How Tesla's Semi-Truck Event Will Affect Valuation.

According to the article, "Tesla Unveils the 'World's' Fastest Production Car' and Electric Big Rig," Elon Musk unveiled the long-awaited electric semi-truck and a new Roadster sports car.

New Tesla Cars

According to Elon Musk's presentation, here are the key specifications of Tesla's electric semi-truck:

* It can go 0-60 miles per hour in 5 seconds versus 15 seconds for a diesel semi-truck
* It will have a 500-mile range per change. The electric semi-truck can be charged for a 400-mile driving range in 30 minutes
* Have an infinite brake life
* Guaranteed for 1 million miles
* Operating costs of the electric semi-truck will be 20% cheaper than a diesel-truck

Here are the key specifications of Tesla's Roadster sports car:

* It can go 0-60 miles per hour in 1.9 seconds
* It has an excellent driving range of 620 miles per charge
* It is a four seater

At the event, Elon Musk seemed like the next Steve Jobs with the event filled with great fanfare and cheers from the crowd. This was not the first product unveiling event that Elon Musk showed himself no less than a rock star.

Valuation

However, the critical question to many investors is how this unveiling event will affect Tesla's valuation?

In my opinion, the Roadster will not be a game changer for Tesla's intrinsic value, because the supercar market is so tiny, but its explicit and implicit connotations will significantly enhance Tesla's market and intrinsic value in the long run. For example, one implicit example is Tesla's plan to fit a 200 kWh battery in a Roadster sports car required a breakthrough in energy density. A breakthrough in energy density would have significant implications for the battery production capacity at Gigafactory. This means that battery production capacity will be increased, meaning a more likely appreciation in Tesla's valuation.

Concerns

On the other hand, critics say that Tesla is burning through cash too fast: It is a debt machine and is not focusing enough efforts currently on making a profit. General Motors' former vice chair Bob Lutz commented on Tesla during an interview with CNBC stating "At this rate, they'll never get to 2019." He even called Tesla a "losing enterprise," mentioning that there is nothing about Tesla that can't be easily duplicated by other automobile companies. Many legacy automakers will be competing with Tesla in the non-too distant future. Also, Tesla Model 3 bottlenecks have delayed production.

In the past, Tesla's stock price has risen from height to height, to a high of $385 per share. Its market capitalization exceeded that of Ford and General Motors in April 2016. However, Tesla's production and revenues are a fraction of theirs, leading metrics like enterprise value per car sold to conclude that Tesla is massively over-valued. But one must not have much faith in these pricing metrics to begin with, even less so when comparing a company with massive potential to companies that are in decline, as I think many of the conventional auto companies are currently.

The stock price now dropped to $317.62 per share. In Aswath Damodaran's blog, he estimated the value per share of Tesla to be $192 per share, which is well below the current price per share of $316.42. I too find the stock to be too richly priced currently, but given its promise and potential, I think the intrinsic value of Tesla will eventually match the current stock price. I think this is largely due to Tesla's first mover advantage. People already associate electric cars, the cars of the future, to Tesla. People think Tesla cars are hip and cool. It is hard for anyone to displace that.

But Buffett saw a type of asset that eluded Graham: the value of [Tesla's] name. For the [company], think market lock.
-- Buffett The Making of an American Capitalist

I believe Tesla has that same market lock.
Yes, I know I am overly optimistic about Tesla's future, but I think the price per share will drop to around $250 per share, then rise exponentially in the future.

Questions

Would you buy the new roadster over other sports cars in the same price range (911, Aston Martin, etc.)? If you owned a trucking operation, do you think the initial investment in these semi-trucks is going to be worth it? Do you think Tesla's production bottlenecks are something to be concerned about as an investor, or do you believe that they will be able to figure it out over the long term? Do you think Tesla is overvalued?

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Nov 21, 2017
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