I fail to see a reason why this article is on the front page. Tesla Q1 report does not disclose any new information that we didn't already know: Planning of a Gigafactory, battery supply constraints, rapid movement into China, etc.
Tesla is just like any other startup, the fact they made a loss is irrelevant because the overall vision is much bigger and eventually Tesla will be at the forefront of electric vehicles, a household name like Ford or General Motors. The fact they've made leaps and bounds in battery tech and the drivetrain component puts Tesla at the forefront (not to mention shaking up how cars are sold), the losses can be written off as collateral damage. You have to spend money to make money and Tesla are arguably competing in an industry that even almost killed the players that were there from the beginning.
Starting out in any kind of industry that relies on manufacturing and continual research is going to very expensive, but the good thing is your costs are destined to continually come down. Until they can drive down their production costs and adoption increases, I have a feeling we'll see many more quarterly losses before they start to become profitable.
I think the future of Tesla's revenue model will be split 50/50 between sales and licensing. The deal Tesla signed with Toyota in 2010 to develop an electric Rav4 was just the beginning. The technology and advancements Tesla have made put them in a fantastic position to licence it out to other car companies as more and more of them move into the electric car market, they'll most likely come crawling to Tesla.
I'm excited to hopefully own a Tesla vehicle one day, in Australia it's not really a viable option to own one just yet (that I am aware of anyway), but I know that will change soon enough. Don't be concerned with the loss, there are lot of companies out there not turning a profit just like Tesla.
What specific technologies or patents do they own that will cause other companies to "crawl" to them? Sure, they're leading the way right now, but competition is heating up. Almost every major player in the market has developed or is developing EV technologies.
Are we that enamoured with the aura of Elon Musk that we really believe the major automobile manufacturers, with their hundreds of billions of dollars and reams of engineering experience, won't be able to match or surpass what Tesla is doing? That's a bold bet. The automobile world is an incredibly competitive space. Look how much competition is in every single market segment.
I mean this in the friendliest way possible, but are you really sure you want to admit to over $2M in assets with your contact information right there?
They've got some patents on some pretty key pieces of functionality and technology which they'll be licencing out no doubt in the future when other car makers come to the table. This is what I meant about 50% of Tesla's future revenue possibly coming from licencing out their technology.
The crucial part of an electric vehicle is the batteries and if you look through the list of patents which Tesla Motors is the assignee, they've got tonnes of patents on functionality based around the batteries; temperature sensors, voltage sensors, connectors, pressure sensors and smart charging tech, battery shields and more. Sure, not all patents they've filed are in use, but it does show Tesla are at the forefront of electric vehicle tech.
Think for a moment in 2009 General Motors Vice Chairman Robert Lutz told The New Yorker "All the geniuses here at General Motors kept saying lithium-ion technology is 10 years away, and Toyota agreed with us – and boom, along comes Tesla. So I said, 'How come some tiny little California startup, run by guys who know nothing about the car business, can do this, and we can't?' That was the crowbar that helped break up the log jam."
I think this one quote sums up what Musk and the countless others who work at Tesla Motors have done, they spurned a revolution.
Yes, some people get caught up in the "aura of Elon Musk" but you've got to understand the bigger picture here, it's bigger than Musk, Tesla Motors are revolutionising the electric car industry which was basically non-existent before they came onto the scene. Nobody wanted to take on the risk of investing hundreds of millions of dollars into something that people might not want. The Global Financial Crisis most likely was a deterring factor for some companies considering the thought of entering the electric vehicle car space.
>What specific technologies or patents do they own that will cause other companies to "crawl" to them?
I can't think of an exact patent they have for rockets, but NASA came walking (not crawling by any means) to SpaceX with a multi-billion-dollar contract.
GM is constantly saying that they don't think pure-EV vehicles are the solution. They still think it's going to be about hybrid vehicles. I don't know about the other big manufacturers, but I get the feeling they are similarly misguided.
The question is: Are batteries going to significantly improve in the next 5 years? If so, then it's a huge misstep to pursue hybrid vehicles instead of directly competing with Tesla now and building battery manufacturing capability and know-how. I have a feeling the big guys are going to keep underestimating Tesla until they've already effectively been beaten.
>Are we that enamoured with the aura of Elon Musk that we really believe the major automobile manufacturers, with their hundreds of billions of dollars and reams of engineering experience, won't be able to match or surpass what Tesla is doing?
YES, A THOUSAND TIMES YES because Tesla seems to be in the process of gettting it.
For the same reason Google was able to exist when Apple, Yahoo, and Microsoft when, by your thinking, "with their hundreds of billions of dollars and reams of engineering experience," should have crushed them. Because Google got it
It is similar to when Woz was asked how many computers they could sell and his immediate answer was "a million" Surly against IBM and their "their hundreds of billions of dollars and reams of engineering experience" Apple would fail, right? But Woz knew better and when asked how he knew he could sell a million "because there are at least a million ham radio operators" Because he got it!
