Author Topic: Is Tesla a good investment?  (Read 38117 times)

Telecaster

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Re: Is Tesla a good investment?
« Reply #300 on: January 14, 2020, 02:16:52 PM »
Growth stocks are always valued at future growth or else it wouldn't be investing.

Could Tesla fall short of expectations and future value, sure.

I don't buy the comparison to the dot-com bubble. While part of Tesla's valuation is based on software, they are first and foremost and manufacturing company for transportation, energy storage, and renewable energy products. There is intrinsic value to their manufacturing facilities, patents, inventory, supercharger network, etc. None of which you had with the insane dot-com bubble.

Where is the risk in a company that is selling every battery pack and vehicle it makes at a healthy margin with no competition in sight?

New ATH today, currently $544/share.

Making money while helping us transition to a sustainable energy economy and creating well-paid manufacturing jobs.  Has there ever been a better win-win-win?

All companies are valued on the prospect of future earnings, right?  Growth stocks typically enjoy a higher multiple because presumably they will grow faster.   At some point, Telsa will become a mature company, like say, GM or Ford and its growth rate will necessarily slow down.    However, it is already valued like GM and Ford combined, but with none of the profits.   That is one helluva headwind.   

I was careful to say "dot com survivors."   Many perfectly fine companies with solid business models got spun up in the bubble too.   Companies like Apple, Amazon, Ebay, Cisco Systems, Microsoft, etc.   Microsoft, for example, had a dominating lead in operating systems (still does) and other software, and made healthy profits.     Its stock price did not return to the dot com high until about 2015.   Similarly Cisco Systems.   Cisco invented the LAN, its products were ubiquitous, and had billions in revenue prior to the bust.     Cisco stock has still not returned to its dot com high.   

In short, a compelling, exciting company by itself doesn't justify a high stock valuation.   Tesla has a great story, but has yet to record an annual profit.  Companies with great stories and no profits are what defined the dot com bust. 

lemonlyman

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Re: Is Tesla a good investment?
« Reply #301 on: January 14, 2020, 03:09:48 PM »
I thought Tesla was risky until recently. Now I think it's as close to a cinch with a growth company as you can get.

1. Strong brand
2. Huge technology moat
3. Charging infrastructure moat
4. Strong US demand (4-11 weeks wait in the US right now)
5. Shanghai factory ramping in the largest auto market in the world
6. Germany factory in the works for 2021
7. Wrights Law applying to EV manufacturing leading to 25% margins by the end of 2020 (*Sam Korus)
8. Budding multiple income streams in insurance, premium internet, apps, skateboard licensing, energy credits
9. Tesla Energy in California where all new houses built have mandated solar or at least source solar.
10. OEM after OEM EV offerings have been less than adequate including future models not yet released. It makes it more likely Tesla holds market share as worldwide EV sales grow.
11. Hinted for battery investor day that they have a million mile battery and a path to produce a TWh of batteries.
...12. The pot of gold at the end of the rainbow: Tesla Network. Its income potential is so high that projections are ridiculous by default. Might as well write off that potential all together and focus on the core business.

2019 was a proving year for the company and they knocked it out of the park by the end.


All companies are valued on the prospect of future earnings, right?  Growth stocks typically enjoy a higher multiple because presumably they will grow faster.   At some point, Telsa will become a mature company, like say, GM or Ford and its growth rate will necessarily slow down.    However, it is already valued like GM and Ford combined, but with none of the profits.   That is one helluva headwind.   

I was careful to say "dot com survivors."   Many perfectly fine companies with solid business models got spun up in the bubble too.   Companies like Apple, Amazon, Ebay, Cisco Systems, Microsoft, etc.   Microsoft, for example, had a dominating lead in operating systems (still does) and other software, and made healthy profits.     Its stock price did not return to the dot com high until about 2015.   Similarly Cisco Systems.   Cisco invented the LAN, its products were ubiquitous, and had billions in revenue prior to the bust.     Cisco stock has still not returned to its dot com high.   

In short, a compelling, exciting company by itself doesn't justify a high stock valuation.   Tesla has a great story, but has yet to record an annual profit.  Companies with great stories and no profits are what defined the dot com bust. 


