I'm Betting on Elon
danielodio.com
danielodio.com
Talking about long-term bets, it would be interesting to read about how the electric car future might tie into the driverless car future. My understanding is that we'll have many fewer cars around in the driverless future, even if the cars that we do have are electric.
Almost all of the criticism I read of TSLA is regarding their financials. There is a lot of room for sentiment and investor confidence to improve. Things I care about(like Elon's track record & ridiculous amounts of ambition, improvements in battery technology, not using dealerships, the supercharger network, etc.) don't ever get mentioned.
Wall street seems to care about whether they'll be able to meet production goals, the amount of cash they have on hand to continue operations, etc.
Most importantly, as more consumers take delivery of their Model S' I'm expecting investor confidence and awareness to improve. They'll "see" the demand with their own eyes. My father is already mentioning to me that his friends are seeing Model S' pop up around town and people are talking about them. They want to know what it is. It's extremely common for retail investors to buy stock based on products that they see being used.
You're right in that I'm betting solely based on investor confidence improving. In my opinion, there is no other metric on which to price a stock.
I got out because I was up 20% (my target when I initiated the position) and my trailing stop was hit around the time the NYT story came out. I had set the trailing stop prior to earnings because their earnings typically lead to sell-offs because they aren't profitable (yet) and they were going to come up short of their initial estimates for cars delivered 2012 (even though it was revised down, people would still hold it against them). It had had a nice run in the weeks prior, so a correction seemed reasonably plausible anyway. It's just how the market goes, and I figured (correctly) that even if my stop got hit, it meant I would have an opportunity later to get back in at a lower price.
I believe in Tesla, but I also realize that there are going to be dips along the way that I can capitalize on. I think they'll turn a profit this quarter, and if they keep on track, their earnings reports won't be as volatile (at least in the negative direction) and I won't sell beforehand.
It's so heavily shorted that there's a possibility of a short squeeze, which I would find quite delicious - not because I own TSLA, but because I want to see people hoping for failure get screwed.
Furthermore, shorting a stock can harm the firm. Big short positions drive down the stock price, which affects public sentiment (their stock is down, they must be failing, I won't buy their car because they may not be here next year), makes it harder for them to retain employees, makes it harder to raise money by issuing more stock or bonds, etc. By shorting a stock, you are contributing to that company's failure (though of course the effect is miniscule for retail investors like me).
I would not buy even a undervalued stock for a tobacco company, because I don't want to support producers of tobacco products. And I don't want to impede progress in electric cars by shorting their producers, even if I think their stocks are overvalued. There's plenty of other investments available that align my finances with my hopes.
Short selling provides more information and better liquidity to the market. It's a good thing.
I agree that short selling is overall a good thing, though it can also be abused (e.g. naked shorts). I am not claiming any market abuse in the case of Tesla.
Most people do not buy individual stocks based purely on a risk calculation. They also want to believe that the firms are working for good, not evil, because buying a stock means you own part of that company, and therefore are in some small way responsible for its actions.
Short selling is the same, but in the opposite direction. You own a negative fraction of that company, and so your moral relationship to it has a minus sign. I think that Tesla is a good company. But some people think that owning no TSLA is still too much, and I hope they get burned (financially).
As an aside you may enjoy this article written by an old professor of mine that goes into some of this tangentially. Ignore the snark - it's just his personality/sense of humor http://leedsonfinance.com/wp-content/uploads/2009/06/market-...
Not really sure what makes you think this. It's no where close to a short squeeze.
What makes you think this is the case?
I believe the ingredients for a TSLA explosion are in place: small free float and large short interest. It just needs a spark...if press reaction is very positive, analyst upgrades would shortly follow. Retail investors will flock to the stock, followed by some institutions. If the latter is true, there would be no free float left.
In that scenario, short sellers would have to cover their positions, but be unable to find the shares to do so, resulting in a big (but temporary) stock blow-up.
I compare it to companies who take out life insurance policies on their low-level employees, sometimes called dead peasant insurance. Would you want to work for a company that has a financial interest in your death? What if they told you that they believe in you, they really do, but the life insurance was so cheap that it was a superior risk-reward decision?
I would still say the company is wrong to do so: you should not bet against what you believe in, no matter how good you think the bet is. The stock market is not a game, and weaponized short selling can and has destroyed companies.