For the same reason that on Slashdot, when the iPod was revealed, the editor's comment was "No wireless. Less space than a nomad. Lame." Slasdot didn't get it, Apple got it
Similarly, Tesla's cars are the first cars I've ever wanted. wanted wanted. I have a car, I use it, it isn't sexy or special to me. I want a Tesla. They aren't there yet, but they're on the path and will "get it."
Well it's still unclear Facebook is a good business, they're hardly a good example. I, for one, think it's hilarious how much money goes into the social black hole with minimal appreciable return. But hey, that black hole also pays my bills!
i don't mean to nitpick but i'm pretty sure "irrelevant" is not the word you are looking for. even if it was projected with complete accuracy, it is very relevant.
The fact that they had a net loss of $50m is pretty remarkable, given their steep, uphill battle against the deeply entrenched auto industry [1], the costs of scaling up production [2], and the large expenses of building a suitable infrastructure in multiple massive markets for vehicle charging [3]. I would've expected a much higher loss as they continue to plow money in development.
It seems like people often tend to ignore the fact that Tesla makes really solid cars [4].
Is the stock market overreacting? Good time to buy?
>It seems like people often tend to ignore the fact that Tesla makes really solid cars
Most Tesla fans tend to ignore the fact that building a solid car doesn't mean the company should be valued at a bajillion dollars.
Stern's Prof. Damodaran (of online valuation course fame) believes "the value per share estimate... [of] Tesla is between $110 and $115 per share." He might not be right, but at least his model is based on real-world projections and shows the magnitude of optimism/hype behind Tesla's share price.
There's a lot of talk about about Tesla being a startup or a tech company. In reality, they're a car company (albeit one that's doing a few things better/differently), and need to be looked at in that context.
Plenty of DCF models predict a Tesla share price which is higher than today's closing price. The problem is that they necessarily must rely to a heavy degree on assumptions about the future. Given that any realistic DCF model of Tesla needs to be probabilistic to some degree (measure different scenarios against each other) and that a company's true market value is still the unknown present-value adjusted sum of all its future earnings, we are still going to see massive disagreement about Tesla's correct valuation in the years ahead. Contemptuous comments about bajillion-dollar valuations and hype don't provide any value to this discussion.
If you're arguing from authority, it's also worth pointing out that Damodaran was uncertain about his valuation in the comment thread after his latest valuation of Tesla.
>Contemptuous comments about bajillion-dollar valuations and hype don't provide any value to this discussion.
The OP asked why the stock was down, and whether this was a buying opportunity. I offered perspective that it might not be, based on the analysis of someone respected in the field. I understand that DCF models can produce any numbers you wish (as does Prof. Damordaran; says so right in the article). But there's his model and there's his numbers, based mainly off assumptions that Tesla builds cars.
Tell me, what value did your comment add to the discussion?
If I sound "contemptuous", it's because the hype and fandom is tiring. Read the comments in this thread ("Tesla <3") or on Prof. Damodaran's article ("You can't vaue Tesla unless you've driven one!").
Morgan Stanley's latest DCF arrived at $320/share, Goldman Sachs's arrived at $200, for instance. If your goal was to contribute by providing a contrarian view, that is fair enough and I might have misread the tone of your comment. I am merely pointing out that it is not just noveau riche kids and hype train riders who figure that Tesla is a good investment even at the current price - I figure that this is an interesting point, since my impression is that the financial press says the opposite.
Given that any realistic DCF model of Tesla needs to be probabilistic to some degree (measure different scenarios against each other) and that a company's true market value is still the unknown present-value adjusted sum of all its future earnings, we are still going to see massive disagreement about Tesla's correct valuation in the years ahead. Contemptuous comments about bajillion-dollar valuations and hype don't provide any value to this discussion.
This sentiment is mis-placed. Markets don't "argue" over prices. And DCF's don't set valuations based on measured anything.
The DCF is there to simply inform the prejudices of market partcipants. The utility of DCfs is simply to get some insight into people's predudices. This is arguably more helpful than simply pretending that any single set of prejudices is more or less {correct, useful, interesting}.
I feel like Tesla is a car company only because that's the only way that they can prove to the rest of the industry that their technical innovations work. I always kind of thought that the 'real money' for them wouldn't be in making cars, but licensing their tech to all of the larger automakers.
There's a lot of talk about about Tesla being a startup or a tech company. In reality, they're a car company (albeit one that's doing a few things better/differently), and need to be looked at in that context.
I've been thinking about this a bit lately, more generally. My impression is that what counts as a "tech startup" in the past few years is more of a cultural question than a business, technological, or economic question. Now whether that's a good or bad thing is another question. There is something to the cultural resemblance, though I worry that it's papering over pretty significant differences, which might in some cases be more important than the cultural similarities.
