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Tesla as an opportunity of investment

Tesla as an opportunity of investment

I belive that all people that are reading this post think that Tesla is a great Car Company, the most advanced, the most innoative and the most oriented at the future.
This is the reason for which I'm evaluating tesla as an opportunity of investment and i would like to discuss with you about this.

kkiri7 | 21 février 2013

This from WSJ's Market Watch

Tesla TSLA -10.00% shares skidded Thursday as investors balked at the Model S maker’s fourth-quarter earnings and outlook.

By late morning, the stock was down 10% to $34.73. The decline even triggered Nasdaq’s short-sale circuit breaker in early morning trades as short sellers pounced.

Currently, the 12- to 18-month FactSet consensus price target on the stock is $40.50, actually up from $39.89 ahead of the company’s earnings report in which Tesla reported a wider loss than expected.

Tesla Lover | 21 février 2013

Osiris: completely agree with you, in fact i said that i would like to see some profits this year, not necessarily in Q1, a short term financial plan can reduce the quality of Elon business plan, this company is for people who see far away...

Bubba2000 | 21 février 2013

TSLA has a lot of room to cut costs and that will start to show in the bottom line, since it is starting with hi cost structure. Auto components are commodity items like the glass, seats, leather, mats, carpet, etc and there are multiple suppliers. Electronic component costs like the inverter, motor control, Android tablet, etc are made of commodity components as well. Even the step down gear box from Borg Warner has competition. There are multiple reputable shops that do mass castings and forgings in the US and in Asia they do it for skinny margins. Conservatively, they could cut costs of these materials by 20-30% or more, especially with volume and lower transportation cost.

With labor dropping from 70 hours/week to 45 hours/week and still be able to maintain production to 400 cars/week. that amounts to 1-(40+5x1.5)/(40+20x1.5+10x2)=47% reduction in cost. Some costs may not drop like health insurance, etc.
http://wiki.answers.com/Q/How_much_does_labor_cost_to_build_a_new_car

Battery pack cost may amount to 30-40% of the cost of the car, but that would include the packaging that would drop in cost of manufacturing, materials, etc. Those Panasonic batteries have been around for a a couple of years, and they typical drop 7%/year.

For 2012Q4, auto revenues were $294M and cost of revenues $279M. There is certainly room to make some profit. Then time is their favor as they SC network expands, foreign sales kick in, and costs drop even further. Meanwhile, the Model S is great car per the reviews.

Brian H | 21 février 2013

Osiris and Lover;
Sacrificing short-term to rush into the big GenIII game is not on. The capex to set up those lines will dwarf past expenditures. TM can earn, borrow, or go to the market to get it. Its ability to do the latter two depend on doing some of the former. Its credit "image" and investment appeal depend on proving it can do the daily, and make money.

kkiri7 | 21 février 2013

TeslaLover,

This from BoA:

Bank of America downgraded Tesla Motors from Neutral to Underperform and maintained a $30.00 price objective.

Bank of America noted, "Due to the recent run-up in TSLA's stock price, the shares are now trading well above what we estimate as fair value. In fact, TSLA's 2/20 closing price of $38.54 implies a 2014e EV/EBITDA multiple of ~13.8X and an EV/Sales multiple of ~1.7X our forecasts, both of which appear excessive. As a result, we are lowering our rating on TSLA shares from Neutral to Underperform, while maintaining our $30 PO, based on a 2014E EV/EBITDA mult. of ~10.4X and an EV/Sales mult. of ~1.4X. We note that following a softer than expected 4Q12, we are also lowering our 2013e EPS from $0.30 to $0.10, but maintaining our 2014e of $1.80."

So expect more short-term churning.

jk2014 | 21 février 2013

Wow, if they turn a profit over the entirety of this year with revenues over 1.4b, they are going to look like complete buffoons. All the better...

Curt Renz | 21 février 2013

It was a pleasant surprise to learn that Tesla Motors is now expecting its first profitable quarter to be the current one rather than one later this year. However, as noted by TeslaLover, that did not soothe a Merrill Lynch/Bank of America analyst who downgraded the stock. Many institutional money managers are virtually compelled to follow such leads. Many ordinary Merrill Lynch and Bank of America customers are similarly inclined, especially after getting calls from their broker. Hence the selling today. This may have presented a fine opportunity for those who appreciate the long term potential and were looking for a dip.

danielccc | 21 février 2013

All it means is that Merrill Lynch is holding a short position, unless you believe in Chinese Walls, and unicorns.

