Make sure to see Whitehat's response inside the thread
Unlike WhiteHat ( "TSLA Taxpayers Stuck with Lifeless Assets" and "10 Facts/Headscratchers from the Ongoing TSLA Saga"), I’m a big fan of Tesla Motors.
Why I like Tesla:
Tesla has followed a typical learning curve - Tesla began in 2003 by taking stock Lotus Elise’s and converting them into fully electric vehicles. Essentially a proof of concept, the car’s purpose was to show the world that an electric vehicle could be sexy and fast.
Fast forward to today; the roadster has been put out to pasture and the Model S is the new flagship. So far the sedan has received both rave reviews (Motor Trends 2013 car of the year) and media criticism (New York Times), but every single driver (including me!) will tell you the same thing: the car itself is phenomenal. It is leaps and bounds better than the Roadster and still less expensive.
The model X, due out in 2014 (pushed back to “focus on 2013 profitability”) is designed to follow the same path.
Tesla sells energy at a profit – Clearly the supercharger network is still in its infancy: There aren’t enough stations to take care of the existing Tesla customers let alone a nation dominated by EV’s, and it takes far too long (>1 hour) to charge a Model S to capacity. That said, more supercharger stations are being installed regularly, and as battery technology improves (According to U.S. Energy Secretary Chu, costs for a 40 mile range battery will drop from a price in 2008 of $12K to $3,600 in 2015 and further to $1,500 by 2020: http://www.reuters.com/article/2012/01/11/us-autoshow-batteries-idUSTRE…) the frequency and duration of charges will decrease substantially.
Furthermore, the supercharger networks are Solar Powered, with parts and labour supplied by sister company SolarCity, so any excess energy is sold back into the grid at a profit.
Tesla has partnered with industry leaders – Rather than trying to take the 900 pound gorillas head-on, Tesla has elected to partner with them. Daimler, Toyota, and Panasonic have all invested 10’s of millions of dollars in Tesla, and Toyota jointly developed their new Rav4 with Tesla. Tesla sells advanced powertrains to Daimler and Toyota. When major players in the industry are coming to a small player for engineering assistance, you know they are doing something right.
The CEO is a genius - For those who don’t know, serial entrepreneur Elon Musk is at the helm. Armed with a degree in business from Wharton and another in Physics from Penn, past successful ventures include:
Zip2 – online content publishing software for news organizations (sold for $340 million when Musk was 28).
Paypal – online transaction processing system (sold for $1.5 billion 3 years after the Zip2 sale)
Along with Tesla, Musk serves as CEO of Spacex, the aerospace firm that became the first commercial launch company to dock with the International Space Station in May of 2012. Elon also provided seed capital and serves as Chairman of the Board for SolarCity (founded by his cousins Lyndon and Peter Rive), North America’s largest solar panel installation firm.
Management has a large stake in the company – It is reported that Elon himself owns 32% of Tesla, and Tesla employees own another 33%. When the company nearly went bankrupt in 2008, Elon led the investment round by offering to put up the entire $20 million that was required.
Electric vehicles are fundamentally better than their gas powered counterparts– Electric vehicles provide instant power and torque, no pollution, low repair costs, and get their energy from a renewable source. The inverse is true for internal combustion engines. Once the technology has fully matured, there is no question that the internal combustion engine, much like it’s fuel, will be a relic of the stone age.
Now, to some of WhiteHat’s points:
For what it’s worth, they expect 4,500 of Model S deliveries to come in the first quarter of 2013
And they met that goal as you note here:
Musk posts a blog on Tesla’s website just after midnight on April 1 announcing that Tesla has achieved profitability for Q1 and exceeded its company-supplied guidance of 4,500 Model S deliveries, clocking in at “over 4,750 Model S sales,”
Getting to 4,750 Q1 deliveries was a stretch for the business in one aspect or another, or in all aspects.
Agreed. They set very ambitious goals... And then exceeded them.
On the other side of the coin, an all-electric car just doesn’t meet the demands of the average Joe yet.
