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Comment by cs702 | Hacker News Reader

Tesla's stock price at present reflects and is driven primarily by the exuberant optimism of its shareholders, not by mundane financial details like how many millions the company lost or how many cars were sold last quarter.

Consider that despite today's drop, the stock price has gone up 4.6x this year (from $33.87 at year-end 2012 to around $155 right now), but over the same period the company's quarterly revenues have increased only 1.4x (from $306 million in Q4 2012 to $431 million in Q3 2013).[1]

The future of a young, highly innovative company like Tesla is so uncertain that shareholders have little choice but to rely primarily on speculation and emotion rather than on analysis of (limited) facts to estimate the present value of the business.

PS. I'm a HUGE fan of the company and Elon Musk, and want them to succeed beyond their wildest dreams.

[1] Quarterly financial results are posted on http://ir.teslamotors.com/events.cfm

Edits: added third paragraph; grammar.

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If your first sentence were true, then the stock shouldn't have been affected much by today's news. Instead, it fell significantly.

The price of the stock has to do with how much money it might make in the future, and where they are on their growth trajectory. The news today signifies that the trajectory might be lower overall, or they might be further behind than investors thought.

The stock is up $1.61 on the day, the stock did not tumble, what tumbled was wall street's interest.

What we're talking about is the after-hours trading price of the stock. It will open tomorrow at the new, reduced price.

> The stock is up $1.61 on the day, the stock did not tumble, what tumbled was wall street's interest.

Up $1.61 at the closing bell, then down $22 after-hours, equals down $20.

Quite a substantial move for a $176 stock -- at least, it was a $176 stock at 4 o'clock on November 5.

[I don't currently own any stock or options in TSLA]

Sort of and sorta not. There is a tremendous amount of speculation in Tesla stock. That came about from a number of people making very large bets against and for the company (option trading is quite active for such a 'young' company).

The stock is "priced for perfection" which is to say it is priced at a value that only makes sense if Tesla meets every objective, has no missteps, and doesn't run into any technical or legal issues. Consequently there are lots of people who have various hedges in place to sell stock if it goes down, or buy covering options, etc. Thus any news tends to be magnified on this stock.

Had it not been priced so tightly the effect would have been more inline with other companies when they announce results. (a 3 - 5% change on "news")

Disclaimer: I have no idea how a stock is prised.

Is the stock prise directly related to the revenue/losses of the company? If this is true, couldn't the losses be explained by this:

>"Production in the quarter significantly exceeded deliveries in order to fill the pipeline of vehicles in transit to Europe and provide cars for service and marketing uses."

Probably by a long shot (considering so many uncertainties in my logic), but it seems to me that they simply loss money, because they needed to fill the stores in unexplored markets, which resulted in stock prise decline and not that significant one (as already pointed, the stock went up 460% just this year).

Edit: 38M is roughly equal to 470 Model S cars on average of $81k. If their production cost is 50%, this means about a 1000 cars could make up for the losses. And when you include the Supercharger network (do they make any money of that? and how much does it cost to build these stations?) and shipping of all extra production (without an order) to Europe it kind of seems reasonable.

> Is the stock prise directly related to the revenue/losses of the company?

Yes. However, expectations are more important than past behaviour, especially in new businesses. People buying Tesla stock are guessing their growth/earnings trajectory, and if reality deviates from that they'll sell (simplifying here, obviously).

Stock is priced like anything else: what people are willing to pay. In theory a stock represents a share of a business, and so its price is a bet on the lifetime return of the stock at the time of purchase -- if you pay $100 for a stock today, you expect the "net present value" of that stock to pan out to at least the net present value of $100 invested in something really safe (e.g. in treasuries... oh wait, hmm... gold, er ah no... in C-notes under your bed).

The scary thing for me with Tesla stock is primarily the risks in going to large scale mass market cars, as well as the risk of another car company, or another startup, emerging to win the mass market EV space.

If another company came up with a dual-powered version of the Tesla, then I would definitely buy that. The current round of plugin hybrids don't offer enough battery-only range for me. I'd like to see about 100 mile battery only (in case I forget to plug it in), plus a small engine and 10-gallon tank. I wouldn't think the gas engine would have to be that large, especially if it were designed to use the battery as a buffer (i.e., it would only need to have enough HP to maintain highway speed, and acceleration could be handled by the battery).

Which brings up a question -- how much horse power is needed just to keep a car cruising, without accounting for acceleration? Edit: just looked up on Wikipedia, the Model S gets 100 miles per 35kWh. So that works out to (assuming 65 mph) about 23 kilowatts average continuous output, or 30 HP. Considering that many car engines are 300 HP, I don't see a 30 HP engine being that extreme.

