Tesla: Major Progress, Time to Reconsider?

[rockleppard]

First let me say that I share most of the same investments and philosophies as Saul and others on this board. The one main exception has been my long-term holding of Tesla since 2012 @ $30 and is currently at 13% of my total portfolio. (Tesla finished 2018 at $332.80/sh.)

As a general rule, I don’t invest in capital intensive businesses but Tesla is in a class by itself as the only true pure play electrification company in the auto and energy space driven by advanced and integrated technology & manufacturing capabilities.

Despite all of the persistent FUD and negative press by the media and short community, Tesla has continued to fulfill its mission and execute an extremely disruptive worldwide business across auto and energy. They have unmistakable commercial optionality and leadership in their business segments, have now achieved profitability (Q3 18), and are eating the competition’s lunch to the point where EVs and electrification are the undeniable emerging worldwide standards. If you don’t believe me just take a look at the charts in the article I linked below. In fact Tesla’s Model 3 is now the #1 Selling Car in the USA and may soon achieve the same in lots of other countries.

I believe that Tesla as a business and a stock is about to take off into a very major next growth phase, led by their key competitive advantages which are controlling their own supply chain of batteries (for auto and energy production), being the most automated and lowest cost manufacturer, and having true brand excellence (despite spending essentially $0 on advertising).

An extremely good summary of Tesla’s progress in 2018 was just written by Cleantechnica (https://cleantechnica.com/2018/12/30/2018-was-a-giant-awesom…). I urge you to read it and perhaps even reconsider Tesla as an investment. FWIW, I share the long term optimism of Ron Baron and Catherine Wood in that Tesla’s current market value and stock price could be >10X where it is today within 5-10 years.

Some snippets from this article:

Profits & Stock

"Tesla CEO Elon Musk and his supporting cast forecasted for months that Tesla would achieve a net profit in the 3rd quarter or at least 4th quarter of 2018, and indefinitely from there on out. The story-warping financial press and prominent short sellers wouldn’t believe it, keeping TSLA the highest shorted stock on the market much of the year. None of the skepticism kept Tesla from achieving that target, though.

Just before the 3rd quarter conference call, a vocal financial firm that had been short TSLA for 5 years flipped and went long (citing several CleanTechnica sales charts and narratives in the process). In one day that flip appeared to drive $1.11 billion in Tesla market cap growth. Shortly afterward, Tesla’s 3rd quarter finances came out and the stock soared higher. In the end, sales = money, and money chases money.

Tesla: Picking Up Steam

As it stands, as the year comes to an end, only two auto companies are worth more than Tesla (Toyota and VW), and both of those companies saw declining market caps in 2018. Actually, all major automakers except for Tesla saw their market caps decline in 2018.

Despite what the hugely misled and misleading financial and business press would like you to believe, Tesla had the wonderful year it had due to Elon Musk being at the helm. He drives rapid innovation, critical problem solving, and the company’s tremendous fan support. Anyone trying to get him removed from his position at the top of the company is, in my humble opinion, working against the interests of Tesla and against the interests of humanity. Don’t fall prey to that counterproductive messaging.

There would be no Tesla Model 3 without Elon Musk, and certainly not millions of them. We look forward to Elon’s tweet that Tesla has sold its 1 millionth Model 3, and then its 1 millionth Model Y, and then its 1 millionth Tesla Pickup, and then its 1 millionth Tesla Semi, and so on.

Overall, 2018 was Tesla’s biggest and best year ever, but every year in the coming decade+ should be a significant step higher. Get ready for plaid mode."

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I hope you find this interesting and welcome your thoughts.

Happy New Year, and sincere thanks to Saul and each of you for your intelligence, professionalism, and incredible contributions to this board! Honestly I really would hate to think of ever not having this Board to consider in my investment evaluations and research!

Vic

[XMFALieberman]

Tesla might end up being an incredible investment. But more importantly, it’s just as (if not more) likely to self-destruct and go bankrupt.

I’m a huge fan of what Tesla has done and is doing for EVs, but with so many incredible subscription software businesses with all the strengths we discuss here, Tesla just isn’t worth the risk.

I feel much more comfortable with other, less capital intensive/diabolical CEO-led companies than Tesla.