No, but at one time DVD players cost over $1000 and were only available in high end video stores... Now you can pick one up for 40 bucks at Wal-Mart.
However, a few things can’t be denied by anyone: Tesla has a lot of work today before they have officially proven themselves.
Agreed. The company is still very much a startup.
In order to even get remotely close to a $500/month lease payment, according to Tesla’s lease calculator, one must live in California and receive a full $13,000 EV tax credit, have a superior credit rating, be able to deduct the Model S as a business expense, value their time at a minimum of $100/hr and take advantage of EV access to the carpool lane on the highway to save several hours worth of time doing so. Also, the lessee will need to save at least 2-3 hours a month (at a rate of $100/hr minimum, again) by not having to waste time pumping gas. Tesla does not account for the fact that charging a Model S typically takes at minimum 1 hour and filling up a tank of gas takes around 10% as long. For what it’s worth, most estimates so far have the monthly rate pegged at about $1200/month, not including the 10% down payment required to begin the “blease.”Not mentioned on the conference call or in the press release but present at the bottom of a page on Tesla’s website pertaining to the leasing program, the “blease” financing is only available in 8 states: CA, CO, IL, FL, NJ, NY, OR and WA. Coincidentally, these are all higher-income states and all have generous EV kickbacks for owners, as well as emissions credits for anyone who sells a car in their jurisdiction. That would mean Tesla gets their all-important emissions credits on leases as well.
Yeah I played with the Model S financing tool on their website and unless you meet most/all of the strict conditions mentioned here, the incentives offered in the “blease” will not make a significant dent in your monthly payments.
That said, the Model S’ target market are the same people who are most likely to be able to take advantage of the incentives:
With the introduction of the Model S, Elon Musk and his gang at Tesla have aimed to capture the doctor, lawyer, and mid-level businessman who can afford the 60-70k the car may cost them with modest upgrades.
A lawyer/doctor/business owner in California or Florida making 300k a year actually does value their time at over $100/hr, so saving X hours per month would be very valuable to them.
And you’re absolutely right that charging a Model S typically takes 1 hour and filling up a tank of gas takes around 10% as long... But you would never go to a Tesla charging station in a normal day, you would simply plug it in when you got home at night; most people don’t drive over 270 miles to and from work every day. Now cross country drives? Totally different story, and EV technology is not there yet, but at one time neither was the internal combustion engine.
Besides, the important piece here is the buyback program:
On Tuesday, 4/2 at 2:00pm PST, Tesla makes its much-awaited major announcement: they have reached an agreement with Wells Fargo and US Bank to provide financing for the Model S, with a guaranteed buyback agreement in which Tesla will repurchase the Model S from the customer after 36 months (if they so choose) with residual value pegged to that of the Mercedes S Class. Tesla announces on a conference call that the financing will be in the area of $500/month for qualified lessees.
This is the first step towards a REAL leasing program, something that is absolutely crucial for the Model S. Higher end vehicles are leased more often than not, and by providing a price floor for used Tesla’s, Elon Musk has made it simple for banks to value pre-owned Model S’ and thus provided the groundwork for future lessees.
Bottom line for me, and hopefully for many others, is that normal, legitimate companies do not act this way. Executive officers do not spend this level of time on spin, publicity, and media access; they are too busy running their companies [properly].
I beg to differ. By all accounts Elon is intimately involved in every aspect of Tesla, from design and production, to accounting and finance. He has gone on record multiple times saying he would much rather be behind the scenes building products, that he is only the CEO because he does a better job of it than everyone he has hired so far. CEO’s of public companies in the 21st century are expected to maintain a public profile. Personally I think his tweets, Youtube videos, and battles with the media are pure genius – he is turning his customers into evangelists, and driving interest in his company. The man plays the game better than anyone I’ve ever seen.
Also, let’s not forget about Detroit Electric company, a new Tesla-lite firm that is marketing a $135,000 luxury EV that may compete with the higher-end Model S configurations. While they could easily flop due to Tesla’s great name recognition, we can’t deny that if anything it can only have a negative impact on TSLA.