This is actually a flawed view, because it assumes perfect information by all market participants. George Soros goes into quite a bit of detail in the second part of his General Theory of Reflexivity. You should read it.
http://www.ft.com/cms/s/2/dbc0e0c6-bfe9-11de-aed2-00144feab4...
Relevant excerpt:
"Let me state the two cardinal principles of my conceptual framework as it applies to the financial markets. First, market prices always distort the underlying fundamentals. The degree of distortion may range from the negligible to the significant. This is in direct contradiction to the efficient market hypothesis, which maintains that market prices accurately reflect all the available information.
Second, instead of playing a purely passive role in reflecting an underlying reality, financial markets also have an active role: they can affect the so-called fundamentals they are supposed to reflect. That is the point that behavioral economics is missing. It focuses only on one half of a reflexive process: the mispricing of financial assets; it does not concern itself with the impact of the mispricing on the so-called fundamentals.
There are various feedback mechanisms at work which may validate the mispricing of financial assets, at least for a while. This may give the impression that markets are often right, but the mechanism at work is very different from the one proposed by the prevailing paradigm. I claim that financial markets have ways of altering the fundamentals and that may bring about a closer correspondence between market prices and the underlying fundamentals. Contrast that with the efficient market hypothesis, which claims that markets always accurately reflect reality and automatically tend towards equilibrium. There are various pathways by which the mispricing of financial assets can affect the so-called fundamentals. The most widely travelled are those which involve the use of leverage—both debt and equity leveraging. These pathways deserve a lot more research."
For example, Tesla used to lose $30M a month. Last quarter it brought in hundreds of millions more in revenue, but still lost ~$30M a month. At some point, they hope to stop losing money, but then they're about to create two new products which will also incur large R&D costs. To date, Tesla has lost about a billion dollars, or $50K per car sold, assuming they sell 20K cars next year.
So to a consumer, Tesla's cars look amazing compared to what else is on the market (after all, they're losing money on each one, which their competitors are unwilling to do); to an accountant, the company looks worrysome, and to an investor, the company looks like either a tremendous deal or a fantastic lemon, depending on the investors views about the size of the market, competition, and ability to control costs. At current rates, they will have more liabilities than assets three months.
Once Tesla can reign in their costs they can rewrite this story, and there's a good chance they can. Whether they can make electric cars more cheaply than mainstream automakers in the long term is, in my mind, an open question.
There will be an experience curve for the manufacturing which will lead to it becoming increasingly productive and cheaper http://en.wikipedia.org/wiki/Experience_curve_effects#The_ex...
As a comparison Boeing is reported to have an experienced a curve of 84% (costs decreasing 16% every time production units doubled) on the 777. Tesla doesn't have the legacy manufacturing infrastructure and can use far more automated methods, especially if they manufacture a large amount of the car themselves instead of outsourcing. It will be interesting to see what Tesla's numbers turn out to be.
If I build a plastic mold for $2 parts, and the mold costs me $100,000, you don't say that I lost $10,000 per part for the first 10 parts.
So something must be improved--either expenditures need to go down or gross margin needs to go up. Meanwhile, the average selling prices of Teslas will go down as early adopters run dry, even as R&D and capital expenditures on other models ramp up. At 25% gross margin, though, they can recoup their billion dollars in only three years.
If they're indeed flying in tires from the Czech Republic it sounds like there's a lot of low hanging fruit in the cost department, but it's quite possible Tesla has just built a more expensive car than they thought they were making. I suspect it, in fact. I'm not sure they'll be able to avoid going back to the public markets for more money this year if they want to expand their product line.
I think the interesting question is whether incumbent manufacturers will produce an equivalent auto lineup at less cost, or not. Many competitors, like Mercedes, BMW, or Ford, have existing labor, plants and tooling they could leverage for electric vehicle manufacture. Some have been in business for a hundred years. If the answer is no (market is too niche, existing plants are too old, incumbents lack the skillz) I think Tesla may be a viable entity. However, I think mainstream manufacturers have stayed away from aggressively creating new hotness in the vehicle market because they don't yet see any profits there. Their approach has been conservative, and I think the reason is that conditions are not yet ripe. Tesla was founded ten years ago; timing is everything.
"Are there that many luxury car buyers out there who are willing to live with the limitations of an electric car? It seems doubtful to me."
