Tesla: Is it a Saul Stock?

Tesla (TSLA) is the only vertically integrated clean energy company in the world, having solar (through Solar City acquisition), battery backup through Tesla Energy Division & Electric Cars.

Things to like about TSLA:

  1. Elon Musk - Most admired Leader in Technology: http://fortune.com/2016/12/03/elon-musk-admired-tech-leader/…
  2. Tesla Cars - Consumer Reports Ranks Tesla as the Highest rated in customer satisfaction: http://www.consumerreports.org/car-reliability-owner-satisfa…
  3. The Future, now! - Wall Street Journal says Tesla Cars are the cars of the future: https://cleantechnica.com/2016/12/23/car-future-will-electri…
  4. Autopilot - Tesla Autopilot can warn drivers of accidents BEFORE they happen: https://electrek.co/2016/12/27/tesla-autopilot-radar-technol…
  5. Solar Power renaissance - Popular Mechanics says Solar Power is now the cheapest form of energy in 60 countries of the world and soon will be in all countries: http://www.popularmechanics.com/science/green-tech/a24357/so…
  6. Tesla Gigafactories - Tesla is currently the only car company building gigafactories to manufacture the batteries needed for electric cars. This is likely to make Tesla batteries @30% cheaper than the competition. Since the batteries can be up to 30% of the cost of a typical electric car, this is a HUGE competitive advantage. Countries are realizing this and competing to get Tesla to build gigafactories of their own: https://electrek.co/2016/11/29/tesla-gigafactory-2-countries…
  7. Trending Citywide Anti-Pollution Initiatives - Air pollution in the worlds biggest cities is a health crisis. Some cities are starting to phase out internal combustion cars and promote electric vehicles. https://www.washingtonpost.com/world/europe/amid-smoggy-days…
  8. A Revolution in Manufacturing - Tesla aims to re-invent automated manufacturing efficiency. Electric Cars are far simpler to make (1/3rd less parts) and the design of the cars and design of the factories are being built from the group up to be 2 to 3 times more efficient than traditional car factories. The ex- Audi head of manufacturing says Tesla is possibly 5 years ahead of other car companies: www.forbes.com/sites/joannmuller/2016/08/04/tesla-model-3-ma…

Things to be concerned about TSLA:

  1. A history of financial losses. Tesla has only been profitable in 2 of the last 20+ quarters.
  2. A history of missing deadlines. Tesla is famously unreliable at hitting production targets.
  3. Other big car manufacturers build electric cars and eat Tesla’s lunch.

My Take and why I think this can be a Saul stock:

  1. While not currently profitable and hence no ypeg to measure, Elon Musk said in his Master Plan that all the income from cars made and sold up to the Model 3 would be used to fund and build the infrastructure to manufacture a mass market electric car. This begins in 2017. With 400 000 pre-orders of the Model 3 this can quickly turn the company profitable as scale starts to work in Tesla’s favor for the first time.
  2. Wall Street has gotten used to Tesla setting very aggressive growth targets and then missing them (but still growing astonishingly fast for a car company). When Tesla missed it’s delivery goal in Q4 2016 by @4000 units the stock price went UP!
  3. While other car manufacturers are dipping their toes in the electric car market they aren’t being aggressive about it. Chevy Bolt (an excellent electric car) is planning on manufacturing about 35 000 per year. This is giving Tesla a huge head start.
  4. There was a fair amount of debate as to Saul’ investing style a few board posts back, Saul (in my opinion) surfs growth waves. He has done it successfully for decades and seems only to struggle when the oceans are flat (growth stocks as a whole are out of favor). Tesla and the electric car/Clean energy revolution is the mother of all waves…

Enough said.

Justin
Long Tesla

34 Likes

I’m just a visitor here, but my opinion:

  • A lot of opportunity
  • A lot of risk, added to with integration of Solar City
  • Poor earnings
  • Poor cash flow
  • History of missing guidance on introduction of products

A good investment?

Might be fabulous!!!

Might be a mistake.

How much do you want to bet?

For me, zero. Now. I’d like to see if Solar City is viable and when Tesla introduces Model 3 I’ll re-evaluate. For those who say: “Waiting for certainty means you give up the upside.”, I would say two things:

  1. I’m not looking for certainty, just a reduction in potential company killing events.

  2. I don’t HAVE to buy Tesla. The ocean is full of wonderful fish and the investing universe is filled with great opportunities. To mix metaphors, I don’t need to pluck a great investment out of the gaping jaws of a great white shark. There are other, relatively low risk companies. As for Tesla, it’s already priced for a lot of success…. let’s see some more success. :slight_smile:

JMO of course.