I’ll definitely watch their journey and would never bet against them… I hope they succeed, but that doesn’t mean I’m going to invest in them. Especially with a concentrated portfolio.

[brandonwahl]

But more importantly, it’s just as (if not more) likely to self-destruct and go bankrupt.

I’ve owned Tesla since 2012, and have followed it pretty closely since then. In my opinion, if they were to go bankrupt, it would have happened during the Model 3 launch. I do however share the common concern that, at the end of the day, all you really have is a car company, and who in their right mind would ever invest in the likes of Ford, GM, etc. Eventually the growth will slow and it will be time to exit. Its a car company after all, margins are on the low side, and all car companies rely on government subsidizing to operate.

Tesla will have to create a form of recurring revenue, outside of selling cars, to maintain growth. Musk has written that one of his goals is to create an Uber-like service with all Teslas operating in autonomous mode across the country. There are challenges there for sure, but a Tesla taxi service is indeed something that could keep growth moving forward.

Brandon

[tamhas]

Its a car company after all, margins are on the low side,

However, its margins are not low like most car manufacturers and it is also an energy company … been a bunch of wins on that side lately.

[rockleppard]

“…at the end of the day, all you really have is a car company, and who in their right mind would ever invest in the likes of Ford, GM, etc. Eventually the growth will slow and it will be time to exit. Its a car company after all, margins are on the low side, and all car companies rely on government subsidizing to operate.”

Brandon,

Respectfully, if you think Tesla is only a car company the I’m not sure you’ve been paying attention. Here are but a few takes on just this by knowledgeable people on the matter:

Tesla Is More Than Just A Car Company, It’s A Change Agent
https://cleantechnica.com/2017/10/08/tesla-just-car-company-…
"Famed Apple analyst turned Venture Capitalist, Gene Munster at Loup Ventures, recently attempted to answer Wall Street’s burning question — isn’t Tesla just another car company? Munster’s answer: “Tesla is not (just) an automaker. Nor is it (just) a battery, solar, or software company. Tesla is an agent of change. Its mission is to accelerate the transition to sustainable energy – and its story is about engineering a different future. Each move the company makes lends itself to a higher-order goal, and, as you zoom out, the picture becomes clearer.”

Munster elaborates, “Tesla seems fine with investors and the public thinking they are an automaker. Musk knows that his ambitions to manufacture electric vehicles, develop autonomous driving software, double the world’s output of lithium-ion batteries, be the largest solar panel installer in the U.S., and modernize energy production, storage, and consumption, must be executed in steps, each building on the last.”

Elon Musk took a uniquely Silicon Valley approach to building the company. “Tesla, like others in technology today (e.g., Amazon), is attacking non-tech sectors with a thoughtful, albeit unconventional, commercialization plan. If your goal was to accelerate the world’s transition to sustainable energy, you might get a degree in chemistry or electrical engineering, go on to study environmental engineering or law, assert yourself as an expert in the field, create an interest group, lobby congress, get approved to test a project; you get the picture.”

But, Musk’s approach is wholly different: “Tesla, however, figured that [the] most efficient way to exact the greatest change is with a consumer-facing, product-focused approach. Maybe people would drive an electric car if it were faster, safer, and sleeker than the one they owned. Maybe people would put solar roofs on their homes if they looked great and were more durable than traditional materials. People are drawn to better products; not [only] to intangible environmental and sustainability benefits.”

That said, Munster notes that Tesla’s “goal is not to help the rich save on their energy bill or give them a fun car to drive… There is no agenda or desire to sell to wealthy customers only – it is a necessary step in the economics of scaling up operations.” He cites co-founder and CTO JB Straubel who said, “we work incredibly hard every chance we can to reduce cost. Most of our effort is focused on how do we reduce cost so that we can grow volume and reach a broader customer base.”

Each of Elon Musk’s disparate initiatives for the company are simply, “Tesla’s building blocks to reengineering the future.” Munster concludes, “The faster Tesla reaches economies of scale in its existing businesses, the sooner we could see Tesla tackle these important issues, extend its operations to their fullest potential and, most importantly, further accelerate the transition to sustainable energy.”"

