Why now for TESLA?

[joenorm]

Unfortunately I don't have a single share of Tesla, but like everyone else in my position, of course I wish I did.

What I would like to understand better is why Tesla skyrocketed now? What was significant about 2020 for them as a business?

Or is it simply investor hysteria that got them where they are. I have read all the threads arguing for or against them as a company in general but that almost seems besides the point now.

It's as if a snowball gets rolling and pretty soon you're the richest guy in the world without explanation.

I am asking because like many I am fascinated by this. And like most, have NO IDEA how it can happen. Normal people are retiring on their earnings over a few years. That's pretty wild.

I admit I have only the most basic understanding of stocks, business, etc. but I can understand a company like Amazon gaining wealth. They sell literally every piece of junk to the entire world. I can see how that could add up. But Tesla sells luxury fringe market cars and plays with rockets. I don't get it.

Please help me understand.

[HPstache]

You dont have any S&P500 Index funds or Total market index funds?

[zoro]

The share price of Tesla will eventually reflect the underlying business. At the moment we are in a speculative bubble and the stock price has become totally disconnected. The narrative will change and people will realize facts - such as Tesla has never and will never make a profit selling cars. Their share in Europe is collapsing (see picture) VW handily sold more battery electric vehicles last year in Europe. It is a shame the S&P ctte allowed it in the index, as the collapse will be spectacular and cost a lot of unsophisticated investors 1.7% of their retirement funds.

[Roland of Gilead]

Its called a bubble, we had one in tech in the late 1990s.

At this point I really doubt Tesla will drop to zero because there are many many people who will not sell for a big loss and also they did manage quite a bit of capital raise for the company.  I do think that some day some person is going to sit down and realize that the moat around EV is not quite as massive as current investors think.  Right now Tesla is at a valuation that assumes all other car manufacturers go bankrupt.

[joenorm]

You dont have any S&P500 Index funds or Total market index funds?

Noted. Yes, I do.

[zoro]

Its called a bubble, we had one in tech in the late 1990s.

At this point I really doubt Tesla will drop to zero because there are many many people who will not sell for a big loss and also they did manage quite a bit of capital raise for the company.  I do think that some day some person is going to sit down and realize that the moat around EV is not quite as massive as current investors think.  Right now Tesla is at a valuation that assumes all other car manufacturers go bankrupt.

Yes they can raise cash on the way down, but it can easily decrease 95% from here. Their business model is broken, they are a cash incinerating, small volume car manufacturer with bad quality issues.
They have no moat. If you ask many people there are so many misperceptions about the company typical of a bubble. Like the batteries - they don’t even make their own- they have no battery technology - they buy them from Panasonic and CATL - who will happily sell them to any other manufacturer.  They only barrier to entry they have is they they are the only company willing to lose money Making electric cars. The moment it becomes profitable through subsidy then the OEM companies jump in and crush their market share - this is why Tesla’s market share has collapsed from 33% to 10% this year.

[maizefolk]

I admit I have only the most basic understanding of stocks, business, etc. but I can understand a company like Amazon gaining wealth. They sell literally every piece of junk to the entire world. I can see how that could add up. But Tesla sells luxury fringe market cars and plays with rockets. I don't get it.

Please help me understand.

Well one thing to keep in mind is that Telsa has never built or launched a rocket. That's SpaceX an entirely separate company that is also affiliated with Elon Musk.

Tesla's stock price is so high because:

1) When a stock goes up fast enough for a while it becomes self sustaining as people who see it going up start buying it in the hopes it'll continue to go up and that buying drives up the price, making it self sustaining ... up to a point. This is a bubble.

2) In the last two years it has become quite clear that A) electric cars are going to be widely adopted (California has implemented a complete ban on the sale of ICE cars in 2035, as have entire countries elsewhere in the world) B) Tesla can not only build electric cars, but actually turn a profit doing so. They've made (some) profit for five quarters running now, and seven of the last nine, after being a perpetual money loser for years before that.

Like some other posters I suspect the "moat" protecting Tesla from having to trim profit margins to remain competitive isn't all that secure. But two years ago there there was a non-trivial risk Tesla might go bankrupt and disappear. Now the argument is whether they will hit crazy high grown targets or remain a small/midsized car company that made modest per car profits.

[bacchi]

2) In the last two years it has become quite clear that A) electric cars are going to be widely adopted (California has implemented a complete ban on the sale of ICE cars in 2035, as have entire countries elsewhere in the world) B) Tesla can not only build electric cars, but actually turn a profit doing so. They've made (some) profit for five quarters running now, and seven of the last nine, after being a perpetual money loser for years before that.

Like some other posters I suspect the "moat" protecting Tesla from having to trim profit margins to remain competitive isn't all that secure. But two years ago there there was a non-trivial risk Tesla might go bankrupt and disappear. Now the argument is whether they will hit crazy high grown targets or remain a small/midsized car company that made modest per car profits.

The EU has a ban on ICE only cars by 2030.

As you stated, though, the moat isn't that high. Renault sells the most EV cars in Europe and VW will probably sell more next year. When reality hits, Tesla will drop like an anvil and eventually be bought by a competitor.

Re: "Normal people are retiring on their earnings over a few years." We won't see many of these people retire permanently because they didn't sell and diversify in time.

[maizefolk]

As you stated, though, the moat isn't that high. Renault sells the most EV cars in Europe and VW will probably sell more next year. When reality hits, Tesla will drop like an anvil and eventually be bought by a competitor.

You may well be right.

Yet, Tesla doesn't seem to be having any trouble selling every car it can manufacture so far. Until that stops being the case I'd be very reluctant to put money on what Telsa's ultimate share of the post-electrification auto market will end up being. Although I'd also be very reluctant to invest in the company personally, rather than via the index funds where I probably already own a small amount of it.

If my early stock picking days taught me anything, it was that I'm both bad at picking winners AND bad at picking losers. So now I buy index funds and sit back to enjoy the show.

[mistymoney]

How on earth did we need a 4th thread about tesla valuation??