Bubba2000 | 21 février 2013

At lot of the short positions are held by institutions. Fast Money had blurb that said huge out of the money puts were purchased. Professional money is betting that TSLA will fail. I do not think so, especially since the company has reservations that total the annual target production of 20,000+. Yes, there will be cancellations/deferments, but new orders will come from Europe and Asia, markets that have not been tapped yet.

With projected revenues to be around $1.6+B, the company has room to cut expenses, generate a profit and most important: positive cash flow. Elon Musk already said that the focus of the company will be to increase efficiency, cut labor and material costs. He has indicated that R&D and Capex will come down. Only SG&A will go up moderately as they deploy SC, service and stores. As long as Elon Musk restrains from making huge expenditures for GenIII, they should be able to achieve these goals.

Since when analysts are ML, BAC got any clue about disruptive changes? Those companies went nearly BK investing in subprime and other dumb bets. They survived only because of huge bailouts and giveaways from the Fed like near 0% interest rates. Do you believe them or Elon Musk after all his accomplishments?

Brian H | 22 février 2013

Don't forget they're still "production limited". It would take all year to get to 0 unfilled orders, even if "the stores were closed today". And TM has barely begun to market, and the word-of-mouth free stuff is also barely under way. Every new owner is an enthusiastic promoter -- with tip-top credibility. And the SC network will cost about $40 million to fill in. Peanuts. I have no fear of a "sales slump". And not another car company in the world can say as much.

kkiri7 | 22 février 2013

More free publicity that will increase awareness of Tesla's products, leading to more sales... and hence more of an "Opportunity of Investment"

http://www.csmonitor.com/Environment/Energy-Voices/2013/0222/Tesla-Motor...

Bubba2000 | 24 février 2013

Yesterday I looked at my friend's Sig Performance that was delivered in Nov-2012. The quality of the bodywork and inside is surprising good. However, I can see why the initial cars needed a lot of rework. The bodywork has complex shapes and curves for aesthetic and aerodynamic reasons. It takes a lot of fine tuning of the presses, welding and assembly robots to do get it right the 1st time and cut manufacturing costs. The inside looks good too and very precise. A little too minimalistic. Does not have the opulent Teutonic look of a Mercedes S class. I imagine Elon wanted to project a 21st look as many have mentioned.

The ride was impressive. Quite. Accelerates to 55 mph with no effort. Then in the highway, it goes from 55-80+ mph smooth. Had a keep an eye on the speed gauge to keep from going to triple digits and jail! I have done and more with Porsche 911 in a track. Talk about rough and noisy. Ferrari is just plain rough.

What is missing? 50% more KW-hr and a cheaper, lighter battery pack!

jk2014 | 24 février 2013

The ultimate leave behind with any great vehicle is the performance. Everything else is secondary. The question boils down to would you enjoy driving this vehicle everyday? The answer is a resounding yes.

This is why it will continue to achieve high demand. Even if customer service needs work, people will be more tolerant.

ian t.wa.us | 24 février 2013

I'd be curious to compare the quality of the initial Signature models to the production versions being delivered today.

Hi_Tech | 25 février 2013

Doing "Monday morning quarterbacking", I'm not all too suprised with the 4Q2012 results. Spent more to get quality up from the beginning. Higher quality in the beginning will result in longer term improvements, efficiencies and savings. Also, liked that he talked about 25k/year rate by end of the year... and many things that were positive.

What I didn't like is that Elon pushed the "profitable in Q1" message too hard. Although this would be great, I'm afraid that this is setting higher expectations... potentially making it difficult to match up to those expectations during Q1 reporting, giving the "analysts" something to talk about if any one little issue went wrong.

I think that Q4 was a big test, and Tesla passed, in my eyes. I believe the Q1 results will be even more important. Elon and company must put all of their efforts in making the company "successful" in the eyes of business people = profitable. Prove that this can be done! Then go back into finishing up plans for Model X. Start the media hype for Model X. During this time, let the sales of Model S and review (by "media" and individuals) work on the sales/demand of the car. Spend Q3 and Q4 working on beta versions of Model X and appropriate test drives. Make fixes and start the official production by early 1Q 2014.