Limitations? What limitations? I've been driving mine for 2 months and it's been a freeing experience. It doesn't go as far? My old ICE didn't go as far on a tank and required 10x the cost to fill up. I no longer feel guilty about driving to the grocery store a few miles away because I know I'm running my car at it's least efficient state. I just took a trip this weekend to some relatives in another part of my state (GA) with no concerns about range or having to compromise to extend it. Google Maps in the car has already saved me many times from heading into bad traffic (I would never remember to check traffic on my phone beforehand).
Honestly, if I'm being limited in some way, I'm not seeing it.
They are overwhelmingly obvious. The simple fact is that 'filling up' is harder to do- there are far, far fewer stations, and the actual act of charging takes a not inconsiderable amount of time. The cost argument is valid, but the point is that luxury car owners are less likely to worry about the price of gas, given that they are already rich enough to buy a luxury car.
I'm not saying you are wrong in your assertions, clearly the car suits you well. But to suggest that there are no limitations flies in the face of all evidence.
So 80 miles should be considered a limitation, no?
How I wish we had such an entrepreneur in Europe, someone willing to shake the status quo and speed up the process of making the future happen.
Tesla is a company that is trying to make AMERICAN electric cars, he should encouraged and cheered. People with some money and liberal views should be jumping on those cars, it's History in the making, a true revolution. I really hope he suceeds, that'd be an encouraging sign that science and technology can actually have a good impact on climate and consumer practices vis à vis greenhouse gases and the approach to modernity.
Is that not happening already? From the article: "Tesla's current market value is 250 times higher than it would be if it were being valued as a car manufacturer rather than an idea whose time is about to come." Of course, we're also talking about a company that received a $465 million loan from US taxpayers so it's not like we're hanging him out to dry.
I don't know, I might just be naive about this but god, if Tesla were a French company created by an awesome entrepreneur from my homeland, I'd be over the moon and overlooking the little mistakes, the agitation over the tiny tremors of the stock market.
Tesla Motors is bigger than "reports from the market", in my opinion it's a total game changer in a world that hasn't evolved much in the past 40/50 years (at least in terms of groundbreaking mutations in the core technology), the automobile industry and something that I am (obviously) really excited about. Tesla speaks VOLUMES in the rest of the world about America's capacity to still be #1 in terms of science, innovation, vision at the beginning of the 21st century, I just wish people were more enthusiastically backing the company at all times, this is something the USA should be proud of.
Then again, the article addressing the financial/economical aspect of it all, which makes my comment off-topic and on the "that's cute" side :)
A vastly more effective approach would be to encourage and cheer those trying to wean America from its addiction to automobiles....
Elon does cool things, but it's not clear Tesla really represents a desirable future.
Less harmful would be advancements in public rapid transit systems. Though there is the hyperloop which Elon hinted at in the past. Let's hope that works out :).
Isn't he supposed to publish about that soon?
The only real alternative is either a) making the Bay Area a less desirable place to live or b) allowing higher buildings. The Bay Area has chosen c) neither, which leads to d) the concomitantly higher prices that go with it.
Edward Glaeser's book The Triumph of the City has a useful discussion of these issues.
Siemens, a German company and Alstom, a French one both have the technology to make 200+mph on a train happen in the USA.
The West Coast for example could and SHOULD have a HST from Vancouver to San Diego. By car that's roughly a 1400 miles trip or something like a 15 hours drive (give or take). With a HST, that suddenly becomes a 8 hour trip with next to no greenhouse gas emissions per person while everyone just chills out browsing the interwebs in a comfy seat.
Same for the East Coast, there should be some sort of East Coast HST as well (something to the tune of Boston -> NYC -> Philly -> DC -> somehow down to Florida or some other route, I don't live in the States).
If Germany, Spain, France, Japan and China have that, there's no reason why the USA shouldn't be able to do it as well.
EDIT: By saying that I am not implying that the "middle of America" should not benefit from HST as well, but its population density and sheer size makes that less cost-feasable.
http://en.wikipedia.org/wiki/Acela_Express
There is a HST system under development in California, with the first segment planned for completion by 2017, with the rest scheduled in just 25 short years:
If anyone wants to read more about this:
http://en.wikipedia.org/wiki/Acela_Express
The "Criticism" section highlights how the current rails infrastructure in the USA currently places a limitation on the speeds the train can achieve. Still a reasonable good experiment. With President Obama's mention of the structurally deficient bridges in the States, maybe it will change for the better. I surely hope so.
