Can Someone Help Me Understand Tesla?

Tesla's Stock Just passed $1700... Elon A Couple Months Ago Said That Tesla Was Overvalued At $791. Fundamentally, Why Is It So High? I Know Friends That Have Barely An Understanding Of Options, And They Are Profiting $30k+ From Tesla Calls. Makes Me Want To Start Investing Again LOL. Is It Merely Consumer Confidence In Tesla + Belief In Musk + Being A Leader In The EV Market?

Ps. Ignore My Autocapitalization, For Some Reason It Capitalizes Every Word...

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Comments (13)

Most Helpful
Jul 13, 2020 - 3:37pm

There are no fundamentals to support the recent price movements of Tesla, at this point it is a pure momentum trade. A car maker should never be trading at 100x EV/EBITDA, period. With most of the growth coming from the lower margin Model 3 it will be eating into TSLA's margins as it grows. In addition, Tesla's method of sustaining it's growth is through consistent add-ons at this valuation, which is great for the future of the company but terrible for any chance of strong EPS growth. Even today TSLA which is hovering around the ~300B mark has intraday volatility of 14% on no major news which is unheard of for an company of it's size. Your friends who have call options (I'm assuming ITM) are taking a insane amount of risk, because the volatility only makes the options more expensive to purchase on top of the extremely speculative nature of the stock. Bloomberg sums this up nicely : https://www.bloomberg.com/news/articles/2020-07-13/ten-thousand-day-tra… .

In terms of buying Tesla, if you bought TSLA mid Feb. you could've seen 60% max drawdown with the Mkt. downturn, and that could easily happen again. So please don't gamble any money you can't lose on this brutal investment.

Jul 15, 2020 - 4:44pm

I can model Tesla to be worth these prices. Their just assumptions assuming a lot goes right and they pivot businesses.

People are basically better he's Steve Jobs and someday he can turn Tesla into a high margin subscription service. Under that scenario Tesla is cheap. But that's a big jump for me to consider their stock.

People pay a $100 a year for varios Microsoft products. Tesla is by far the best software company in auto. So someday Tesla owns the software for autos and everyone has to pay them a $100 a year. Maybe more.

Jul 15, 2020 - 10:45pm

I agree with you I wouldn't rule out investing Tesla forever, just I don't think that it makes sense investing now. Why would you just not just wait until they actually pivot, instead of speculating about their future? It seems that most fundamental arguments around Tesla say they could be at fair value in ~5 years, leaving the question where is the upside? I don't want to pour money into something that will takes years to justify the fundamentals.

It seems that short term, no one has a clue where the stock is going, just look at the UBS report in this feed that has a price range of 281-2070 (very helpful UBS). With Tesla's earnings continuing to very inconsistent, varying from beating by 2.09 to missing by -1.96 in FY 2019 it seems like just a gamble being long before earnings.

Personally, I have a long straddle on Tesla which has worked out well, because the only thing that seems consistent about Tesla is that no one agrees about where Tesla should be.

Oct 20, 2020 - 11:18pm

I'm long TSLA because it's not a car company and it isn't being valued as a car company. TSLA is arguably undervalued if you believe in its long-term goal, which is autonomous vehicles (robotaxis). I personally am a bigger believer in the LIDAR models of Waymo, Amazon/Zoox, and GM Cruise, but I'm long on those stocks as well. Give Tesla a 10-year runway and its enormous engineering capabilities and it is not unreasonable to think Tesla will be among the 2-4 winners in the autonomous vehicle race. With network effects, autonomous robotaxis will quickly become a multi-trillion dollar oligopoly, as Lyft and Uber are today in ridesharing. The difference is that robotaxis have a chance to be profitable whereas ridesharing has proven to be a bad business model.

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Jul 13, 2020 - 4:34pm

There is a bubble forming, most people investing in Tesla have FOMO and want to cash in on the surge in stock price - it's only a matter of time the stock price collapses, the question is when?

Jul 14, 2020 - 12:11am

here u go - equity research report published today

Tesla Inc.
Tesla $2k? Lessons from the Tech Stack
July 13, 2020

Following this morning's webcast with Morgan Stanley US Tech Hardware analyst Katy Huberty and US Internet analyst Brian Nowak, we have been getting a number of requests for the slide deck. We thought we'd just share them in the images below, while sharing a few thoughts on the stock as it approaches our $2,070 bull case.

What's up with the stock? This appears to be… bigger than Tesla. In recent days/weeks, Tesla shares have simultaneously exhibited higher price, higher volatility and higher average daily volume traded. Today, the stock has traded nearly 38.6mn shares, implying nearly $58bn of value traded. We have made efforts to identify the source of such extraordinary levels of volume (long-only, short covering, retail, index, quant, ESG options, intra-exchange volume), but admittedly, it is not entirely clear to us where the bulk of the volume is originating. It is also difficult to quantify how much that even matters. One client said there appear to be 'bigger forces at work' in this market and for a variety of reasons the Tesla equity instrument has been anointed the 'chosen one.'
Amazon, Apple, etc. are allocating capital to EV/AV/transport, likely in a vertically integrated/full stack approach. The market appears to have, in our opinion, disproportionately ascribed a very large share of the EV market/connected car ecosystem value chain to one company. We would encourage a closer examination of the hiring, patents, acquisitions and strategies of some of the world's largest tech firms. Along the way, it is our working assumption that many of these firms will provide their OS to many of today's auto OEMs at virtually no cost, while a host of battery companies will provide high quality, long-range and highly commoditized batteries to a wide range of EV manufacturers who will effectively 'print' the EV skateboards at very high volume.