Rob

6 Likes

Let me modify that….

I don’t think Tesla is in danger of being killed by some of the major risks.

But I think the manifestation of those major risks (Solar City becoming a debacle, Model 3 delay), could provide a much more appealing entry point. I’m willing to wait for an irresistible Tesla opportunity…… because there are other irresistible opportunities out there.

There. I feel better now. :wink:

Rob

2 Likes

Tesla is no more a Saul stock than Amazon. And yes, Saul currently owns Amazon, but I believe he has admitted that it’s an except to his usual metrics-based criteria. So, I guess the question is whether Tesla is also deserving of being an exception?

On the plus side, like Amazon, Tesla is plowing almost all money it earns into R&D in order to grow the business. And in terms of management, Musk is certainly up there with Bezos - although the two have different approaches, goals, and expertise. But the two do think similarly when coming up with unique trail-blazing ideas: Bezos put in place Amazon Prime, with its “free 2-day shipping” and now other benefits (such as streaming video), while Musk put in place Superchargers with its “free Supercharging for life” benefit. Both have pushed their companies to new, almost seemingly tangential businesses: Amazon with AWS (a retailer selling cloud services?), and Tesla with its Powerwall (a car company selling home electricity backup?). And both are pushing the bleeding edge of technologies: Amazon with drone delivery and Tesla with autonomous driving.

On the negative side, Amazon’s business is easier to scale than Tesla’s. Hard to build factories to build lots of cars - it’s much easier to add servers (for AWS) and even warehouses for distribution. Building cars is very capital intensive, and the room for error is much smaller. For instance, Amazon can ship 99% of what you order and you’ll be pretty happy, but if 1% of your car is missing, then you’re probably not getting a car (unless we’re talking floor mats).

I personally believe that the risk is low that in the long term Tesla won’t be successful. It’s got a big head start, great brand recognition, and pricing power. It’s certainly not going to get caught flat-footed to be usurped by the larger and much slower OEMs. I believe this is a company where if you haven’t seen the product up close and personal, you’re not going to get what advantages Tesla really has. Anyone comparing a Bolt to a Model 3 has not actually seen both in person. My advice is to not let specmanship fool you.

I don’t know what it takes to be a Saul Stock Exception. Only Saul can say. But, Tesla certainly is not a Saul stock by any of the standard metrics he has supplied.

1 Like

To mix metaphors, I don’t need to pluck a great investment out of the gaping jaws of a great white shark. There are other, relatively low risk companies.

Interesting - that’s exactly how I feel about CMG. Perhaps you and I are the Bele and Lokai of the investment world: you holding on to CMG being confident about its future while I’m holding on to TSLA and being at least as confident in its future. I guess we’re more alike than we might care to admit. ;^)

BTW, I don’t disagree about waiting for better entry points on TSLA. The stock undergoes pretty big swings, and it’s currently on something like a 6-week up trend, but it wasn’t so long ago that you could have gotten in well under $200, which is the level at which I start writing Puts. I don’t know that we’ll see under $200 shares before Model 3 ships, but it’s not unlikely that there will be some stumble that will make the non-true believers jump ship, at least temporarily.

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I am with Rob. From my point of view, I don’t really understand the discussion. Screening delivers a pool of stocks which may contain a candidate for investment. Neither TSLA nor CMG are in that pool therefore they don’t get a second’s consideration. This way of looking at things saves a lot of time. Are opportunities missed? Not for the investor who prefers to buy to hold and sleep o’nights.

Tesla: Is it a Saul Stock?

Yes, I do have a history with Tesla! My brokerage company only will give the history of a stock two years back, and I haven’t been in it for the past two years, so I had to look through back statements online to find out when I first bought it and at what price. That’s accurate. The rest is from my imperfect memory, and it’s approximate, because I am too lazy to go back through years of online statements to give you all my buys and sells.

I fell in love with Elon Musk’s ideas when I first saw him speak online. I took an insane 5% position in TSLA in November 2012 at $33. Five percent? I was out of my mind! As I remember I sold most of it several months later at about $75, kept the rest. Added back in the low $90 range, reduced and enlarged positions, and finally got out in the low $200’s (imperfect memory). Haven’t had a position in at least two years, probably longer (I don’t think so, anyway). The reason being that building cars is a capital intensive, low margin business (even if you are an idealist like Musk). I love what Elon is trying to do, and hope he succeeds, but I am not willing to invest in that kind of business. Certainly not in the $200’s.