[waltworks]

Something like 75% of Tesla's market value is just speculation/FOMO. Something like 10-15% is betting on future domination of big new (EVs, batteries, self driving, etc) industries that might or might not happen.

The remainder (5-10%) is vaguely in the ballpark of what the company would be worth if it wasn't Tesla and (if I was a stock picker) what I'd be willing to pay for it.

-W

[maizefolk]

Something like 75% of Tesla's market value is just speculation/FOMO. Something like 10-15% is betting on future domination of big new (EVs, batteries, self driving, etc) industries that might or might not happen.

The remainder (5-10%) is vaguely in the ballpark of what the company would be worth if it wasn't Tesla and (if I was a stock picker) what I'd be willing to pay for it.

-W

That breakdown sounds about right to me. FWIW, 10% of Tesla's current market cap would make it worth about as much as Ford. Tesla makes a lot fewer cars at the moment, but it does have a compelling growth story while Ford does not and doesn't have a legacy pension problem, while Ford does.

So 5-10% of Telsa's current value seems reasonable for a high growth but still comparatively small automaker.

[bthewalls]

I sold most of my Tesla recently...probably too soon

[zoro]

I sold most of my Tesla recently...probably too soon

It maybe tough watching it go up a bit- in a years time
When it is trading for 5% of its current value - you can annoy people with your smart move forever.

Incidentally Isaac Newton who bought into the South sea company sold his shares for a massive profit as the South Sea bubble formed. He couldn’t stand all his friends getting rich etc and bought back in at the top of the bubble, and it wiped out his fortune - hence his quote about calculating the motion of the heavens but not the madness of men.

Sell the thing and never look at it again. The price has no basis in reality. They pop, they always do. You’ll never pick the top, but you can be smug forever knowing you made a profit.

[ChpBstrd]

1) Because a lot of people got stimulus checks they didn’t need.
2) Because the strategy of buying a hot stock and setting a stop-loss has worked for so many years, so it’ll probably work again.

[Sid Hoffman]

California has implemented a complete ban on the sale of ICE cars in 2035, as have entire countries elsewhere in the world) B) Tesla can not only build electric cars, but actually turn a profit doing so.

California also mandated a fully renewable electric grid for the state by 2045 and will need massive electric storage in order to make that work. As batteries continue to come down in cost, they will be an increasingly viable method of smoothing out the highs and lows of power output from renewable energy over the course of a day, week, and through entire seasons. The rest of the world may be headed down the same path if the Paris Agreement is any kind of leading indicator of where we're headed. Tesla's making more large scale batteries than anyone and the whole point of purchasing Solar City was to bail out Musk's brother, yes, but also to a limited degree to push the angle that they wanted to be a power and energy company too, not just an automaker.

Basically the current valuation requires that absolutely all the stars align just right in order for it to make sense, but apparently enough people believe that's exactly what will happen for the company to be valued the way it is. Musk recently said he wanted the company to be producing 20 million cars a year in another decade. That sounds comical when the 3 largest automakers on Earth each only make about 10 million cars a year but again, for him to state that's a goal is part of where the valuation comes from. He doesn't want to just compete with GM, Toyota, and VW. He wants to eclipse them, and that's just the automaker portion of Tesla. If they're selling even more batteries for stationary power storage than are going into 20 million cars then it becomes increasingly clear what the value comes from.

Now whether or not any of that is possible from an automaker that "only" sold about 0.5 million cars last year some 8 years after the launch of their first mass produced car, the Model S (the Roadster was still effectively hand made, thus doesn't count as mass produced) would be a seemingly impossible growth curve. Musk seems to specialize in the impossible though, so I guess time will tell. The fact that they're already doing it at a profit while it's unclear if any other traditional automaker's EVs are profitable is also huge.

[ColoradoTribe]

Tesla experts like the ones on this thread have been telling me to sell my shares since 2013. If I’d listened to them I would have missed out on 2 million in (paper) gains. (I know, I know, it's going to zero soon). The stock, the business and the founder are all lightning rods for various reasons. Lot of irrational hate out there. Then there’s also the multiple trillion dollar industries being disrupted and doing what they can to trash Tesla. Tesla traded nearly sideways for six years (2013-2019). During that time Tesla was nearly doubling production each year, rolling out more superchargers, innovating, building their FSD database from a fleet of vehicles, rolling out new models, lower the price of the vehicles, etc. During that 6 year stretch Tesla was the most shorted US equity and the stock was suppressed and heavily manipulated. So, in my mind, a large portion of the recent run was the Stockmarket realizing and catching up with all the progress and growth in the company the past six years (back payment). The other part of the recent take off is the S&P inclusion. This caused a lot of forced buying by both the S&P index funds and those funds benchmarked to the S&P (24% of the available float). When you have forced buying and few willing sellers among the institutions and retail investors holding the stock the price goes up. You can call that a bubble, but since these funds will need to buy and hold to be properly weighted to the S&P not sure you can call it a bubble. I'm sure the experts on here will disagree.

Keep in mind also that the auto “bigs" are still selling their compliance EVs at a loss or break even at best. To sell their EVs profitably, they’ll need to scale production, but to do that they need batteries. Batteries that don’t currently exist. Tesla is production constrained. And the production limiting factor is not so much how many cars they can build, but how many batteries they can produce in partnership with Panasonic and in house. It's very naive to think GM or Ford will simply flip a lever and switch from producing ICE vehicles to EVs. Its especially naive to think dealerships will want to sell these new EVs and put their profitable ICE maintenance and service departments out of business. The dealers don’t want to sell cars that don’t need oil changes, transmission fluid, spark plugs, mufflers, catalytic converters, radiator flushes, replacement belts, etc.  GM and Ford stockholders want their dividends. They don’t want to hear how GM and Ford are going to have unprofitable quarters while they sink billions into developing new, ground up EVs, converting lines, lining up new suppliers, building charging networks, retraining employees, and most importantly, sink billions into building their own battery factories to compete with Tesla. Why would GM and Ford investors tolerate that? If they wanted to invest in an EV company, why would they suffer through the transition with GM and Ford when they could just buy stock in a pure play, industry leader, like Tesla right now. Maybe that’s why Tesla is on a tear. Smart money moving from oil and gas, utilities, and traditional auto to Tesla? Nah, couldn’t be...