Tesla — More Than An Auto Company
https://cleantechnica.com/2018/10/28/tesla-not-an-auto-compa…
"Apple renamed itself and Tesla renamed itself. You may say, “So what?!” Let’s dive into why this really is important to you. To prepare, expect the unexpected.

This is about Tesla, but not about motors, autos, or vehicles, and I promise it won’t be boring.
I believe and will make the case in this article that to rename Tesla Motors into Tesla was indeed one of the largest pieces of news of all, as it was the logical consequence of a profound, comprehensive, and complex thought process about what Tesla really is about and will be in the future.

I believe that Tesla is an enterprise that is vastly misunderstood in what it does, what it produces and delivers to consumers. This is also part of the reason why I believe cofounder and CEO Elon Musk is still misunderstood by practically everybody.

Steve Jobs never intended the iPhone to be a simple replacement for your cell phone. It just happened to be a device that could also be used to make phone calls. And it is doing that in a beautiful way. But that is almost a side effect of the more important mission to connect you with your loved ones, society, and the world. It is a device to please you, to create unexpected beautiful emotions, and to make you a part of something larger than you.

When Elon Musk and his team first rolled out a Tesla Model S, most people did not comprehend that it is a device that is not mainly intended to drive. Its main purpose is something else. It just happened to be also able to drive. And it is doing that in a beautiful way. Think about this for a second — for what have you used and will you use your EV in the future?

Elon Musk never intended the EV to be a simple replacement for your car. It just happened to be a device that also could be used to drive you. But that is almost a side effect of the more important mission to connect you with your loved ones, society, and the world. It is a device to please you, to create unexpected beautiful emotions, and to make you a part of something larger than you.

It is a supercomputer and almost an artificially intelligent extension of your brain, only limited by bandwidth from making you a person with superpowers. More safe, more reliable, more capable, more everything. A new level.

The only real difference between the Steve Jobs device and the Elon Musk device is that one moves you physically, the other only virtually. Both move us and our emotions, both are experience devices designed to enlarge our ability to experience. It is indeed that simple.

If you believe this article sounds like a broken record, then you are not wrong. The similarities between Apple and Tesla are obvious and mind-boggling. You can exchange the name Apple with Tesla and the content is still completely true."

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I hope this is helpful.

Vic

[qazulight]

Eventually the growth will slow and it will be time to exit. Its a car company after all, margins are on the low side, and all car companies rely on government subsidizing to operate.

I don’t own Tesla, nor do I own a Tesla.

However, I drive a Toyota, a Honda and a Chevy. What I have realized is that these companies can build great cars. But that they are completly clueless about software.

Even the best software available, Apple Car Play, is poor in comparison to the slick look and feel of Amazon.

When the CEO of Nutanex talks about velocity and paranoia, he is exactly right.

An example.

I drive a company truck. The current is a Chevy 2500 work truck. It is a a nicely equipped truck with Apple Car play, cruise control and it has been up graded with Mobile Eye.

When I put gas in the truck, I have to scan my company fuel card, enter my id, the the odometer. For 20 years now, every worker with a company truck has had to get out, get the pump halfway started the put the key back into the ignition, turn the truck on and get the odometer to come back on. Ever since the mechanical odometer was replaced with an electronic one, this or some work around had been the lot of every person driving a company truck.

Finally after 20 years, Chevrolet said “hey, that is inconvenient, lets make it to where when they open the door, the odometer lights up!”

20

Freaking

Years!

I can give you other examples. The most glaring is the auto play feature of all of my bluetooth enabled cars. The operating result of this feature is such that everyone involved in the implementation should be crucified. Has there been an update?

No!

A Tesla on the other hand gets software iterations and over the air updates regularly.

This is the difference between Tesla and everyone else. The waterfall method verses the agile method*.

Tesla is not a car company! It is an agile company that applies the agile method to all aspects of the business.

In a way, I expect that this is what Amazon does and why they have done so well with the non-core AWS.

In fact, what we are seeing is not a new car company, as in Tesla, or a new retailer, as in Amazon, rather a new type of company, an agile programming company that applies Agile to every aspect of the business, not just the software.

We can see some of these same attributes in NTNX and in Pure Storage. The companies mutated from one type of business model into another.

This development makes investing even more difficult as value will tend to be more hidden than it even is today.