Keep the GenIII as a concept for now and don't keep raising the idea of it until some time next year, after Model X is in full production. Otherwise, this will limit the sales of Model S and X... keep people "waiting" for this new vehicle, while drying up business for current vehicles which is required for R&D and changes to manufacturing.

Another key factor has been seeing the energy prices in Europe. During my last trip there (1 week ago) the current price of gasoline/petrol is roughly $8 per gallon. That is going to make Tesla a huge success if they can ramp up production and spread the appropriate messaging. This is a place where you tend to see many very expesive vehicles on the roads... People have money and interest in their cars. But, from talking to people, most still treat EV as golf-carts. This mind-set will need to change. Tesla, and us a loyal followers, needs to spend some money and resources in getting a good marketing campaign. Most of these reviews and awards are a great start... but, need to go to the next level.

I'm very long TSLA! Bought during IPO and some since... never sold yet.

jk2014 | 25 février 2013

Hitesh +1

Another factor is burn out of Elon. He's got a serious time constraint due to SpaceX. Even though people say he's ironman, man's not superman. Dude needs to rest, get a clear mind, focus on the message to the public about the future goals of tesla. Spend the time highlighting the monumental achievements of Q4. Shape the media narrative to focus on this... The media is only responding to the defensive posturing because he puts it out there. He ought to limit his everyday responsibilities in SpaceX to do this. If that means stepping aside from CEO, then so be it. I know this is sacrilege, but the success of Tesla might be accelerated because of it, especially at this crucial juncture in its growth...

Tesla Lover | 25 février 2013

Right HiteshBhatt !! never sold, i'm long on tesla too, expectations about the revenues are great and while increasing the volume of production, the average cost will decrease allowing tesla to be profitable...

Hi_Tech | 25 février 2013

Not certain about Elon stepping down as CEO. The CEO is not the "Chief Marketing Office"... They need to have a face out in front of the screen for everyone that will take the conversation in the direction that Tesla wants... not what the media dictates. This, generally, cannot be done successfully by a CEO.

Another set of comments I had for the GenIII vehicle. If the plan is to reduce cost down to the $30s (thousand), then that tells me the following:
1. Battery pack options will probably go to the 65KWhr as the largest. Most likely have two other smaller sizes: 45 and 25(?). That 25KWhr option should drop the base price down to about $45-50k. Which means that rest of the savings needs to be found else-where.
2. Cutting back from the all aluminum body and other extremely high quality features will probably bring cost down by another $5-10k... keeping in mind that you cannot bring the quality down beyond certain point.
3. Reducing size should also help bring price down about a bit... not sure how much though. But this should also help reduce weight... therefore increase range for the smaller battery packs. Maybe see the 45KWhr pack giving 200+mile range. The 25KW pack may give 125+mile range. Thoughts?
4. Which leaves about $5k further reduction required from increased battery technology/effeciencies to bring the base GenIII price of the car down into the $30s.
5. Reduce the percentage profit per vehicle from 25% down to 20%, with the expectation that higher volume sales will make up the difference.

In short, this would be the vehicle to compare and kill the likes of Leaf and other mid-ranged EVs.

Back to the stock portion: If things plan out appropriately, they could really have a very high demand for the GenIII... Possibly put them into the 100-200k/yr vehicle sales.

In short, I see TSLA going from the current $34.xx range to $60s this year... then cross the $100 mark by end of next year. With GenIII plans, I wouldn't be surprised to see TSLA cross the $200 mark by end of 2016.

Of course this is all my unprofessional opinion, so "bet" at own risk! :)

jk2014 | 25 février 2013

Hitesh -- step down as CEO of SpaceX not tesla. Focus on Tesla day to day more. Focus on the public message more. Go On the talk show circuit, be funny and charming and nail the message. Can still be the big man on campus at SpaceX, but more as strategic overseer then day to day guy. Critical time at Tesla right now. While the attention is hating up, use the platform to get the good word out to a broader audience. It's not about overselling, it's about making people aware of the promise of EVs like they've never known before. Creating the desire to want Tesla to succeed in creating it's vehicle and eventually geniii regardless of having any skin in the game...