Without spending a single dime on advertising or marketing, Tesla sells every car they make before it rolls off the line. They don’t have dealer middlemen. They occasionally offer free supercharging for a year or similar incentives but do not resort to rebates and other kimmicks to sell cars. The day Tesla has to advertise to sell a car is the day I’ll consider unloading some shares.

The energy business will be as big or bigger than the car business. The demand is there for Tesla storage products as well, but again Tesla is battery cell constrained and is currently prioritizing vehicles for the cells, though the storage business is ramping. Tesla is no more just a car manufacturer than Amazon just sells books.

[zoro]

There are quite a few probable factual errors in the thesis in your post.
Your argument seems To rest on the stock price has gone up so much and I’ve made so much money I must be right.  I’ve been around long enough to have seen this before with AOL, CISCO, ENRON and VALEANT. Unfortunately it means you likely won’t sell your stock before it returns to the intrinsic value of the business. Early bulls are usually hurt the worst due to this social proof, and often buy more in the way down.
Tesla is not production constrained. Their own 10k and earnings state they have current capacity of 813k cars yet they only sold 499kblast year after 7 price cuts in China, their market share dropped to 10% and in EU their share dropped to 10% also.
pems are not producing compliance cars the id3 which is outselling Tesla in Europe is a nicer quality car - made properly with the Quality defects associated with Tesla.
Tesla has no battery technology - they buy the from Panasonic- so it’s hard to see how they have any business in power walls long term.
Tesla remains a money losing car operation, burning cash, with limited R and D.
Also the no advertising is also not true. Tesla’s own latest 10k shows they spent 68Million on “marketing and advertising”
Anyhow good luck with your investment, and preserving your wealth.

[bwall]

The energy business will be as big or bigger than the car business. The demand is there for Tesla storage products as well, but again Tesla is battery cell constrained and is currently prioritizing vehicles for the cells, though the storage business is ramping. Tesla is no more just a car manufacturer than Amazon just sells books.

Do you know if Tesla is planning on using battery power for air flights? The potential is enormous. I don't know if they're working on it.

Tesla is much more than a car company, as the valuation shows.

I have zero shares. Over the past 7 years I've looked at the company intermittently and always given it a pass. I recently reviewed my reasons for not investing at those times and I still think they were valid at the time. The stock still soared. I have no regrets--it's a rollercoaster I don't want to be on.

[waltworks]

@ColoradoTribe, keep in mind that some of us (ie, me) think Tesla is an awesome company and are rooting for them to disrupt/dominate multiple markets - while still thinking they are hilariously overvalued.

I also think it's funny that there are so many people with apparently irrational hatred of Tesla, and it's fun schadenfreude to see the stock price skyrocket. That doesn't mean I think the value is justified, though. For every Tesla hater there's a Tesla diehard who thinks the company should be worth $100 trillion or something silly, or can't actually come up with what the value should be at all and isn't even interested in evaluating the company using something silly like actual numbers. These folks essentially believe that Tesla's value will keep rising rapidly, forever.

Neither position is rational. Refusing to buy stock in the company or saying that it's overvalued is not the same as being against EVs or hating Elon Musk, or hoping that Tesla fails. It's just math, and the simple recognition that Tesla will need essentially *everything* to go *perfectly* (along with all competitors failing pretty much completely) for the next decade to justify the current value.

-W

[ColoradoTribe]

The energy business will be as big or bigger than the car business. The demand is there for Tesla storage products as well, but again Tesla is battery cell constrained and is currently prioritizing vehicles for the cells, though the storage business is ramping. Tesla is no more just a car manufacturer than Amazon just sells books.

Do you know if Tesla is planning on using battery power for air flights? The potential is enormous. I don't know if they're working on it.

Tesla is much more than a car company, as the valuation shows.

I have zero shares. Over the past 7 years I've looked at the company intermittently and always given it a pass. I recently reviewed my reasons for not investing at those times and I still think they were valid at the time. The stock still soared. I have no regrets--it's a rollercoaster I don't want to be on.

My recollection is Elon has stated he thinks electric powered flight will be possible in the not to distant future. Key is the energy density of the batteries and getting to a workable weight to energy ratio. Not an expert on this matter, but it sounded more a matter of when and not if.

[ColoradoTribe]

@ColoradoTribe, keep in mind that some of us (ie, me) think Tesla is an awesome company and are rooting for them to disrupt/dominate multiple markets - while still thinking they are hilariously overvalued.

I also think it's funny that there are so many people with apparently irrational hatred of Tesla, and it's fun schadenfreude to see the stock price skyrocket. That doesn't mean I think the value is justified, though. For every Tesla hater there's a Tesla diehard who thinks the company should be worth $100 trillion or something silly, or can't actually come up with what the value should be at all and isn't even interested in evaluating the company using something silly like actual numbers. These folks essentially believe that Tesla's value will keep rising rapidly, forever.

Neither position is rational. Refusing to buy stock in the company or saying that it's overvalued is not the same as being against EVs or hating Elon Musk, or hoping that Tesla fails. It's just math, and the simple recognition that Tesla will need essentially *everything* to go *perfectly* (along with all competitors failing pretty much completely) for the next decade to justify the current value.

-W

Obviously not everyone or even most, who like yourself simply chose not to invest in Tesla, are “haters”. You seem quite reasonable in fact.The folks I count as haters, as evidenced on this board, are those we have no stated financial interest in the company but will dedicate lots of time and effort on an internet railing against Elon, Tesla, naive investors, valuation, and any and every other perceived, real or made up issue with the company and its mission. Don’t know about you, but I don’t spend much time worrying myself with companies in which I have no stake. If the “haters” are so dead certain they are right and Tesla is just a giant bubble then they should stop posting about it and open up a large short position.

[waltworks]

Energy density of aviation fuel is on the order of 100 times higher than existing Li-Ion batteries. So there's a long way to go, incremental improvements of current won't cut it or even come close.

