Tesla Semi & new Roadster

Investment Analysis Clubs Saul’s Investing Discussions
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Easy on the shorts. They are our friends.

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"Chanos, who first disclosed his short position in the company in May last year, said that he expected company co-founder and Chief Executive Elon Musk to step down from his position by 2020 to focus on his private rocketship company SpaceX as competitors such as BMW and Porsche expand their lines of luxury electric vehicles.

“Obviously this is not being valued as a car company, it’s being valued on Musk … he’s the reason people own the stock,” Chanos said.

“Put it this way,” Chanos said. “If you wouldn’t be short a multi-billion-dollar loss-making enterprise in a cyclical business, with a leveraged balance sheet, questionable accounting, every executive leaving, run by a CEO with a questionable relationship with the truth, what would you be short? It sort of ticks all the boxes.”

https://www.cnbc.com/2017/11/14/chanos-says-tesla-ticks-all-…

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Some say that Tesla will be self-financing with pre-orders.

Not possible. Nobody sane says that. Tesla will be self-financing when Model 3 gets to 5000/week production and they get some reasonable approximation of profit margin on them. The 5000/week goal is predicted by Musk for the end of 1Q18, a three month delay from his June prediction, but a couple of years ahead of their original schedule before they got huge numbers of reservations. And their target of 25% gross margin is likely to be reached at the latest by Q318, by which time production should be well on its way toward 10,000/week, a rate predicted for some time in 2018 originally and recently restated for something like “we’ll get there when we get there” (my words).

Of course the path to profitability depends somewhat on how fast they spend the money they make on their products, and whether and how much the Tesla Energy products are contributing to profit.

I don’t believe that Tesla will spend significant dollars on the semi or the new roadster until they have Model 3 shipping profitably at volume. I also believe that they will not show significant profitability for many years, as they’ll spend it as fast as they can make it. Building many gigafactories, advanced automation, charging networks, service expansion, and new lines of vehicles can absorb vast resources. The company will grow rapidly.

-IGU-

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“Put it this way,” Chanos said. “If you wouldn’t be short a multi-billion-dollar loss-making enterprise in a cyclical business, with a leveraged balance sheet, questionable accounting, every executive leaving, run by a CEO with a questionable relationship with the truth, what would you be short? It sort of ticks all the boxes.”

Very logical. I think at this point Chanos has lost more money on his Tesla short than anybody. Of course he’s lost lots on shorting AMZN and BABA as well. Not looking like a genius.

-IGU-
(making money on TSLA this year)

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The self-financing argument goes that there are 500,000 $1,000 deposits = $500,000,000 in prepayments. However, bringing the 3 to market is much more expensive than even that sum of pre-paid deposits.

But that is the self-financing argument, as each buyer pays $1000 deposit and gets on the list, and Tesla, like a bank, can use that money (without any reserve) however they want to, tax free.

They did the same thing with the S and X but the deposits were larger for each vehicle reservation.

Tinker

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It’s pretty clear to me that TSLA is not a “Saul stock”. So this doesn’t seem as though it ought to be discussed seriously here. Am I wrong?

Care to help educate us and take us through your model?

I don’t have a model, at least I don’t have anything I think of as a model. What are you looking for?

I’m long Musk…

Yeah, that’s a good summation of my position. Like Apple, Tesla is all about making amazing products, while recognizing that being profitable is necessary to be allowed to continue making amazing products. Somehow, while never chasing money, Apple has become the most profitable company in the world. I think Tesla, taking the same attitude, will do the same. And I like that the genius in charge is an engineer rather than whatever SJ was to Apple (marketing and product visionary, and chief critic and motivator, I believe (I worked at Apple doing software for 8 years, although never directly for SJ)).

The money grubbers on Wall Street will never understand either company. People who aren’t motivated by money are a complete mystery to them. Thus I have a big advantage in investing in these companies.

…but only have a small position which is just riding Tesla for the last few years.

I started investing in TSLA as a way to buy a car (see story here: http://caps.fool.com/Blogs/how-to-get-a-free-tesla/993164). That got me interested enough that I’ve been reading about Tesla obsessively ever since, and I’ve been investing much more seriously (read, I sold most of my AAPL and put it into TSLA). I’m retired so I have lots of time to devote to this.

You say they’ll be self funding by q1 2018. Amazing. How many cars will they need to produce?

