Tesla Mania vs. Economic Reality
axios.com
axios.com
A quick skim of the article makes no mention of Tesla's other businesses.
Here's a thought experiment. It's not a realistic one and is not supposed to prove that Tesla is not overvalued, but just out of interest, I'd like to see some responses.
How would you value a company that has $10,000 profit this year and is expected to grow in profit 50% each following year and this growth would last infinitely?
What about a company that is expected to grow 50% each year until $1T profit?
It's even possible Tesla will eventually improve it's P/E ratio by at least 50x to reach a more typical figure. That's also quite plausible, after all the big car giants now weren't always world dominating conglomerates. No problem there either from me.
Where I think the current valuation departs from reality is the time it is likely to take to do that, and the risk that it won't happen at all. The current valuation only makes sense if that 50x ramp up in scale is pretty much guaranteed (not 10x, not 20x, but 50x at least) and will also happen in a few years. Technically they could be betting that the growth will be a lot more even than that, far bigger than the current entire car market, but with increased risk I suppose. I don't think that's what's happening though.
What's actually happening is these recent investors over the last 6 months have simply bet that the Tesla share price will shoot up in the near terms and they'll be able to flip the stock to turn a rapid profit, and they've been right. They've made no bet at all on Tesla's long term prospects. That's why Elon tweeted a few months ago that he thought the stock was over-valued.
https://www.nasdaq.com/market-activity/stocks/tsla/price-ear...
So, you really need to predict when that stops before you can get a reasonable estimate for sock value.
A more reasonable 144x in 2022 after 2 years of ~40% growth is the equivalent of ~282x today. That’s not exactly the huge drop people are expecting. In other words I do expect a drop, but I don’t expect short selling is a great risk adjusted investment.
So I guess that's what the grandparent meant.
Link: https://ir.tesla.com/
However, none of that supports the insane increase in Tesla’s stock price over the last 2 years. That’s likely an artifact of so many short sellers which ironically drive up the price faster if a stock starts to rise, and with a 40% increase in revenue in 2020 some rise would be appropriate. As the saying goes the market can remain irrational longer than you can remain solvent.
Not to mention the biggest benefit of EV’s is charging at home.
BTW: From what I understand, gas stations don't make much profit from the gas. I suspect the same kind of economics from operating a car charger.
https://www.sec.gov/Archives/edgar/data/1318605/000156459020...
If you go back in time, value investors really dig into companies to try to understand their current and probable future values.
Also, I believe it was rare or never that companies could pull off an IPO without some history of profitability.
At least since the dot-com era, hype-only (no valid financials) IPOs became common.
I suspect the whole VC funding ponzi system had something to do with this. Uber was my favorite example... years of never-profit, but rather multiple higher rounds of funding and then IPO.
But at least in the case of Tesla, they not only have managed to build actual cars that sell well, but more importantly they are a battery company. This last bit is probably a big part of their future valuation.
They are talking about pumping up a stock and unloading it on some working class rube (well, thousands of rubes) who topped out at the education + service tier.
This is viable exit strategy for many.
The best advice I have ever been given: Just ignore the market noise. Invest in a broad ETF and stay in for as long as you can, don't look at your balance until then (which I still do).
What would you pay for a company that currently has profits of $10,000, but is guaranteed to grow each year 50% until they have $1T in profits.
If possible give a numerical value please, what you think a) The company is worth currently b) How much would you pay for 1% of this company's stock?
You could also ask: how much would you be willing to spend right now to receive 1 billion in 46 years?
Are you allowed to cash out earlier? Can your children inherit it? Can I borrow money to buy this guaranteed payoff?
http://aswathdamodaran.blogspot.com/2020/01/an-ode-to-luck-r... (in video form at the bottom if you prefer)
So the question you are asking is what are rates going to be for servicing debt over the next 20 years? If rates go up to 8% 50T is probably too high for the stock.
The reason TSLA's stock is so low currently is because there is no guarantee that it will continue to grow at the same rate over the next 15 years.