Tech startups are, to some extent, just those new companies that culturally use the language of, and interact with, the social milieu of the startup scene. One has to have a general interest in technology, but it can range from deep to very superficial. Tech startups can be wholly based on developing novel technology; or their level of technology might not extend much further than "has an Android app". They could be bootstrapped capital-light companies, or capital-intensive companies in traditional industries. What seems to matter to the classification is more of a style or culture or attitude.
They aren't really distinguished by using technology, because everyone does that now. They aren't even distinguished by technology being their "thing", because many companies seen as tech startups culturally are actually pretty light on the technology— e.g. AirBnB doesn't really use technology more than any other travel-industry player does... they're mostly a new-business-model play, which happens to deploy the business model through a website, because nearly everything in travel has gone through a website for 10+ years now.
My guess is that we'll start to differentiate again a bit more in the coming years, based on more structural and less cultural factors.
Except they don't make an auto that is affordable for most people. Hopefully their battles eventually produce this, whether it is them that brings it to market or someone else.
35 comments
[ 2.9 ms ] story [ 68.2 ms ] threadStarting out in any kind of industry that relies on manufacturing and continual research is going to very expensive, but the good thing is your costs are destined to continually come down. Until they can drive down their production costs and adoption increases, I have a feeling we'll see many more quarterly losses before they start to become profitable.
I think the future of Tesla's revenue model will be split 50/50 between sales and licensing. The deal Tesla signed with Toyota in 2010 to develop an electric Rav4 was just the beginning. The technology and advancements Tesla have made put them in a fantastic position to licence it out to other car companies as more and more of them move into the electric car market, they'll most likely come crawling to Tesla.
I'm excited to hopefully own a Tesla vehicle one day, in Australia it's not really a viable option to own one just yet (that I am aware of anyway), but I know that will change soon enough. Don't be concerned with the loss, there are lot of companies out there not turning a profit just like Tesla.
What specific technologies or patents do they own that will cause other companies to "crawl" to them? Sure, they're leading the way right now, but competition is heating up. Almost every major player in the market has developed or is developing EV technologies.
Are we that enamoured with the aura of Elon Musk that we really believe the major automobile manufacturers, with their hundreds of billions of dollars and reams of engineering experience, won't be able to match or surpass what Tesla is doing? That's a bold bet. The automobile world is an incredibly competitive space. Look how much competition is in every single market segment.
(obligatory "This isn't Reddit" in 3)
They've got some patents on some pretty key pieces of functionality and technology which they'll be licencing out no doubt in the future when other car makers come to the table. This is what I meant about 50% of Tesla's future revenue possibly coming from licencing out their technology.
The crucial part of an electric vehicle is the batteries and if you look through the list of patents which Tesla Motors is the assignee, they've got tonnes of patents on functionality based around the batteries; temperature sensors, voltage sensors, connectors, pressure sensors and smart charging tech, battery shields and more. Sure, not all patents they've filed are in use, but it does show Tesla are at the forefront of electric vehicle tech.
Think for a moment in 2009 General Motors Vice Chairman Robert Lutz told The New Yorker "All the geniuses here at General Motors kept saying lithium-ion technology is 10 years away, and Toyota agreed with us – and boom, along comes Tesla. So I said, 'How come some tiny little California startup, run by guys who know nothing about the car business, can do this, and we can't?' That was the crowbar that helped break up the log jam."
I think this one quote sums up what Musk and the countless others who work at Tesla Motors have done, they spurned a revolution.
Yes, some people get caught up in the "aura of Elon Musk" but you've got to understand the bigger picture here, it's bigger than Musk, Tesla Motors are revolutionising the electric car industry which was basically non-existent before they came onto the scene. Nobody wanted to take on the risk of investing hundreds of millions of dollars into something that people might not want. The Global Financial Crisis most likely was a deterring factor for some companies considering the thought of entering the electric vehicle car space.
I can't think of an exact patent they have for rockets, but NASA came walking (not crawling by any means) to SpaceX with a multi-billion-dollar contract.
Musk will win.
The question is: Are batteries going to significantly improve in the next 5 years? If so, then it's a huge misstep to pursue hybrid vehicles instead of directly competing with Tesla now and building battery manufacturing capability and know-how. I have a feeling the big guys are going to keep underestimating Tesla until they've already effectively been beaten.
YES, A THOUSAND TIMES YES because Tesla seems to be in the process of gettting it.
For the same reason Google was able to exist when Apple, Yahoo, and Microsoft when, by your thinking, "with their hundreds of billions of dollars and reams of engineering experience," should have crushed them. Because Google got it
It is similar to when Woz was asked how many computers they could sell and his immediate answer was "a million" Surly against IBM and their "their hundreds of billions of dollars and reams of engineering experience" Apple would fail, right? But Woz knew better and when asked how he knew he could sell a million "because there are at least a million ham radio operators" Because he got it!