It doesn’t seem amazing to me; it seems obvious. Their expected gross margin on Model 3 is 25%, which should be achieved by 2Q18, but might take until 3Q18. They predict reaching 5000/week Model 3 by 1Q18, so at about $44K ASP that’s $11,000 x 5000 = $55M/week or $715M/quarter. By the end of 2018 that’s planned to be around 10,000/week which makes it ~$1.4B/quarter.

They might be profitable in Q1, depending on the details of how fast the ramp goes, how clean it is, how the simultaneous ramp in Tesla Energy goes, and how they expand spending. They’re likely profitable in Q2, and they’re certainly profitable in Q3.

Really the only viable alternative thesis is that Elon Musk is lying or horribly mistaken. If you think either of these things you shouldn’t be investing in Tesla at all. Personally, I think he is absolutely honest and often over-optimistic about timelines. But seriously, it won’t make any long term difference if Tesla becomes profitable in 2Q18 or 2Q19 – the path is inevitable and huge.

How many are they producing this quarter? What are the key issues with the delays and why will they be sorted by q1?

I have no real idea how many cars they are producing. People have seen VINs as high as 1099 as of a couple of days ago (see https://teslamotorsclub.com/tmc/posts/2412618), but that’s only an indication. I don’t think it matters how many they produce while they get the line up to speed, what matters is that it gets up to speed as soon as is feasible. There are paths to that that ramp the production volumes along the way, and there are paths that produce very little until all of a sudden it’s at full speed. They have stated that the current number one problem is battery pack production at the Nevada gigafactory, and they know what they have to do to fix the problem, and they are doing so. I assume they are identifying and fixing other problems in parallel, but I don’t know. What I do know is that they believe they’ll be up to 5000/week by the end of 1Q18. And what I think is that they will work through whatever problems there might be and will get to where they want to be. There’s no reason to think otherwise. The only quibble is exactly what the date will be when they’re there.

I hope this is a reasonable explanation of where I’m at, and explains somewhat my impatience with the garbage that often gets posted regarding Tesla. I still don’t think TSLA is anything like a “Saul stock” at this point, so further detailed discussion seems inappropriate.

-IGU-
(happily making money on TSLA)

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The self-financing argument goes that there are 500,000 $1,000 deposits = $500,000,000 in prepayments.

It’s nowhere near enough money to pay for the ramp, never mind show profitability. Besides, unless the waiting list continues to expand even after they start volume delivery, the deposits account starts to shrink. Not effective financing.

But pushing forward some of the revenue from selling the cars is not a bad thing. It just isn’t good enough to make a big difference. I put it in the same category as the ZEV credits: nice income when you can get it, but ultimately irrelevant.

-IGU-

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“Profit potential is obvious if unsure. Make lots of cars, sell them at more profit than others. What Apple does. Not the most ,but the best and the most profitable.
Have 10% of the world car market, not unobtainable, VW and Toyota did it from zero, that equals 10 million cars a year.
How many of us would have said they would be so successful when they wee selling 20,000 cars a year?”

Ok, so looking at this… let’s say they sell 10m cars a year at an average price of $25,000 (obviously they have a lot of work to do before they could bring the price down that much). That’s $250b in revenue. If we give them a net profit margin higher than Toyota that’s about $25b/year in profit.

Great compared to their market cap today. Unfortunately the average ROE in the industry is around 15%, so that implies a capital base of around $156B (Toyota has $169B right now). Tesla currently has a book value of $5B. If they reach profitability at an industry average ROE, they are growing that 15% per year through internal cashflow (assuming it’s not re-invested in any less profitable side projects).

Is anyone going to be satisfied if it takes them 3 decades to get there?

So I’m left wondering where the other $151B comes from. For reference Apple’s ROE averages 35% over the last 5 years and Toyota averages 12%. If one company grows at 15% per year and another grows at 35% per year, which one will end up being bigger?

The plan was always very clear from long before they were selling 20,000 cars a year, and I’ve always thought it sounded good. The profitability and cashflow have been the big sticking points. So far the stock price has been a lucky (probably unintentional) break. Unfortunately the business may be stuck at the bottom of some really bad math. And their current market cap doesn’t let them raise $100B in a hurry.

But the nice thing about investing is that someone else’s opinions of your investments doesn’t affect their results one bit :slight_smile:

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I still don’t think TSLA is anything like a “Saul stock” at this point (IGU)

…maybe somewhat, though.

Shall find out soon, if the Model 3 goes well, there will be rapidly rising revenues. The TAM would expand, also.

HP

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Shall find out soon, if the Model 3 goes well, there will be rapidly rising revenues. The TAM would expand, also.

