Tesla Is The New Bubble Stock

http://www.forbes.com/sites/investor/2013/10/17/tesla-is-the-new-bubble-stock/#

by minnesota_boy • 13 years ago

27 45 13 years ago

This article is the perfect example of why why the financial industry and looking at the bottom-line so often falls short of the entire picture. If you think the value of Tesla is in its current line of vehicles you completely miss the point. The Roadster, Model S and Model X aren't Tesla's real value proposition, despite the numerous awards they've won and the incredible cars they are; those were merely the entrance fee.

And yes, I realize this is exactly what people were saying when the .com bubble happened, but Tesla is turning a profit on a small scale, and the potential for it to profitably scale up is obvious.

Before Tesla, very few people took electric cars seriously, for a few reasons:

1. Small range.

2. Too high cost for the car.

3. Looked cheap/corny.

4. Impossible to make long roadtrips.

In short, electric cars used to be toy cars.

The purpose of Tesla's fist three models wasn't to make a bunch of money, but to change both the reality and the perception of electric cars; to show that they could be a desirable and economically feasible daily driver, and they nailed it. The above points are less true with each model and other incremental advancement (supercharger network, charging station) Tesla releases.

I would unashamedly invest in Tesla, not because its earnings are so stellar, but because it has begun to crack the code and reinvent the entire automobile industry.

acgourley• 13 years ago

I want to believe you, as I also love TESLA - but I also observe that on average "bottom line" analysis beats out your kind of analysis - e.g. when you compare market returns vs VC returns. The best VCs may out perform the best "bottom line" investor (I have no idea, but it seems possible), but unless you're sure you're world class, how can you be so confident in your analysis?

tslathrow4• 13 years ago

VCs on average underperform retail investors on average

On a liquidity-adjusted basis, VCs underperform by a wide margin

potatolicious4• 13 years ago

You're still ignoring the big elephant in the room:

Is Tesla worth more than Fiat, is it worth half of GM? In its current state, with its current sales, of course not.

But with its potential state, its reinvention of automobiles, is it?

That part is very, very hard to say. In a world where Tesla was the only real electric car player, sure, we know electric is the way forward. But their competitors aren't incompetent, and they aren't sitting still. We are seeing full-EV cars come out of every major car manufacturer, and they're improving rapidly.

We also know that the high end of the electric car market is just a test environment, the real battle will be fought in the "regular car" market. Not the Roadster, not the Model S, and not the new SUV. Tesla may have beaten everyone to the punch and built incredible luxury automobiles, but can it beat the incumbents when pricing pressure is very real, and very heavy?

I believe in electric cars, but I am very skeptical that Tesla will beat GM, Ford, Chrysler, Nissan, Toyota, Honda, Volkswagen, and Hyundai in the low/mid-end.

I'm also skeptical that they can maintain their current lead when luxury automakers like BMW and Daimler want a slice of the pie.

Tesla surely has done a lot to dispel the negative connotations of electric cars, but where they go from here is anyone's guess. There is way too much uncertainty to IMO justify such an insane valuation.

Think about it this way: Apple was first to market with the iPhone, a device that dispelled many perceptions about smartphones being stupid, clunky, and only for businesspeople. It was beautiful, and it was a wild departure from anything seen up until that point - and most importantly, it was incredibly well executed. For a little while it looked like the iPhone was going to swallow the world.

And then Android showed up and completely ate the low and mid-end markets. Apple isn't dead by any means, and perceptually they are still the top dog in town, but anyone who bet on Apple assuming majority market share is now, well, wrong.

In Apple's case, the competitor sort of came out of nowhere - Android I don't think was a serious contender on anyone's radar initially. In Tesla's case, they are going up against very experienced, very wealthy, and very serious competitors - competitors who have in recent years demonstrated their ability to adapt to market conditions and turn themselves around. Anyone who still sees the big automakers are stodgy and unable to change should go look at what the Ford Motor Co has done recently.

bluedevil2k4• 13 years ago

You've hit the nail on the head - everyone believes that electric cars will be the predominant type of car sold 20 years from now, but who's to say that Tesla will be the market leader at that point? It would be naive to think that GM, Ford, Toyota, Honda, etc. can't quickly catch up and pass a small company like Tesla.

I wish I could find it, but Warren Buffet had a great quote about new technologies. He said, roughly, that even when everyone knows a new technology is the future, it's still impossible to predict what company will win, and therefore which stock to invest in. He gave many examples: airplanes, radio, television, cars, computers.

6ren3• 13 years ago

Apple "should" have made a low-end phone, but couldn't bring themselves to (iPhone 5C is their best try), because it's against their market image externally, and their self-image internally. They have to keep inventing great new product categories - a tough way to make a living!

But Musk doesn't want to be high-end. He wants to change the world, get us to all buy electric cars. That means more affordable cars, which is the direction he's going. He only started high-end because that was the best place to start. Of course, there are many challenges before he's done.