So why did I get involved in the first place? Idealism? Perhaps some of that passion that Qazulite just asked about? Luck? Inspired by Musk? All of the above? Certainly a lot of luck, because I got in at the right time and I got out at a favorable time.

That’s probably not much help for you, but it’s the best I can do.

Saul

6 Likes

Interesting - that’s exactly how I feel about CMG. Perhaps you and I are the Bele and Lokai of the investment world: you holding on to CMG being confident about its future while I’m holding on to TSLA and being at least as confident in its future. I guess we’re more alike than we might care to admit. ;^) – Smorg

LOL

You’re a sharp guy. I’m honored to be possibly sharing that characteristic with you. :slight_smile:

Regarding CMG, I must say that I haven’t added to my small position. There are other promising companies I want to add to.

Rob

Saul,

I am not convinced that Tesla is a car company, or that Tesla will build cars at all in 5 years.

It appears to me that Tesla is an electric energy storage company, and that Tesla will ultimately make its money on the spread between buying and selling electricity.

I know that seems far out, but when you look at Musks history, you see the banker background along with the ability to sell snake oil. You correctly point out that building cars is a high capital low margin business. Musk is first a business person, not a socialist fire brand, (he was raised in business) and it cannot have escaped him that soft businesses like software and finance scale quickly and manufacturing does not.

The value in Tesla is not Teslas, nor is the value in Solar City solar panels, the value isn’t even in the Giga Factory. It is in the ability to arbitrage electricity that the value is in. When Tesla S finished, the world will handle electricity differently. Intermittent generation facilities that currently waste electricity will be able to market it, and intermittent use facilities that pay peak rates for just in time delivery will be able to store it, and grids that are built to handle 5 and 10 times the energy that they actually deliver will be able to more fully utilized.

None of this happened without batteries, and more importantly, none of this happens without a trading vehicle. In the end, that will be where Musk makes his money.

But between times, watch for margins in the Gigafactory.

Cheers
Qazulight

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Hi Qazulight,

I hope he does change the world, but in the meanwhile he has to sell cars and build battery factories and sell solar panels, all capital intensive. I’m not sure I can wait for what may happen in 5 years. (And I’d be amazed if they were still-in-business-but-not-selling-cars in five years. Selling cars is their identity.)

Saul

2 Likes

SolarCity will be broke in five years unless Tesla shareholders bail it out again…

Banker all right, OPM.

Denny Schlesinger

1 Like

sorry somehow that got posted before I finished.
“waiting for better entry points”
you, me and 20 million other investors.

The good news continues to dribble in, small piece by small piece. I don’t think there is much likelihood of big good news until Gen 3 is in production. Big bad news is always possible at any time. Fire in the plant type of stuff.
I bought even more TSLA under 200 not long ago but think it would take 150 or so for me to buy more since I am way overweight now.

“it would take 150 or so for me to buy more since I am way overweight now”

My exact circumstance and sentiment Mauser.

Frank :slight_smile:

I tend to agree with Qazulight, Tesla is far MORE than just a car company. Like many people in the early days of Amazon thought “how can you make money on selling books, it’s a low margin business?” Bezos had far greater ambitions and those who hitched their wagons to Jeff’s vision have been well rewarded.

Tesla is already diversifying away from just selling cars to selling grid backup batteries, which Elon says will soon be BIGGER than the battery usage in his millions of cars. Soon we will see Tesla solar roofing tiles being sold to the 5 million people a year (in the US alone) that need to replace their worn out shingles.

Whats next?

  • Selling Autopilot services to car companies that do not have the resources or time to catch up to Tesla. Now that could be a HIGH margin business.
  • Selling batteries to car companies who can’t secure volumes from Samsung or LG. Electric cars are inevitable. Internal combustion engines are between 15-21% efficient. (Massive amounts of energy are lost to heat and noise) Electric motors are 91% efficient and produce no harmful emissions. 80% of the smog in LA is produced by vehicles. As I said mass adoption of electric vehicles is inevitable and the most risky part of that transition has already occurred!
  • Selling next generation highly automated manufacturing technologies. (I think this will take a few more years to become obvious but remember this guy (Elon) is flying and landing rockets before space companies backed with government funding has been able to do it!)The range of competencies being developed here is remarkable.
  • Who knows??? (Who thought Amazon would be selling Cloud Services back in the bookstore days…)

Anyway, we seem to be witnessing the birth of the new GE, with a Edison like figure in charge.

I for one would like to be on this ride.

Justin

6 Likes

SolarCity will be broke in five years unless Tesla shareholders bail it out again…

Banker all right, OPM.