The former, sure. The latter I don’t see. Total addressable market goes up when the price goes down. I don’t think a successful roll-out would drive down the price any time soon. As more people see their neighbors with cars that are grossly superior to their own you’ll certainly get more demand. But that’s required as production goes up. It should balance reasonably nicely.

-IGU-
(and even if the ramp goes well, there will be glitches and hiccups)

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What astonishes me is not that I never invested in TSLA (an easy decision) but that I failed to take a sizeable bet on GM when I had five whole months, April to August, to think about it. Some error of omission!

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I wonder how long TSLA shares can stay afloat based solely on Musk’s dreams. I give him credit for his vision and ideas. The downside, IMHO, is that he has created a group of arrogant robots that are incapable of getting out of their own way. Anyone close to the Model 3 ramp up, or any of their other vehicles would know what I am talking about.

DHeavy

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That can be problematic for visionaries who don’t self reflect. However, I think Musk is and will. Tools will be tools but I think Musk can overcome them.

Peace,
Dana
small amount invested in the Musk dream

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Since I am not in Buffett’s class I buy stocks, not companies
TSLA has gone up a lot since I bought it
I am happy with that.

So far the stock price has been a lucky
that’s fine ,I am also happy with good luck.

BTW since the average car sold in the US costs around $32,000 I expect Tesla sales will be well over $25,000 per car. Like Apple they will not compete at the unprofitable low end. ICE car companies sell cheaper cars not because they want to ,but because they have to .Under CARP. Tesla does not have to contend with CARP or expensive anti CO2 regulations.

My goal for Tesla is 10 million cars/year. But it could be more. VW and Toyota innovations were smaller then Teslas. Or it could be a lot less if Tesla screws up big time or if TaaS takes off. But massive TaaS is past my investment horizon. Fact is ,projecting out even a few months is a guess.

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Total addressable market goes up when the price goes down.

At the most, price is only one factor and, I don’t think, a dominant one. A very big factor in the effective TAM is growing acceptance and desirability of electric vehicles. And, another very big factor is the range of models available. Adding Model Y and a pickup would do a great deal to expand the effective TAM. And, hey, if the pickup is anything like the wowser that the semi is, it could be a real killer.

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Higher prices make sense. That pushes them more towards the high-end market. If we take BMW as an example, they don’t have a significantly higher ROE so likely increases the capital requirements as well (makes sense, it costs something to build at higher quality).

I would have to wonder if the total market would then be smaller. BMW sells about 2m cars a year and clearly some of them are not as high-end as Tesla.

The chances of Tesla collapsing may be relatively small but they are too high for my comfort – both as a company and as a stock. Will Elon Musk walk the razor’s edge to pull off rapid growth in profits before investors lose patience? Will the stock price stay high enough to allow this even if there is a market downturn? I’m not wise enough to know.

But the list of high-flying financial wizards who have defied the rules and then come crashing down is long and distinguished. And I think the typical time it takes for the whole thing to unravel is under a year. Luckily, if I’m wrong you’ll all make just as much money :slight_smile:

Side note: I actually spent more on the iPhone X than my last car – and rationalized it with the fact that I spend more time with the phone than the car. I imagine Apple’s position is helped a lot by the fact that an “expensive” product for them costs far less than anything else playing such a big role in our lives. They’re virtually giving it away and just waiting for us to realize that. On the opposite end, a home builder focusing on premium prices would have 0 chance of taking over half the market.

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The downside, IMHO, is that he has created a group of arrogant robots that are incapable of getting out of their own way. – DHeavy (emphasis added)

We flew to San Jose on Thursday for our son’s birthday. In front of us, a person who claimed to be a Tesla employee was chatting with the person next to her.

She said that they (Tesla employees) don’t think much of people who like ICE cars, referring to them as ICEholes. With a laugh. Arrogant was the thought that popped into my mind.

Rob
He is no fool who gives what he cannot keep to gain what he cannot lose.

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I still don’t think TSLA is anything like a “Saul stock” at this point, so further detailed discussion seems inappropriate.

Well, Saul invests in growth, and there’s arguments to be made that TSLA still has serious growth ahead of it.

On the semi new specifically, here’s a cross post of mine from the SA board:

The semi-truck announcement shows how Tesla doesn’t just design products, but designs solutions.

Two and a half months ago, Cummins “scooped” Tesla by announcing an electric semi, with headlines such as: “Cummins Beats Tesla To The Punch” and “Cummins is coming after Tesla” and “Cummins Embarrasses Tesla by Unveiling This Monstrous New Electric Big Rig”

Now with Tesla’s announcement, we see the difference between a company that’s looking to electrify a truck versus a company that went out to reinvent what trucking could be.