That said there are a few electric planes out there (that can carry a human, I assume we're not talking about little camera drones) with VERY limited range. But you are not going to be flying around the world on an electric plane anytime soon.

BBC did a good article on the subject:
https://www.bbc.com/future/article/20200617-the-largest-electric-plane-ever-to-fly

-W

[waltworks]

Ok, ColoradoTribe, I have a question for you. You and I both like Tesla, but we disagree on what the stock should be worth. I think it should be worth in the ballpark of 1/10 to 1/5 of it's current price (ie, worth 100-200% the value of Ford) depending on your level of optimism.

Clearly you are continuing to hold your stock (or perhaps are continuing to buy?) so you feel the value is higher. If you had to assign Tesla a value, what would it be?

-W

[Paper Chaser]

Energy density of aviation fuel is on the order of 100 times higher than existing Li-Ion batteries. So there's a long way to go, incremental improvements of current won't cut it or even come close.

That said there are a few electric planes out there (that can carry a human, I assume we're not talking about little camera drones) with VERY limited range. But you are not going to be flying around the world on an electric plane anytime soon.

BBC did a good article on the subject:
https://www.bbc.com/future/article/20200617-the-largest-electric-plane-ever-to-fly

-W

Liquid fuels (and their weight) are also consumed in use, while batteries are not. An empty battery weighs just as much as a fully charged one. So if a current plane is thousands of pounds lighter at the end of a trip than it is at the start, it can become more efficient the longer it travels but a battery powered aircraft wouldn't have that advantage.
Planes are also designed to be far lighter when they land than when they take off (could be as much as 200k lbs). That's a major difference in the forces the airframe sees when it hits the ground, so the airframes may need to be heavier as well to acommodate the heavy batteries, or maintenance costs/replacement frequency will be higher.

[ColoradoTribe]

There are quite a few probable factual errors in the thesis in your post.
Your argument seems To rest on the stock price has gone up so much and I’ve made so much money I must be right.  I’ve been around long enough to have seen this before with AOL, CISCO, ENRON and VALEANT. Unfortunately it means you likely won’t sell your stock before it returns to the intrinsic value of the business. Early bulls are usually hurt the worst due to this social proof, and often buy more in the way down.
Tesla is not production constrained. Their own 10k and earnings state they have current capacity of 813k cars yet they only sold 499kblast year after 7 price cuts in China, their market share dropped to 10% and in EU their share dropped to 10% also.
pems are not producing compliance cars the id3 which is outselling Tesla in Europe is a nicer quality car - made properly with the Quality defects associated with Tesla.
Tesla has no battery technology - they buy the from Panasonic- so it’s hard to see how they have any business in power walls long term.
Tesla remains a money losing car operation, burning cash, with limited R and D.
Also the no advertising is also not true. Tesla’s own latest 10k shows they spent 68Million on “marketing and advertising”
Anyhow good luck with your investment, and preserving your wealth.

Yikes, talk about factual errors.

You do realize Tesla built out their China factory in 2020 and ramped production of Model Y throughout the year. So, while they exited the year at a production RATE ofaround 800k, they did not produce nor have the ability to produce 800k vehicles in 2020.

Bears love to point to one country or region to falsely claim Tesla sales are dropping. Tesla sells every car they make, for a healthy margin, before it rolls off the line. Europe has the highest EV adoption and Tesla currently doesn’t offer an economy EV, so not shocking that Tesla’s share of that market decreased as the size of the European pie rapidly grows. The only metrics that matter in this rapid growth and expansion phase is global market share and total sales. Tesla has nearly doubled production and sales YOY for the past six years. And for during each of those past six years, someone like yourself has informed me that Tesla is demand constrained and that demand is collapsing. Who’s been right so far?

The majority of Tesla’s battery cells are manufactured by Panasonic, but Panasonic is partnered to Tesla and the batteries are built at Tesla’s gigafactory. I don’t see this as an issue and I’m not worried that Panasonic will want to partner with anyone else but the leader in EV and energy storage.

In fact, Tesla does have their own proprietary battery technology, which is why Tesla’s battery cells have the highest energy density per cost and their vehicles have industry leading range and the lowest degradation rates. Tesla does manufacturer their own battery cells, the new 4680 cells.  There’s a line rolling them off in California. These new cells will be manufactured in mass at the Nevada gigafactory in coming years (~2). The battery tech announced at battery day in 2020 will improve the efficiency of these cells over current cells by up to 56%. Nothing to see here.

Anyway, I appreciate the warning and will hold you blameless when my position goes to zero.

[ColoradoTribe]

Energy density of aviation fuel is on the order of 100 times higher than existing Li-Ion batteries. So there's a long way to go, incremental improvements of current won't cut it or even come close.

That said there are a few electric planes out there (that can carry a human, I assume we're not talking about little camera drones) with VERY limited range. But you are not going to be flying around the world on an electric plane anytime soon.

BBC did a good article on the subject:
https://www.bbc.com/future/article/20200617-the-largest-electric-plane-ever-to-fly

-W

As mentioned, not an expert on this matter, as I don’t believe Tesla will be pursuing this as part of their business model anytime soon. Elon said electric flight, agree he’s likely not talking commercial flight, but personal, small craft as a relatively near term possibility as energy density improves.

[waltworks]

So how much do you think the company should be worth? Throw a number out there!

-W

[MustacheAndaHalf]

I sold most of my Tesla recently...probably too soon

Michael Burry, who predicted and profited off the 2008 Financial Crisis, has been getting louder about shorting Tesla.  That's not a bad time to exit, in my opinion.  Had I bought Tesla, Burry shorting it would definitely have made me rethink it.

---
As to other posts ...