*10 minute video on running an agile project

https://youtu.be/4u5N00ApR_k

Cheers
Qazulight

[SaulR80683]

There would be no Tesla Model 3 without Elon Musk, and certainly not millions of them.

Hi rockleppard (Vic),
I love what Tesla is doing and I’m sure they wouldn’t have existed without Elon. I love and admire him too, and was an early stockholder a few years ago. However, I’m sorry to say, Elon went through a very, very, VERY, flaky period this year. It had to be scary for Tesla management, Board, and stockholders. Tesla may turn out to be a great investment, but there are soooooooo… many less risky great investments around, it’s hard to justify putting one of them aside to invest in this extremely risky one. But that’s just how I see it.
Saul

[SaulR80683]

Musk has written that one of his goals is to create an Uber-like service with all Teslas operating in autonomous mode across the country.

Hi Brandon, I think the era of autonomous vehicles being widespread is much further off than you imagine. There was just an article in the news today about people slashing their tires and throwing rocks at them in small towns where they are being tried out. Can you imagine if they start putting truck drivers out of work? Plus every fatal accident will be studied ad infinitum.
Saul

[Sanjay2030]

I’ve owned a Tesla since August. The entire Tesla experience is simply amazing. The car drives like a dream (a powerful one). Every month or so, I get new free features via over the air updates. Their service is unparalleled. They sent a mobile unit to my home to perform a proactive recall service. Who else does that? With the Model 3 ramp, they’ve reached the tipping point. In my part of the country, Model 3 are now everywhere!

At the same time, that doesn’t make TSLA a great investment. I have to admit, Elon’s antics frustrated me to no end this summer. After one of his tirades, I sold the stock and vowed to never return. In that case, never lasted just two weeks. I bought back in because I realized Tesla, as an outsider, is capable of changing the auto industry in a way none of the current players could ever hope to do.

Telsa reminds me a lot of Apple. During the original iPhone launch, the pundits mocked Apple said the iPhone was doomed from the start. They derided its lack of a physical keyboard and relationships with cell carriers. We all know how what story turned out as Apple destroyed old line cell phone makers (Nokia, Ericsson, etc).

Tesla is doing the same with EVs. In addition, they are slowly revolutionizing grid power (https://electrek.co/2018/09/24/tesla-powerpack-battery-austr…). The entrenched, old line auto makers have too much to lose (profitable service margins) from radical change, so they’ll play in the EV market half-heartedly for as long as they can. In the meantime, Tesla and other EV startups will slowly eat their lunch.

So while TSLA isn’t as as attractive as most SaaS stocks, I’ll hang on to my TSLA (2% of holdings) because I want to be part of the ride…

Happy and profitable New Year to all!

Sanjay

[tamhas]

Plus every fatal accident will be studied ad infinitum.

To be sure … but what about when there is a solid pattern demonstrating fewer accidents than with human drivers.

Not to mention Teslas being judged the safest cars on the road, even when they do get in an accident.

[nilvest]

I posted this on Saul’s portfolio review thread before realizing there is another thread on TSLA.

"I have been building relatively large (>5%) position in TSLA over last two months. I feel like the transition story I mentioned above for NTNX will happen much faster with TSLA.
If you read Phil Fisher (who probably had more influence on Warren Buffett’s success than Ben Graham had), Phil offers an example of a factory based business (cant remember product). His point is, after initial product is successful, a new company needs to build a factory to expand capacity. While the factory is being built, financials suddenly start looking terrible and stock gets hammered. However, once the factory is built and production starts ramping, the financials continue to enhance many quarters in a row and that drives stock price up for while. In modern America, this is the first such example I can see… and add on the top all the genius of Musk and you have the recipe for a huge run.
(I hear all craziness around Musk this year but you need to read / listen to Musk’s biography by Ashlee Vance. It takes that craziness to build what Musk has built and you cant expect it any other way.)
"

In addition, like others mentioned here, I see TSLA, as technology company, agile company, company with cause, company with many optionalities built in - and its proven unbeatable by anyone yet in vision, product design, customer experience and execution. And they are chasing big big dreams… not matched by any of the cloud companies we are talking about.
So to me, time is right to start owning TSLA… and hopefully it will enable me to own a Tesla as well!

