Not exactly a balanced source there - there is definitely some bias from the author showing through. But the comments on that post - yikes! So much anti-EV FUD in certain communities.
I've owned TSLA a long time and I hope they don't start making money, and continue the Amazon model and actually build something with years of minimal or no profits, re-investing vigorously. Amazon had almost 20 years in business without "making any money" except a few quarters where they accidentally eked out some non-trivial profit.
But without their spending, they wouldn't have become Amazon. Without Tesla's spending, they won't be a future company, they'll just be a tiny car company.
It's amazing just how many people on different sites (stocktwits, seeking alpha, reddit) continue the "they're losing money, why are they valued so highly?" comments. How is it not obvious what Tesla is trying to do? The operative thing isn't that they're losing money, its that they're spending everything they've got. This is a good thing. The Starcraft analogy is simple to make: The winning player is the one that spends all their resources, not the one that hoards them. Nobody raises cash just to hold on to it. I have no idea why people can't grasp this.
For earnings, what matters is whether or not revenue is higher than expected ($2.79B vs. $2.51B estimated) and what the gross margins are (27.9%). Check and check.
~~~
Bit of a diversion:
For some historical comparison: Amazon added $6bn in debt as recently as 2014. Even very large and very successful companies take on debt to fuel growth far beyond "bootstrap" numbers. Both companies leverage as much investment money as they can to build and expand as fast as they can. If you look at Amazon's raises in the late 1990's you'll find something more comparable to Tesla today relative to revenue. In 1999 Amazon raised $1.25 billion, and their revenue for the year was $1.64 billion. So they raised proportionally way more money than Tesla has so far this year. And spent it all!
(Also note the crazy growth: 293 million in Q1 to to 676 million in Q4 for Amazon that year. They were expanding like mad, but they still needed way more money than they were producing to reach their goals.
http://www.wikinvest.com/stock/Amazon.com_(AMZN)/Data/Revenu...)
> The Starcraft analogy is simple to make: The winning player is the one that spends all their resources, not the one that hoards them.
Resource scarcity is much harder to predict in the real world than in Starcraft. If the economy is bad, you may not be able to raise another round when you need it- all the mineral patches disappear from the map.
I think a viable criticism would be more along the lines of does the valuation make sense based on the size of the market they can capture?
That's a hard question to answer.
The Bull case says yes because Tesla isn't a car company it's a battery and energy company that sells cars. Therefore no sense comparing to GM or Ford or any other car company, which tend to be valued far, far more conservatively if we look at share price vs #cars sold, or pretty much any metric.
The bear case is that Tesla's share price makes zero sense at all compared to any car company ever. It's well summarized in an old article here:
And the share price has radically increased since then.
In short the article asks, what would the share price be if Tesla had the scale of Audi and the margins of Porsche. The value is on the order of $70 at that point. The $325 it's at today seems a little ambitious in that light.
Personally, I think the bear case is correct, though I admire the company, have friends who work there and I firmly hope they succeed. But wow, that price is insane.
I think the bull case is built mainly along Tesla's brand. For a normal car company, the more cars you make, the less you can charge for them. You dilute your brand by going mass market and become something approximating a commodity. I think there is a case to be made that quantity will not dilute the Tesla brand as much as it dilutes other luxury car companies, since the brand isn't built on scarcity it's built on a something like a superhero.
So the bull case to me is that Tesla may be able to do what Apple did-- have a small
fraction of the market and take home the vast majority of the profits. And this isn't because other car companies will be less profitable then they are now, it's just that Tesla will redefine what profit margins are possible on mass market cars.
Toyota has $260B revenue. Imagine a company a quarter of the size, with a 25-30% profit margin.
Amazon's growth was methodical and controlled, with a net income near zero or slightly negative most quarters. This is different than how Tesla is operating. I like Tesla but do have to wonder if they are on more of the Twitter business track with their aggressive reinvestments
> Amazon had almost 20 years in business without "making any money" except a few quarters where they accidentally eked out some non-trivial profit.
AMZN could get away with it because it was growing and expanding nearly monopolistic company. It was similar to a social media company in that regards. There is only ONE AMZN and was a pioneer in a new "industry/sector".
TSLA is different. They are trying to invade an industry/sector with a lot of heavy hitters and established companies with lots of money.
