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Remember, Tesla does more than sell cars. Their grid-connected batteries are extremely profitable. A quick skim of the article makes no mention of Tesla's othe

Remember, Tesla does more than sell cars. Their grid-connected batteries are extremely profitable. A quick skim of the article makes no mention of Tesla's other businesses.

simonh 6y ago
They're extremely profitable, but they still contribute to Tesla profits and Tesla revenue that are factored into the P/E, and are still tiny in comparison to the current valuation.
- mewpmewp2 6y ago
  Current valuation prices in future potential. And it's logical for it to do so. It's irrational to look at P/E and determine a company's value based on that. Here's a thought experiment. It's not a realistic one and is not supposed to prove that Tesla is not overvalued, but just out of interest, I'd like to see some responses. How would you value a company that has $10,000 profit this year and is expected to grow in profit 50% each following year and this growth would last infinitely? What about a company that is expected to grow 50% each year until $1T profit?
  - simonh 6y ago
    I don't think anyone here has argued that possible future value can't override current P/E in principle. I'm certainly not arguing that. It's pretty obvious and well established. It's even possible Tesla will eventually improve it's P/E ratio by at least 50x to reach a more typical figure. That's also quite plausible, after all the big car giants now weren't always world dominating conglomerates. No problem there either from me. Where I think the current valuation departs from reality is the time it is likely to take to do that, and the risk that it won't happen at all. The current valuation only makes sense if that 50x ramp up in scale is pretty much guaranteed (not 10x, not 20x, but 50x at least) and will also happen in a few years. Technically they could be betting that the growth will be a lot more even than that, far bigger than the current entire car market, but with increased risk I suppose. I don't think that's what's happening though. What's actually happening is these recent investors over the last 6 months have simply bet that the Tesla share price will shoot up in the near terms and they'll be able to flip the stock to turn a rapid profit, and they've been right. They've made no bet at all on Tesla's long term prospects. That's why Elon tweeted a few months ago that he thought the stock was over-valued.
    - deleted 6y ago
      [deleted]
    - deleted 6y ago
      [deleted]
  - webinvest 6y ago
    PEG Ratio
coldcode 6y ago
It's doesn't matter. Tesla's stock price is around 450 times its cash flow, which is an order of magnitude beyond insane for a public company. Apple is around 30. The average S&P500 company is around 15. For Tesla's stock to be worth the same relative to the company's business as Apple the stock should be 15X less than it is now. To justify this price they would have to sell 15X more vehicles. Apple's gross margins are like 30%, cars are probably just a few % due to the complexity of making something as big as a car. Unless Tesla becomes the only seller of cars in the world, there is no way it will ever be worth the current price.
- davedx 6y ago
  Can you provide a citation for that 450x cash flow statement please?
  - JMTQp8lwXL 6y ago
    Tesla's PE ratio for 2020 is 627; it is forecast to quickly decline to a more reasonable 144 in 2022. https://www.nasdaq.com/market-activity/stocks/tsla/price-earnings-peg-ratios https://www.nasdaq.com/market-activity/stocks/tsla/price-ear...
    - Retric 6y ago
      Stock prices are always based predicted returns over time. Their revenue growth for 2020 was 40%, 2019 14.52%, 2018 82.51%, and 2017 67.98%. So, you really need to predict when that stops before you can get a reasonable estimate for sock value. A more reasonable 144x in 2022 after 2 years of ~40% growth is the equivalent of ~282x today. That’s not exactly the huge drop people are expecting. In other words I do expect a drop, but I don’t expect short selling is a great risk adjusted investment.
      - manquer 6y ago
        That is also assuming the stock won't grow crazy in the next 2 years as well.
Retric 6y ago
Sure, and in theory directly selling to customers and manufacturing a higher percentage of parts should allow them to extract more profit per vehicle than using dealerships. EV’s also allow car companies companies to profit from ‘gasoline’ sales as the lower operating costs are linked to higher purchase prices. However, none of that supports the insane increase in Tesla’s stock price over the last 2 years. That’s likely an artifact of so many short sellers which ironically drive up the price faster if a stock starts to rise, and with a 40% increase in revenue in 2020 some rise would be appropriate. As the saying goes the market can remain irrational longer than you can remain solvent.
nrjames 6y ago
I would add that their competitive advantage now is not the cars, but the extensive and convenient charging network.
- fassssst 6y ago
  One regulation away from being standardized like it is in Europe. Not to mention the biggest benefit of EV’s is charging at home.
- gwbas1c 6y ago
  I suspect that the Supercharger network will quickly become commoditized as charging stations appear everywhere. Every grocery store, mall, parking lot, and restaurant will put a few chargers in. This will be mostly to defend their business so that people with electric cars continue to patronize instead of going to a competitor with an electric car. BTW: From what I understand, gas stations don't make much profit from the gas. I suspect the same kind of economics from operating a car charger.
sseveran 6y ago
A quick look at their 10Q does not show that their Energy generation and storage business is extremely profitable. It eeks out a small profit before operating expenses. That may change in the future. It is also a small business relative to their car business. https://www.sec.gov/Archives/edgar/data/1318605/000156459020047486/tsla-10q_20200930.htm https://www.sec.gov/Archives/edgar/data/1318605/000156459020...
7e 6y ago
Tesla doesn’t operate those batteries. They are merely a supplier, or in the Samsung case, a reseller.