While that's true, it's also not happening: the only real way it might is through considerably higher density (which I support, both through the removal of urban height limits and mandatory lot setbacks), but across the world density has actually been declining for decades, as Shlomo Angel shows in Planet of Cities:
New empirical evidence on the average population density of cities across space and time confirms that these densities have been in decline almost everywhere for a century or more. The new evidence is counterintuitive, since numerous academic researchers believe that urban densities have been on the increase. Were that true, it would lend encouragement and support to those favoring densification. However, urban density decline has been persistent and global in scope, and it predated the automobile. It is not restricted to the United States or other industrialized countries, but is pervasive in developing countries as well. [. . .]
You should support greater density, bike lines, etc., but in reality we're going to be relying on car-based transportation for the foreseeable future—which means decades at the very least.
Again, I would like to see more cities that allow and encourage non-car transport, but I haven't seen much of it, and current property law prevents people from actually building those kinds of cities.
Well, maybe you (and much of the U.S.) will be. Not me or my friends in Europe, China, etc, though....
Anyway, the fact that there's a long way to go (in many places) makes it all the more important to push hard, and soon. Part of the issue is that even though many countries haven't sunk to a level quite as low as the U.S., they still ironically look to the U.S. as an example, so when the U.S. does something bad, the effect is magnified.
... and yeah, getting rid of idiotic zoning laws is an important part of the solution.
Fun fact. Italy has a very extensive non-car infrastucture, particularly trains. Yet I have dozens of friends and relatives in Milan, Rome, Rimini, and the countryside of Emilia-Romagna. Every single one of them has a car, sometimes two.
The same goes for Northern Ireland.
Tokyo has probably the best public transport system in the world, and automobiles have a ridiculously low mode-share for a modern city (12%), but car ownership rates are, relatively, much higher (approx. 300 cars/1000 people). Many people own cars that they use "occasionally," when it makes sense, not as their primary means of transportation. If those people all suddenly lost use of their cars, what would happen? Not much really; the city could cope easily.
All of Musk's recent ventures (Tesla, SpaceX and even SolarCity) have been heavily subsidized by government (federal, state and local). It certainly seems like there has been a lot of cheering and a lot of positive thinking. Siemens is even running a TV add where they celebrate SpaceX's success.
I hope he succeeds, but when it comes to investing money, I don't want to make decisions based on hope.
In 15 years electric cars will have much more market share, question is, will Tesla still be there leading the pack?
Maybe they can reverse acquire some ailing car company ;)
I do use a few addons (Flashblock, Adblock plus, Ghostery) that possibly could cause side effects, but since Chrome also causes problems for some I doubt that it's a Firefox specific bug.
Thanks to everyone for the detailed info-- really helped me a lot.
For those interested, here's what happened:
When someone goes to a SETT blog, the first thing we do is fire off an ajax call to see if we can set a 3rd party cookie. If we can't, we bounce to a page on sett.com that sets a cookie and then redirects back. In some cases, like Safari with default settings, this allows us to use a 3rd party cookie.
To prevent infinite looping in cases where 3rd party cookies can't be accessed, we add a query string to the URL, telling SETT to skip the cookie check.
However, the old way we were doing it was just appending ?_ to the URL, rather than parsing it out and taking into consideration the query string of the URL.
This URL was submitted with a trailing ?, which made the query string ??_, which didn't properly skip the cookie check. Thus... infinite refreshes.
I think TSLA is richly valued and I would not buy it now (nor do I own shares), but saying it should have a similar P/S or EV/FCF to F is like saying that VMWare is overvalued by virtue of it having a higher valuation than HP.
- critics don't understand the master plan
- I'm betting on CEO X, and the market just doesn't understand him/her
And I am amazed to see the "relentlessly resourceful" tag be dropped casually in here - even if the author is part of the SV-mafia its still amazing what impact one mans' essays are having.
So that makes two people to bet on ...
One problem with that analysis is that they have overpromised and underdelivered a bit in the past.