The world's best expert on Tesla, it's CEO, has said the stock was overvalued last year on twitter.  You can like (or run) the company, and still think the stock price is a problem.  Look at their price/earnings (1600), price/book (48), or price/sales (29):
https://finance.yahoo.com/quote/TSLA/

The factory in China, and production scaling up at the same pace are both great ... but they don't explain an 8x increase in price.  Tesla currently IS the top 10: it is worth more than the other top 9 carmakers combined.
https://www.cnbc.com/2020/12/14/tesla-valuation-more-than-nine-largest-carmakers-combined-why.html

[ColoradoTribe]

I sold most of my Tesla recently...probably too soon

Michael Burry, who predicted and profited off the 2008 Financial Crisis, has been getting louder about shorting Tesla.  That's not a bad time to exit, in my opinion.  Had I bought Tesla, Burry shorting it would definitely have made me rethink it.

---
As to other posts ...

The world's best expert on Tesla, it's CEO, has said the stock was overvalued last year on twitter.  You can like (or run) the company, and still think the stock price is a problem.  Look at their price/earnings (1600), price/book (48), or price/sales (29):
https://finance.yahoo.com/quote/TSLA/

The factory in China, and production scaling up at the same pace are both great ... but they don't explain an 8x increase in price.  Tesla currently IS the top 10: it is worth more than the other top 9 carmakers combined.
https://www.cnbc.com/2020/12/14/tesla-valuation-more-than-nine-largest-carmakers-combined-why.html

Ford at one point was probably worth as much as the 9 biggest livery stables combined despite cars only capturing 2% of the transportation market. Imagine the fools that bought into Henry Ford’s lunacy. Nothing will replace good, old-fashioned reliable horses for transportation!

Michael Burry initiated his short on Tesla weeks ago and is losing his shirt if he still holds it. Shorts have lost billions over the years, including the likes of Jim Chanos, but I’m sure the next expert to short Tesla will have it right.

[ColoradoTribe]

Ok, ColoradoTribe, I have a question for you. You and I both like Tesla, but we disagree on what the stock should be worth. I think it should be worth in the ballpark of 1/10 to 1/5 of it's current price (ie, worth 100-200% the value of Ford) depending on your level of optimism.

Clearly you are continuing to hold your stock (or perhaps are continuing to buy?) so you feel the value is higher. If you had to assign Tesla a value, what would it be?

-W

In most investors’ opinion you value a growth company and stock based on what you think it will be worth in 5 years. That’s why they call it investing and not purchasing. You purchase something based on a fair value today. It’s great to use PE ratio for a mature companies like Coca-Cola that pay a dividend, but why would anyone expect to pay current value for a company that’s nearly doubling each year?

Despite the competition that has been “coming any minute” for the past decade, I see no real competition to Tesla in the next five years. If anything, Tesla’s pace of innovation and infrastructure buildout is accelerating and widening their advantage. I don’t invest in Tesla based on FSD or robo taxies, though Tesla is already realizing FSD revenue. If level 5 autonomous is achieved then the sky is the limit, but conservatively, I expect Tesla to be worth in the neighborhood of $1,200 - $2,000 in five years. The middle case would represent a 20%/year return from the current stock price. Fairly conservative for a company that is increasing production by roughly 40% a year and has two factories coming on line in 2021.

And yes, I modestly bought the dip this morning.

[waltworks]

Ok, so at ~$1.5-2 trillion as you've predicted in 5 years, Tesla would be (barring antitrust problems) pretty much the entire world's auto industry, at least in terms of market cap.

If that's the end point you imagine, I guess I could see paying current prices for Tesla stock. But it's hard to wrap my brain around:
-ALL the existing automakers failing to compete *at all*. Seems extremely unlikely to me, but who knows.
-No new competitors starting up. Starting to build cars is hard, this is plausible but far from certain.
-Tesla ramping up to the point they can build ~100x their existing production. This could maybe be doable, though ramping up from very low levels is much easier than from where they're at now.
-World government all simultaneously abandoning their existing antitrust laws AND no longer protecting their domestic manufacturers through subsidies, tariffs, etc.

The world builds about 70 million cars a year. At a market cap of $2 trillion, if you want to have the company get to a normal mature P/E of, say, 20, you'd need to be making a profit of $100 billion a year, which seems pretty reasonably doable... if Tesla is the entire world's auto industry.

If it's "only" 1/10 of the world's auto industry (still a HUGE stretch in a 5 year timeframe) the numbers don't work at all.

Tthe car vs. horse thing is a bit of a stretch. Tesla is making really good (no argument) cars. But they're not making something that replaces cars and renders them obsolete to the point of uselessness. I could go buy a Tesla today, but it wouldn't let me do anything that my existing 2006 beater Kia doesn't do, though I'm sure I'd like it a lot better. It's not a teleporter or a magic carpet, it's just a car.

-W

[ChpBstrd]

Ok, so at ~$1.5-2 trillion as you've predicted in 5 years, Tesla would be (barring antitrust problems) pretty much the entire world's auto industry, at least in terms of market cap.

If that's the end point you imagine, I guess I could see paying current prices for Tesla stock. But it's hard to wrap my brain around:
-ALL the existing automakers failing to compete *at all*. Seems extremely unlikely to me, but who knows.
-No new competitors starting up. Starting to build cars is hard, this is plausible but far from certain.
-Tesla ramping up to the point they can build ~100x their existing production. This could maybe be doable, though ramping up from very low levels is much easier than from where they're at now.
-World government all simultaneously abandoning their existing antitrust laws AND no longer protecting their domestic manufacturers through subsidies, tariffs, etc.

I think the car vs. horse thing is a bit of a stretch. Tesla is making really good (no argument) cars. But they're not making something that replaces cars and renders them obsolete to the point of uselessness. I could go buy a Tesla today, but it wouldn't let me do anything that my existing 2006 beater Kia doesn't do, though I'm sure I'd like it a lot better. It's not a teleporter or a magic carpet, it's just a car.

-W

You left out at least 30% of office workers shifting to a WFH setup permanently, reducing wear and tear and demand for cars forever. A friend's employer just announced a program to let employees buy their office chairs from the building. Comcast is his Tesla, lol!

[bacchi]

-No new competitors starting up. Starting to build cars is hard, this is plausible but far from certain.

NIO is a good example. It's not only a Chinese homegrown challenger to Tesla but their latest sedan has a range of 625 miles.