Remember, Tesla does more than sell cars. Their grid-connected batteries are extremely profitable. A quick skim of the article makes no mention of Tesla's other businesses.

simonh 6y ago

They're extremely profitable, but they still contribute to Tesla profits and Tesla revenue that are factored into the P/E, and are still tiny in comparison to the current valuation.

mewpmewp2 6y ago
Current valuation prices in future potential. And it's logical for it to do so. It's irrational to look at P/E and determine a company's value based on that. Here's a thought experiment. It's not a realistic one and is not supposed to prove that Tesla is not overvalued, but just out of interest, I'd like to see some responses. How would you value a company that has $10,000 profit this year and is expected to grow in profit 50% each following year and this growth would last infinitely? What about a company that is expected to grow 50% each year until $1T profit?
- simonh 6y ago
  I don't think anyone here has argued that possible future value can't override current P/E in principle. I'm certainly not arguing that. It's pretty obvious and well established. It's even possible Tesla will eventually improve it's P/E ratio by at least 50x to reach a more typical figure. That's also quite plausible, after all the big car giants now weren't always world dominating conglomerates. No problem there either from me. Where I think the current valuation departs from reality is the time it is likely to take to do that, and the risk that it won't happen at all. The current valuation only makes sense if that 50x ramp up in scale is pretty much guaranteed (not 10x, not 20x, but 50x at least) and will also happen in a few years. Technically they could be betting that the growth will be a lot more even than that, far bigger than the current entire car market, but with increased risk I suppose. I don't think that's what's happening though. What's actually happening is these recent investors over the last 6 months have simply bet that the Tesla share price will shoot up in the near terms and they'll be able to flip the stock to turn a rapid profit, and they've been right. They've made no bet at all on Tesla's long term prospects. That's why Elon tweeted a few months ago that he thought the stock was over-valued.
  - deleted 6y ago
    [deleted]
  - deleted 6y ago
    [deleted]
- webinvest 6y ago
  PEG Ratio

coldcode 6y ago

It's doesn't matter. Tesla's stock price is around 450 times its cash flow, which is an order of magnitude beyond insane for a public company. Apple is around 30. The average S&P500 company is around 15. For Tesla's stock to be worth the same relative to the company's business as Apple the stock should be 15X less than it is now. To justify this price they would have to sell 15X more vehicles. Apple's gross margins are like 30%, cars are probably just a few % due to the complexity of making something as big as a car. Unless Tesla becomes the only seller of cars in the world, there is no way it will ever be worth the current price.

davedx 6y ago
Can you provide a citation for that 450x cash flow statement please?
- JMTQp8lwXL 6y ago
  Tesla's PE ratio for 2020 is 627; it is forecast to quickly decline to a more reasonable 144 in 2022. https://www.nasdaq.com/market-activity/stocks/tsla/price-earnings-peg-ratios https://www.nasdaq.com/market-activity/stocks/tsla/price-ear...
  - Retric 6y ago
    Stock prices are always based predicted returns over time. Their revenue growth for 2020 was 40%, 2019 14.52%, 2018 82.51%, and 2017 67.98%. So, you really need to predict when that stops before you can get a reasonable estimate for sock value. A more reasonable 144x in 2022 after 2 years of ~40% growth is the equivalent of ~282x today. That’s not exactly the huge drop people are expecting. In other words I do expect a drop, but I don’t expect short selling is a great risk adjusted investment.
    - manquer 6y ago
      That is also assuming the stock won't grow crazy in the next 2 years as well.

Retric 6y ago

Sure, and in theory directly selling to customers and manufacturing a higher percentage of parts should allow them to extract more profit per vehicle than using dealerships. EV’s also allow car companies companies to profit from ‘gasoline’ sales as the lower operating costs are linked to higher purchase prices. However, none of that supports the insane increase in Tesla’s stock price over the last 2 years. That’s likely an artifact of so many short sellers which ironically drive up the price faster if a stock starts to rise, and with a 40% increase in revenue in 2020 some rise would be appropriate. As the saying goes the market can remain irrational longer than you can remain solvent.

nrjames 6y ago

I would add that their competitive advantage now is not the cars, but the extensive and convenient charging network.

fassssst 6y ago
One regulation away from being standardized like it is in Europe. Not to mention the biggest benefit of EV’s is charging at home.
gwbas1c 6y ago
I suspect that the Supercharger network will quickly become commoditized as charging stations appear everywhere. Every grocery store, mall, parking lot, and restaurant will put a few chargers in. This will be mostly to defend their business so that people with electric cars continue to patronize instead of going to a competitor with an electric car. BTW: From what I understand, gas stations don't make much profit from the gas. I suspect the same kind of economics from operating a car charger.

sseveran 6y ago

A quick look at their 10Q does not show that their Energy generation and storage business is extremely profitable. It eeks out a small profit before operating expenses. That may change in the future. It is also a small business relative to their car business. https://www.sec.gov/Archives/edgar/data/1318605/000156459020047486/tsla-10q_20200930.htm https://www.sec.gov/Archives/edgar/data/1318605/000156459020...

7e 6y ago

Tesla doesn’t operate those batteries. They are merely a supplier, or in the Samsung case, a reseller.