(Goodness, why is this being downvoted?)

loceng3• 13 years ago

Tesla's working on a $30k model. They've succeeded in doing everything else they said, so the chances of the $30k model happening are very high. The pie size for electric cars isn't very big yet, yet Tesla is leading the way - they will be the name everyone knows when it comes to electric, and they will be far ahead of the game - likely Apple has been with smartphones, and more. Also, if you look at what matters with scaling and running a successful business that can continue innovating and beating competition - it's profits that matter, and Apple makes a good chunk. The profit on the Tesla is massive relative to current vehicle sales. 1) They have eliminated car dealerships, and so they keep whatever markup would exist there. I'm pretty sure the cost of making a car these days $5,000 or less to produce a car - unless you have huge union pension fees to way - another thing that Tesla doesn't have.

ChuckMcM3• 13 years ago

"Is Tesla worth more than Fiat, is it worth half of GM? In its current state, with its current sales, of course not."

I'm not so sure those things follow. There is a tremendous amount of baggage/inertia in existing car companies, no where was that more apparent than seeing GM convulse when it was bought out by the US government. Could I beat Usain Bolt in the 100 yd dash? Hell No! If you tied his shoelaces together? Damn straight I could!

Tesla has no other cars, no other obligations, no other legacies, no other technical debt to pull backwards on it. One of the most interesting things I read was a car analyst comparing Tesla to Fisker. Fisker built an electric car with the best batteries they could find. Tesla didn't build an electric car until they had built batteries that met the requirements of an electric vehicle.

The difference there is profound. Prior to Tesla there were no batteries in the world that could be bought which would let you build a Model S. Car companies weren't telling battery makers how to make batteries, and battery makers weren't telling car makers how to make cars. But Tesla sat down as a company and designed an electric car from whole cloth, from the AC induction motors to the battery chemistry. That is an insanely stupid thing to do, it has huge risk. But they pulled it off.

From a thinking perspective, Tesla should be bigger than GM and Fiat combined. Compare the Volt or the EV-1 (which is unfair since technology has advanced so far since then) to the original Tesla Roadster. One company is thinking, one company is designing. I think thinking wins in this case.

DEinspanjer2• 13 years ago

I think that the article did a very good job of not tying the investment advice to some derisive comment about the company itself. It sounds like you believe the opposite?

I own a Model S, but I do not have a position on their stock. I was interested in doing so, but when it was feasible for me, I felt the stock was already much higher than it would be able to sustain for the long term.

Are you saying that you believe purchasing the stock at its current price would be a good long term position to take? I find it difficult to believe that the stock could stay at or above this value for the long term. I do believe it will climb significantly from whatever position it is at when the Model X and the G3 models come out, but I would be very surprised if it was still this high just before that happens.

aclements18• 13 years ago

While I am a huge fan of Tesla, and Musk, I think your reasoning is a bit unsubstantiated. While most analysts who don't have their head in the sand would agree that Tesla is an awesome company and has years of explosive growth ahead, there has to be some numerical concept that helps you distinguish a good company from a good investment.

The key concern is all your points still apply if the stock price was $500, instead of $180. At that point would you still invest?

Another way to think of it: If I were to give you one lump sum for half of all of your future earnings (salaries, bonuses, gifts) what would a be a reasonable price that you would sell that to me for? You could be a very capable professional with a lot of earning potential but there is still an upper limit on what I should pay if I plan to come out profitable, correct?

loceng3• 13 years ago

To add to this, Elon is creating to demand for electric. He's too hoping, wanting, needing competitors to start directing money in this area to add more value to the ecosystem - as it lessens the cost overall, and Tesla is a supplier of electric vehicle parts as well.

They're working on a $30k model, which then everyone will be able to afford it. It will be a matter of lining up balance sheets to be able to afford creating additional factories for millions of cars per year. They're moving towards this tipping point, and have been extremely successful in terms of moving everything forward.

For reference, their current plant is capable of producing 500,000 vehicles per year. That equates to $15 billion annual revenue if just selling the $30k model. The cost of owning a Tesla / electric car when you get free charging at Tesla stations, or electric charging from the grid in general are dramatically less than paying for gas - and the costs will only go down.

And the fact that these vehicles are good for the environment, good for you ... and they're quiet, and they'll last longer (fewer moving parts), etc.. People who don't understand the value of what's being done either haven't thought through it, or don't have the capacity to think holistically - to take the full scope into account.

astrowilliam• 13 years ago

I absolutely love Tesla, but saying 30,000 is in everyones price range is a little off.

Look at Fords lowest price vehicle, around 14k. Tesla can not compete with that at this time.

There are plenty of other factors that go into purchasing a vehicle than price which include being able to go to a showroom and test drive a car. I have to travel at least 5 hours to see a Tesla dealership, I love Tesla, but I won't be driving 5 hours to go to a dealership to test drive one. I just don't have the time.

In order to get a normal American family in a Tesla the price has to come down to the ~20-25k range.

Mikeb853• 13 years ago

Tesla is already valued with the expectation that profits will be much, much higher than current levels...

codex• 13 years ago

The LEAF has sold 70,000 copies worldwide. Based on sales volume, you could argue Nissan is the electric car leader.