Tesla is riding a global EV demand curve up and a manufacturing cost curve down in a much more capital intensive industry than any dot com company. That creates moat. Cisco had a $300 billion market cap on $12 billion in revenue and $2 billion in profits in 2000 or 161x on earnings. I don't think just earnings defined that bubble. It's now a $200 billion market cap with $50 billion in revenue and $11 billion in earnings. Tesla has a path to $75 billion in revenue in 2022 with 25% margins just in their EV sales. Let's say 20% net with an 18x multiple (like Cisco) would be $270 billion market cap in 2022.

aspiringnomad

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Re: Is Tesla a good investment?
« Reply #302 on: January 14, 2020, 03:53:12 PM »
Companies with great stories and no profitspath to profitability are what defined the dot com bust.

FTFY. Stock prices should reflect the present value of expected future cash flows. If the market were concerned primarily with past profits, GE would still be the most valuable company in the world.

In my opinion, the dot com bubble is not instructive here, other than maybe AMZN dropping from $86 to $10 in the widespread panic, and the importance of keeping a long-term perspective. Tesla will continue to build its moats, reinvesting cash flow rather than booking maximum profit as it sees fit to do so. As a long-term investor, I still don't care about profits right now. I care about them building for the future. Speaking of moats, I'd add Musk himself as one. Setting aside the genius it takes to start a rocket company that lands boosters from scratch, his access to cutting edge technology via that rocket company can also be an asset to Tesla and one that other car companies can't really replicate. An example is Starship's cold-rolled stainless steel body inspiring the Cybertruck's exoskeleton.

ChpBstrd

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Re: Is Tesla a good investment?
« Reply #303 on: January 14, 2020, 09:53:01 PM »
Companies with great stories and no profitspath to profitability are what defined the dot com bust.

FTFY. Stock prices should reflect the present value of expected future cash flows. If the market were concerned primarily with past profits, GE would still be the most valuable company in the world.


I think what @Telecaster was saying is that it doesn't matter if a company has a path to profitability and spectacular growth, like Cisco did in 2000, if you buy it at a PE ratio so high that even if things go spectacularly well you'll lose, like investors in Cisco did.

I.e. As investors, we need our own path to profitability!

aspiringnomad

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Re: Is Tesla a good investment?
« Reply #304 on: January 14, 2020, 10:29:23 PM »
Companies with great stories and no profitspath to profitability are what defined the dot com bust.

FTFY. Stock prices should reflect the present value of expected future cash flows. If the market were concerned primarily with past profits, GE would still be the most valuable company in the world.


I think what @Telecaster was saying is that it doesn't matter if a company has a path to profitability and spectacular growth, like Cisco did in 2000, if you buy it at a PE ratio so high that even if things go spectacularly well you'll lose, like investors in Cisco did.

I.e. As investors, we need our own path to profitability!

Ha, I think I remember that Cisco was briefly the world's largest company by market cap. If that were the case here and now for Tesla I would have to sell and wait for the correction. But I'm far less concerned about Tesla having a higher market cap than the combined value of GE and Ford, two competitors that at this point are mostly just squeezing profits out of their legacy factories producing legacy technology. IMO, it's a far cry from thinking that a router maker would take over the world, but sure, I agree that Tesla will have to navigate plenty of execution risk to make good on its current valuation, let alone any further appreciation.

Telecaster

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Re: Is Tesla a good investment?
« Reply #305 on: January 15, 2020, 12:02:11 PM »
I think what @Telecaster was saying is that it doesn't matter if a company has a path to profitability and spectacular growth, like Cisco did in 2000, if you buy it at a PE ratio so high that even if things go spectacularly well you'll lose, like investors in Cisco did.

I.e. As investors, we need our own path to profitability!

Just so.  It is entirely possible for a great company to be a lousy investment.  The final returns are dependent upon the initial price. 

Let's do a thought experiment.  Let's assume that in 20 years TSLA will be a mature, profitable company that is a leader in its industry.  Similar to say, Microsoft.   Microsoft has a P/E of 30.  Great company.  Global leader, makes tons of money, just like we're hoping for TSLA.   Now, lets calculate how fast earnings per share need to grow over the next 20 years for TSLA to get to a P/E of 30.   I'll leave that exercise for the reader (it is simple enough to do, but make your own assumptions and see for yourself).   Suffice to say, earnings per share would have to grow at almost a literally unbelievable rate for 20 years, just to justify today's stock price. 

lemonlyman

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Re: Is Tesla a good investment?
« Reply #306 on: January 15, 2020, 03:05:17 PM »
Just so.  It is entirely possible for a great company to be a lousy investment.  The final returns are dependent upon the initial price. 