Another issue is that they only got 6000 new reservations in the last quarter. For them to have significant growth they need a lot more. And this is in a quarter where they were awarded car of the year and got fantastic reviews (except that NYT one).
I bet these reasons, combined with a standard sell-off of a stock that has increased by a lot the last quarter, and that you now really have to be patient for another or two quarters before anything significant happens, is why the stock is down today.
Personally, I am disappointed by the number of new reservations. I think it is far too low for a car with such stellar reviews.
I had hoped they would have more than 20000 reservations currently. 15-16000 is not even enough to use their full capacity for the year, so they need to start selling more.
I had also hoped the production rate would have been higher. 400 cars per week is also not enough in the long run. Elon talked about reaching 500 by the summer, and that really isn't that great. He also said that theoretically they didn't need to get more reservations in 2013, as they would have enough to use up their capacity. That also worried me.
I have seen analyst say they will produce 30000 cars in 2014. If that is the case, the share price is really not going to move a lot from current levels. Because the growth is just too small.
So I think a lot of shareholders feel like me, that the growth isn't significant enough.
I guess we need to wait another couple of quarters before we can say anything.
To put their numbers in perspective versus their losses and debts, they want to sell nearly twenty thousand cards this year. Mercedes sold more than that in January just in the United States. Toyota sells that many cars in four days, US alone! There are also stories about supplier problems, something small volume cars suffer a lot.
Sure the luxury market doesn't put up those numbers but the brands there are well established and storied. Tesla is neither.
Tesla's fate is probably to be bought by Mercedes or similar. Someone who has the ability to put a large number of these on the road, with a large support network, and a trusted name
Really? I can't think of one.
I would not bet on TSLA the stock just yet. They can be successful and profitable and yet still not come close to the current stock price (P/E contraction, future equity dilution). Most importantly, the thing which stemmed the drop today was a short-sale restriction (a circuit breaker after it falls 10%)
What would be a buy signal for me is when the car cost can be brought down to the 35-40K range (which, based on reports from mercedes benz and bmw, is the most profitable segment)
EDIT mkt cap: Ford 47.24B https://www.google.com/search?q=f Exxon 398.83B https://www.google.com/search?q=xom
http://theage.drive.com.au/motor-reviews/worlds-most-efficie...
Since it gets 261 MPG, I can drive across the entire United States and only make one stop for refueling, using around 9 gallons of diesel for the whole trip. Driving with a friend at 60mph and bringing a sack lunch, we can even make the trip in only 38 hours since there will be no overnight recharging stops.
And when the 5.5kWh Lithium Ion battery fails, it will only cost 1/15 the replacement cost of a 85kWh Lithium Ion battery.
I guess that's what you call contrarian investing. Sometimes that works just fine. Sometimes that doesn't work so well. People who have extra money to buy speculative stocks can make their own call on this, I guess.
I found it interesting that there were many news reports about the Tesla fourth quarter results call yesterday.
"Tesla 4Q net loss widens on costs for new car"
http://www.businessweek.com/ap/2013-02-20/tesla-4q-net-loss-...
"As Tesla Eyes Profit, Elon Musk Wants to Punch Himself in the Face"
http://www.businessweek.com/articles/2013-02-20/as-tesla-eye...
"Loss Widens at Electric-Car Maker"
http://online.wsj.com/article/SB1000142412788732354920457831...
"Tesla’s Earnings Indicate Some Customer Cancellations"
http://dealbook.nytimes.com/2013/02/20/teslas-earnings-indic...
"Tesla posts revenue of $306 million, larger-than-expected loss"
http://www.latimes.com/business/autos/la-fi-hy-autos-tesla-2...
So, yeah, some investors will read all that and still bet on Tesla's stock having a rising value over their investment time frame. But customers who are thinking about buying the car might wonder if the company has enough financial strength, while losing money on every car it sells, to provide long-term customer service and the promised completion of the Supercharger network, etc. If it's your money, spend it how you like, but be sure to diversify for maximum safety.
I think the company as a whole executes brilliantly, but I decided to allocate a good chunk of my (measly) portfolio to TSLA as a result of Elon's track record and vision.
I wonder if we'll soon see a prospectus for the "Musk Fund" containing only companies that he's been involved in...
(I block 3rd party cookies)
I have third-party cookies blocked.
really? maybe eventually. we are a ways off from mass market all electric vehicles.