[brandonwahl]

Hi Brandon, I think the era of autonomous vehicles being widespread is much further off than you imagine.

I would image 5 years at best before the government allows something like a pilot program to commence, but probably more like 10 years before this gains any serious traction.

[rockleppard]

In addition, like others mentioned here, I see TSLA, as technology company, agile company, company with cause, company with many optionalities built in - and its proven unbeatable by anyone yet in vision, product design, customer experience and execution. And they are chasing big big dreams… not matched by any of the cloud companies we are talking about.
So to me, time is right to start owning TSLA… and hopefully it will enable me to own a Tesla as well!

nilvest,

Thank you for sharing your sentiments. I agree completely.

While I do respect the opinions of those who admire the innovation and achievements of TSLA and Musk while not wanting to invest, let me offer a few counter views.

Remember that Apple and Amazon were, within the 1998-2008 timeframes, also widely perceived as inadequate business models during the past 1-2 decades as their products, go to market strategies and financial health were all questioned within the investment community. Innovation comes at a price, but once these reconstituted and new companies/business models reached the inflection point whereby their early adopters moved to the mass market, these businesses scaled immensely. I believe that Tesla is fast approaching such an inflection point.

In addition, Saul and most of us on this board have profited significantly these past two years by investing in extremely scalable cloud and SaaS leaders. While I realize these businesses do not possess the capital intensity of Tesla, the fact is that Tesla is as innovative as those cloud/SaaS leaders and perhaps even more so given the scale and complexity of the issues it is solving. Moreover, I’d argue Tesla is in a class by itself in terms of having the vision, technology, manufacturing excellence and cost leadership that is only compounding more every day. I see legacy auto and energy industry participants (OEMs, dealers, petroleum, utilities, etc) being disrupted in a major way, and many of them will become dinosours and fail just like Kodak, Polaroid, DEC, Sears and so many others who couldn’t compete within the newly innovative terms of engagement.

Luckily, the stock market welcomes varying investing perspectives and as we all know there are multiple ways to make very significant market-beating returns as this board (myself included) continues to demonstrate. But I will continue to keep my Tesla stake where it is (13% of portfolio) and evaluate and/or add to my other 13 positions opportunistically (AYX, UBNT, OKTA, TWLO, MDB, ZS, SQ, NTNX, SHOP, MELI, AX, BZUN, TTD).

Sincerely,
Vic

[EdGrey]

But I don’t want my car to be accessible on the Internet whenever it’s running. I’d want to log in at my convenience, look at the available updates, and pick and choose. And back out the update, if I didn’t like it.

I’d even prefer to have a simple electric car with minimal bells and whistles, one that simply runs well and extremely economically. That’s why I never considered a hybrid - way too complicated, expensive to fix, and not all that economical compared to a regular economy car.

Now, if a simple electric car company were to come on the scene, run by people who knew what they were doing, I’d be very interested in investing. (I’m not saying that Musk doesn’t know what he’s doing, but investing is different from admiration or interest.)

One kind of electric car should have come out by now - something like that dinky, overpriced Smart Car, except genuinely economical, durable, and reasonably priced, useful for short hauls.

I could see having about 0.25% of one’s net worth invested in Tesla (bought on dips), and it’s definitely a major cultural phenomenon, but it’s also arguably the biggest story stock of them all.

[EdGrey]

Should one of our criteria for investment be that upper management doesn’t use Twitter to communicate about the business?

[bjurasz]

Can you imagine if they start putting truck drivers out of work? Plus every fatal accident will be studied ad infinitum.

The problem is there is already a large shortfall of truckers, especially long haul. I know two people in trucking management who says this problem is real and wide spread. What long-haul wants is lead-follow autonomous driving – human in front truck, robots in 3 or 4 trucks following. They can follow safely at distances of 4-5 feet, meaning large fuel savings plus only one salaried driver per 4-5 trucks. Brings down costs plus solves the problem of not enough human drivers to meet demand.

On safety, they don’t need to be perfect, just better than people. This likely will happen, and when the actuarials at insurance companies find that out mathemaically it will be a tipping point.

bjurasz

[kiplin]

Beyond the issue of Tesla as a high-growth company or autonomous vehicles as a looming threat to truck drivers lies a larger trend, Transportation As A Service, TaaS.