Tiebreaker | 25 février 2013

I don't see Elon Musk stepping down as CEO of SpaceX. It is more his baby than Tesla. There are plenty of people on the Earth that can do cars, but very few that can do inter-planetary travel.

danielccc | 25 février 2013

@Tiebreaker, I totally agree. There is simply no chance Musk will voluntarily relinquish control of SpaceX.

Telsa is not second fiddle right now, but it will succeed or fail over a far shorter time scale. By the early 2020's it will be all over, one way or the other. Success or failure.

SpaceX won't be done till thousands of people are travelling to Mars every launch window. That's a much further away objective, even with Musk running it.

Bubba2000 | 25 février 2013

Tesla needs to focus in optimizing its manufacturing operations to become efficient and reduce labor costs while maintaining hi quality. Same thing with their supply chain and logistics. At this stage of the game, they go to generate serious cash flow, even GAAP profits, sooner than later. It means they got to get their act together in this quarter. As long as they got demand, they should be able to run their factory efficiently. Deploy SC asap.

With limited resources, the company has to focus its resources at the most decisive opportunity. It means Model S at this time. They got to defer Model X capex and resources. Put GenIII on ice. GenIII will not be viable without battery breakthroughs that double energy density and cut cost/KW-hr by half.

In the CC, Elon alluded to focussing on efficiency and cost reductions. He has very capable people running this operation.
http://www.youtube.com/watch?v=VUgDcA1pZAM

Brian H | 25 février 2013

Remember that the purpose of GenIII is not to make profit for TM; the purpose of profit and TM is to make the GenIII -- and hence transform car travel.

teslajolt | 26 février 2013

I agree with Bubba2000, Tesla now needs to improve manufacturing efficiency and negotiate better deals with suppliers. electric cars have the potential to be cheaper to manufacture than ICE..

Bubba2000 | 26 février 2013

Other than incremental improvements in Li-ion battery chemistry, there is no promising battery tech in beta stage that can increase KW-hr/kg and reduce cost significantly. There are a lot of promising disruptive techs, but they will take a long time to be sorted out and tested. Then production facilities will have to set-up, against tested before they are considered for BEV. That puts GenIII several years away.

Tesla best opportunity is to optimize its manufacturing operations in a major way and reduce labor dramatically - while improving quality with tighter tolerances and quality control. Not easy, but can be down following Deming Principles.

The other big challenge for them is bringing cost down of component purchased from suppliers, while maintaining quality. They plan to produce 20,000 cars/year. However, there are multiple options that reduce the economies of scale. Like interior features.

No wonder Henry Ford offered one option for the Model T: Black. Would not work in a mature market of today.

jk2014 | 26 février 2013

In addition to the increase in superchargers (and upgrades) across the country, I hope Tesla comes out with a surprise partnership with Hilton and other hotel chains to proved Tesla approved charging stations (solar powered by Solarcity) at all locations.

Also highlight the advantages of a duel charger in the car, so be ready to go full charger in a matter of hours. Almost like a mini supercharger at each hotel. So drive like a wild an around town if you want with no worries.

Got to get the vision out. Leave this NYT crap in the dust.

Stock price would go wild. People want to believe and buy a crap load of shares, just need a little reassurance. This could help a lot and is relatively cheep and expedient.

Benz | 26 février 2013

Mini Supercharger? Useful? Yes, I think so. Good idea.

jk2014 | 26 février 2013

Minisuperchargers might give the big hotel chains green street cred as well as a boost in brand identification. Create more customers willing to travel and stay at their properties now that they get to charge for free. A value add for everyone. (Solarcity signs up each Franchise to 20 year deals.)

So much potential on so many fronts it is ridiculous.

jk2014 | 26 février 2013

Can't forget SpaceX in this deal --- might I point out Hilton himself wanted to make the moon a destination for guests!

jk2014 | 26 février 2013

And if you become a Hilton rewards member, you can fill up at the mini superchargers for free whether you stay or not...

I can't stop!!!

Bubba2000 | 26 février 2013

http://www.businessweek.com/news/2012-09-24/tesla-building-250-000-charg...