If you think TSLA is going to be the sole monopoly in the car/electric/etc sector, then you might have a shot. And if you think TSLA could expand into other sectors like AMZN did ( IE cloud ), then you are right.
> It's amazing just how many people on different sites (stocktwits, seeking alpha, reddit) continue the "they're losing money, why are they valued so highly?" comments.
It isn't amazing. It's sensible. The problem with a company like TSLA is that there are a lot of people with vested interests to only talk about the "good side".
I owned TSLA for a few years and I sold last year. Probably sold too early but couldn't justify not cashing out after more than a 400% gain.
I may buy back in if it drops significantly, but it looks like it's gonna keep going up for a while. Who knows. In an era of easy money it's hard to valuate a company. Especially an "all-or-nothing" stock like TSLA.
One similarity between TSLA and AMZN is the backing they both had from the hedge funds/wall street. And one of the reasons why I invested in TSLA is that Musk was able to get people with money to trust him. The same way bezos did.
But one thing I don't like is the near religious/cultish craze over musk that didn't exist with bezos.
Since there is some confusion about why investors would support the TSLA stock price, I thought I would pull a couple of sell-side analysts reports to see what industry watchers were saying. (I happen to currently have a business role running a P&L, and I have access to sell-side research as one of my resources.)
I'm not an auto guy, and while I read Elon's biography, I'm looking at this for the first time.
It seems that the simple way the sell-side analysts are looking at it is by going out a few years, let's say 2020, and then projecting the possible EPS in 2020 then assigning a multiple.
One guy said that they could get to an EPS of $6, and gave it a 30 multiple or roughly a $180 price, and said the stock is way too high.
Another guy said they could get to an EPS of $20, and gave it a 32 multiple (but then discounts the value to today in 2017) for roughly a $400 stock price.
The difficultly is predicting what the EPS is going to be in 3-4 years. The bulls are confident that Elon has a battery and innovation edge such as the auto-pilot (or Warren Buffet moat or competitive advantage). The bears say that the tech is too easy to copy.
I understand concern over "how big can they get?" However to counter this, the absolutely auto market is massive (somewhere around or over $1.5T). The problem is that the market is fractured into a lot of small guys. I suppose there is an argument that Tesla could sell tech to a vast majority of these guys, and unite them under a common battery/OS platform (think IOS or MS-Windows).
Mind you, I am not investing in Tesla at all, but there is a valid path to a high stock price. You just have to accept multiple things need to happen. Right now, I'm not investing, so this is a passing point of interest.
27 comments
[ 4.5 ms ] story [ 51.3 ms ] threadTSLA closing price was $325.89, and after hours trading recently peaked at $347.14!
Net loss of last quarter: $400M
Net loss since beginning of the year (6 months): $800M
(Because the article gives absolute figures for the revenue, but for the losses it only gives the loss per action, which doesn't talk to me.)
Better view of the numbers.[1]
[1] http://www.zerohedge.com/news/2017-08-02/tesla-burns-record-...
But without their spending, they wouldn't have become Amazon. Without Tesla's spending, they won't be a future company, they'll just be a tiny car company.
It's amazing just how many people on different sites (stocktwits, seeking alpha, reddit) continue the "they're losing money, why are they valued so highly?" comments. How is it not obvious what Tesla is trying to do? The operative thing isn't that they're losing money, its that they're spending everything they've got. This is a good thing. The Starcraft analogy is simple to make: The winning player is the one that spends all their resources, not the one that hoards them. Nobody raises cash just to hold on to it. I have no idea why people can't grasp this.
For earnings, what matters is whether or not revenue is higher than expected ($2.79B vs. $2.51B estimated) and what the gross margins are (27.9%). Check and check.
~~~
Bit of a diversion:
For some historical comparison: Amazon added $6bn in debt as recently as 2014. Even very large and very successful companies take on debt to fuel growth far beyond "bootstrap" numbers. Both companies leverage as much investment money as they can to build and expand as fast as they can. If you look at Amazon's raises in the late 1990's you'll find something more comparable to Tesla today relative to revenue. In 1999 Amazon raised $1.25 billion, and their revenue for the year was $1.64 billion. So they raised proportionally way more money than Tesla has so far this year. And spent it all!