Depends a lot on speed, the shape of the car, and other factors, but on the order of 10-30 HP for something like the Model S at 70mph I think.

I still really want a hybrid truck, running diesel, with the ability to seat 2 people, secure cargo space (like a custom bed with lockboxes), 4wd, and the ability to run the engine for a week or two in place as a generator (e.g. at a remote comms site). Run the engine during the day to keep the batteries charged, operate at night off battery.

VIA Motors is the closest thing to this that I know of: http://www.viamotors.com/

Sadly gasoline/petrol vs. diesel. I really want diesel so I can store/transport reasonable amounts of fuel; I avoid messing with gas.

I wonder how it would deal with towing. That I6 would be inadequate for peak towing, so it would depend how often a truck going up grades, offroad, etc. and towing would need battery augmentation.

The problem is that it's not just the engine. If you want an engine then you need a fuel tank, emissions controls, either a transmission or a separate electric generator attached to the engine, etc. All of that stuff adds weight and cost, or reduces the space, weight and cost budget you have for batteries and electric motors. By the time you've paid for it you might as well forget about the 30HP engine and put in a 100HP engine, at which point you have a Prius.

If what you want is a fast luxury hybrid, there are already high-end Lexuses (Lexii?), but I suspect you'd not like the range as much. Porche are also pushing hybrids, but again for performance, they're using the petrol.

The WEC is pushing supercapacitors into the hybrid drivetrains as a superior method of scavenging (but not storing) energy.

>I'd like to see about 100 mile battery only

electric/batteries works great for start/stops. For highway cruising, which 100 miles range would probably include a lot, internal combustion engine isn't that bad. I'd expect that there isn't much practical difference efficiency-wise between 20-30 miles battery range hybrid and a 100-miles range one, especially considering that the latter would be carrying additional at least 200kg of batteries.

I think we will start to see cars' internal combustion engines which are specifically targeted to work only as generators, i.e. highest efficiency only for specific rpm value - current ICEs available are "wide rpm and load range" designed to be a primary engine of a car. Volt (and Karma) as far as i understand have such generic engine, not a "generator" one. Dropping a lot of old requirements and having the ability to match generator to the engine, we may see very different engine types coming in which would match new requirements much better.

I think the danger is in the big automakers getting EV right, before Tesla reaches the middle and low end of the market. Nissan has the Leaf, which is by most accounts, a great little car. The Chevy Volt is the best-selling in my neck of the woods, it seems. Tesla makes better electric cars...as far as the reviews indicate. But, they're also much more expensive.

But, here's the reason I just placed a limit order for tomorrow morning (I'd check into TSLA a couple of times this year and thought, "Nope, still trading too high."): Tesla is currently selling as many cars in a year as Chevy sells in three days. So, the stories I can envision in my head for how this will play out are one of the two:

1. Tesla will fail to scale up. They will not be able to continue executing on their business plan effective. Growth will halt. The big auto makers will gradually move into the EV market. They will use their leverage as larger players with more money to throw around to beat Tesla on the battery front and on manufacturing costs. Tesla will remain a bit player, and be bought up for patents in a few years. The stock will not do well, long term, in this scenario.

2. Tesla will continue to execute well, if not flawlessly as they have done up to now (let's be honest, Tesla has an amazing record of doing the right thing at the right time). They will continue to grow at a very rapid clip. They will enter new markets. They will sell more cars than they can manufacture (and maybe more electric cars than anyone else can manufacture also, due to the current limited battery availability). They will continue to execute well on battery acquisition and development. They will continue to execute well on solving the cross-country EV trip problem...before any other manufacturer. And, they will become a major automaker. The market is huge. They're less than 100th the size of Chevrolet or Ford. That's a lot of room for growth, even with their share price being hundreds of times earnings (yes, it really is a very expensive stock, in that regard).

So, my primary question is: Will they execute really well. History says they will.

And, my next question is: Will I get other chances to buy at a discount over what it's trading at now? I don't know. I've regretted not buying stocks in the past due to it looking really expensive. I put off buying GOOG for a long time. Watched it from IPO on up to $750+. Then it went on sale for $340, and I backed up the truck as well as my stock portfolio would allow (so, I'm currently approaching a triple bagger on GOOG). TSLA is no GOOG. Probably never will be. But, it's potentially a much larger company than it is today. I'm willing to bet a few bucks that it will be. But, it is definitely gambling and not value investing.

They will sell more cars than they can manufacture (and maybe more electric cars than anyone else can manufacture also, due to the current limited battery availability). They will continue to execute well on battery acquisition and development.