According to this article a SC station with 4-6 ports can cost $250,000 installed. For 100 SC, the cost would be $25M at least - no small change. Then the company will have to install close to that number in the EU. No wonder Tesla is taking its time. I do not think solar cells are worth their price. These thing suck a lot of electrical power. Better spend the money on additional SC. I think that at some point Tesla needs to start charging for electricity plus a profit to get a decent return on capital.

Like jk2014 said, mini superchargers with 240V/100 amps may give a bigger bang for the dollar. The one at home cost $2,000. They could install thousands around the country for $10M. At hotels, restaurants, starbucks, and charge for use. Something quantity beats quality. I prefer a mix.

prytog | 26 février 2013

If Hilton and other hotels would just install HPWCs, then I can charge 60M/Hr with my TBD onboard twin chargers. $1200 per stall + electrical contracting seems like a low outlay, and would get my business.
TBD = To be delivered.

jk2014 | 26 février 2013

Prytog -- exactly...

Brian H | 26 février 2013

Prytog:
+2

ghillair | 27 février 2013

Prtog:

Good idea, but why not 90 amp J1772 chargers. They are just as fast as HPWC and atractive to the entire EV community. Should be an easier sell to to Hilton, Craker Barrel, Marriot and anybody else that wants our business! GM doesn't pay a business to put in a parking lot, Tesla shouldn't have to pay for the charger.

If business wants me as a customer they need to provide what will attract me.

jk2014 | 27 février 2013

Ghillair --

Need a solution with Tesla brand identification in order to associate all charging with Tesla...

Like google being synonymous with search and UFC with mixed marshal arts, etc...

This is the time, when electric cars are becoming introduced on a larger scale, to create it.

Brian H | 27 février 2013

jk;
Good deal for Tesla, but you may have a harder time selling a proprietary solution to hotels. Maybe 1 of each? And local owners offer to pay for the HPWC? ;)

Alex K | 27 février 2013

@ghillair | FEBRUARY 27, 2013: Good idea, but why not 90 amp J1772 chargers.

I think that J1772 charging is limited to 80A because the dual onboard chargers are limited to 80A.

jk2014 | 27 février 2013

Brian --

Definitely need to have a mutual benefit for hotels and others... How can tesla help create new loyal customers for our business? Hope the answer turns out to promote Tesla's charging solutions.

I'm very intrigued by the new strategy to get profitable the entire year. If they make 1.5b+, and turn a profit for the year, the stock price could be well over 50. At that point, do a follow on offering, maybe 10m shares and, I don't know, but they could raise potentially 500m, 750m, or possibly 1b. How much would they need to develop geniii to be reay by 2015 at those numbers? Everyone is focusing on how much profit over the next few years, but what about this scenario?

ghillair | 27 février 2013

Alex

You are correct the dual chargers can only accomodate a max of 80amp. I was reffering to J1722 charges such as the one made by Sun Country Highway in Canada. They have CS30 CS60 and CS90 chargers. To get a full 80amps a Tesla would need one of the CS90 chargers not one of the smaller ones.

I don't know if te 30, 60, 90 is a J1772 standard or just the sizes Sun Country chooses to make.

The availability of this type of charger is the other reason to order dual chargers even if you don't install an HPWC at home

Brian H | 27 février 2013

Well, if a few German or Oriental majors are under the gun, TM can repeat its "distressed price equipment" scoops. Who knows what's in the works/plans/strategies for equipping the GenIII lines?

Bubba2000 | 28 février 2013

The GPS in the Model S needs to have "Trip Solution" feature. Say, I want to go from point A to point B. It should be able to tell me what should be my speed w/wo HVAC and where to charge if needed to do the trip in the shortest time. Or if I increase the speed, what are my charging options? Factor weather forecast.

Otherwise, it takes a lot research to do a trip approaching 250+ miles. My guess is that the fastest trip is to charge to 300 miles and turn HVAC off and set cruise to 50 mph.

jk2014 | 28 février 2013

Bubba2000 --

It seems like this would be the evolution of the software and it makes more really excited about the near future. This type of update is exactly what will demonstrate the cars ability to improve... Unlike any other car in the world...

If Elon can promote these features to the gen public, more and more people will see the long term value beyond the price tag...

TeslaRocks | 1 mars 2013

In my opinion the biggest motivation to owning TM shares is because you believe in the company, the technology, and that this is where the trend will go. The stock is quite expensive, especially compared to other car companies that trade at only 3 or 5 P/E for some of them, but I would never want to buy any of them. As for Tesla, I'm keeping my eye on it and I will look for a buying opportunity when I have cash available.