Cummins put a 140 kWh battery pack for a 100 mile range, a 44K pound hauling capacity, and one hour recharge time. Since they knew that wasn’t good enough, they also said they planned for a diesel range extender, and then quoted a fuel-efficiency gain that assumed all electricity was free. Cummins won’t build the trucks (they don’t now anyway), but needs to buy cells and then build electronics and motors.

Cummins is a diesel engine maker. They clearly don’t understand what’s going on with electric drivetrains. Forbes quotes their CEO: “Because of the limits of today’s battery technology, Cummins’ Chief Executive Thomas Linebarger said the Class 7 truck cab represents the “stretch application” for a heavy-duty electric truck. An electric powertrain does not yet make sense for a Class 8 semi tractor-trailer, also known as an 18-wheeler, because of the larger loads they carry and the longer distances they travel, he said.” (https://www.forbes.com/sites/joannmuller/2017/08/29/take-tha…)

And yet this week that’s what Tesla announced.

What’s worse, is Linebarger’s next quote: “Where Cummins has an edge, he said, is in understanding its customers needs.”

That’s clearly not the case. While Cummins showed a prototype truck, Tesla laid out a new vision for trucking. Not just a truck that saves money because electricity is cheaper and more efficient than gas or diesel, but a whole new trucking solution. Whereas Cummins was about fuel cost savings, Tesla showed how maintaining speed up long hills saves time, which saves money, and putting in Mega-Chargers to enable rapid unattended charging. From a re-defined cockpit that puts the driver in the center of the vehicle and integrates with all the systems that truckers today add on via aftermarket products, to movable panels that maintain aerodynamics with varying trailer sizes, to anti-jack-knife technology, to guaranteeing the price of electric fuel, Tesla put Cummins to shame.

And that’s without even the obvious mention of Tesla semis hauling twice as much as Cummins’s drivetrain and with a 5X range advantage!

Cummins went about adding a battery to a semi. Tesla rolled the whole trucking problem back to First Principles, and started their invention and design from that. Mr. Market sold off the competition the next day, and rightfully so. 16Nov2017 will go down in history as the trucking equivalent of Apple’s 09Jan2007 iPhone announcement.

Whether you believe that the semi-truck business will be a major profitable business for Tesla or not, you have to acknowledge that the way Tesla thinks about problems and innovates solutions are indicative of a company in which you want to be investing.

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Whether you believe that the semi-truck business will be a major profitable business for Tesla or not, you have to acknowledge that the way Tesla thinks about problems and innovates solutions are indicative of a company in which you want to be investing.

Maybe if they hit their stated delivery targets for cars on time, I would…

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Apple seems to have trouble delivering lots of new products on time, or at least in any quantity. All that seems to have done is make it’s “i stuff” more desirable.
http://www.businessinsider.com/apple-compromised-accuracy-of…
There are lots of bearish reasons o stay away from TSLA. But the present production problem is probably not one of them.

  1. they will get it solved . If GM or Chrysler at their worst could get such problems fixed , so can Tesla
  2. is there any investor who does not know about it? Thus it is in the present stock price. But probably only a little more than another 4 or 5 weeks delay is being anticipated. if it takes them 4 or 5 months, watch out below.

I am still bullish on TSLA long run, but have cut back. Why let your money stagnate when there are stocks like SQ to buy instead. Great in the short run, probably in the long run too. And many of the “Saul/NPI” type of stocks will not have any big downward pressure until this quarter’s earnings reports, months away. Tesla bad news could be weeks away. These disparities effect the odds with investing in any of these stocks.

TSLA $300 is still holding, and is a good base. As long as the General market does not collapse.
I will wait a while before adding more, any good news is likely to be incremental and gradual, bad news could be sudden. There is no rush.

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TSLA $300 is still holding, and is a good base. … I will wait a while before adding more, any good news is likely to be incremental and gradual, bad news could be sudden. There is no rush.

TSLA was up $9 (3%) today, probably on the news that non-employees are being invited to configure today, with deliveries expected in 4 weeks. So far, volume is low, but some quality bars were presumably passed in order for the general public to be getting vehicles. A number of sites (Reddit, TMC, etc.) are keeping track of configurations, so watching those may give us an insight into how quickly Tesla is ramping up. TSLA may move in tandem with production these next few months.