Disagree. New players in the market suggests others see profit potential, which bodes well for the industry as a whole. The fact that you, an esteemed hedge fund worker (lol), is aware of a tiny EV startup suggests electric cars are gaining ground. Furthermore the SP01 would have been a direct competitor to the Tesla roadster, not the Model S.
And if he thinks breakthrough technology isn’t something the car business is very good with, yet he runs a car business that essentially sells breakthrough technology… well, I don’t know what to make of that.
Sounds like an excellent opportunity for innovation.
Tesla misrepresented their financing product in many material aspects.
A little harsh, no?
Not only that, but Tesla has additional support from the government in the form of a mid-$400M loan from the Department of Energy (DoE), which provides capital Tesla would be powerless without.
Keep in mind that Nissan as well as Ford, a company you have used as a benchmark for Tesla to be measured against, received funds from the same Advanced Technology Vehicle Manufacturing program. Goldman Sachs has received billions of dollars in loans from the government, would you short them? You can’t look at Tesla as you would a Fortune 500 company. Given the role the government has taken in the economy, Elon’s ability to get government funding is actually encouraging to me.
I think Secretariat was spot on when he said “Your upside is literally 10x or more if they execute on Gen III and manage to walk the tightrope with Model S subisidzing R&D for the next 1 - 2 years. Being short as a trade could work, but I would not hold on too long. And what you said about nobody intelligent ever wanting to invest in this company is clearly off base, there are a lot of smart shareholders who have done a lot of work and probably are well aware of the negative points you bring up....arrogance can be fatal in investing so keep that in mind.”
I hope some people found this write up thought provoking.
dammit, beat me to it.
CSCO went from 27-56 from May 99 to May 2000, and even though it peaked in the interim, it went from a PE of over 70 to a PE of over 100. just because something goes up in a rocketing equity market does not mean it's a viable long term business. now CSCO is one of the weird cases where it got caught up in the tech bubble but is still a great business today, but the same could be said about Yahoo, AOL, and others. now, if TSLA went way up in a down market, I'd say you have something.
I didn't even read your thread/comments/whatever you're referencing, but I commend you for staying butthurt for an entire year, I only regret that the market lets you think you were right.
ok, now some less dickish advice: respect others' opinions, learn to take criticism well, it will help your thesis for an investment. if you become an investor who wants to go on a shooting spree everytime someone criticizes you, you'll never make it. likewise, if you go around boasting every time a position goes your way, you will lose all credibility and likely all allies. be humble, be modest, and take criticism in stride. and also, shut the fuck up about TSLA.
Regardless of what following comments say, props to OP for taking the other side of a heavily shorted idea that was laid out publicly on this site and endorsed by lead members. I've done it before and understand that it takes balls to do so because everyone in the world can find at least 3 things to criticize about these kinds of companies.
There's really nothing here to contest except for the blatantly obvious. The demographic of the Model S driver is along the lines of the following: median annual income > $200,000. Average age: 45. Mostly located up and down the progressive neighborhoods of the West Coast, concentrated in Southern California, and a significant following in the affluent Chicago suburbs and portions of the Carolinas. It's typically a 3rd car, overwhelmingly skewed towards males, etc. So of course the driver is going to love his new toy. This car is the quintessential liberal midlife crisis, if such a thing exists.
And the widely-touted distinction of Motor Trend Car of the Year is nothing to be overly proud of. The car tends to go to whatever car will garner the most media attention with little regard for the actual significance of the car itself. Sharing that award with the Chevy Volt, PT Cruiser, and Caprice does not exactly qualify as being in the best of company. I'll admit though that the car is amazing, and I loved my test drive. That does not stop the thing from being the least economically viable automobile on the road.
Late 2014, if that.
The supercharger networks are far from solar powered. Parts and labor are supplied by SolarCity for reasons far beyond being the best partnership for Tesla.
And quoting a man who's politically motivated to promise to make leaps and bounds in alternative energy efficiency is not the most credible of sources. Remember when Obama said we'd have a million electric vehicles on the road by his 2nd term? I highly doubt Mr. Chu is qualified to make that assessment, but he damn sure is obligated to make it nonetheless.