Mikeb853• 13 years ago

2 and 4 are still true for alot of people. Using the range calculator on Tesla's website, a day ski trip would still be very difficult if not impossible. The range, especially in the cold with the heat on (and it gets much colder here than 32 degrees), just isn't enough... And the nearest city is ~250 miles away, which is really pushing the range, especially with the speed limit of 70 mph in the cold...

wellboy• 13 years ago

It's a bubble if the valuations are based on nothing. If you look at Tesla, you have the world's best (!) entrepreneur as the CEO behind a company who wants to create electric charging stations fueled by solar cells on his hyperloops all across the country.

Think again.

acoleman616• 13 years ago

Holy crap is the Forbes site busy (in terms of "stuff", not traffic)...

revelation• 13 years ago

I frankly flagged this. It's opinion and "technical trading" (read: nonsense) on Forbes blogspam section.

PilateDeGuerre2• 13 years ago

Tell us more about your position in TSLA.

SuperChihuahua3• 13 years ago

Technical trading is not nonsense - Paul Tudor Jones and many others have made a lot of money from it.

Luc• 13 years ago

The parts of it that are not nonsense are common sense. See 'Evidence Based Technical Analysis' by Aronson. Conclusion of the book: it doesn't work in a way you can make money from.

tslathrow4• 13 years ago

A superb short, but a very expensive one (more than a third of float is short). Too much risk of a squeeze right now. I have fair value at $65 with 8-10% WACC even with optimistic top-line growth for the next 6-10 years and 4% terminal growth. That said, it's not wise to short on valuation (especially with today's levels of retail money flow).

Throwaway because I'm in the industry (and currently hold TSLA puts)

bluedevil2k4• 13 years ago

I've always liked the quote (I think by Keynes) who said that the market can stay illogical longer than you can stay liquid. In other words, you'd be wiped out before the stock crashed.

SuperChihuahua3• 13 years ago

Most traders will try several times until they find the turning point. They will get several small losses and a large profit.

bluedevil2k4• 13 years ago

The part of the article that really resonated was the comparison to current car companies. Is Tesla really worth the same as Porsche? Porsche has an amazingly strong brand, is the most profitable car company in the world, has 5 models, and a 80+ year tradition of building cars. Tesla has 1 model, is barely profitable, and only a few years of building cars. Saying that these car companies should have the same market valuation does seem a little silly when you compare them that way.

That all said, a stock's price is driven tremendously by its potential for growth, not necessarily the underlying cash flow. While Porsche may have the stronger cash flow, obviously Tesla has the stronger potential for growth.

The bubble will pop if/when their growth metrics start to show signs of slowing. If/When they start missing sales targets, the stock will crash, quickly.

viraptor• 13 years ago

The thing to do is to study the past and note how these mad stocks pan out. Here is Apple and Netflix to give you a flavor:

This is confusing. The only thing I see on those graphs is that good companies recover even after relatively big failure. Even if you invested in Netflix at the last moment before the failure, you could still make a gain by waiting. Apple haven't recovered yet, but are going up... I definitely believe in Tesla recovering from short problems too.

pyrrhotech2• 13 years ago

Not overvalued at all. Sure it's shot up a lot recently, and very well may fall some in the next year or two. But if you look at companies the right way, with a long-term perspective, you have a potential 50-bagger at current levels over the next 20 years. That's a phenomenal investment opportunity. The economy is changing, we will be shifting to clean tech, electric vehicles, automation and robotics. I'd put my money with Elon Musk and Tesla

Mikeb853• 13 years ago

Market cap is already 20 billion... For reference sake, that's the same as Tata Motors, and a few billion shy of Renault.

Even if you're very optimistic about the future for Tesla, it's fully valued right now.

50 bagger is basically impossible...

tslathrow4• 13 years ago

It's overvalued if the current price requires 80% revenue growth YoY for the next 10 years at the highest operating margin in the industry (12.5%). That gets us to a price of $160.

DEinspanjer2• 13 years ago

50-bagger? I'm not that good with the stock market, but doesn't that mean you believe the company could be worth approximately one trillion dollars in 20 years, not adjusting for inflation? Is that reasonable?

pyrrhotech2• 13 years ago

that's right. Tesla is one of the only stocks I see that could break the trillion dollar market cap in real terms from here. They will benefit hugely from the massive economic change that is about to take off over the next 20 years.

6ren3• 13 years ago

Toyota or General Electric are reasonable comparisons, both around 10x Telsa:

  TSLA	Tesla Motors Inc	182.14	-1.42	-0.77%		 22.13B
  TM	Toyota Motor Corp...	129.95	-0.29	-0.22%		205.93B
  GE	General Electric ...	24.30	-0.06	-0.23%		247.50B

Of course many slips are possible along the way - not least that Musk could get "hit by a bus".

GE is not a bad comparison: founded by Edison, based on electricity, created power station infrastructure...

bluedevil2k4• 13 years ago

What are you comparing? Why is GE a reasonable comparison?

SuperChihuahua3• 13 years ago

I believe it was Kevin Rose who argued that Tesla might become an energy company if their charging infrastructure becomes an industry standard. So companies like GM will pay Tesla to let GM cars use the Superchargers and swap stations.

Tesla Is The New Bubble Stock

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