The thread was flagged because the pro-Tesla crowd on HN felt that the article was inaccurate regarding the amount of money Tesla lost on each car, and flagged it over wording.
Tesla makes money on each car it sells (sales exceeds cost of goods sold), but once fixed costs and other expenses like R&D and capital investments are included, it has an enormous loss, so on average it loses about $4000 to $17000 per car (depending on whether you use Unicorn Accounting or Generally Accepted Accounting Practices). The article reported this as Tesla losing $4000 per car, which is accurate in a general/layman's sense but is technically inaccurate.
Not to re-hash the argument again but it's not quite an accurate representation since for each car that Tesla sells that $4k number goes down.
They've broken out the per-unit cost for a Model S and they're posted ~22% profit(feel free to fact-check me on this, I might be a tad off) excluding ZEV credits.
So if Tesla wasn't production constrained(and building out the Gigafactory) they'd be turning a profit by the same logic.
Gross margin is the income from sales less cost of goods sold, before items like R&D, salaries, capital improvements, etc., are considered. As I said above, Tesla has a positive gross margin, but a major net loss. When that net loss is averaged to units sold (which is a common metric for measuring financial performance in the automotive industry), Tesla has a loss of approximately $4000 to $17000 per car. This doesn't mean that Tesla is actually losing money each time a car is sold, it simply means that Tesla isn't selling enough cars to achieve net profitability.
If Tesla were to sell more cars, its average loss per car would go down (and eventually become average profit per car). Unfortunately, Tesla announced that it's cutting production and sales estimates for the remainder of the year, so that's not going to happen in 2015.
>When that net loss is averaged to units sold (which is a common metric for measuring financial performance in the automotive industry)
I agree the metric is common, but it is an invalid comparison for Tesla. The other car companies have mature product lines. The model S is their only production line, and they are spending money on development for the Model X and the Model 3.
If any car company were developing 2 vehicles for every 1 they have in production, then it would be a valid comparison. Comparison metrics have to be evaluated in the context of the company's overall life cycle. The art of valuing companies lies in choosing the relevant metrics to compare.
Tesla has lowered their current year estimates from 55,000 to 50,000 to 55,000, due to uncertainty about the Model X go live. And it hit their stock price... However, they have not changed their long term goal or time frame for get their factory to maximum capacity of 500,000 vehicles around 2020.
Do you know if that's because Tesla is not selling enough cars, or the market demand is just not there? China used to be thought of as the big market eventually but with everything going on there, it seems that's not a good assumption anymore.
The utility of a hybrid is just much higher. You get the gas saving in city drives, and the range on the odd weekend trips. The latest Prius can be charged too: http://www.toyota.com/prius-plug-in-hybrid/ and it cost less than 50% of the cheapest Tesla. The only thing you don't get in these Prius is the look factor, though they look cool enough for many people.
On the other hand, Tesla's accounting only figures on spending a few hundred dollars per car to pay for free, unlimited SuperCharger access for the lifetime of the car. Which is frankly absurd. You put a free, unlimited SuperCharger in somebody's backyard and of course they're going to use the heck out of it; it's like getting paid $15/hr to read the internet or a book or whatever else you do while charging. That's free money.
At 22% profit without credits that means with credits they're making say at least $40k profit per car sold. This is like 1/4 year of sales... but they need ever more money, now? Why? Maybe Model X reservations are cannibalizing S sales? Or they need to throw money at 3 because the competition is going to have an equivalent car out sooner? Or so battery factory comes online before LG Chem's new production?
This doesn't add up for me. It seems to me either their accounting is not accurate or they are seriously far behind the competition.
Tesla charges $2,000 for lifetime supercharger access. I don't think screwing that up is going to cause them big financial problems: it's just not that much money, and they can always raise the price for future buyers.
