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Lowering prices screws up company valuations and stock prices

by Havoc 1y ago

nradov 1y ago
That's not how valuations work.
- bwoj 1y ago
  Untrue. Unsold inventory must be represented on the balance sheet as an asset. Marking down the value of 1000’s of cybertrucks will drop the book value of the company. It will impact various financial ratios that are used to estimate value. Worse yet, a public admission that they can’t sell these things can undermine the confidence which is the only thing propping up the stock’s value right now.
  - nradov 1y ago
    That's not how valuations work. The investors with enough capital to affect stock prices are not ignorant of the inventory situation, nor are they fooled by assets held on the balance sheet above fair market value. Your comment is extremely naive and quite disconnected from reality.
    - Reubachi 1y ago
      The person you're replying to/insulting spelled/realized out the normal operations of a mature capitalist economy based on publicly owned/traded companies. I'm not being "conspiracy theorist" here, it's how it is and how the economy insulates itself from shock/swings. To your point on "investors not being ignorant", have you followed the last 5 years of tesla stock valuation, and the constant signal that "this company P/E is disconnected from reality?" Meaning, despite no sales growth, consumer goodwill, etc. investors continued to dump money in? We see the reverse effect now, a slow massive draw down on stock value. Anyway. In the real world, a board(and also in particular the finance director) is more like to completely write off the unsold fleet, as it would allow both tax insulation and a more clean financial statement for auditing, investors. Mazda recently did this with the entire MX-30 program to signal to investors "this was actually intended from the beginning and allowed us EV research." This happens in every single industry every day. Where Tesla to just mark the trucks down, that instantly signals to investors (note: not experts.) that there is a cash problem at the firm. There is nothing worse to signal as a public company.
      - nradov 1y ago
        That's not how valuations work. P/E ratio is just one factor, and a minor one at that for growth stocks. It's possible that Tesla will underperform the market but you could say the same about any volatile stock. Your claim about writing off the unsold inventory is just silly, and displays a stunning ignorance of the basics of corporate income tax law and accounting. The vehicles will eventually be sold, perhaps at a deeply discounted price. They won't be just tossed in a landfill or something. Marking down assets has zero impact on cash or cash flow so your comment about that makes no sense at all. The main shareholders are sophisticated institutional investors who aren't fooled by simplistic financial engineering tricks.
        kylebenzle 1y ago
        Thank you very much for a good reply. But you're saying that they will sell the vehicles which is logical but shouldn't they start working the price down by now? There is no scenario in which it makes sense to destroy the unsold vehicles, right?
      - kylebenzle 1y ago
        Thank you very much for a great reply but in no way can I see how destroying unsold vehicles can never be better in selling them for less. If you say they can't lower the price because it signals to investors there's a problem doesn't it signal the same problem having a massive amount of vehicles unsold and then destroyed? How is one signal better than the other? So they're signaling they've got so much money they just don't care? That also seems like a bad signal to send. Far better to say publicly, hey we made a mistake this vehicle is not selling now we're going to sell what we made for less and stop making it. None of this theorizing about signaling to investors makes any sense as long as we know that the vehicles aren't selling.
- Havoc 1y ago
  If you sells stuff at half the price you did before I assure you the valuation ain’t staying put
  - nradov 1y ago
    This information is already priced in.
    - Topfi 1y ago
      You clearly seem to know more than me in this regard, so I hope it's ok if I ask you: While the current demand being priced in by some investors may be correct, wouldn't a lowering of the sale price still have to be reflected in TSLAs public disclosures and couldn't that still have an impact, both for investors and creditors? Mind you, I tried my hand at shorting TSLA a long while (nearly a decade) back and learned, as many who undertook this, that rationality/EMH would likely never apply to their valuation. Made that (and then some) back thanks to Twitter though, so all is well, but not exactly coming at the idea of applying sensible concepts to TSLA neutrally.
      - nradov 1y ago
        By priced in I mean that investors are already aware that Cybertruck unit sales and revenue will inevitably be low. Whether Tesla eventually lowers prices is irrelevant to stock valuation. This was always a low volume product anyway and not expected to have a huge impact on the bottom line either positive or negative.