We continue to believe a number of fundamental risks are being overlooked that balance the bull case. We believe investors buying Tesla with a $1,500/share basis are making a number of concentric/interrelated bets on the fundamental outlook for the company and the broader EV market. In our view, buying the stock at these levels one must believe: (a) that US-China relations will remain copacetic on trade/IP long term, (b) the legacy OEMs will fail to produce a competitive EV product, (c) the big tech platforms (AMZN, GOOGL, AAPL, etc.) will either not try to develop compelling EV systems, not achieve success, or, if successful, use Tesla technology in its offering, (d) that autonomous driving can produce substantial service revenue ($50 to $100 ARPU) over the next 3 to 5 or 5 to 10 years. We remain concerned about Sino-US relations with respect to Autos. We believe legacy players will spend $400bn to $500bn on EVs over the next 5 years. We expect big tech (established and clean sheet start-ups) to enter transport as a significant competitive force in EVs. And we are extremely cautious on the pace of adoption of full-autonomy as a % of miles traveled over the next decade ($1,700? At about 22x our 2025 EBITDA estimate, we estimate the company's current valuation discounts over 5 million units of volume at a $50k ASP by 2030 (roughly $250bn of revenue) with a combined EBITDA margin approaching 20%, which incorporates high margins on the units sold as well as initial high margin service revenue derived from the population of Tesla customers.

The key sensitivities needed to bridge the gap to $1tn market cap. At a 20% EBITDA margin, we calculate each 1 million units of Tesla volume by 2030 is worth just shy of $400/share (assumes 18x EV/EBITDA multiple and 9% discount rate). Taking the software/services angle, we calculate $100 of monthly ARPU applied to 30 million cars in the Tesla fleet is worth nearly $800/share (assuming a 25x EV/EBITDA multiple for the services revenue). To clip an incremental $1,000 of value per Tesla share, we believe investors would need to assume Tesla could add roughly a further 3 million units of auto sales at $40 to $50k/unit, add $100/month of ARPU to nearly 50 million cars in the fleet… or some combination of the two.
Client feedback on the name best summarized as a search for reason. Admittedly, the incoming call volume on Tesla over the past couple of months from our traditional auto/industrial investors has dwindled. In its place, we are engaging with different genres of clients (generalists, tech, ESG, etc.) with a different perspective, longer term horizon, and a wider potential investment universe. We are making even greater efforts to incorporate the views and insights of our technology research partners on the Tesla story as they appear in a better position to explain the precedents, the comp group, the valuation, the tech, the business model, the emerging competitive threat and… importantly, to help identify the marginal investor from here.
Please see below for slides from today's call:

2) Valuation Methodology and Risks

Tesla Inc(TSLA.O)

Our bull case valuation for TSLA is $2,070 and our bear case is $281. Our PT of $740 is comprised of 2 components: (1) $703/share value of the core Tesla Auto business on a 9% WACC, 12x exit EBITDA, and exit EBIT margins of ~11.5% (EBITDA margin of 18%) and (2) Valuation of Tesla Mobility at $37/share based on a DCF to 2030 and a 11% WACC. Our price target applies zero value for Tesla Energy and zero value for SCTY.

Risks to Upside

Tesla China profitability surprises to the upside
Europe Giga success
Model Y margin accretion
Software margin accretion
Tesla the Supplier?
Cybertruck

Risks to Downside

May never make the leap to a shared mobility model, limiting itself to niche OEM status
Execution risk / COVID-19
Openness of capital markets to funding Tesla's strategic ambitions
Large & better capitalized technology firms emerging as competitors

Jul 14, 2020 - 11:53pm

No position in the stock but I don't buy the chorus of commentators saying it's become DiScOnNeCtEd fRoM tHe FuNdAmEnTaLs. Been hearing that thoughtless line about the market, and TSLA, and pretty much everything else lately.

I'm not an expert on the company but a lot of specific criticisms over the years have been proven wrong. People had all this insider scuttlebutt about manufacturing shortcuts in 2018 that were supposed to blow up in the company's face in 2019, never happened. People were so sure competitive entrants would eat their lunch, and the competition has proven light years behind.

If they can accomplish any partial combo of (i) being the dominant EV player long term and (ii) creating an established competitive edge in batteries, I see no reason why they shouldn't be more valuable than any of today's car companies. Which they're currently not, on an enterprise basis.

Again, not making a long case here. I can see the short side too, especially the fact that they keep cutting prices to keep up those sales.

But in general, I'm more wary of the shorts. Most of them have delusions of grandeur, thinking they've uncovered the world's greatest conspiracy and convincing themselves that everyone who's long the stock is either a criminal stock manipulator or some fanboy living in his mom's basement. I suspect the opposite may be true. $TSLAQ feels like a cult to me.

And if there's a conspiracy in autos, it's more likely the other big OEMs squeezing their dealers to juice sales numbers. I'd buy into that conspiracy before I'd buy into a TSLA one.

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