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I built a valuation model of TSLA and came up with a fair intrinsic price of less than $200. Of course it is hard to value anything right now because coming up

I built a valuation model of TSLA and came up with a fair intrinsic price of less than $200. Of course it is hard to value anything right now because coming up with a discount rate is fraught and you have government manipulation of the asset market as well. I don't know if there are waaaay smarter and informed people than me that know something about TSLA's long-term growth prospects or it is just bing meme-ed into orbit. Very strange times!

Spivak 6y ago
Question from someone who has no dog in this fight. If your model is right would it be in you best interest to short their stock or do you believe that the market can "remain irrational" forever?
- jonny_eh 6y ago
  Shorting can cause you to go broke in a time frame much faster than "forever".
- mhuffman 6y ago
  Yes it would, but I am very, very nervous that the actions of the government and the capricious actions of retail investors would go against me, so I have no stomach to do it. As an example, image that you shorted bitcoin half-way up its rise ... you would be broke! Possibly less than broke! On the other hand, you would have eventually been right, just the timing on a bubble stock (or possible meme stock, in this case) can make that sort of thing dangerous.
  - marvin 6y ago
    There is also the significant risk that you are wrong. I haven't seen this mentioned; maybe it's obvious and you've considered that aspect too. A short bet means unlimited downside, and if you arrive at 1/5 of the current market cap, there seems like a significant risk the market has seen something you haven't. Tesla was at $200 one year ago. Guaranteed to be an irrational bubble?
    - secabeen 6y ago
      You can bet against TSLA with put options, but given its volatility, they are very expensive.
    - mhuffman 6y ago
      >There is also the significant risk that you are wrong. I haven't seen this mentioned; maybe it's obvious and you've considered that aspect too. Yes! This is maybe the most likely outcome! However, to date I have not heard a good reason why Tesla should be valued higher the the other leading car companies combined. There is no moat for them. Anything they are doing, all of the other car companies can easily retool to do ... they don't because not everyone wants an electric car.
      - marvin 6y ago
        I can give it a shot. Maybe you've heard some of these before, it's just a list of claims. Tl;dr is there's a probability Tesla will become a tech behemoth with a tech moat that's Google/Apple/Amazon oligopoly-level unassailable. Not just in cars, but also in autonomous driving and maybe energy distribution. Dunno if I'd invest at the current valuation, but it's not obviously insane. Established automakers are structurally incapable of competing, due to innovator's dilemma. BEVs will eventually get cheaper than fossil vehicles due to decreasing drivetrain cost (li-ion battery++), but this tech will not be a commodity for at least a decade after this point - requires billions of R&D. Means established automakers are under an existential threat they aren't facing. Their best shot at competing BEV models with inferior price/performance make this abundantly clear. Production capacity of enough & the right batteries & motors requires both capital investment and R&D that won't materialize out of thin air just due to demand; existing manufacturers won't be able to source these at competitive price and performance. Development must be in-house at scale. Takes years, no one else is trying. Tens of billions investment. Capital is dirt cheap, so established industry's coffers does not protect them. Tesla now has 15 years lead on another startup trying the same. Superior battery tech at such scale also has unquenchable demand from solar energy industry. As long as no one can compete on price & performance, margins are huge. Will eventually be a commodity, but that's two decades away. Might also be network effects at play here. Must also consider fully-loaded cost