Help me out here, 2014 Q3 says $21.9m deferred for SuperCharger electricity minus $10.3m as of previous year, so they deferred $11.6m from 2014 sales of ~22,000 cars. That's ~$500/car accounted for the lifetime SuperCharger costs. Tell me where I'm wrong.
At $10 a charge (12 cent kWh) that's 50 charges per car for its lifetime. That seems like a pretty low estimate to me on number of charges, especially as the network expands.
The difference to your $2000 works out to $33m (more for the full year). That seems like a significant amount to me.
What does Unicorn Accounting mean? A general term for bullshit accounting? Ala Groupon calling it's sales team's salary a capital expense in it's IPO filing?
The classic phrase is "EBITDA", or "earnings before interest, taxes, depreciation, and amortization". This is sometimes referred to as "earnings before all the bad stuff". Then there are "extraordinary items", which somehow are always in the direction that makes the balance sheet look better.
In the days when AOL sent out disks with their program, it came out years later that they were treating that marketing effort as a capital expense and amortizing those throwaway disks over many years. AOL actually became profitable about six years after it said it did.
I used to have a system which tried to analyze financial statements automatically. I have a database of several hundred euphemisms for "net loss". ("Net income after extraordinary item", etc.) It's embarrassing. The SEC's standardization on XBRL has helped a little with that.
Tesla is an industrial company, and accounting for industrial companies is well understood. This includes growing industrial companies. Upfront expenditures for an industrial company result in real assets, which can be valued. I look forward to reading the prospectus for the IPO.
That's not really correct. EBITDA is not earnings before bad stuff - that stuff is all % of your income and/or write downs that have no impact to the business, so financial folks like to exclude it as noise (since all it really does is reduce your taxes). Examples:
- You bought a company and now it's worthless
- You made money and now you have to pay taxes on it
- You bought a bunch of computers and now they're three years old and worth less than when you bought them
- You bought something 10 years ago, and, instead of paying for it all up front, you paid over time
Particularly when you look at any company which is growing very fast. SolarCity would be an example where the company is growing exponentially, but the returns are spread over 20 years instead of being realized quarterly.
Well, accounting is not supposed to tell how valuable a company is, just what its balance sheet is, right? That people then take the balance sheet and invent ways to mechanically arrive at a valuation based on that is not GAAP's or any other accounting rules' fault.
The trouble with any accounting rules is that it's hard to convert everything on the balance sheet into the same unit. If you don't convert it all, it's really hard to compare balance sheets. If you do convert it all, this conversion may be unfair to one balance sheet more than another. Or at least that's how I understand it...
One example is pricing stock option grants so that you can then add them up with other expenses. I'm sincerely not sure how I'd do that. Here's a critique of what GAAP mandates:
Needs more symmetry, I think: Unicorn Accounting Principles (UAP), by analogy with Generally Accepted Accounting Principles (GAAP). There should also be UFRS (for IFRS).
The difference is mainly about leasing agreements for Tesla cars and how much such a lease is worth to Tesla. GAAP was/is definitely too pessimistic. Tesla's own accounting may be too optimistic. I believe Tesla's guess is pretty good. We'll see.
Wow, so just ~2 weeks ago when I visited the Tesla show room in Toronto Canada, in response to my concern, "My condo building isn't letting me install an EV charger at this time, so i probably cant buy one" i was told "Well you can come here and charge any time, its free and not that much longer than having to fill up your car a gas station anyway"
At the end of the day, I feel like I avoided a bullet here, I ended up buying a Mercedes-benz instead...the interior of the Tesla (mainly lack of tactile feedback due to the touch screen, and simple things like there being no button for the sun roof) was just not up to scratch, and potentially a dangerous distraction to the driver, in my opinion.
"the interior of the Tesla (mainly lack of tactile feedback due to the touch screen, and simple things like there being no button for the sun roof) was just not up to scratch"
Setting aside the design differences (the Tesla interior is very modern and stark and has very simple design) the quality and featureset of the Tesla interior is roughly equivalent to a 3-series BMW or an Audi A4.