This battery supply thing reminds me of this story: http://qr.ae/N0Uxr

That takes balls. And, possibly a bit of stupidity.

Not really much stupidity. Corporate limited liability. He placed a bunch of orders and bet his company on the outcome of his product, but he would have been just as out of business if no one bought his soap.

Non-shortened (HN doesn't like those, people want to know what they are clicking): http://www.quora.com/Business/Whats-the-shrewdest-smartest-m...

Business: What's the shrewdest, smartest maneuver you've ever seen in business?

Cool little blurb hand-soap:

There was only one problem: Nothing he was selling could be patented. The concept of liquid soap wasn't new, and simple pumps had been around since the dawn of civilization. As a result, Taylor knew several huge soap manufacturers were ready to happily steal his idea the very moment it looked like it could succeed on a large scale. Armed with superior resources and the ability to quickly R&D an imitation product, the industry giants were ready to crush tiny Minnetonka.

Taylor, however, was ready for this. Before any other company had the chance, Taylor decided to go shopping one day and bought a few plastic pumps. And by a few we mean FUCKING ALL OF THEM. There were only two companies nationwide manufacturing those little pumps, and Taylor ponied up $12 million -- more than the total net worth of his company at the time -- and ordered 100 million of them, effectively buying every single pump these two companies would be able to manufacture for the next year or two.

I do believe the volt makes Chevrolet a loss for every unit sold. If this is a deliberate loss leader to put Tesla out of business, then it is an issue. They're all looking for market share, but Tesla has less capital backing. OTOH it has less crummy baacklog and infrastructure, so it may be nimble eough to survive

Tesla is aiming for the M5 end of the market, Volt is more of a Prius

That's a pretty small market - BMW only makes about 4000 M5s a year and I'd be surprised if the sales of equivalent models from other manufacturers were much higher.

http://en.wikipedia.org/wiki/BMW_M5

Considering the state of battery technology did Tesla have any choice? Even their new X will be more expensive than the S.

To get his range he needed long wheelbase large cars. To get range he needed more than a 1000lbs of batteries.

He won't get to the lower end of the market unless batteries improve and by then he will have ceded it to the established players who will and are willing to offer more than electric only solutions.

Currently. But the plan in theory is to move downmarket.

Toyota is supposedly coming out in 2015 with production cars with fuel cells costing a bit more than what a Tesla battery does, but the more they produce the less costly they are. In contrast, the more batteries Tesla produces the more the cost of lithium increases.

It seems like an incredible proposition that Tesla will expand fast enough to shut out fuel cells before they get established.

Toyota (and others) have been touting fuel cells for well over a decade.

I'm not holding my breath - fuel cells are as sustainable and non-oil as flex-fuel (read: vaporware).

Musk makes some very unrefutable points here deriding fuel cells, and Ive had that opinion long before people were listening to Musk: http://cleantechnica.com/2013/10/25/elon-musk-munchen-fuel-c...

> Toyota (and others) have been touting fuel cells for well over a decade.

The cost of fuel cells has decreased to 5% of what it was then, and at least three manufacturers are coming out with limited production fuel cells cars. Just because it took 50 years to get ready doesn't mean it isn't ready.

Musk's point is basically that the energy density of fuel cells is worse than batteries. That's true, but they can be refueled instead of mechanically swapped. He says the current total cost of the system is higher than batteries. That's true, but Toyota is halving the cost every 5 years as they ramp up production, where battery cost is falling maybe 10% in that time.

> In contrast, the more batteries Tesla produces the more the cost of lithium increases.

This is true, but misleading. The cost of lithium is a vanishingly small component of the price of the battery, a typical quote is between 1% and 0.1% of the production cost. Lithium is one of the most common elements in the earth's crust, and is plentiful enough in seawater that it cannot run out -- before it's cost is high enough to have any real effect in battery prices, it will be well worth extracting it from the seas. (In which there is enough supply for millions of years.)

The rapid increase in demand caused by proliferation of lithium-ion batteries has spiked the price over the past decade, but that is simply because mining operations take years to spin up, so large changes in demand always lead to large-scale price action. This has not yet had anything but a negligible effect on battery prices, and it will not have one in the future.

I do not understand the current meme of trying to paint all economic issues as resource-limited. That's just not how the world works.

Lithium is everywhere, but the cost to extract from seawater and such is enormous since it is very low concentration. Efficient production is limited to naturally occurring concentrations. What I've read is lithium being closer to 2-3% of the total cost of the battery. With increased demand and limited production this could increase.

Batteries are not falling in cost as predicted: "Though the projected prices are lower than current prices, they fall substantially short of the expectations which were perpetuated, notably, by Tesla CEO Elon Musk."