[3toesloth]

Bears love to point to one country or region to falsely claim Tesla sales are dropping. Tesla sells every car they make, for a healthy margin, before it rolls off the line. Europe has the highest EV adoption and Tesla currently doesn’t offer an economy EV, so not shocking that Tesla’s share of that market decreased as the size of the European pie rapidly grows.
[/quote]
This seems to point out that Europe has produced cars that Tesla is unable to compete with. So not only has competition arrived but they are dominating. I have yet to hear an argument for Tesla that makes sense of these valuations. Anything they do can be replicated by the legacy makers, especially including selling at cost or below cost as they can subsidize sales themselves by the margins on their current car and truck lines. Only thing different with Tesla is they are subsidized by FCA, which is likely to taper off soon.

[Sid Hoffman]

My recollection is Elon has stated he thinks electric powered flight will be possible in the not to distant future. Key is the energy density of the batteries and getting to a workable weight to energy ratio. Not an expert on this matter, but it sounded more a matter of when and not if.

It's just an economic and regulatory question. Jet fuel has sulfur in it. If the government puts a 500% tax on Jet fuel then suddenly electric aviation makes a lot more sense, even if it costs 3x as much because Jet-A powered aviation could increase in cost by even more than 3x in that scenario. Or suppose we're up against a hard limit on fossil fuels and jet aircraft are entirely banned by the year 2050. At that point, again, even if a flight costs 10x as much, it will simply be rare, but if a 10x more expensive electric flight is the only possible way to get from L.A. to London in under 36 hours, then so be it, even if it requires 8 stops, for example. Supply and demand. If the government eliminates the supply of oil, then alternatives present themselves.

[ColoradoTribe]

Ok, so at ~$1.5-2 trillion as you've predicted in 5 years, Tesla would be (barring antitrust problems) pretty much the entire world's auto industry, at least in terms of market cap.

If that's the end point you imagine, I guess I could see paying current prices for Tesla stock. But it's hard to wrap my brain around:
-ALL the existing automakers failing to compete *at all*. Seems extremely unlikely to me, but who knows.
-No new competitors starting up. Starting to build cars is hard, this is plausible but far from certain.
-Tesla ramping up to the point they can build ~100x their existing production. This could maybe be doable, though ramping up from very low levels is much easier than from where they're at now.
-World government all simultaneously abandoning their existing antitrust laws AND no longer protecting their domestic manufacturers through subsidies, tariffs, etc.

The world builds about 70 million cars a year. At a market cap of $2 trillion, if you want to have the company get to a normal mature P/E of, say, 20, you'd need to be making a profit of $100 billion a year, which seems pretty reasonably doable... if Tesla is the entire world's auto industry.

If it's "only" 1/10 of the world's auto industry (still a HUGE stretch in a 5 year timeframe) the numbers don't work at all.

Tthe car vs. horse thing is a bit of a stretch. Tesla is making really good (no argument) cars. But they're not making something that replaces cars and renders them obsolete to the point of uselessness. I could go buy a Tesla today, but it wouldn't let me do anything that my existing 2006 beater Kia doesn't do, though I'm sure I'd like it a lot better. It's not a teleporter or a magic carpet, it's just a car.

-W

So, you assign no value to Tesla energy storage products, no revenue to FSD, no revenue for solar panels or roofs, no service revenue, no software or infotainment revenue, no supercharger network revenue, no Tesla insurance revenue, no revenue from Tesla semi, no ZEV credit revenue, etc.? You’re not seeing the full picture if all you see is traditional car manufacturer metrics. Tesla is going to build massive battery plants in the coming years and Elon has stated the energy storage business will be as big or bigger than the auto side. That's before solar roof and everything else in the pipeline. Tesla could be a major supplier of battery cells or pack to other manufacturers. Again, treating Tesla like a simple car company is analogous to saying Amazon only sells books a few years back.

[ColoradoTribe]

Bears love to point to one country or region to falsely claim Tesla sales are dropping. Tesla sells every car they make, for a healthy margin, before it rolls off the line. Europe has the highest EV adoption and Tesla currently doesn’t offer an economy EV, so not shocking that Tesla’s share of that market decreased as the size of the European pie rapidly grows.

This seems to point out that Europe has produced cars that Tesla is unable to compete with. So not only has competition arrived but they are dominating. I have yet to hear an argument for Tesla that makes sense of these valuations. Anything they do can be replicated by the legacy makers, especially including selling at cost or below cost as they can subsidize sales themselves by the margins on their current car and truck lines. Only thing different with Tesla is they are subsidized by FCA, which is likely to taper off soon.
[/quote]

If you say so it must be true.

[ColoradoTribe]

Ok, so at ~$1.5-2 trillion as you've predicted in 5 years, Tesla would be (barring antitrust problems) pretty much the entire world's auto industry, at least in terms of market cap.

If that's the end point you imagine, I guess I could see paying current prices for Tesla stock. But it's hard to wrap my brain around:
-ALL the existing automakers failing to compete *at all*. Seems extremely unlikely to me, but who knows.
-No new competitors starting up. Starting to build cars is hard, this is plausible but far from certain.
-Tesla ramping up to the point they can build ~100x their existing production. This could maybe be doable, though ramping up from very low levels is much easier than from where they're at now.
-World government all simultaneously abandoning their existing antitrust laws AND no longer protecting their domestic manufacturers through subsidies, tariffs, etc.

The world builds about 70 million cars a year. At a market cap of $2 trillion, if you want to have the company get to a normal mature P/E of, say, 20, you'd need to be making a profit of $100 billion a year, which seems pretty reasonably doable... if Tesla is the entire world's auto industry.

If it's "only" 1/10 of the world's auto industry (still a HUGE stretch in a 5 year timeframe) the numbers don't work at all.

Tthe car vs. horse thing is a bit of a stretch. Tesla is making really good (no argument) cars. But they're not making something that replaces cars and renders them obsolete to the point of uselessness. I could go buy a Tesla today, but it wouldn't let me do anything that my existing 2006 beater Kia doesn't do, though I'm sure I'd like it a lot better. It's not a teleporter or a magic carpet, it's just a car.