I guess my point here is to figure out how companies should be valued. I think to accurately value something you will need to estimate different most likely timelines and endings for a company and come back from there.
I feel like anyone who does a blanket claim of TSLA or any other stock being overvalued has not done such calculations. Also I am not claiming Tesla is not overvalued, but just that you can't be this sure without doing those calculations.
I am finding it so hard to find someone to have this discussion with.
If TSLA was $100k/share today then yes it would be overvalued. Just like if someone was paying $100k/month for flood insurance on a 200k house in the desert that would be stupid.
For my analysis Tesla has a decent chance at building a 25k profitable EV and 5-6 other models at scale and succeeding in Autonomy within 5 years. So I'm comfortable buying today at anything below $1200.
It seems like FOMO and it is, but I think it is very reasonable.
I don't invest in Tesla because I hope to double or triple short term, I just want to be part of what might very reasonably happen.
They make damn nice products, but I feel like you aren't really getting for what you think you're paying for.
The FSD option isn't a real thing yet. You've effectively paid for a promise of a feature (if they ever deliver it?). While I do see the value in the data they've collected, I haven't been very impressed with their autonomous driving promises.
Before there was FSD, 'autopilot' is what they marketed as their driverless offering.
Yes, that is exactly how an ETF is supposed to work. If you don't like it, don't buy ETFs. There's hardly a shortage of investment options out there.
Perhaps what you’re thinking of is a margin call, which you can avoid by leaving cash in your account. If it becomes too expensive you can sell some long positions to cover.
Many people will not have any say or choice in these type of funds investing their money.
Maybe the market's valuation is a lot of people betting on Tesla being able to scale up dramatically in a pace that current car manufacturers will not be able to catch up with. Not entirely unthinkable.
It is definitely true that the US market cap has become "decoupled" from its current economic output, but as you say, that is a (rationalised) prediction about the state of affairs in the next year or three, it's not "oh no everything is cer-aazy!"
We're in the middle of a turning point in the car industry. I'd wager in 2-3 years sales of electric cars will already be a sizeable chunk of the market. Within about a decade electric personal cars will take over sales of petrol cars. But nothing suggests that VW, Toyota etc. would not be any less apt at producing electric cars than Tesla. On the contrary, the established players have a MASSIVELY superior pre-existing production capacity and expertise.
[1]: https://www.reuters.com/article/us-tesla-batteryday-producti...
They need batteries for those cars. Are they also investing in battery production?
The form has not standardized, they evolve quickly, they can not be purchased in the volume required by all producers, and a better battery and matching charging infrastructure is a major competitive differentiating factor among EV manufacturers.
Tesla is not without its problems, but I think it's a bit naive to focus on the solved problems as limiting their potential. It's also the wrong thing to look at - Tesla is concerned about dictating the future of transportation and energy, selling cars is a means to an end.
Checked Ryan Brinkman's rating: https://www.tipranks.com/analysts/ryan-brinkman
Not very great performance...
On the other hand:
"Yes, but: Tesla makes cars, but they could also be categorized alongside pure tech or electric vehicle companies. It is early in the "golden age of EV playing out globally," says Dan Ives, an analyst at Wedbush Securities."
Dan Ives rating: https://www.tipranks.com/analysts/daniel-ives
Everyone can draw their own conclusions, of course.
[0] https://markets.businessinsider.com/news/stocks/tesla-stock-...
https://markets.businessinsider.com/news/stocks/tesla-short-...
If you are less confident about it you can buy a put to limit your downside risk.
It will only come back down to reality after Apple hits the market and we see the true competitive numbers across the car makers (or until Toyota goes harder at EV), but until then, it’s a future-minded investment into a sector where we are expecting stronger players.
It would be the same as being 10x bullish on cellphones years in advance with the belief that smartphone companies will validate the market beyond our wildest imaginations.
They (Big Fossil) are not evil as long as they pay these “media” houses cozy bribe.