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Calling the market is a fool’s game, but that valuation makes no sense to me at all. Remember this is supposed to be the expected value weighted across up and

by czzr 6y ago

Calling the market is a fool’s game, but that valuation makes no sense to me at all. Remember this is supposed to be the expected value weighted across up and down scenarios. The down scenarios are clear, so in what crazy world are the up scenarios enough to average out to 210 billion?

api 6y ago
It makes at least some sense if: (1) Some percentage of existing auto makers are asleep at the switch and are going to lose in the long term as the EV revolution gathers momentum. Note that battery prices are still dropping. Also note that COVID temporarily crashed oil prices but in the long term may lead to an oil price spike since it's bankrupting and decommissioning a ton of "enhanced recovery" and harder-to-get oil operations. When oil demand recovers supply may not be there. (2) Tesla will at least not fail, and therefore has a chance to pick up market share from auto companies that are left behind. If Tesla does more than just not fail and actually improves and grows, it could pick up quite a bit of market share. Now add... (3) Every central bank is spraying the markets with a fire hose, so if Tesla at least looks decent it may hold up against asset price inflation vs. less healthy looking auto companies.
joewadcan 6y ago
Tesla themselves are telling that story: 1. The world largest utility for electricity (combining Powerwalls + Solar) 2. The most profitable transportation company (personal automobiles, semi-trucks, and autonomy)
- joewadcan 6y ago
  The difference is that people are starting to believe them now and extrapolating in a future where there's fewer other investment alternatives with high potential gains.
martythemaniak 6y ago
The up scenario is basically the one where Tesla's cars are Apple's Macs. Apple used the success of the mac to get itself into a number of other industries to such an extent that people now fear it will abandon the mac because it makes such a small amount from it. So what are Tesla's other business lines? Solar panel deployments (residential and industrial), battery deployments, electrical utility software providers, autonomous robotaxi services, residential HVAC. This is just things they've publicly said they're working on today. It would surprise me if they don't have an electric plane in the works by the end of this decade. Maybe industrial sabatier-process based carbon capture for jurisdictions with carbon taxes and Mars bases. Basically, they have enough "bets" that you can believe, if you want to.
- jseliger 6y ago
  The comparison to Apple makes sense: I have spent the last decade and a half reading prognosticators announce that Apple's stock is overpriced, and so far all of them have been wildly wrong. Eventually they'll almost certainly be right, since, historically speaking, no stock has gone up forever, but they've been impressively wrong so far.
_jal 6y ago
This is in a market that is up during massive unemployment, an uncontrolled epidemic and major international downside risk. If you're looking for valuations that make sense, the pawn shop is down the street.
- rcMgD2BwE72F 6y ago
  What if they manage to make a profit in Q2 even though their main factory was shutdown for half the quarter? Not all companies face the same risk in a recession (some might even speed up, while incumbents start to struggle). That's when investments in EV finally pay off.
cryptoz 6y ago
The headline and article are misleading in my opinion, by focusing so closely on comparisons with automakers and calling Tesla an automaker. Yes, Tesla makes automobiles, but they dropped 'Motors' from their name a long time ago in indications that they are much more than cars. They're solar roofing, too. They're energy storage through batteries, too. They've recently expanded their product lines much past what 'other automakers' are doing. So I don't think it makes much sense to look at TSLA valuation and compared to 'other automakers'. 'Other automakers' are not run by Elon, either. Without injecting an opinion about Elon, he clearly does have a track record of finding new LOB in his startups that are not what the industry expects. I would by this point assume that is also priced in. If you calculate the expected value from the new market entrances and assume there will be more in the future, and also assume TSLA will become a major player in 2-3 global industries, the valuation may even start to feel low again. Disclaimer, I bought TSLA at $32 but sold at $150 and been out since. Oh well.
- vinni2 6y ago
  Wondering why you didn’t but TSLA again! I have bought and sold TSLA shares multiple times each time making a decent earning.
aripickar 6y ago
The optimistic scenario is that Tesla is so far ahead of the curve in self driving capabilities that they become toyota sized in terms of cars sold, while mainaining the low gross margins on software sold. Tesla is largely a software play, which is why it is given a software multiple (10x revenue) vs an automaker, which is given a much lower multiple (.75x revenue)
- sunstone 6y ago
  Not only this but Tesla is making the future of legacy auto makers look even worse. Consider that, even now, Tesla cars are engineered for 1m miles of operation and batteries with 2m km and 16 years of life are about to come on stream. The implications is that very soon cars will last for over 1m miles and therefore many fewer cars will be sold per year. Indeed the biggest part of the business may become refurbishing the interiors of ten year old cars. Tesla right now is on the cusp of selling cars with these specs while the legacy guys are on the cusp of matching the eight year old Model S. Legacy car makers have a huge challenge in front of them crossing the chasm to the new automotive reality and not many are going to make it.
  - gamblor956 6y ago
    The batteries, manufactured by Panasonic, are engineered for 1m miles. The cars themselves have difficulty lasting 2 or 3 years without requiring serious maintenance, assuming you are lucky enough to receive one in good working order when you pick it up. The legacy automakers are other close to catching up to Tesla, and this COVID downtown plays into their hands day better than it does Tesla. It's a lot easier to survive a downtown when your serve the entire market instead of just the luxury market.
    - sunstone 6y ago
      > The cars themselves have difficulty lasting 2 or 3 years without requiring serious maintenance Do you have a reference for this? Most of what I've seen from owners comments and CR, not to mention the 400k mile Tesla X, suggests the opposite.
ogogmad 6y ago
Even Elon Musk agrees with you: https://twitter.com/elonmusk/status/1256239815256797184 https://twitter.com/elonmusk/status/1256239815256797184 And he's said it more than once.
new_realist 6y ago
The Federal Reserve’s unprecedented market distortions have created an asset bubble. Look at NKLA. Tesla is the gambler’s favorite stock.