Let's do a thought experiment.  Let's assume that in 20 years TSLA will be a mature, profitable company that is a leader in its industry.  Similar to say, Microsoft.   Microsoft has a P/E of 30.  Great company.  Global leader, makes tons of money, just like we're hoping for TSLA.   Now, lets calculate how fast earnings per share need to grow over the next 20 years for TSLA to get to a P/E of 30.   I'll leave that exercise for the reader (it is simple enough to do, but make your own assumptions and see for yourself).   Suffice to say, earnings per share would have to grow at almost a literally unbelievable rate for 20 years, just to justify today's stock price.

$17.20 EPS or $3.2 billion in earnings. PE is not a good metric. It varies wildly even among companies in the same industry. Look at Amazon's. Regardless, I think it'll take way less than 20 years to achieve that. I wrote a path to above that in 2022.

aspiringnomad

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Re: Is Tesla a good investment?
« Reply #307 on: January 15, 2020, 07:46:14 PM »
I think what @Telecaster was saying is that it doesn't matter if a company has a path to profitability and spectacular growth, like Cisco did in 2000, if you buy it at a PE ratio so high that even if things go spectacularly well you'll lose, like investors in Cisco did.

I.e. As investors, we need our own path to profitability!

Just so.  It is entirely possible for a great company to be a lousy investment.  The final returns are dependent upon the initial price. 

Let's do a thought experiment.  Let's assume that in 20 years TSLA will be a mature, profitable company that is a leader in its industry.  Similar to say, Microsoft.   Microsoft has a P/E of 30.  Great company.  Global leader, makes tons of money, just like we're hoping for TSLA.   Now, lets calculate how fast earnings per share need to grow over the next 20 years for TSLA to get to a P/E of 30.   I'll leave that exercise for the reader (it is simple enough to do, but make your own assumptions and see for yourself).   Suffice to say, earnings per share would have to grow at almost a literally unbelievable rate for 20 years, just to justify today's stock price.

Yeah, I suppose it's different for me since I first invested in 2013. I'm up a significant amount including the additional shares I bought last year. It doesn't make sense for me to sell for tax purposes, and as I said, this is probably the most fun company to follow in my lifetime (maybe in the history of companies?) and owning a tiny slice of it gives me a decent excuse to follow it daily.

If you are interested in a detailed valuation model, ARK Invest posted theirs publicly to GitHub during last year's stock swoon. They're notable bulls, and I don't think their bull case at $6k/share has any shot in hell of coming to fruition by 2023. It's largely based on the fleet of robotaxis panning out starting in 2021, which I am...uh...not banking on. On the other hand, it seems very likely to me that Tesla will overshoot their bear case which values the company at $597/share in 2023 (certainly not a great CAGR if you're buying in now, but not the bankwuptcy! the shorts constantly claim is imminent). The bear case includes no revenue from autonomy and assumes Tesla's market share of EV sales slips to just 6%, in addition to other overly conservative assumptions. Strangely, neither valuation model seems to include Tesla's energy generation and storage business which Musk has said could eventually rival automotive in size.

theoverlook

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Re: Is Tesla a good investment?
« Reply #308 on: January 16, 2020, 02:35:29 PM »
   Suffice to say, earnings per share would have to grow at almost a literally unbelievable rate for 20 years, just to justify today's stock price.
Of course the growth rate would sound unbelievable, because going from zero to any positive value leads to unbelievable sounding growth rates. But they sold almost a half a million cars last year at what $50k - $70k average cost? $35bn in revenue doesn't take much of a cost cutting to result in large net profits. $3bn in profits doesn't seem even unlikely in the next few years.

Kroaler

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Re: Is Tesla a good investment?
« Reply #309 on: January 19, 2020, 12:14:26 PM »
I didn't read all the comments - But I'm pretty sure I'll end up regretting not taking the Tesla gigafactory job I was offered with a 40k Tesla stock equity in 2018.

Seems it's up pretty good even from that short time ago.

aspiringnomad

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Re: Is Tesla a good investment?
« Reply #310 on: January 19, 2020, 11:36:13 PM »
My 68-year-old dad just ordered a Model Y and is so excited about it he emailed everyone in the family the order specs. I don't remember him so much as telling anyone about a prior car purchase. Ipso facto, good investment :)