Tesla needs to sell more expensive Model 3s so the company doesn’t ‘die’
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Tesla’s current price is arguably fair if most cars are powered by electricity in 10 years, if most of these cars are made by Tesla, if Tesla can make those cars with sufficient margin and quality control and can service the cars properly, and if Tesla can raise additional capital sufficient to cover a $3 billion annual cash drain and another billion to service its debt.
https://www.researchaffiliates.com/en_us/publications/articl...
> "most cars are powered by electricity in 10 years"
Unlikely. The average age of a car on the road is about 11.5 years (source: http://news.ihsmarkit.com/press-release/automotive/average-a...), so even if electric vehicle sales went to 100% tomorrow (and they won't), this wouldn't be true. It's possible fuel prices will skyrocket in the meantime and get people to scrap their ICEs, but with fracking and other deep extraction, I wouldn't bet on it.
> "most of these cars are made by Tesla"
Unlikely. Even if Tesla becomes a healthy and established carmarker, I can't imagine a situation where they are the only one selling electric cars in the late 2020's. Everyone else is getting their electric cars onto the road, and outside the HN bubble, most people are not so enamored with Tesla that they would refuse to even consider buying something else.
> "if Tesla can make those cars with sufficient margin and quality control"
Possible, but I think it's unlikely. Despite year after year of promises by Musk, Tesla still struggles with both margins and quality control, and I haven't seen any evidence that it's getting better (and there's every reason to believe it will get worse as they seem a bit desperate to scale up production)
> " if Tesla can raise additional capital sufficient to cover a $3 billion annual cash drain and another billion to service its debt."
I don't know enough about financial markets to make a solid guess here, but this seems iffy to me in light of all the other givens about Tesla, especially if markets tighten in the next few years (up until now, Tesla has had the good fortune to need cash-raising in an era of low interest rates, cheap money and bull markets. That may not be the case the next time they need capital)
Hence, I'm a bear. I don't necessarily think Tesla will go out of business, but I think their current valuation is absurd.
I'm not sure the disagreement (between bears and bulls) is necessarily to be found in a different outlook on the future.
One can conclude all those conditions are likely to be met in the future and yet be bearish on the stock.
I'm overall optimistic on Tesla as a business, yet it seems my optimism is already fully factored in...no real upside, which is surprising given the risks.
> Unlikely. The average age of a car on the road is about 11.5 years (source: http://news.ihsmarkit.com/press-release/automotive/average-a...), so even if electric vehicle sales went to 100% tomorrow (and they won't), this wouldn't be true. It's possible fuel prices will skyrocket in the meantime and get people to scrap their ICEs, but with fracking and other deep extraction, I wouldn't bet on it.
I think this is extremely likely, but let's clarify: it might not be that most existing cars in 10 years will be powered by electricity, but I feel strongly that EVs will dominate new car sales. As a caveat, your 11.5 year number refers only to US cars. Oil price fluctuations are basically irrelevant at this point: EV battery pack prices are only decreasing, ranges are only increasing. Aside from that, EVs win on cost of ownership (maintenance, electricity costs), noise, and power.
>> "if Tesla can make those cars with sufficient margin and quality control"
>Possible, but I think it's unlikely. Despite year after year of promises by Musk, Tesla still struggles with both margins quality control, and I haven't seen any evidence that it's getting better (and there's every reason to believe it will get worse as they seem a bit desperate to scale up production)
Tesla's margins from Models S and X are healthy (mid 20%s). Their spending is almost entirely from capex -- which would be expected from scaling up a battery plant and new model line. Operating costs Q12018 were 1.05B (model 3 at 2k/week), operating costs Q12017 were 925M (model 3 not in production).
"Every reason to believe that [quality control] will get worse as they seem a bit desperate to scale up production" doesn't make sense?
If anyone, where to ask who are the top 10 autonomous carmakers, is, Tesla wouldn't be even on the top 10, because what they are selling is driver assist and ALL serious autonomous car project has LiDAR, except for Tesla. Elon is kinda hell-bent on LiDAR not needed, side of the argument.
At top of the autonomous car companies, Waymo is very far ahead of the rest of the crowd and most car companies have some kind of series side project and working on their own solutions.
There is a common consensus among (most) car manufacturers is that autonomous cars will kill the personal car industry - or at least severally constrain it. I actually think this to be true. Most car companies will find a way to adapt to this changing industry by deploying their own solution or partnering with the market leader (like Waymo). Car companies that are already struggling financially, like Tesla, will be severely affected when this change comes along.