As for Benz's comments:
Yes Elon Musk should hold on to his shares forever. That would be very good for him and also very good for the company because it means both a vote of confidence and an insurance policy for other stakeholders in case he decided to goof around or go senile, which is fortunately not his style. I think more companies should follow a similar model and top officers should be more exposed to the risks they put their businesses through, as Warren Buffet says.

As for your other comment about a hostile takeover, I think I read in the Q3 report that there are poison pill measures in place to prevent that from happening, which is very smart and which I love.

TM seems to me like a competent bunch of people, with a long-term vision and a great product. I think this is the right approach... only trouble is, although its really great for the company when they need to raise more cash, a lot of people recognize this already and this is what explains the rich valuation, in my opinion.

Bubba2000 | 1 mars 2013

Another possibility is that Tesla got the Model S, X optimized, and the company is making a profit, Elon decides to cash out. Sell Tesla to a somebody like Toyota or even MB.

He has done that before with Zip2 and PayPal. This guy is smart, but I can not see him running a car biz till age 65 and retire. Look how fast he changes: started and sold 2 companies and started 3 more.

Just speculating.

Benz | 1 mars 2013

Elon Musk is doing it because he has a vision for the benefit of humanity, and he wants to turn this vision into reality, and he really believes that is possible. He is on a mission, which he wants to accomplish. Elon Musk is not primarily doing this for the money, that is for sure. Money is important as well, but only as a tool which is required to realise certain economical things. Elon Musk is showing us the way, which he thinks is best for the future of humanity. We have some interesting times ahead of us.

Brian H | 1 mars 2013

Per various interviews, the internet companies were sold because they'd achieved about all they could. The two or three other fields he thought needed fixing were energy, space emigration, and the atmosphere. He's wrong about the last, but the Tesla solution is great just because of the wonderful cars it produces.

TeslaRocks | 1 mars 2013

I mostly agree with Brian on this, and I would add that he was getting frustrated with some barriers, at least with Zip2, and then by the time he did Paypal it must have been clear to him that tech was in a bubble and there might not be a better time to sell than then. The mountain of money he got meant he could move on to his other interests. Computers was interesting to him, but I would argue that space and electric cars have both been at least as big, probably much bigger fascinations or passions of his. A concern for the state of the biosphere would no doubt have been another element guiding his setting of goals.

Where I don't agree with Brian is about climate change not being a cause for concern. You cannot know that everything will be okay if we keep dumping all this CO2 in the atmosphere and the oceans (indirectly through rainfall). Sure, long ago there were periods where CO2 was much more plentiful, but the rate of change is the main problem and the fact that we and most life on Earth today are not used to living in such conditions. There is already lots of effects to climate change so far, especially in the arctic. Besides, in Elon's words (I think), pumping billions of tons of carbon in the atmosphere is not an experiment we should want to be doing.

Do you want to run the experiment, especially when we don't really have to? The world has been geared towards burning fossil fuels, but it doesn't really have to be. I know it's hard to imagine without coming across as a hippie or a lunatic, but Elon is showing us the way.

Brian H | 2 mars 2013

The "experiment" and "rate of change" memes are bogus. There were 2 periods, one in the late 19th C. and one in the early-middle 20th C. with the same or greater rate of change, uninfluenced by man. The only correlation of CO2 and temperature, in ancient or contemporary records, is that rising temperature drives CO2 out of the oceans. Never the reverse.

All measurable effects of higher CO2 are beneficial, primarily improved plant productivity and superior water utilization and drought resistance. And on and on.

The weather records show slow warming from the depths of the Little Ice Age, coldest era since the ice sheets left -- naturally and fortunately. But a lesser recovery than from earlier cold periods in the last 10,000 years. Each recovery is weaker than the previous.

At some point, the 2-3 million year record shows, there will be a burst of wild variability and then the ice sheets will return. You won't like it.

Curt Renz | 2 mars 2013

Brian H, you may appreciate this video of a 19-minute lecture by Nobel Prize winning professor of atmospheric science, Don Wuebbles: http://www.youtube.com/watch?v=c78JmupgjAo&noredirect=1

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