by czzr 6y ago

api 6y ago

It makes at least some sense if: (1) Some percentage of existing auto makers are asleep at the switch and are going to lose in the long term as the EV revolution gathers momentum. Note that battery prices are still dropping. Also note that COVID temporarily crashed oil prices but in the long term may lead to an oil price spike since it's bankrupting and decommissioning a ton of "enhanced recovery" and harder-to-get oil operations. When oil demand recovers supply may not be there. (2) Tesla will at least not fail, and therefore has a chance to pick up market share from auto companies that are left behind. If Tesla does more than just not fail and actually improves and grows, it could pick up quite a bit of market share. Now add... (3) Every central bank is spraying the markets with a fire hose, so if Tesla at least looks decent it may hold up against asset price inflation vs. less healthy looking auto companies.

joewadcan 6y ago

Tesla themselves are telling that story: 1. The world largest utility for electricity (combining Powerwalls + Solar) 2. The most profitable transportation company (personal automobiles, semi-trucks, and autonomy)

joewadcan 6y ago
The difference is that people are starting to believe them now and extrapolating in a future where there's fewer other investment alternatives with high potential gains.

martythemaniak 6y ago

The up scenario is basically the one where Tesla's cars are Apple's Macs. Apple used the success of the mac to get itself into a number of other industries to such an extent that people now fear it will abandon the mac because it makes such a small amount from it. So what are Tesla's other business lines? Solar panel deployments (residential and industrial), battery deployments, electrical utility software providers, autonomous robotaxi services, residential HVAC. This is just things they've publicly said they're working on today. It would surprise me if they don't have an electric plane in the works by the end of this decade. Maybe industrial sabatier-process based carbon capture for jurisdictions with carbon taxes and Mars bases. Basically, they have enough "bets" that you can believe, if you want to.

jseliger 6y ago
The comparison to Apple makes sense: I have spent the last decade and a half reading prognosticators announce that Apple's stock is overpriced, and so far all of them have been wildly wrong. Eventually they'll almost certainly be right, since, historically speaking, no stock has gone up forever, but they've been impressively wrong so far.

_jal 6y ago

This is in a market that is up during massive unemployment, an uncontrolled epidemic and major international downside risk. If you're looking for valuations that make sense, the pawn shop is down the street.

rcMgD2BwE72F 6y ago
What if they manage to make a profit in Q2 even though their main factory was shutdown for half the quarter? Not all companies face the same risk in a recession (some might even speed up, while incumbents start to struggle). That's when investments in EV finally pay off.

cryptoz 6y ago

The headline and article are misleading in my opinion, by focusing so closely on comparisons with automakers and calling Tesla an automaker. Yes, Tesla makes automobiles, but they dropped 'Motors' from their name a long time ago in indications that they are much more than cars. They're solar roofing, too. They're energy storage through batteries, too. They've recently expanded their product lines much past what 'other automakers' are doing. So I don't think it makes much sense to look at TSLA valuation and compared to 'other automakers'. 'Other automakers' are not run by Elon, either. Without injecting an opinion about Elon, he clearly does have a track record of finding new LOB in his startups that are not what the industry expects. I would by this point assume that is also priced in. If you calculate the expected value from the new market entrances and assume there will be more in the future, and also assume TSLA will become a major player in 2-3 global industries, the valuation may even start to feel low again. Disclaimer, I bought TSLA at $32 but sold at $150 and been out since. Oh well.

vinni2 6y ago
Wondering why you didn’t but TSLA again! I have bought and sold TSLA shares multiple times each time making a decent earning.

aripickar 6y ago

The optimistic scenario is that Tesla is so far ahead of the curve in self driving capabilities that they become toyota sized in terms of cars sold, while mainaining the low gross margins on software sold. Tesla is largely a software play, which is why it is given a software multiple (10x revenue) vs an automaker, which is given a much lower multiple (.75x revenue)

sunstone 6y ago
Not only this but Tesla is making the future of legacy auto makers look even worse. Consider that, even now, Tesla cars are engineered for 1m miles of operation and batteries with 2m km and 16 years of life are about to come on stream. The implications is that very soon cars will last for over 1m miles and therefore many fewer cars will be sold per year. Indeed the biggest part of the business may become refurbishing the interiors of ten year old cars. Tesla right now is on the cusp of selling cars with these specs while the legacy guys are on the cusp of matching the eight year old Model S. Legacy car makers have a huge challenge in front of them crossing the chasm to the new automotive reality and not many are going to make it.
- gamblor956 6y ago
  The batteries, manufactured by Panasonic, are engineered for 1m miles. The cars themselves have difficulty lasting 2 or 3 years without requiring serious maintenance, assuming you are lucky enough to receive one in good working order when you pick it up. The legacy automakers are other close to catching up to Tesla, and this COVID downtown plays into their hands day better than it does Tesla. It's a lot easier to survive a downtown when your serve the entire market instead of just the luxury market.
  - sunstone 6y ago
    > The cars themselves have difficulty lasting 2 or 3 years without requiring serious maintenance Do you have a reference for this? Most of what I've seen from owners comments and CR, not to mention the 400k mile Tesla X, suggests the opposite.

ogogmad 6y ago

Even Elon Musk agrees with you: https://twitter.com/elonmusk/status/1256239815256797184 https://twitter.com/elonmusk/status/1256239815256797184 And he's said it more than once.

new_realist 6y ago

The Federal Reserve’s unprecedented market distortions have created an asset bubble. Look at NKLA. Tesla is the gambler’s favorite stock.