Denny Schlesinger

How solar city is having financial difficulties is just mind-boggling. PPOs are extremely profitable for the company issuing them. Solar City is pretty similar to Vivint Solar, where a large chunk of their business is from installing solar panels for free on residential homes and some commercial properties, then charging the property owner for every watt of electricity those panels produce (at a slightly lower rate than what the electric company charges). They are able to charge this lower rate because they don’t have the added cost of transmission costs and infrastructure delivering the electricity hundreds of miles to the house, which in most cases actually double’s the rate people pay for electricity. For instance, in western Massachusetts, the rate from Eversource is about $.11 per KWH. The actual cost to the consumer is around $.20 per KWH due to all those extra charges. Solar City and Vivint Solar are able to lock customers into a 20 year contract where the customer pays nothing for the panels, for the maintenance, or for the installation, but agrees to pay $.13 per KWH that those panels produce. That rate can increase 3% per year, at most.

With these PPO contracts though, while the consumer does save some money, close to 90% of the actual profits from the panels are kept by the company. For instance, in Massachusetts there are a couple programs that make buying your own panels a lot more affordable. First there’s the tax credit that everyone gets for buying panels, which is 30% of the total cost of the system. At an average of around $30,000 for most residential solar systems, a 30% tax credit is a pretty solid number. Secondly, Massachusetts has the Mass Solar Loan Program. Everyone is able to qualify for a 0% interest rate through that for financing for the system, paid over 10 years. Individuals in certain income brackets are able to get a 10%, 20%, or even 30% payoff of the loan for free, further reducing the total amount financed. Additionally, there is another component known as SRECs- Solar Renewable Energy Certificates, which are sold typically to electricity providers so they can reach the required percentage of energy sourced from environmentally friendly sources. A homeowner earns one SREC for every 1,000 kWh produced by their system. These certificates don’t have a fixed value, as supply and demand affect market prices. An example of that can be seen at the following website:
http://www.srectrade.com/srec_markets/massachusetts

So in my state each SREC is worth between $260-$300. An average residential system produces between 10 and 12 kWh, meaning that is an extra $2600 to $3600 a year that solar panel owners can get, in my state. Prices do vary by state. The average time to “break even” and start becoming profitable for a solar panel owner, even though Massachusetts is pretty far North, is between 3 and 5 years with SREC prices like that, depending on income bracket for the solar loan program. By opting for the PPO and just buying the electricity cheaper from SolarCity, SolarCity gets to keep the tax credit, they also get all the SRECs. Yes you get a cheaper electric rate and save money, but nowhere near as much money over the 20+ year lifespan of the panels, as if you had just bought them outright. The benefits of the PPO are that you don’t have to pay more in home insurance to cover the panels, as the company takes care of that. You also don’t have to do any of the maintenance or worry about replacing panels before 20 years, as they take care of that too. Long-term though, those PPO solar companies are eating your lunch, and your breakfast and dinner too.

SolarCity, as well as Vivint Solar, has a massive amount of deferred revenue from these contracts. They also have a lot of income from massive commmercial projects. Installing solar systems that customers buy isn’t nearly as profitable long-term as the company owning the system, having someone locked in for a 20 year contract, and charging them an increasing rate after expenses that is still highly profitable. If the break-even time for a homeowner owned system is 3-5 years, how long will it take for Solar City to break-even while selling the power from the panels? I’m honestly not sure, just after the tax credit and SRECs, it’s about 6-7 years. Everything else after for the next 13-14 years is revenue to offset the cost to install and maintain the system. If they aren’t profitable, then something is very wrong with their expenses associated with installing and maintaining these systems. Commercial projects are fine and all, but it makes more sense to go after the military for installations there, due to the absolutely ridiculous minimum contractor rate that bases have to pay for any sort of work (usually it’s about twice the hourly rate for any kind of work that would be done outside the base).

SolarCity/Tesla’s solar roof looks like a very attractive idea. I’m honestly considering getting one when they become available, but there’s several things to consider about it. First, if all the shingles are going to be tempered glass, there’s a few problems. Number 1 is access to the roof (maintenance, chimney repair, any leaks, cleaning gutters, etc). Glass shingles are going to be extremely slippery and impossible to walk on, which will make installation rather interesting as well. Number 2 is firefighting. If you get a fire in your home, myself or someone else on the ladder truck has to cut a hole in the roof (typically 4ft x 4ft) to ventilate toxic gases and heat. Solar panels and micro inverters are annoying because they are always energized, even after you shut down power from the conduit, so you just have to avoid that part of the roof, even if it’s the optimal location for ventilation. With an entire energized roof, it’s going to be off-limits, and ventilation points will be limited to attic vent locations just under the peak of the roof, and windows, either one of which can pull the fire across the building if not close to the fire’s location. Also if fire does damage the roof decking, how dangerous are falling glass shingles going to be? Falling slate tiles can actually kill people.