Tesl's biggest selling point is their battery (EV), and there is nothing magical going on that other manufacturer cannot replicate a similar performance. The reason jumping on EV bandwagon right away (almost all of them have projects that are 2-3 years away if not more), is because the demand is minuscule compared to the overall market share.
There are more that one way that Tesla future doesn't look that good. They need a lot of things to go right for them to survive in the next 10 years.
So sure volume will go down, but duty cycle will go up. So instead of $35k cars that last 150k miles on average we will end up with $70k cars that last 300k or more miles.
You can be sure that in today's litigious society (at least in the USA) that unreasonable safety standards (think of the children) that will be very expensive to meet. Notice that every tesla crash is "news", yet tow trucks are quite busy with accidents of non-telsa, and ICE car fires are hardly rare.
I suspect even at 10x as safe as human drivers that people will be actively asking for more regulation and higher standards.
Seems strange that people will push for higher standards, which means higher prices, which means fewer cars, which means more road deaths. But that seems to be where we are today.
Let's first assume that Tesla succeeds in their production volumes and positive gross margins in the next few quarters, and is able to solidify and stabilize their financial situation this year. What this article misses is the scope of upside that is what I believe the Tesla bulls are seeing (Disclaimer: I am a Tesla bull).
In looking at the next 10 years I see:
- Batteries being the primary constraint in progress in volumes of electric cars for automakers (which positions Tesla and vertically integrated companies like BYD well, but traditional automakers without a tight grip on battery production at this point not as much).
- By looking at Tesla instead as a battery company, you can see how the vertical integration and scale (with the addition of plans for additional gigafactories in China and Europe) can be a unique competitive advantage against other auto companies. The more expertise Tesla gains by making better, cheaper batteries, the better.
- The article you linked and many Tesla bears do not consider the opportunity with trucks, and different segments in the within logistics / transportation market (Tesla could release different truck sizes and modes). Again, we are looking 10 years out, right?
- Tesla Energy, which is about grid storage (hint: requires batteries here too) will become a significantly larger market as certain grids around the world increase their share of intermittent energy sources. Grid scale battery systems are already becoming competitive alternatives to natural gas peaker plants.
- And don't forget about SolarCity. They could do a lot with SolarCity, and make progress in various segments within rooftop solar, as costs of solar cells continue to decrease in the next decade.
Not saying that Tesla is not without immense risk and that they do not have a very challenging few quarters ahead of them - but saying the upper bound of their upside is related to capturing the entire automobile market is not fully putting into account their long term plan and strategy.
Boring commodity businesses are a fine place to make money, but they aren't so likely to go to the moon.
In oil, even though it is a "commodity", in that one barrel of crude oil is mostly indistinguishable from another, oil companies can have huge competitive moats by having integrated refining, the ability to distribute, or the fact they can have large monopolies on the resources of very specific areas. Batteries don't have quite the same sort of easy complementary businesses.
Tesla's stock is certainly overvalued compared with their current financials and current competitors. However I wouldn't be surprised if 20 years down the line we think comparing Tesla to Ford was like comparing Netflix's mailing DVDs business to Blockbuster. That potential is what you are paying for when you purchase Tesla stock.
https://techcrunch.com/2018/03/13/volkswagen-has-locked-down...
> Again, we are looking 10 years out, right?
The question is if Tesla can survive 10 years.
> And don't forget about SolarCity
Oh please don't. Don't ever forget that Musk spent company money to bail out family from this shitty company.
The Chevy Bolt was designed from the ground up to be an electric car. It competes favorably with the Tesla Model 3 in most areas (except styling...) and you can go buy one today instead of joining a waiting list. The Honda Clarity and Nissan Leaf are other examples of cars specifically designed to be electric.
TSLA is the most (or amongst the most) shorted stock on the market, so a lot of people have a lot of money riding on being able to convince people that they can never meet those expectations. So we hear a lot about Tesla having trouble ramping up to 20,000 units/month, but we don't hear very much about GM having trouble selling 2000 units per month.
Tesla's current price has high expectations built into the price, so the game is that Musk and the bulls have to demonstrate that they're meeting those expectations, while the bears have to portray everything as a failure. Unlike normal companies though, there are A LOT of bears and they have a shit-ton of money riding on Tesla stumbling and they will go to absurd, surreal lengths. I mean, in what reality is "Mid-level Executive Takes Vacation" a major news story?![1]
And no, there can in fact be a far better quote, because it doesn't even begin to describe the upside of Tesla, even though they have plainly stated their intentions to pursue those upsides. They're merely comparing them to Ford (same market cap), but Ford does not:
- Intend to take on Uber
- Intend to compete on price with rail cargo shipping
- Intend to make and sell batteries.
