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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 pro

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/Revenue/1999/Q4 http://www.wikinvest.com/stock/Amazon.com_(AMZN)/Data/Revenu...)

stevenwliao 9y ago
> 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.
- skorgu 9y ago
  The flipside: you can also be lucky enough to have borrowed a ton of money just in time for the crash to drive everyone else out of business: https://www.vox.com/new-money/2017/4/5/15190650/ https://www.vox.com/new-money/2017/4/5/15190650/
entee 9y ago
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: http://aswathdamodaran.blogspot.com/2013/09/valuation-of-week-1-tesla-test.html 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.
- Tomminn 9y ago
  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.
lord_jim 9y ago
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
am1988 9y ago
Not every company that loses money is Amazon.
awkwarddaturtle 9y ago
> 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.

stevenwliao 9y ago

> 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.

skorgu 9y ago
The flipside: you can also be lucky enough to have borrowed a ton of money just in time for the crash to drive everyone else out of business: https://www.vox.com/new-money/2017/4/5/15190650/ https://www.vox.com/new-money/2017/4/5/15190650/

entee 9y ago

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: http://aswathdamodaran.blogspot.com/2013/09/valuation-of-week-1-tesla-test.html 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.

Tomminn 9y ago
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.

lord_jim 9y ago

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

am1988 9y ago

Not every company that loses money is Amazon.

awkwarddaturtle 9y ago

> 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.