For the same reason that on Slashdot, when the iPod was revealed, the editor's comment was "No wireless. Less space than a nomad. Lame." Slasdot didn't get it, Apple got it
Similarly, Tesla's cars are the first cars I've ever wanted. wanted wanted. I have a car, I use it, it isn't sexy or special to me. I want a Tesla. They aren't there yet, but they're on the path and will "get it."
$36M in the hole? Forget about that, they will be making (potentially) infinite millions in undisclosed amount of time, just you wait!
And I say this as a fan of their work. I though Musk was a millionaire, why isn't he bankrolling this with his own money?
Can we get over this whole financial armchair meme of what a business "loss" is? Most businesses need debt to grow.
Q2-2012 - Facebook's EBITDA was -616M (that's minus) && Net Income was -157M
Q4-2013 - Facebook's EBITDA was 1.4B (that's B for billions) && Net Income was 523M
Sources -
http://www.wikinvest.com/stock/Facebook_(FB)/Data/EBITDA
http://investor.fb.com/releasedetail.cfm?ReleaseID=695976
http://investor.fb.com/releasedetail.cfm?ReleaseID=821954
i don't mean to nitpick but i'm pretty sure "irrelevant" is not the word you are looking for. even if it was projected with complete accuracy, it is very relevant.
It seems like people often tend to ignore the fact that Tesla makes really solid cars [4].
Is the stock market overreacting? Good time to buy?
[1] http://www.businessinsider.com/how-tesla-got-outspent-and-ou... [2] http://articles.latimes.com/2014/feb/26/business/la-fi-tesla... [3] http://www.reuters.com/article/2014/04/22/us-autoshow-china-... [4] http://www.teslamotors.com/about/press/releases/tesla-model-...
Most Tesla fans tend to ignore the fact that building a solid car doesn't mean the company should be valued at a bajillion dollars.
Stern's Prof. Damodaran (of online valuation course fame) believes "the value per share estimate... [of] Tesla is between $110 and $115 per share." He might not be right, but at least his model is based on real-world projections and shows the magnitude of optimism/hype behind Tesla's share price.
There's a lot of talk about about Tesla being a startup or a tech company. In reality, they're a car company (albeit one that's doing a few things better/differently), and need to be looked at in that context.
If you're arguing from authority, it's also worth pointing out that Damodaran was uncertain about his valuation in the comment thread after his latest valuation of Tesla.
The OP asked why the stock was down, and whether this was a buying opportunity. I offered perspective that it might not be, based on the analysis of someone respected in the field. I understand that DCF models can produce any numbers you wish (as does Prof. Damordaran; says so right in the article). But there's his model and there's his numbers, based mainly off assumptions that Tesla builds cars.
Tell me, what value did your comment add to the discussion?
If I sound "contemptuous", it's because the hype and fandom is tiring. Read the comments in this thread ("Tesla <3") or on Prof. Damodaran's article ("You can't vaue Tesla unless you've driven one!").
This sentiment is mis-placed. Markets don't "argue" over prices. And DCF's don't set valuations based on measured anything.
The DCF is there to simply inform the prejudices of market partcipants. The utility of DCfs is simply to get some insight into people's predudices. This is arguably more helpful than simply pretending that any single set of prejudices is more or less {correct, useful, interesting}.
I've been thinking about this a bit lately, more generally. My impression is that what counts as a "tech startup" in the past few years is more of a cultural question than a business, technological, or economic question. Now whether that's a good or bad thing is another question. There is something to the cultural resemblance, though I worry that it's papering over pretty significant differences, which might in some cases be more important than the cultural similarities.
Tech startups are, to some extent, just those new companies that culturally use the language of, and interact with, the social milieu of the startup scene. One has to have a general interest in technology, but it can range from deep to very superficial. Tech startups can be wholly based on developing novel technology; or their level of technology might not extend much further than "has an Android app". They could be bootstrapped capital-light companies, or capital-intensive companies in traditional industries. What seems to matter to the classification is more of a style or culture or attitude.
They aren't really distinguished by using technology, because everyone does that now. They aren't even distinguished by technology being their "thing", because many companies seen as tech startups culturally are actually pretty light on the technology— e.g. AirBnB doesn't really use technology more than any other travel-industry player does... they're mostly a new-business-model play, which happens to deploy the business model through a website, because nearly everything in travel has gone through a website for 10+ years now.
My guess is that we'll start to differentiate again a bit more in the coming years, based on more structural and less cultural factors.
Except they don't make an auto that is affordable for most people. Hopefully their battles eventually produce this, whether it is them that brings it to market or someone else.
Which means the article is like a proof-piece on how unreliable these financial analyses are.
They got 12 cents when analysts expected 6. That is a %50 error.