[1] https://www.wsj.com/articles/teslas-engineering-chief-takes-...
So yeah, they have stated their intentions simply and plainly. If they succeed, they're price will be justified and could grow. Which side of the story you choose to believe is up to you, but that's true of any growing company.
Or in other words: Those people who value Tesla higher because of their ride-share potential, should at the same time rate Uber lower.
Or maybe you're not so sure and want something safer / lower return. In that case, you'd buy into both of them, say 50-50. If one goes bust, but the other goes 5x, you're still good.
In reality, you can't buy into Uber, so it's largely theoretical. Also, Waymo and GM are vying for the same market and they all have different strategies - ie Alphanet will finance Waymo's fleet with Google's earnings, while Tesla will finance theirs with their customer's money (and share the profits). Hard to say what will happen.
If one truly believes that Tesla will capture 1/4 of the world's automotive market as well as find success in non-automotive applications, then the current stock price is woefully undervalued. To merely believe that their current price is justified requires much less bullishness than that.
Obviously not all of those conditions will be true, however -- only the craziest Tesla bulls would argue that. Conversely, if none of them are true, then Tesla is definitely over-valued. But I think you'd have to be a pretty crazy Tesla bear to make that argument. Finally, if those conditionals are a mix of true and false... well, that doesn't really doesn't tell you much about Tesla's fair market value, which is why I don't think this is a particularly useful analysis.
- Tesla currently has 2.67 billion in cash.
- About 1.1 billion of this is in loans that need to be returned early next year
- Around 40% of their cash in hand is from refundable deposits, from people who thought they would get a $35k car
- Tesla cannot make $35k M3s at a profit(this is widely accepted, and even Tesla hinted at it), they'll lose money even making $42k cars. They need to make $50k cars to earn a decent profit
- When asked in the earning call last week about reservations and how many people chose to cancel/take up their car once offered, Musk stunningly called the question "boring" and "boneheaded" and went on take questions from a youtuber for 20 mins. This was considered unprecedented and bizarre and stock dove.
- Tesla is losing about 800-900 million a quarter, so they will run out of money without a cash infusion. Literally everyone knows that Tesla will need to raise capital this year.
- Musk though, has insisted that Tesla will not need to raise cash because they will be "profitable by Q3 or Q4". Reminder that they lost 780 million in Q1, and even small profits won't be enough to prevent running out of cash. In order to make profits they need to sell 10,000 cars a week. They were supposed to produce 5000 cars a week in 2017. They have just now been able to produce 2500/week.
- Even bulls say that Musk is bluffing and he will eventually raise cash this year. Moody's downgrade of Tesla to essentially junk stocks makes it harder to raise cash at good interest rates. Moreover, there is speculation and some evidence that the reason Tesla haven't already done so, is that they are under SEC investigation which would prevent them from raising cash without disclosing a lot of details harmful to them.
- Tesla has access to standard credit lines for about 500 million, but they recently had to pledge their Fremont factory to just maintain these credit lines.
- A lot of Tesla's financial executives have left the company - a red flag to many including Jim Chanos, who famously shorted Enron due to similar indicators. The head of autopilot left and the head of engineering left 'for vacation' last week.
- Tesla's autopilot is complete false advertising. Their original autopilot was developed by MobilEye. MobilEye hated tesla's exaggeration of the system's capabilities and withdrew their supply after a person died using autopilot. Tesla responded that mobileye was jealous of Tesla's superior "Enhanced Autopilot" which has hardware capable of full self driving. It is universally accepted that enhanced autopilot is worse than mobileye's system right now, and in general both are basically lane-keeping system with AEB. Waymo and GM/Cruise are far ahead with their FSD capabilities than Tesla(again, widely accepted)
- Part of Tesla's debt comes from bailing out Solar City, a completely unprofitable company loaded with debt that was run by Musk's cousins.
- Starting from 2019 and 2020, all the major automakers are bringing out electric models. This will further damage Tesla's competitiveness, since they have the wost QA and build quality due to their haphazard and panicked development process
Despite all this, the market cap of tesla is larger than Ford, Fiat and nearly equal to GM. Their inflated market cap(which even Musk admits is inflated) is fuelling their funding which inflates the market cap even more as they lose more money trying to make bigger promises. A classic example of a huge bubble.
What does Tesla have to it's advantage? Tremendous marketing and brand value. They're probably inching towards or even surpassing Apple
What does Tesla have against it? The realities of running a business and actually making the products.
Do you have a source on the amount of people who "thought they would get a $35k car?" Autopilot itself has always been an add-on feature that costs money.