Which is to say, it's glaringly insufficient for what is usually spec'd out as a 90-120k car.
Let's tilt the field in favor of Tesla and compare only against mid-sized, mid-ranged competitors, which are the 5-series, A6 and E-class. Those have much, much nicer materials, more adjustable seats, features like ventilated seats ... it's hard to believe that this far through the lifecycle the model S interior is so lacking.
> it's hard to believe that this far through the lifecycle the model S interior is so lacking.
Moving to America, I found it really interesting how many cars have every possible interior gadget known to man, but the important parts are crap. Not only did my 1996 North American car have a mirror on the passenger sun shade, that mirror had a cover, under that cover was a light, AND that light had a dimmer switch.
Of course, the body panels were built to the nearest 1/4inch and it leaked oil like a sieve, but my god the interior was nice.
I'm happy to see an automaker spending money on the bits that count, i.e. the drive train, rather than do the same drive train thing they've been doing for 50+ years and pretty up the interior.
If your personal choice is that interior > drive train, then that choice is right there for you to make, and you are free to make it.
"Setting aside the design differences (the Tesla interior is very modern and stark and has very simple design) the quality and featureset of the Tesla interior is roughly equivalent to a 3-series BMW or an Audi A4.
Which is to say, it's glaringly insufficient for what is usually spec'd out as a 90-120k car."
This is a really good point. I agree, the Audi A4, BMW 3 series and, I would add, Mercedes-benz C class are all comparable. Disappointingly I would put the Tesla in that bucket too (but for its price tag, it should be in a much higher class)
I had told myself for the last 3 years "I'll get the Model S when I've got the cash" (I am/was the Tesla fan boy), but after driving it and realizing that it didn't have the upper class features I saw in the much, much cheaper luxury brands, and that the interior quality was seriously lacking, I couldn't convince myself to go ahead with the purchase. I hated having to actually LOOK at the touch screen just to adjust the climate control...i wish it was a physical button. In fact, I fear that this may actually be a grey area in the law and down the road we'll see these types of interfaces become a no-no.
The car i ended up buying was the Mercedez-benz C400 (same as the C300, but larger engine). Sure its no EV...i wish it was...and its a good 30k cheaper (after options I added to my C400) than what I would have gone ahead with the Tesla, but the car itself is in a completely different class of machinery. Essentially I love it, the Tesla was really interesting...but I just didn't love it.
If you bought a C400 were you "really" considering a Model S? Why didn't you buy another equally priced car? I'm just curious how you make the jump from Model S to C class. It sounds more like you decided you didn't want to spend that much money on a car. Which is where I am, although I don't have the means.
I have a CTS, lagging behind BMW/Audi/Mercedes in interior quality but ahead of the others that claim to be luxury brands. I really liked the P85S I drove and I would probably drive one if I could afford it. The interior was nice enough for me but the way it drives, exterior design and the fact it is electric is what interest me way more than interior quality. The interior quality is sufficient unless you're trying to buy the most luxurious car in that price range. In that case you get the S-Class. For the time being I'm waiting for the Model 3 debut.
Disclaimer: I've never actually been impressed by the C and E class interiors or the dealer experience at Mercedes.
"If you bought a C400 were you "really" considering a Model S?"
That is exactly what the Mercedes sales rep asked me too :) Honestly, I was willing to spend more to get an EV. In general the whole concept of an EV is just something I have a passion for and want to see being successful. Unfortunatly, the Tesla really just did not live up to the expectations I had...and if I was going to buy a car that was not electric, I did not want to spend the same amount.
Put the Tesla electrics in the C-class and i'd gladly throw an extra 30-40k at it.
Edit: If you have not seen the 2015 C class, i'd suggest checking it out. It is a very big step up from the C class of previous years.
I have not been in the most recent C-Class. I don't know but I think the Model 3 will fall short on luxuriousness on the interior also. Tesla is targeting the 3 series, so who knows? I'm anxiously awaiting the Model 3 announcement.