(Also note the crazy growth: 293 million in Q1 to to 676 million in Q4 for Amazon that year. They were expanding like mad, but they still needed way more money than they were producing to reach their goals. http://www.wikinvest.com/stock/Amazon.com_(AMZN)/Data/Revenu...)
Resource scarcity is much harder to predict in the real world than in Starcraft. If the economy is bad, you may not be able to raise another round when you need it- all the mineral patches disappear from the map.
That's a hard question to answer.
The Bull case says yes because Tesla isn't a car company it's a battery and energy company that sells cars. Therefore no sense comparing to GM or Ford or any other car company, which tend to be valued far, far more conservatively if we look at share price vs #cars sold, or pretty much any metric.
The bear case is that Tesla's share price makes zero sense at all compared to any car company ever. It's well summarized in an old article here:
http://aswathdamodaran.blogspot.com/2013/09/valuation-of-wee...
And the share price has radically increased since then.
In short the article asks, what would the share price be if Tesla had the scale of Audi and the margins of Porsche. The value is on the order of $70 at that point. The $325 it's at today seems a little ambitious in that light.
Personally, I think the bear case is correct, though I admire the company, have friends who work there and I firmly hope they succeed. But wow, that price is insane.
So the bull case to me is that Tesla may be able to do what Apple did-- have a small fraction of the market and take home the vast majority of the profits. And this isn't because other car companies will be less profitable then they are now, it's just that Tesla will redefine what profit margins are possible on mass market cars.
Toyota has $260B revenue. Imagine a company a quarter of the size, with a 25-30% profit margin.
AMZN could get away with it because it was growing and expanding nearly monopolistic company. It was similar to a social media company in that regards. There is only ONE AMZN and was a pioneer in a new "industry/sector".
TSLA is different. They are trying to invade an industry/sector with a lot of heavy hitters and established companies with lots of money.
If you think TSLA is going to be the sole monopoly in the car/electric/etc sector, then you might have a shot. And if you think TSLA could expand into other sectors like AMZN did ( IE cloud ), then you are right.
> It's amazing just how many people on different sites (stocktwits, seeking alpha, reddit) continue the "they're losing money, why are they valued so highly?" comments.
It isn't amazing. It's sensible. The problem with a company like TSLA is that there are a lot of people with vested interests to only talk about the "good side".
I owned TSLA for a few years and I sold last year. Probably sold too early but couldn't justify not cashing out after more than a 400% gain.
I may buy back in if it drops significantly, but it looks like it's gonna keep going up for a while. Who knows. In an era of easy money it's hard to valuate a company. Especially an "all-or-nothing" stock like TSLA.
One similarity between TSLA and AMZN is the backing they both had from the hedge funds/wall street. And one of the reasons why I invested in TSLA is that Musk was able to get people with money to trust him. The same way bezos did.
But one thing I don't like is the near religious/cultish craze over musk that didn't exist with bezos.
I'm not an auto guy, and while I read Elon's biography, I'm looking at this for the first time.
It seems that the simple way the sell-side analysts are looking at it is by going out a few years, let's say 2020, and then projecting the possible EPS in 2020 then assigning a multiple.
One guy said that they could get to an EPS of $6, and gave it a 30 multiple or roughly a $180 price, and said the stock is way too high.
Another guy said they could get to an EPS of $20, and gave it a 32 multiple (but then discounts the value to today in 2017) for roughly a $400 stock price.
The difficultly is predicting what the EPS is going to be in 3-4 years. The bulls are confident that Elon has a battery and innovation edge such as the auto-pilot (or Warren Buffet moat or competitive advantage). The bears say that the tech is too easy to copy.
I understand concern over "how big can they get?" However to counter this, the absolutely auto market is massive (somewhere around or over $1.5T). The problem is that the market is fractured into a lot of small guys. I suppose there is an argument that Tesla could sell tech to a vast majority of these guys, and unite them under a common battery/OS platform (think IOS or MS-Windows).
Mind you, I am not investing in Tesla at all, but there is a valid path to a high stock price. You just have to accept multiple things need to happen. Right now, I'm not investing, so this is a passing point of interest.
Time to look at this page in 2020.
Tesla has a guaranteed pipeline of strong sales for years to come, saving themselves a ton of money for advertising that their competitors must spend.