> It is universally accepted that enhanced autopilot is worse than mobileye's system right now, and in general both are basically lane-keeping system with AEB. Waymo and GM/Cruise are far ahead with their FSD capabilities than Tesla(again, widely accepted)
What? It's generally accepted that AP2/2.5 is now in general better than AP1. From first hand experience, the lane keeping and the ability to perform on local roads/ramps is far better than what AP1 cars can do. I believe the only thing that AP1 does that AP2/2.5 does not yet do is read speed limit signs. AP1 also shows cars adjacent lanes on the dash, which AP2/2.5 does just fine when you use the turn indicators to do an Auto Lane Change
As of when? As recently as 3-6 months ago, forums were decrying how much worse it was, YouTube videos famously show the car swerving on clearly marked roads, etc.
https://electrek.co/2018/03/16/tesla-autopilot-update-first-...
Which contains the line:
> In general, most drivers now seem to agree that Tesla’s Autopilot 2.0 has surpassed the Autopilot 1.0 powered by Mobileye – something that has been debated for the better part of a year now.
edit: the tesla sportscar was a 250k (5k up front +245 wire transfer) reservation for 1000 accounts. All those past 1000 have to reserve at 50k. Semi deposits are 5k each
Not in most forums/amongst most owners
https://www.reddit.com/r/teslamotors/comments/83vtk8/autopil...
Most tests show that AP 2 does a few things better, but is less reliable overall.
>the amount of people who "thought they would get a $35k car?"
That is not publicly available data. However on Twitter Musk said that he refused to answer the analyst question about reservations because it would make Tesla look bad as people were still waiting for different models. I think it's more likely most people are waiting out for a cheaper car than a more expensive one.
Which means those extra options are extremely marked up over cost, compared to the base M3.
It costs an extra $1,000 if you want to add the software license later, but you can do it.
It's a tragedy. They created competition and are -about to- fail to compete.
They are facing issues due to the fact that they are unable to make quality cars that people want at a price people will pay. They aren't losing out due to (for example) dealer networks being locked in with existing car makers.
Including solvency? Noble goals don't keep debt collectors at bay.
But sadly that doesn't change the reality of their financial situation. I hope investors are able to see the potential and give them more runway to get through this very difficult time.
Elon's weird performance at the investor call didn't help.
But this is exactly why TSLA is worth so much right now as so many people think the same way as you. They all want to bet big on Tesla and Elon. It is the most interesting stock to watch as it hemorrhages money and just keeps going up and up.
PS: the $100k reference I had there was meant for the purchase of a mid-range configuration Model S, not TSLA stock.
If I were you I would definitely not actually buy anything he mentions. He is making fun of your non-quantitative beliefs by urging you to lose money since like...these options contract price risk into them and discount future returns. Moreover you are ignoring the substance of the comment-which is that tesla is overvalued (because of the actions of retail investors buying the equity itself because they think elon is the lovechild of jesus and steve jobs) but the options market is probably a better discriminator of the future value of tesla since its more institutional.
Looking at this comment I was pretty sure he was a financial person and he is (found a comment for his fintech company). In effect he is making fun of you for thinking with your gut instead of trying to make a more quantitative evaluation.
Most of Tesla's wounds are self inflicted. They made an egregious decision to purchase Solar City and subsume all of it's debt, despite neither company being cash flow positive. They seem to lack concentration in what is the most important part of their business: creating a production line for electric vehicles; throwing up a smoke screen of distractions for other things that might work in the future (self driving cars, trucks).
They also haven't given any realistic plans and have repeatedly exaggerated what they can accomplish.
Sure, the car business is brutal to enter into, which is why there hasn't been a new car company decades, but there is also shooting yourself in the foot.
> Literally everyone knows that...
> again, widely accepted...
Ah yes, the "make wild claims and then say everyone agrees" tactic.
> When asked in the earning call last week about reservations and how many people chose to cancel/take up their car once offered, Musk stunningly called the question "boring" and "boneheaded" ...
The following excerpt is the one instance of the words "boring" or "boneheaded" in the earnings call, as you can see in a transcript at https://seekingalpha.com/article/4169027-tesla-tsla-q1-2018-...
> Antonio M. Sacconaghi - Sanford C. Bernstein & Co. LLC: And so where specifically will you be in terms of capital requirements?
> Elon Reeve Musk - Tesla, Inc.: Excuse me. Next. Boring bonehead questions are not cool. Next?
The question was not about reservations or people cancelling their car, and there was no context to that effect.
Not saying they definitely won't, but it seems plausible to not need more cash.
Even the biggest Tesla bulls, like Adam Jones of Morgan Stanley, expect Tesla to raise cash this year. I have not seen any major analyst say otherwise: to the contrary, all of them do say they need a major cash raise. Goldman Sachs thinks it should be in excess of 3 billion, and up to 6 billion.