With this board’s focus on SaaS perhaps TaaS is worth sticking on the radar, or perhaps it’s still too far out and too capital-intensive for the growth multiples favored here. If so, apologies.

That said, if you’re interested in the subject there’s a comprehensive and (to me) fascinating analysis from the folks over at RethinkX. I urge you to browse the summary and download the full report – there will be investment opportunities:

https://www.rethinkx.com/executive-summary/

We are on the cusp of one of the fastest, deepest, most consequential disruptions of transportation in history. By 2030, within 10 years of regulatory approval of autonomous vehicles (AVs), 95% of U.S. passenger miles traveled will be served by on-demand autonomous electric vehicles owned by fleets, not individuals, in a new business model we call “transport-as-a-service” (TaaS). The TaaS disruption will have enormous implications across the transportation and oil industries, decimating entire portions of their value chains, causing oil demand and prices to plummet, and destroying trillions of dollars in investor value — but also creating trillions of dollars in new business opportunities, consumer surplus and GDP growth.

The disruption will be driven by economics. Using TaaS, the average American family will save more than $5,600 per year in transportation costs, equivalent to a wage raise of 10%. This will keep an additional $1 trillion per year in Americans’ pockets by 2030, potentially generating the largest infusion of consumer spending in history.

We have reached this conclusion through exhaustive analysis of data, market, consumer and regulatory dynamics, using well-established cost curves and assuming only existing technology. This report presents overwhelming evidence that mainstream analysis is missing, yet again, the speed, scope and impact of technology disruption. Unlike those analyses, which produce linear and incremental forecasts, our modeling incorporates systems dynamics, including feedback loops, network effects and market forces, that better reflect the reality of fast-paced technology-adoption S-curves. These system dynamics, unleashed as adoption of TaaS begins, will create a virtuous cycle of decreasing costs and increasing quality of service and convenience, which will in turn drive further adoption along an exponential S-curve. Conversely, individual vehicle ownership, especially of internal combustion engine (ICE) vehicles, will enter a vicious cycle of increasing costs, decreasing convenience and diminishing quality of service.

[tamhas]

One kind of electric car should have come out by now - something like that dinky, overpriced Smart Car, except genuinely economical, durable, and reasonably priced, useful for short hauls.

I’m sure you will see this from the Chinese … but I can’t see it being wildly successful in the US market.

[qazulight]

The entrenched, old line auto makers have too much to lose (profitable service margins) from radical change, so they’ll play in the EV market half-heartedly for as long as they can. In the meantime, Tesla and other EV startups will slowly eat their lunch.

It is not that the old line automakers have too much to lose. They cannot change to compete. Never, it simply is not within the culture.

Watch the 10 minute agile video. Think about how Tesla innovates. How fast they move. Then imagine getting those changes through the current processes of most large SP 500 companies.

In my 2018 Chevy truck, I have ear phones jacked into to AUX jack. In thid way I an able to defeat autoplay.

You can Google, just like anyone from GM, and find out that several hundred thousand people have searched for a solution to this feature. Several hundred thousand. There is no patch issued. None. I am not even sure there is a method to make the patch.

Not responsive, not agile. It works all the way. Have a problem losing a million a year? Oh great, someone has a solution! We will see if we can work it into the next budget cycle.

Hey, this little side business is turning 80 percent margins and is growing at 50 percent a year, maybe we should focus on it. No can’t do that. We sell books on the internet. See this is exactly what happened to Amazon. NOT!

If I decide to not buy a 3/4 ton truck, and a car or SUV is gets the call, I will try very hard to work a Tesla into my garage.

Cheers
Qazulight

[mauser96]

platooning will be a terrible driving hazard unless limited to straight multilane roads. Because in effect for car drivers it would be like passing a 380 ft long truck .( 5 tractor trailers each 75 ft long). Maybe if limited to expressways but even then you have the problem of a 70 mph truck passing a 69 mph platooned truck convoy. Blocking both lanes.

I think that all X-ways should be 3 lane minimum with trucks confined to the 2 right lanes. A boon to the economy both in construction and use.
BTW fuel savings with platooning starts to drop dramatically once vehicles get further apart than a foot or so.