-W

Exactly, film cameras and digital cameras both take fine pictures, which is why we still have film cameras and digital cameras. Nonsense, as the cost of batteries continue to drop rapidly no sensible person is going to buy an ICE over an EV once the general public becomes aware of the cost of ownership between the two and the lifespan of the EV (500k) compared to an ICE (200k).

[ColoradoTribe]

I’ve devoted enough time to this topic on this forum. We’ll see who’s “right” in a few years. I’ll sleep well at night in the meantime.

[3toesloth]

Bears love to point to one country or region to falsely claim Tesla sales are dropping. Tesla sells every car they make, for a healthy margin, before it rolls off the line. Europe has the highest EV adoption and Tesla currently doesn’t offer an economy EV, so not shocking that Tesla’s share of that market decreased as the size of the European pie rapidly grows.

This seems to point out that Europe has produced cars that Tesla is unable to compete with. So not only has competition arrived but they are dominating. I have yet to hear an argument for Tesla that makes sense of these valuations. Anything they do can be replicated by the legacy makers, especially including selling at cost or below cost as they can subsidize sales themselves by the margins on their current car and truck lines. Only thing different with Tesla is they are subsidized by FCA, which is likely to taper off soon.

If you say so it must be true.
[/quote]
Typical. Can't even see the inconsistencies in their own logic. No competition for Tesla, except where Tesla chooses not to compete.

[waltworks]

So, you assign no value to Tesla energy storage products, no revenue to FSD, no revenue for solar panels or roofs, no service revenue, no software or infotainment revenue, no supercharger network revenue, no Tesla insurance revenue, no revenue from Tesla semi, no ZEV credit revenue, etc.? You’re not seeing the full picture if all you see is traditional car manufacturer metrics. Tesla is going to build massive battery plants in the coming years and Elon has stated the energy storage business will be as big or bigger than the auto side. That's before solar roof and everything else in the pipeline. Tesla could be a major supplier of battery cells or pack to other manufacturers. Again, treating Tesla like a simple car company is analogous to saying Amazon only sells books a few years back.

Now you're saying Tesla is going to be the whole car market plus Disney plus power storage plus other things.

I guess that's all *possible*. But again, even if you give those things considerable value and assume they'll happen in the near term (ie 5 years) on some significant scale, the price is still insane. Tesla would indeed need an Amazon-like trajectory (even over a 10-15 year timespan) to get to a point where the value was justified. And the regulatory climate is getting more and more hostile to huge tech conglomerates. I'd honestly not buy Tesla at it's current price even if I believed all the most optimistic projections - because I think antitrust problems will preclude that.

You can really believe in a company and think they're doing great things... and still think the price is much, much too high. I own (through index funds) some Tesla and I'm too lazy to go hedging/shorting/etc. But if I had most of my NW tied up in Tesla stock... I'd be diversifying as fast as possible.

-W

[ColoradoTribe]

Bears love to point to one country or region to falsely claim Tesla sales are dropping. Tesla sells every car they make, for a healthy margin, before it rolls off the line. Europe has the highest EV adoption and Tesla currently doesn’t offer an economy EV, so not shocking that Tesla’s share of that market decreased as the size of the European pie rapidly grows.

This seems to point out that Europe has produced cars that Tesla is unable to compete with. So not only has competition arrived but they are dominating. I have yet to hear an argument for Tesla that makes sense of these valuations. Anything they do can be replicated by the legacy makers, especially including selling at cost or below cost as they can subsidize sales themselves by the margins on their current car and truck lines. Only thing different with Tesla is they are subsidized by FCA, which is likely to taper off soon.

If you say so it must be true.

Typical. Can't even see the inconsistencies in their own logic. No competition for Tesla, except where Tesla chooses not to compete.
[/quote]

Tesla is focusing on high margin vehicles, which are higher priced vehicles. Just like Ford focuses on F-150s in North America. They have a limited number of cells. It makes business sense to start with the high margin vehicles and work your way down as cell supply increases. Elon announced this plan over a decade ago when he started with the Roadster. Plans for a 22k vehicle to be made in Shanghai were just announced. In the meantime, other manufacturers can service this segment. In the end, Tesla’s goal is to advance the transition, not own 100% of the market. I’m not going to keep responding to you if you insist on repeating the same disproven assertions.

[ColoradoTribe]

So, you assign no value to Tesla energy storage products, no revenue to FSD, no revenue for solar panels or roofs, no service revenue, no software or infotainment revenue, no supercharger network revenue, no Tesla insurance revenue, no revenue from Tesla semi, no ZEV credit revenue, etc.? You’re not seeing the full picture if all you see is traditional car manufacturer metrics. Tesla is going to build massive battery plants in the coming years and Elon has stated the energy storage business will be as big or bigger than the auto side. That's before solar roof and everything else in the pipeline. Tesla could be a major supplier of battery cells or pack to other manufacturers. Again, treating Tesla like a simple car company is analogous to saying Amazon only sells books a few years back.

Now you're saying Tesla is going to be the whole car market plus Disney plus power storage plus other things.

I guess that's all *possible*. But again, even if you give those things considerable value and assume they'll happen in the near term (ie 5 years) on some significant scale, the price is still insane. Tesla would indeed need an Amazon-like trajectory (even over a 10-15 year timespan) to get to a point where the value was justified. And the regulatory climate is getting more and more hostile to huge tech conglomerates. I'd honestly not buy Tesla at it's current price even if I believed all the most optimistic projections - because I think antitrust problems will preclude that.

You can really believe in a company and think they're doing great things... and still think the price is much, much too high. I own (through index funds) some Tesla and I'm too lazy to go hedging/shorting/etc. But if I had most of my NW tied up in Tesla stock... I'd be diversifying as fast as possible.

-W

That’s not what I’m saying. You said my valuation would require Tesla to own the entire auto market in 5 years while assigning no value to any other products or services. I responded that Tesla doesn’t need 100% of the auto market (assuming your numbers are even correct) if you given them credit for revenue they are already making in these segments and that will rapidly grow over the next five years to match or exceed auto revenue.