Tesla is buying 75% of all cylindrical li-ion batteries and to reach even 1% of global marketshare they'll need 30x more. "Cell supply is crippling Tesla’s ambitious effort to expand its global reach."

“One of the bigger challenges for us is going to be lithium-ion cell production,” Mr. Musk said at Teslive. “We need a lot of batteries.”

Whatever the merits of fuel cells, there's no way batteries won't be a limiting growth factor for battery powered vehicles.

I hate to be the "revenues-dont-matter" guy, but stock prices could be based on the fact that they demonstrated that they are 4.6x more likely to succeed based on their performance this year. If stocks only followed revenues, trading would be pretty meaningless. A company like Tesla has a tipping point in value based on the viability of their model. I am in no way claiming that I think they will succeed, but this year has probably shown that they are more likely to hit a tipping point than last year. This matters a lot in highly speculative investments like Tesla.

The point is that the price is disconnected from fundamental value. Remember you are buying something, you want to know how much you should pay, not whether the thing underlying the security is going to be "successful".

> not whether the thing underlying the security is going to be "successful".

But that's exactly what determines how much you should pay. Fundamentals are "How much will this be worth in the future".

Your decision to invest shouldn't be equivalent to whether the company is going to be successful but whether you will get more money than what you put in (accounting for risk, alternative investments, etc).

Failing businesses are sometimes good value.

"The thing underlying the security" is a dynamic thing, it grows or shrinks based on the market for their products, the execution of its executives, and the quality of its products.

If it is not going to be making significantly more money next year than this year, you'd want to build that into your decision to buy the stock. Fundamental value can be defined in a lot of ways, but growth is not reliably quantifiable. Which is why there is fluctuation in stock prices.

If I believe Tesla will continue to grow at 50-100% per year, then it may be valued reasonably right now. It may even be a bargain. If, on the other hand, I believe it is a static business now and has reached saturation of its product line in the market as it exists, I'd be a fool to pay this high a price.

There are so many variables...if you're value investing rather than growth investing, TSLA is not your stock, and won't be for another decade or two. I tend to buy into growth companies, so this looks like a chance to buy into a company I missed earlier at a slightly lower price (I don't suggest trying to time the market, but sometimes the market puts something on sale that you wanted to buy anyway). It was just such a sale (only on a much larger scale) many years ago, that led to me holding a few shares of GOOG. I bought as many shares as I could afford with what was in my trading account, and I may buy as many shares of TSLA as I can afford now (after a bit of research, of course).

Would you pay differently for a lottery ticket that had a payout of 1MM if you had the chances of A) 1/2 B) 1/5 C) 1/50 D) 1/5000?

The potential payout is unchanged, but the value of the ticket changes as it gets more likely to pay out.

All I'm saying, which should be self-evident, is that a successful business can be a bad investment if the price is too high and a failing business can be a good investment if the price is low.

Agreed.

a one out of a thousand chance at making a million bucks has a 'fundamental value' of $1000.

The problem with valuing tesla is not that it lacks 'fundamental value' - it's not even that this value is risky. The problem is that nobody knows /how/ risky that bet is.

Of course... once the uncertainty passes a certain point... it sure looks like it's completely disconnected from 'fundamental value'

Personally? I can see the 'fundamental value' in Tesla. They are building a new kind of car, and it looks like a pretty nice car. I mean, I'm not really qualified to evaluate those things, I'm not really the sort who buys expensive cars.

Now, is that value greater than the huge investment required to build those cars? Will Tesla be able to scale up to the point where they are turning a reasonable profit? Will they be able to defend their initial lead against the conventional car companies, once toyota starts making an all-electric Lexus? Yeah. Lots of very difficult to quantify risk.

I'd buy Tesla before I'd buy Facebook. Long before I'd buy facebook. But I don't have money in either.

Thankfully your options are not limited to Tesla and Facebook

Eh, perhaps my point would be better phrased as:

Of all the new technology companies... my perception is that Tesla has rather more 'fundamental value.' If nothing else, they are one of the very few companies that doesn't rely for revenue on a relatively new kind of advertising.

I hope it continues to decline so I can get in. I have been shocked by how prevalent the Model S already is on American roads. And when I look at the drivers, they are by no means the stereotypical "early adopter" of tech. This signals to me that electric is not at all a barrier to the average vehicle consumer. Tesla has a focus on quality and details that other carmakers can't achieve. As soon as they are able to finance their expansion into other classes of vehicles, they will overtake the incumbents rather easily. There will be many bumps in the road as they expand, but if you are on a 20-year timeline they don't matter.

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