of established industry -- meaning enterprise values that consider their debts & pension obligations, not just market cap. Autonomous driving is an industry-defining strategic advantage. Autonomous driving means Uber is obsolete. It's like landing used rockets on a barge. Established industry won't be able to just lease this capability for less than their entire profit margin. Harder than making cars. Waymo approach makes centimeter-level manually curated maps of their entire area of operation; not scalable & not compatible with inclement weather. Computer vision necessary. No one but Tesla has a real-world fleet gathering data at scale any time soon. Might be a strategically critical advantage. But even if multiple autonomous approaches succeed at the same time, established automakers are over a barrel here. Software is eating the world, established automakers don't have the culture for it. UX & software integration increasingly important both for a good driving experience & economics of maintaining a vehicle fleet. Recently saw VW slide bragging about how many lines of code they're making. It shows. Structurally incapable of competing there. Coronavirus pandemic accelerates Tesla's advantage, as the entire established industry gets its profit margins crushed far into unprofitable territory. Lots of misc. points: Dealer network doesn't like EVs due to lower maintenance costs, so established automakers have a sales problem there. Charging network availability for long trips is an obvious UX problem that no one else is handling at scale. It's hard when you don't have batteries to even out load spikes; competitors without cheap multi-kWh batteries in their charging stations will get screwed by energy distributors and be prohibitively expensive. This is also abundantly clear from existing industry dynamics. Etc.
  - ajzinsbwbs 6y ago
    If you shorted BTC halfway to its peak, and managed not to get closed out, you’d be breaking even right now.
    - nmfisher 6y ago
      What kind of bankroll would you have needed to avoid getting closed out from halfway to peak? Genuinely interested.
- imtringued 6y ago
  Tesla's stock price was irrational years ago. Shorting would have certainly lost you money.
runT1ME 6y ago
Here's one way to look at TSLA. I see zero chance of Toyota, BMW, Mercedes, Volkswagon, or GM making all of their direct competitors obsolete. With Tesla's massive monopoly on driver data (likely a prerequisite for level 5 automation) and head start in driverless tech overal there is absolutely a chance that TSLA puts all the aforementioned companies out of business. I don't know how likely that is, but it's a hell of a lottery ticket regardless.
- rileymat2 6y ago
  It is hardly a lottery ticket, the TSLA market cap is already larger than Toyota, GM and Ford combined. It is unclear to me how much room for growth there is. Found this: https://docs.google.com/spreadsheets/u/1/d/1HflVng6sYIb6Gs4pOKiDGtqU5YJ2-hgdM4pRNaT62gs/htmlview https://docs.google.com/spreadsheets/u/1/d/1HflVng6sYIb6Gs4p... Not sure how accurate it is, but the rest of the industry is only worth 773 billion combined. Which means if you invest now at a market cap of 277b, you can only 3x your money on that lottery ticket.
- rtuulik 6y ago
  What head start in driverless tech? Right now, Tesla isn't even among top companies developing self-driving car technology. Also, it's would pretty naive to think that governments would allow a single company to have such sort of monopoly like you describe.
  - rrrrrrrrrrrryan 6y ago
    The headstart is all the data they've collected by having actual cars, on actual roads, driven by actual humans. The idea is that gathering this data may be a prerequisite to resolving the bajillions fringe-cases that are currently in the way of level 4 autonomy.
    - importantbrian 6y ago
      This assumes that the other manufacturers don't also gather data from actual cars, on actual roads, driven by actual humans. Which is not the case. Toyota for example has it's TSS system. Toyota also makes around 10 million cars a year. Tesla makes around 370k. Even if they had a head start it's not going to take long for them to get lapped.