And what makes you think they are selling this back at a profit? Tesla pays for their electricity just like everyone else, it's not all ponies and unicorns for these guys. If Tesla does become wildly successful and there are millions of Teslas driving around, there will come a day when they will stop paying for everyone's free electricity. Hell, if the vehicle was as popular as they say it is, they'd probably have already made an announcement of when they'll stop dishing out free charges already....... and wait, how many superchargers are actually out there right now again? Remember when Tesla promised 100 supercharger stations within 12 months...but haven't announced the opening of a new one in over 4 months? 13 in California by the end of 2013 if they're lucky. They know they have bigger fish to fry with that cash unfortunately.
There's no logic here. Next argument.
First of all, who cares? Mark Pincus had distinctions up the ass from Wharton, as do I, but that doesn't stop him from being a retarded CEO. PayPal is very cool and much of its success was due to Musk's amazing ability to market. But let's not give him credit for being a genius because of it. He and his pals bought the PayPal name and idea from another startup and merged it with X.com before eventually taking the PayPal name once it gained traction thanks to Musk's marketing. Great marketer, great face to have on a business, but he was not the principal architect behind that business strategy.
And either way, doesn't it worry you that your CEO is essentially the leading mind behind 3 multi-billion dollar businesses? Worried he's stretching himself a bit thin, or may run into eventual conflicts of interest? Much more troublesome than advantageous in my book, but to each their own.
What's hilarious is that your two percentage totals add up exactly to 65% of the company. The Department of Energy's loan requires that "Mr. Musk and certain of his affiliates" own at least 65% of the company at all times in order for the covenant to be satisfied. Tesla employees, as in the "little people," aren't the ones holding most of that 33% you quote there, either. This group owns the bare minimum required to keep their company afloat and not a penny more, which is saying something. Poor guy couldn't liquidate even if he wanted to... I'd pump the stock too in his shoes.
Low repair costs? Have you ever seen the service bills on these things? And what is renewable about electricity if the most efficient and most common ways of creating it are fossil fuel burning and nuclear fusion? Unless hydro, wind, and solar catch on in a cost-effective way in a hurry, that argument won't hold water for long. IF the technology matures, then sure, you may be right. But I humbly submit that it is much more of an "if" than it is a "once" as you simply put it.
And to finish, I don't really feel a need to rebut any of your points breaking down my last post since it seems like you presented nothing new there really. But just to the one point about bailouts that was laced with whatever number of logical fallacies is that Tesla is dead without their DoE loan. They know it, they openly admit it in their statements, and if it ever got pulled the market would know exactly how to react to it. If that wasn't the case they certainly wouldn't care so much about renegotiating the covenants twice a quarter.
My claim that Tesla misrepresented their financing product is definitely far from harsh considering that you don't even understand it. Tesla is letting you lease its cars. Tesla is selling its cars to you, financed by two third-party financing groups, and offering within that sale to repurchase the car from you (or the bank) at a residual value of 43% or whatever figure they end up quoting for the Mercedes S Class. You own the car. You put up the entire purchase price on day one, borrowed money or not. Tesla just had to convince Wells and USB that there would be some value leftover in order for them to provide attractive enough rates on the loan they are giving you, so they made the salvage value promise. And Elon standing behind it means nothing, since those words mean nothing and there's no actual documentation that he's doing what he appears to be saying he's doing. If he really wanted to help out, he'd cash in those options, help pay down the loan, take the company private, or a million other ways to pump a little more capital into what's presumably his baby.
By the way, what the fuck is a "hedge fund worker?" Is that like back office?
Edit: Full disclosure, so you can all keep score... my short position is in the form of a combination of Jan 2015 $18 puts at an average of $2.20, Jan 2015 $25s at an average $4.30, and common stock average cost basis high $38s... very heavily weighted towards the puts and particularly the $18s. If you see volume on those on big green days, you'll know who it was.