3 ms·

You talk about fundamental value and then throw out a $200-300 share price. What valuation methodology could possibly come up with that absurd number?

marvin 13y ago
The correct stock market value of a company is the discounted sum of all its future earnings. This number is impossible to calculate, but investors can estimate it with probabilistic models (a discounted cash flow model, taking into account the probabilities of different scenarios). E.g. a simplification of such a model would be to create some plausible-looking probability histogram for the "fundamental" value of the company in 10 years. Many investors believe there is a significant probability that Tesla will be worth >100 billion in 10-15 years, i.e. one of the world's major automakers (perhaps one of the largest) due to a global shift to electric vehicles and its 5-year head start and patent moat. It's probably worth noting that multiple major analysts have performed such a DCF analysis and arrived at a number in this ballpark. Under these assumptions, a $200-300 share price isn't absurd. I can agree it's speculative and extrapolating a lot. But on the other hand a $40 price as some analysts are calling for, is IMHO more absurd since it ignores some very likely growth prospects. If companies were always valued on "fundamental" value, buying growth stocks would be guaranteed to make you a massive, market-beating return.
- foobarqux 13y ago
  Can you pointed me to one of these "major analysts" who has come up with $200-300 fundamental value along with a detailed explanation of how they came to that number?
  - marvin 13y ago
    Short answer, no. I don't have access to the actual reports since they are reserved for paying customers, but prominently Deutsche Bank ($200), Northland Capital Markets ($230) and Global Equities ($225) all have price targets considerably higher than the current market price. All of these companies stake their reputation on being right, as most professional analysts do. http://www.streetinsider.com/rating_history.php?q=TSLA http://www.streetinsider.com/rating_history.php?q=TSLA If you have access to analyst reports, the one from Deutsche Bank is probably the one to look at. The best source I can find is this video from August before the recent PT upgrade, but there was an interview somewhere where Dan Galves goes into more detail about the DCF model they are using. http://www.cnbc.com/id/100946446 http://www.cnbc.com/id/100946446 http://www.streetinsider.com/Analyst+Comments/Tesla+Motors+%28TSLA%29+Target+Raised+to+$200+at+Deutsche+Bank%3B+Analyst+Sees+Limited+Negative+Catalysts/8701745.html http://www.streetinsider.com/Analyst+Comments/Tesla+Motors+%... Main point being, there are people with a solid economics background who disagree with your claim of absurdity. You're of course welcome to put your money where your mouth is and short; Tesla was for reference the most-shorted stock on the NASDAQ at $30/share.
    - foobarqux 13y ago
      Price is not the same thing as value and analysts are usually wrong (search for the studies). The important thing in a valuation are the assumptions: You can come up with any number you like, the reader has to decide whether they agree with how you got there. Here is a justified valuation of $67. Tell me what assumptions are wrong how how that would yield a value of >$200. http://aswathdamodaran.blogspot.ca/2013/09/valuation-of-week-1-tesla-test.html http://aswathdamodaran.blogspot.ca/2013/09/valuation-of-week...
      - marvin 13y ago
        This analysis underestimates the probability of higher sales and margins in Tesla's future. Specifically the point where growth will slow down to "auto industry averages". Up this number and the expected net margin a bit, extend the discounted analysis a bit beyond 10 years and use a slightly lower discount rate, and you'll end up with a number higher than $200. This is all guesswork based on unknown parameters; all we can do is assign some probabilistic assumptions. Furthermore, direct comparison with the established auto industry is dangerous, since we are likely to be in the beginning of a large-scale transition to electric vehicles. The established auto industry will have trouble with this transition due to vested interest in internal combustion vehicles. Tesla has already demonstrated that it can tackle innovation on a level the established industry is unable to (cutting out the dealerships, fully utilizing the advantages of electric drivetrain, software-like configuration of cars including battery swap), so from my perspective it seems exceedingly likely that it will at the very least grow into a major automaker. But the upside from this point is discounted by analyses such as the one you linked. That said, I don't really care whether you agree with this. You're certainly welcome to take the other side of the bet; I have my money where my mouth is. Would you be willing to take a short position in this stock?
        foobarqux 13y ago
        Obviously if you just put in more favorable input parameters you will increase the share price. The entire point of the exercise is to justify your choices: What input parameters exactly give you a >$200 valuation and why do you think they are reasonable? He's already putting margins at top 5% of auto industry. As for discount value he wrote "the value per share that I obtain is not very sensitive to the [cost of capital]": Are you arguing with some other factor that contributes to the discount rate? How common is it for growth to persist over 10 years in the auto or industrials sector? > The established auto industry will have trouble with this transition due to vested interest in internal combustion vehicles. Ford is already shipping an electric Focus. GM has stated they are working on one that will compete with Tesla's $30000 model. > so from my perspective it seems exceedingly likely that it will at the very least grow into a major automaker. But the upside from this point is discounted by analyses such as the one you linked. No, it assumes it grows into a major automaker with revenues comparable to Audi and has margins in the top 5% of the industry.