Also, how expensive are these solar shingle roofs going to be? Musk said they would be less than the cost to install a traditional tile or slate roof (which can be extremely expensive, depending on location). The cost of the roof though should be cheaper than the cost of a roof plus solar system. Without large hail or other impacts, glass would last an extremely long time compared to conventional roofing materials. Hopefully the photovoltaic cells will last as long. One way to reduce costs would be to make large 4ft x 8ft sections of shingles, all electrically connected, rather than having to preconnect each individual shingle or having a crazy underlayment that connects to each individual shingle. Depending on cost, the market for the Solar Roof will be enormous. I had to replace my asphalt shingle roof after it being on the house for only 12.5 years (shingles spaced a little too far apart, not enough overlap, so they didn’t last). Bought the house a couple years ago, otherwise I would have made sure it was done right the first time. On average though, an asphalt shingle roof in this area lasts for about 25 years if you get solid 30 year shingles.

Well anyway I think I’ve rambled on enough. If SolarCity is losing money, they’re just not managing their expenses. PPOs are very profitable. If you are looking into getting solar power, I highly highly recommend buying your own system after doing some shopping for a while. Check the price of SRECs in your area as well. And you might want to wait a couple years, because if that Solar Roof is really going to be at the price-point Musk says it is, it will revolutionize the entire solar industry.

22 Likes

VitamanD

Actually, believe it or not, Musk prefers Edison over Tesla: https://www.google.com/url?sa=t&rct=j&q=&esrc=s&…

Justin

Welfare,

Nice write up.

I believe the solar side, I. E. the collection is a done deal, the cost is now fully competitive in most of ‘not America’.

The storage side is where the real magic happens. The general rule is storage behind the meter becomes economic at 100 dollars a kilowatt hour installed. The cost of storage and s not there yet, but is on a trajectory to be there in a few years.

Cheers
Qazulight

1 Like

If SolarCity is losing money, they’re just not managing their expenses.

No, the whole concept is faulty. I wrote about it on some board or other quite some time ago. I said it would go broke just like the S&Ls did based on borrowing short term to finance 20 years contracts. When rates go up BOOM! SolarCity BUST!

SolarCity is just an electric utility but instead of building huge power stations they build rooftop ones. The problem is in the financing. Utilities can set rates based on cost. SolarCity can’t.

What Elon Musk did was nepotism with shareholder money. The whole thing stinks to high heaven. Just wait for the chickens to come home to roost.

Denny Schlesinger

5 Likes

“Tesla will ultimately make its money on the spread between buying and selling electricity.”

If this is true then are you going to price it as a utility company? That would be some fall in share price.

Coincidently I just sold my Tesla shares yesterday. I’ve been in and out of the stock a few times in the last few years. I’ve only taken positions when the stock goes on one of its falls back to the 185 range. I’ve wanted to hold it, but I’ve never mustered the enthusiasm and love to make it a core holding.

Yep, great car, over the top loyal customers to the point that any SA member that buys a car receives an autographed pair of rose colored racing sunglasses.

What bothers me most is that they cannot make money selling cars to date, and thats with government subsidies.

I live in Santa Monica, where I see plenty of Teslas driving around, while my brother lives in Palm Alto, where it’s the other hotbed of Teslas driving around. In both cities I’ve recently seen an influx of BMW EVs driving around, to the point of seemingly catching up to the number of Teslas I see. So there is real competition in the market and more to come.

Which brings me to this. Who has the deeper pockets going forward to lose money on each and every EV that they sell, Tesla or GM, or BMW. I don’t want to be part of that battle, seems like a lose lose situation in the battle to gain market share while putting a stake in the heart of your competition.

One last point. Musk, like Jobs was, is a control freak. Jobs had more then one successful company over the years, but he wasn’t running two companies at once. I’ve never been comfortable with Musks ability to control and CEO two or three different companies at one time. He is obviously brilliant, but I’ve never felt that he is the best CEO for this one company, much less two or three companies.

Chris

8 Likes

What bothers me most is that they cannot make money selling cars to date, and thats with government subsidies.

My understanding is that they can, but like Amazon, prefer investing the money they make back into the company for future growth. Model S’s gross margins are over 20%, which is crazy high compared to most other OEMs. They’re just using the money they make to fund Model 3 R&D and production, etc.

1 Like