Lowering prices screws up company valuations and stock prices

by Havoc 1y ago

Lowering prices screws up company valuations and stock prices

nradov 1y ago

That's not how valuations work.

bwoj 1y ago
Untrue. Unsold inventory must be represented on the balance sheet as an asset. Marking down the value of 1000’s of cybertrucks will drop the book value of the company. It will impact various financial ratios that are used to estimate value. Worse yet, a public admission that they can’t sell these things can undermine the confidence which is the only thing propping up the stock’s value right now.
- nradov 1y ago
  That's not how valuations work. The investors with enough capital to affect stock prices are not ignorant of the inventory situation, nor are they fooled by assets held on the balance sheet above fair market value. Your comment is extremely naive and quite disconnected from reality.
  - Reubachi 1y ago
    The person you're replying to/insulting spelled/realized out the normal operations of a mature capitalist economy based on publicly owned/traded companies. I'm not being "conspiracy theorist" here, it's how it is and how the economy insulates itself from shock/swings. To your point on "investors not being ignorant", have you followed the last 5 years of tesla stock valuation, and the constant signal that "this company P/E is disconnected from reality?" Meaning, despite no sales growth, consumer goodwill, etc. investors continued to dump money in? We see the reverse effect now, a slow massive draw down on stock value. Anyway. In the real world, a board(and also in particular the finance director) is more like to completely write off the unsold fleet, as it would allow both tax insulation and a more clean financial statement for auditing, investors. Mazda recently did this with the entire MX-30 program to signal to investors "this was actually intended from the beginning and allowed us EV research." This happens in every single industry every day. Where Tesla to just mark the trucks down, that instantly signals to investors (note: not experts.) that there is a cash problem at the firm. There is nothing worse to signal as a public company.
    - nradov 1y ago
      That's not how valuations work. P/E ratio is just one factor, and a minor one at that for growth stocks. It's possible that Tesla will underperform the market but you could say the same about any volatile stock. Your claim about writing off the unsold inventory is just silly, and displays a stunning ignorance of the basics of corporate income tax law and accounting. The vehicles will eventually be sold, perhaps at a deeply discounted price. They won't be just tossed in a landfill or something. Marking down assets has zero impact on cash or cash flow so your comment about that makes no sense at all. The main shareholders are sophisticated institutional investors who aren't fooled by simplistic financial engineering tricks.
      - kylebenzle 1y ago
        Thank you very much for a good reply. But you're saying that they will sell the vehicles which is logical but shouldn't they start working the price down by now? There is no scenario in which it makes sense to destroy the unsold vehicles, right?
    - kylebenzle 1y ago
      Thank you very much for a great reply but in no way can I see how destroying unsold vehicles can never be better in selling them for less. If you say they can't lower the price because it signals to investors there's a problem doesn't it signal the same problem having a massive amount of vehicles unsold and then destroyed? How is one signal better than the other? So they're signaling they've got so much money they just don't care? That also seems like a bad signal to send. Far better to say publicly, hey we made a mistake this vehicle is not selling now we're going to sell what we made for less and stop making it. None of this theorizing about signaling to investors makes any sense as long as we know that the vehicles aren't selling.
Havoc 1y ago
If you sells stuff at half the price you did before I assure you the valuation ain’t staying put
- nradov 1y ago
  This information is already priced in.
  - Topfi 1y ago
    You clearly seem to know more than me in this regard, so I hope it's ok if I ask you: While the current demand being priced in by some investors may be correct, wouldn't a lowering of the sale price still have to be reflected in TSLAs public disclosures and couldn't that still have an impact, both for investors and creditors? Mind you, I tried my hand at shorting TSLA a long while (nearly a decade) back and learned, as many who undertook this, that rationality/EMH would likely never apply to their valuation. Made that (and then some) back thanks to Twitter though, so all is well, but not exactly coming at the idea of applying sensible concepts to TSLA neutrally.
    - nradov 1y ago
      By priced in I mean that investors are already aware that Cybertruck unit sales and revenue will inevitably be low. Whether Tesla eventually lowers prices is irrelevant to stock valuation. This was always a low volume product anyway and not expected to have a huge impact on the bottom line either positive or negative.