Spivak 6y ago

Question from someone who has no dog in this fight. If your model is right would it be in you best interest to short their stock or do you believe that the market can "remain irrational" forever?

jonny_eh 6y ago
Shorting can cause you to go broke in a time frame much faster than "forever".
mhuffman 6y ago
Yes it would, but I am very, very nervous that the actions of the government and the capricious actions of retail investors would go against me, so I have no stomach to do it. As an example, image that you shorted bitcoin half-way up its rise ... you would be broke! Possibly less than broke! On the other hand, you would have eventually been right, just the timing on a bubble stock (or possible meme stock, in this case) can make that sort of thing dangerous.
- marvin 6y ago
  There is also the significant risk that you are wrong. I haven't seen this mentioned; maybe it's obvious and you've considered that aspect too. A short bet means unlimited downside, and if you arrive at 1/5 of the current market cap, there seems like a significant risk the market has seen something you haven't. Tesla was at $200 one year ago. Guaranteed to be an irrational bubble?
  - secabeen 6y ago
    You can bet against TSLA with put options, but given its volatility, they are very expensive.
  - mhuffman 6y ago
    >There is also the significant risk that you are wrong. I haven't seen this mentioned; maybe it's obvious and you've considered that aspect too. Yes! This is maybe the most likely outcome! However, to date I have not heard a good reason why Tesla should be valued higher the the other leading car companies combined. There is no moat for them. Anything they are doing, all of the other car companies can easily retool to do ... they don't because not everyone wants an electric car.
    - marvin 6y ago
      I can give it a shot. Maybe you've heard some of these before, it's just a list of claims. Tl;dr is there's a probability Tesla will become a tech behemoth with a tech moat that's Google/Apple/Amazon oligopoly-level unassailable. Not just in cars, but also in autonomous driving and maybe energy distribution. Dunno if I'd invest at the current valuation, but it's not obviously insane. Established automakers are structurally incapable of competing, due to innovator's dilemma. BEVs will eventually get cheaper than fossil vehicles due to decreasing drivetrain cost (li-ion battery++), but this tech will not be a commodity for at least a decade after this point - requires billions of R&D. Means established automakers are under an existential threat they aren't facing. Their best shot at competing BEV models with inferior price/performance make this abundantly clear. Production capacity of enough & the right batteries & motors requires both capital investment and R&D that won't materialize out of thin air just due to demand; existing manufacturers won't be able to source these at competitive price and performance. Development must be in-house at scale. Takes years, no one else is trying. Tens of billions investment. Capital is dirt cheap, so established industry's coffers does not protect them. Tesla now has 15 years lead on another startup trying the same. Superior battery tech at such scale also has unquenchable demand from solar energy industry. As long as no one can compete on price & performance, margins are huge. Will eventually be a commodity, but that's two decades away. Might also be network effects at play here. Must also consider fully-loaded cost of established industry -- meaning enterprise values that consider their debts & pension obligations, not just market cap. Autonomous driving is an industry-defining strategic advantage. Autonomous driving means Uber is obsolete. It's like landing used rockets on a barge. Established industry won't be able to just lease this capability for less than their entire profit margin. Harder than making cars. Waymo approach makes centimeter-level manually curated maps of their entire area of operation; not scalable & not compatible with inclement weather. Computer vision necessary. No one but Tesla has a real-world fleet gathering data at scale any time soon. Might be a strategically critical advantage. But even if multiple autonomous approaches succeed at the same time, established automakers are over a barrel here. Software is eating the world, established automakers don't have the culture for it. UX & software integration increasingly important both for a good driving experience & economics of maintaining a vehicle fleet. Recently saw VW slide bragging about how many lines of code they're making. It shows. Structurally incapable of competing there. Coronavirus pandemic accelerates Tesla's advantage, as the entire established industry gets its profit margins crushed far into unprofitable territory. Lots of misc. points: Dealer network doesn't like EVs due to lower maintenance costs, so established automakers have a sales problem there. Charging network availability for long trips is an obvious UX problem that no one else is handling at scale. It's hard when you don't have batteries to even out load spikes; competitors without cheap multi-kWh batteries in their charging stations will get screwed by energy distributors and be prohibitively expensive. This is also abundantly clear from existing industry dynamics. Etc.
- ajzinsbwbs 6y ago
  If you shorted BTC halfway to its peak, and managed not to get closed out, you’d be breaking even right now.
  - nmfisher 6y ago
    What kind of bankroll would you have needed to avoid getting closed out from halfway to peak? Genuinely interested.
imtringued 6y ago
Tesla's stock price was irrational years ago. Shorting would have certainly lost you money.

runT1ME 6y ago

Here's one way to look at TSLA. I see zero chance of Toyota, BMW, Mercedes, Volkswagon, or GM making all of their direct competitors obsolete. With Tesla's massive monopoly on driver data (likely a prerequisite for level 5 automation) and head start in driverless tech overal there is absolutely a chance that TSLA puts all the aforementioned companies out of business. I don't know how likely that is, but it's a hell of a lottery ticket regardless.

rileymat2 6y ago
It is hardly a lottery ticket, the TSLA market cap is already larger than Toyota, GM and Ford combined. It is unclear to me how much room for growth there is. Found this: https://docs.google.com/spreadsheets/u/1/d/1HflVng6sYIb6Gs4pOKiDGtqU5YJ2-hgdM4pRNaT62gs/htmlview https://docs.google.com/spreadsheets/u/1/d/1HflVng6sYIb6Gs4p... Not sure how accurate it is, but the rest of the industry is only worth 773 billion combined. Which means if you invest now at a market cap of 277b, you can only 3x your money on that lottery ticket.
rtuulik 6y ago
What head start in driverless tech? Right now, Tesla isn't even among top companies developing self-driving car technology. Also, it's would pretty naive to think that governments would allow a single company to have such sort of monopoly like you describe.
- rrrrrrrrrrrryan 6y ago
  The headstart is all the data they've collected by having actual cars, on actual roads, driven by actual humans. The idea is that gathering this data may be a prerequisite to resolving the bajillions fringe-cases that are currently in the way of level 4 autonomy.
  - importantbrian 6y ago
    This assumes that the other manufacturers don't also gather data from actual cars, on actual roads, driven by actual humans. Which is not the case. Toyota for example has it's TSS system. Toyota also makes around 10 million cars a year. Tesla makes around 370k. Even if they had a head start it's not going to take long for them to get lapped.