Again, everyone’s grave concern for my Tesla position appreciated and noted. Each of you will be held blameless when it goes to zero.
BTW, I am diversified. Nearly half my network is in real estate and I own plenty of VTI. I rarely buy individual stocks, but I also didn’t make the mistake of selling a winner early based on internet naysayers.

[waltworks]

Yeah, if you're a 7-8 figure type NW person, you can just invest for the sake of liking the company/thumbing your nose at people.

So you'll be fine.

You're welcome to go look up the numbers. Again, if Tesla started producing (5 years from now) revenue that got them to a boring/pedestrian 20 P/E at a market cap of $2 trillion, they'd need $100 billion in profits a year to do it. They make on the order of 1/300th of that in profits right now, so it will require BOTH massive scaling up and massive improvements in efficiency/profitability of existing and nascent businesses, while simultaneously avoiding regulatory problems.

-W

[Telecaster]

The energy business will be as big or bigger than the car business. The demand is there for Tesla storage products as well, but again Tesla is battery cell constrained and is currently prioritizing vehicles for the cells, though the storage business is ramping. Tesla is no more just a car manufacturer than Amazon just sells books.

Do you know if Tesla is planning on using battery power for air flights? The potential is enormous. I don't know if they're working on it.

Electric airplanes are in the works, but not by Tesla.


https://www.flightglobal.com/aerospace/harbour-air-to-resume-electric-powered-beaver-flights-as-certification-work-begins/136071.article

[3toesloth]

Despite the competition that has been “coming any minute” for the past decade, I see no real competition to Tesla in the next five years. If anything, Tesla’s pace of innovation and infrastructure buildout is accelerating and widening their advantage.
[/quote]
Europe has the highest EV adoption and Tesla currently doesn’t offer an economy EV, so not shocking that Tesla’s share of that market decreased as the size of the European pie rapidly grows.

These don't seem inconsistent to you?
Why is it when legacy companies are not in a particular segment it is because they are incapable or short sighted, but when Tesla does it then it's a choice? Overall Tesla sales dropping in Europe as competition comes online, what is to stop this from happening in other markets?

[ColoradoTribe]

Yeah, if you're a 7-8 figure type NW person, you can just invest for the sake of liking the company/thumbing your nose at people.

So you'll be fine.

You're welcome to go look up the numbers. Again, if Tesla started producing (5 years from now) revenue that got them to a boring/pedestrian 20 P/E at a market cap of $2 trillion, they'd need $100 billion in profits a year to do it. They make on the order of 1/300th of that in profits right now, so it will require BOTH massive scaling up and massive improvements in efficiency/profitability of existing and nascent businesses, while simultaneously avoiding regulatory problems.

-W

I’m not thumbing my nose at anyone. And my net worth was negative 21 years ago. Our NW was hard won and I don’t throw money at whims or emotions. Spare me the patronizing condescension.

Tesla’s profit is slim right now (relative to revenue) because Tesla is plugging billions back into the company to expand (see 1 new gigafactory per year). Free cash flow is much higher. This is expected for a growth company and something else bears consistently ignore. If Tesla decides to stop growing at any point in the future, profit from the underlying day-to-day business will make it look like the bottom-line profits suddenly skyrocketed.

I think I know what you want, so we can both move on. So here you go. You are a savvy, disciplined, fundamentals-driven investor that would never miss an opportunity like Tesla. The only reason you missed it is because its an over-valued bubble. I’m just some ignorant noob, who got really lucky and have no idea what I’m doing and don’t even understand what I’m investing in. So, you didn’t miss anything and I’m just a reckless gambler. We cool?

[ColoradoTribe]

Despite the competition that has been “coming any minute” for the past decade, I see no real competition to Tesla in the next five years. If anything, Tesla’s pace of innovation and infrastructure buildout is accelerating and widening their advantage.

Europe has the highest EV adoption and Tesla currently doesn’t offer an economy EV, so not shocking that Tesla’s share of that market decreased as the size of the European pie rapidly grows.

These don't seem inconsistent to you?
Why is it when legacy companies are not in a particular segment it is because they are incapable or short sighted, but when Tesla does it then it's a choice? Overall Tesla sales dropping in Europe as competition comes online, what is to stop this from happening in other markets?
[/quote]

Ford was in the sedan market and abandoned it. Tesla is a new company that is rapidly growing and will be in the economy segment in a few years. Apples and oranges. Ford is closing factories, offers routine sales and rebates, advertises heavily, has vehicles sit on lots for months waiting for a buyer, and has declining sales (worldwide). The opposite is true for Tesla in every case.

What so hard to understand. I don’t care if Tesla sells 10 fewer vehicles in Norway in Q2 than they did last year. The company is growing 40%+ a year!!!  You literally can’t see the forest for the trees!!

[bacchi]

Tesla’s profit is slim right now (relative to revenue) because Tesla is plugging billions back into the company to expand (see 1 new gigafactory per year).

We've gone over this. Capex, in the year it's spent, does not affect profit.

Revenue - COGS = gross profit
gross profit - operations/admin* - depreciation = EBIT/operating profit

EPS is from net income, which is operating profit after debt interest and taxes are subtracted.

Capex is not an expenditure on income or balance sheets. Capex is depreciated.

(R&D salaries would be in operation expenses.)


tl;dr: The building of a gigafactory is NOT reflected in the operating profit margins except through depreciation.


---
Tesla's gross profit was $6B. Gross profit is only after COGS and before operation expenses (ie., salaries and other bills).

Its EBIT was $1.8B and its EBITDA was $4.2B= $2.4B in depreciation and amortization
$6B - X - $2.4B = $1.8B means X = $1.8B in operation expenses, which includes salaries, utility bills, maintenance, etc.
Net income was $500M, which is EBIT - interest and taxes.

https://www.macrotrends.net/stocks/charts/TSLA/tesla/net-income

There's no way to make profits skyrocket unless it it increases revenue. Merely stopping capex will not increase the D&A but it'll still weigh on the operating profit.