It may have just been the dealer I went to but they seem to be kind of pretentious. Anything I questioned I was wrong because "Mercedes does it the right way". I find this funny considering that Audi is eating up market share.
Yeah I'm very interested in the Model 3 too. If they keep the drive quality of the Model S and improve the interior, i think they'll have a killer product on their hands. The exterior is already great, its just missing that polish that justifies its cost.
Personally I found all the dealers out of Tesla, Mercedes and Audi (Unexpectedly not the BMW) to be a bit pretentious, but I guess it comes with the territory.
The BMW and the Audi are much more convenient to use. The economics of BMW's iDrive are really way above non-German brands. You just see they have years of experience building cars, while the Tesla interior seems to be mostly designed to look cool.
The quality of the Tesla interior felt in line with a Ford Mustang or recent Chevrolet. Both are incomparable to what Audi delivers in the A4 and up, which in my opinion is also a small step above BMW. Although Audi and BMW don't differ that much in interior quality.
> "Although Audi and BMW don't differ that much in interior quality."
For the previous years models I saw, i would agree. However, I personally felt the 2016 interior for the Audi models i saw was a big step up from the 2015 interiors. I suspect part of this was due to the added pressure by the 2015 C-Class which is also a step up from their previous years.
I actually think it's less good than the 3-series or A4. The 3-series and A4 have very well thought out ergonomics and the seats are comfortable and hug you.
The design of the Tesla's seat seems to be an afterthought and I found it uncomfortable after an hour and a half with my butt planted in it. In Texas, an hour and a half travel is almost nothing.
Other things about the car's fit and finish, like the rear hatch's tendency to leak water in heavy rain, really turned me off from even considering one.
If all the electric features are making the car already expensive... maybe the market would not react well to another 10k in price to add some luxury features like ventilated seats.
If things like ventilated seats are really only a few dollars to add, then maybe it was indeed a weird choice to make. But not seeing Tesla currently having a huge glut of inventory to unload, so seems to be filling some kind of market niche ("Not the nicest luxury car, but fast and eco and pretty nice")
The impression I got was that its a matter of development convenience.
The Tesla UI is a big screen. If i was given the problem of "We don't have much experience building car interfaces, and its likely something we'll want to change once we get more experience; what should we do?" the thought of throwing in a big screen that you can auto-update does start to sound pretty appealing.
Having said that, as a driver, the practice of having this style of interface just so the company can produce the cars faster and easier...i find less appealing.
This video shows how to open the sun roof (https://www.youtube.com/watch?v=b5a3n-vTtuU), the fact that this button is more than 1 layer into the UI is pretty insane(Normally the radio is in the place you see the roof in this video, so you're pushing a button just to get to the sun roof slider). I often find myself making this kind of adjustment while driving. Having it in this part of the UI, i found to be a bit distracting and hard to use while performing my test drive.
"If all the electric features are making the car already expensive... maybe the market would not react well to another 10k in price to add some luxury features like ventilated seats."
That may indeed be the case, but there should at least be options. There should be an option for super-adjusto-21way-seats. There should be an option for ventilated and massage seats.[1]
Actually, now that I think about it, the missing features all largely have to do with the seats...
True but think about software. Ideally every software would have every possible option available. Font size button? Check. Font choice? Check. Etc. At some point
a) You end up with a bazillion options that makes the experience worse for many users
b) The time to ship the product increases a lot
And this is with SOFTware. Adding HARDware options is even harder, as there is tooling and physical widgets that need designed and produced. Even adding an option for 21-way seats would have cost money.
I'm pretty sure the niche is that it's a really nice car that happens to be electric. IE people who like electric vehicles and who don't want to drive a refrigerator (and can afford it).
A sign of the times: nobody is questioning the privacy issue of Tesla tracking individual usage history. Are they tracking usage by correlating GPS in the car to charger locations or does the car charger interface transmit a serial number back to the charger?