Tesla's market value is based on the combination of the brand value and the 'skateboard' that is technically far ahead of others.
Munro Associates did completely Model 3 teardown and report for some customer. Munro said in a interview that had Tesla outsourced the manufacture and design of of the car minus the scateboard to a company like Magna they would have hit every target and even Toyota would be crapping their pants now. If the traditional mechanical parts of the car would have been even decent, Tesla would have mopped the floor with everybody.
If Tesla gets into money troubles, car companies are willing to pay a big chunk of money to get the brand and skateboard and build their own car around it.
Toyota has over 53.84B in cash and short term investments, GM has 21.37B. Either one can buy Tesla (the brand and the skateboard) Musk fumbles. Tesla price has air in it, but the brand has value even if Musk is gone.
As far as I can tell, I can't buy a car from Waymo or GM/Cruise.
I don't mean this as a rebuttal/challenge, but I'm actually legitimately curious: Is it possible to buy a car with better "self-driving" (i.e. lane-keeping, AEB, auto lane changing, etc) than a Tesla right now?
I'm skeptical of this. This is like saying that BMW's 1-series cannibalizes sales of its 3-series. There's a huge difference in comfort, space, performance, and practicality between the Model S and the 3. If a Model S is at all within your budget, even the base Model S is going to be a whole lot more car than almost any Model 3.
Beyond that, there's easy ways for Tesla to sweeten the deal. For me, Tesla offering free supercharging on the Model S but not on the Model 3 had me order a Model S immediately.
Why not just buy supercharging on the Model3?
4-supercharges a week implies ~1000+ miles per week. And its only ~$9 a super-charge last time I checked (https://twitter.com/TheRealPTFI/status/920306238830735361/ph...)
If the car lasts to 300,000 miles at 250-miles per super-charge and $10 per charge, that's $12,000 over the lifetime of the car.
And that's a relatively extreme case. No charging at home, no charging at work, no charging anywhere except at super-chargers for all 300,000 miles of your car's lifetime. An absolutely absurd result but still doesn't make the Model3 comparable to ModelS.
And hell if I'm going to a charger if I buy a car like this. I'm buying a home-charging station so that I don't ever have to go somewhere else to charge. Charge at night every day forevermore.
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Note that the Model S and Model X only receive 400kWh of supercharger credits per year (~1000 miles). So what, that's like $100 / year?? After that, you have to pay supercharger fees.
So its not like your extreme use case even saves much money.
Prices on superchargers were raised: https://www.theverge.com/2018/3/12/17110904/tesla-supercharg...
It's approximately $22 now, and more in places where electricity prices are higher. This raises your estimate to around $24,000 over the course of 300,000 miles.
The 400 kWh of free supercharging is only if you don't have a referral. Buyers with a referral receive unlimited supercharging.
This isn't an absurd number, either. There are commuters, salesmen, and others that simply drive a lot who easily manage 50,000 to 100,000 miles in a year. (There are hundreds of 2015 and newer cars on AutoTrader currently with over 300,000 miles). But you don't even have to drive that much for it to be worth it. The Model S has an 8 year powertrain warranty with unlimited mileage (which the Model 3 does not), over the course of which you save about $10,000 for every 100,000 supercharger miles you use.
Even today, if you want a Tesla sedan NOW, you need to buy an S (or an X, if you're looking for an SUV). Once the 3 burns through the existing reservations (which I suspect may happen fairly quickly, given that many people will choose to hold out for the $35k unicorn), then new buyers who want a car within a period of weeks will be able to choose.
So assuming you mostly charge at home (with a 300 mile range each day), seems like needing supercharging would be pretty rare, like say the occasional (over 300 mile) roadtrip.
So you buy a $100k car instead of a $50-$60k car to occasionally save $10?
Fixed costs don't scale with production because they're fixed.
If variable costs are nearly all the cost of production, then scaling production doesn't fix anything.
It should be more clear on what they mean finance-wise there.
They now as much as the next guy on hackernews or reddit..
How about old good "wait and see what happens"?
Tesla’s electric car plumbing seems to be fantastic but they can’t make a good car on top of it (at volume, price, quality, and on time). Selling their tech to someone who knows how to do that would be an amazing combination.
I suppose they could go straight licensing too.
But I think it’s clear they can’t continue as is, they’re doomed that way.
If you can make me a TRON-like one-to-two seat motor pod, for around $10,000 then you can take my money.
Sincerely, The Guy Who Really Wants a TRON-like One-To-Two Seat Motor Pod