse.com/article/32177-te...d-out-2018

3. Don't underestimate having a "Steve Jobs" in the company. Elon has the technological vision, marketing sense, bold business execution, and cult following (both their customers and shareholders).

[Wildreamz]

Tesla shares has been soaring through the roof since it was listed. However the company is burning so much cash without any signs of profitability in the near future. No doubt Elon Musk is a genius and also a good sales person. He seems to be only using the stock market to further his own agenda. His agenda may be good to make transport and energy cheaper for everyone but until Tesla show's signs of profitability and generating cashflow i think its still prefer to keep it in WL for now.

Yes, his agenda resonates with many, which is why we do not care if the company eventually fail (it's a worthwhile risk to take). The biggest value of Tesla is the Story (move us away from fossil fuel). As long as the story holds, the share price hold.

That said many shareholders do also believe that Tesla will be immensely profitable in the future; and not necessarily because of their car business:

[weijian]

Hong Kong’s electric car market comes to emergency stop after tax waiver scrapped, but does that really mean air pollution will be worse?

http://www.scmp.com/lifestyle/motoring/a...-after-tax

The government’s decision to scrap the first registration tax waiver on electric vehicles – introduced to cut air pollution – has left advocates like Webb-Johnson and his 700 or so fellow club members angry and bewildered. Since the April 1 introduction of the first registration tax on EVs, vehicle prices have shot up by 50 to 80 per cent, depending on the model, with tax relief now capped at HK$97,500. The impact has been immediate, and appears to have killed off the future of EVs in Hong Kong overnight.

Transport Department figures indicate there is a total of 10,589 private EVs registered in the city, and 2,964 of them were registered in March 2017 alone. That healthy growth then hit a red light when not a single private EV was registered in April. “There was no first registration of an electric private car in April 2017,” a department spokesman confirms.