marvin 13y ago

The correct stock market value of a company is the discounted sum of all its future earnings. This number is impossible to calculate, but investors can estimate it with probabilistic models (a discounted cash flow model, taking into account the probabilities of different scenarios). E.g. a simplification of such a model would be to create some plausible-looking probability histogram for the "fundamental" value of the company in 10 years. Many investors believe there is a significant probability that Tesla will be worth >100 billion in 10-15 years, i.e. one of the world's major automakers (perhaps one of the largest) due to a global shift to electric vehicles and its 5-year head start and patent moat. It's probably worth noting that multiple major analysts have performed such a DCF analysis and arrived at a number in this ballpark. Under these assumptions, a $200-300 share price isn't absurd. I can agree it's speculative and extrapolating a lot. But on the other hand a $40 price as some analysts are calling for, is IMHO more absurd since it ignores some very likely growth prospects. If companies were always valued on "fundamental" value, buying growth stocks would be guaranteed to make you a massive, market-beating return.

foobarqux 13y ago
Can you pointed me to one of these "major analysts" who has come up with $200-300 fundamental value along with a detailed explanation of how they came to that number?
- marvin 13y ago
  Short answer, no. I don't have access to the actual reports since they are reserved for paying customers, but prominently Deutsche Bank ($200), Northland Capital Markets ($230) and Global Equities ($225) all have price targets considerably higher than the current market price. All of these companies stake their reputation on being right, as most professional analysts do. http://www.streetinsider.com/rating_history.php?q=TSLA http://www.streetinsider.com/rating_history.php?q=TSLA If you have access to analyst reports, the one from Deutsche Bank is probably the one to look at. The best source I can find is this video from August before the recent PT upgrade, but there was an interview somewhere where Dan Galves goes into more detail about the DCF model they are using. http://www.cnbc.com/id/100946446 http://www.cnbc.com/id/100946446 http://www.streetinsider.com/Analyst+Comments/Tesla+Motors+%28TSLA%29+Target+Raised+to+$200+at+Deutsche+Bank%3B+Analyst+Sees+Limited+Negative+Catalysts/8701745.html http://www.streetinsider.com/Analyst+Comments/Tesla+Motors+%... Main point being, there are people with a solid economics background who disagree with your claim of absurdity. You're of course welcome to put your money where your mouth is and short; Tesla was for reference the most-shorted stock on the NASDAQ at $30/share.
  - foobarqux 13y ago
    Price is not the same thing as value and analysts are usually wrong (search for the studies). The important thing in a valuation are the assumptions: You can come up with any number you like, the reader has to decide whether they agree with how you got there. Here is a justified valuation of $67. Tell me what assumptions are wrong how how that would yield a value of >$200. http://aswathdamodaran.blogspot.ca/2013/09/valuation-of-week-1-tesla-test.html http://aswathdamodaran.blogspot.ca/2013/09/valuation-of-week...
    - marvin 13y ago
      This analysis underestimates the probability of higher sales and margins in Tesla's future. Specifically the point where growth will slow down to "auto industry averages". Up this number and the expected net margin a bit, extend the discounted analysis a bit beyond 10 years and use a slightly lower discount rate, and you'll end up with a number higher than $200. This is all guesswork based on unknown parameters; all we can do is assign some probabilistic assumptions. Furthermore, direct comparison with the established auto industry is dangerous, since we are likely to be in the beginning of a large-scale transition to electric vehicles. The established auto industry will have trouble with this transition due to vested interest in internal combustion vehicles. Tesla has already demonstrated that it can tackle innovation on a level the established industry is unable to (cutting out the dealerships, fully utilizing the advantages of electric drivetrain, software-like configuration of cars including battery swap), so from my perspective it seems exceedingly likely that it will at the very least grow into a major automaker. But the upside from this point is discounted by analyses such as the one you linked. That said, I don't really care whether you agree with this. You're certainly welcome to take the other side of the bet; I have my money where my mouth is. Would you be willing to take a short position in this stock?
      - foobarqux 13y ago
        Obviously if you just put in more favorable input parameters you will increase the share price. The entire point of the exercise is to justify your choices: What input parameters exactly give you a >$200 valuation and why do you think they are reasonable? He's already putting margins at top 5% of auto industry. As for discount value he wrote "the value per share that I obtain is not very sensitive to the [cost of capital]": Are you arguing with some other factor that contributes to the discount rate? How common is it for growth to persist over 10 years in the auto or industrials sector? > The established auto industry will have trouble with this transition due to vested interest in internal combustion vehicles. Ford is already shipping an electric Focus. GM has stated they are working on one that will compete with Tesla's $30000 model. > so from my perspective it seems exceedingly likely that it will at the very least grow into a major automaker. But the upside from this point is discounted by analyses such as the one you linked. No, it assumes it grows into a major automaker with revenues comparable to Audi and has margins in the top 5% of the industry.