Is there reason to believe Tesla doesn't maintain long-term records of every vehicle's entire GPS-enabled driving history?
Automated-everything sounds great until something nefarious happens, but by then it's too late to put the convenience genie back in the bottle.
Well, it has to make sure that the person/car using the supercharger has actually paid for the privilege... which means it has to identify you somehow. The fact that it keeps a record of this data is no more surprising to me than a store keeping electronic copies of my receipts.
Seeing this is very disheartening to folks like me that really gush over Tesla and see free solar-powered superchargers as a bright future :-/
This is above anything else I've seen about Tesla ever bums me out the most. It is like getting "unlimited" data to find out that you're actually punished at more than 2 GB. It is super lame behavior.
I expected the worst - for it to be due to technical issue with the batteries, however it looks like it is mostly related to the Superchargers being congested and not available immediately to everyone in need of charging.
I live in the Midwest along the supercharge path. The mall by me has 3 or 4 supercharge stations, which I think is approximately 4x the number of teslas owners living in my city.
About half the time all 4 stalls are empty, about half the time I see 1 car.
Which is "good" in that people on a long trip can get their charge on without having to wait in line. I suspect if I lived in town and drove a Tesla, I would use it a little more often for the free power ;)
Maybe just adding a $5 charge cost would be enough to balance out supply and demand? $5 a tank is still a good deal on a long trip, but hardly worth going out of my way to do (when I can charge for $2 at home)
These sort of things can spook investors, but Elon purchased $20M of the offering himself as a show of good faith. That's a big insider buy! TSLA is currently trading up 2.5% so apparently it was also quite a convincing play.
Those of us who were investors in bank stocks back in 2008 saw alot of large insider buys, including multi-million ones, from CEOs and top execs looking to reassure investors.
In most cases it simply didn't work. Fundamentals rule sooner or later, not optics. I was in the no-longer extant Wachovia for instance, where the CEO bought around $1m of stock. It was bought out for a song a few months later after it crashed.
To first order, current shares should be worth a smaller fraction of the company, but should be worth the same dollar amount as they currently are.
This process is meant to increase the size of Tesla by $500M, by simply putting $500M into its bank account. The people who are providing this money are getting new shares in return. In theory, the value of the new shares should be $500M, and the value of the old shares should add up to the old market cap of the company, and the sum of the new shares and the old shares will naturally add up to the company's new market cap.
There are second-order effects, though. If there is only a fixed demand for Tesla shares, this may reduce the price of shares (and so devalue the shares of existing shareholders.) Conversely, if people think that Tesla is going to make very good use of any new money, then existing shareholders may end up better off.
It's how it has always worked.
If you already own x percent of the company (a sizeable enough percentage to influence voting) then you buy in. You probably were a shareholder consulted about the plan anyway.
If you weren't, your shares are still worth the same amount, so even though your voting percentage has gone down you still have the same value of stock, so it shouldn't affect you materially anyway.
You owned x/(Tesla^). Now you own x/(Tesla^ + 500M). (Tesla + 500M)>(Tesla) so your share is proportionally smaller. Put another way, you own a share of tesla. The day after the offering, Tesla has 500MM more in the bank and you own a percentage of that money.
Real life is complicated in all sort of ways. Demand for shares does not perfectly trace inherent value (an unknown number). The action could act as a signal to investors to buy or sell ("They need money because they're growing so fast!" or "They're bleeding cash, run!."). But theoretically, it's supposed to be perfectly fair to shareholders
^Tesla = all Tesla assets the day before the offering.
The increase in value only came from the new $500m in cash. That cash didn't come from the company's operations and it didn't come from you, so there's no reason to think that your shares would increase (or decrease) in value.
No because each share is worth a proportionally less chunk of the company. ..
but don't get me wrong: speculators could certainly assume that it should mean that the stock price goes up and longer term it could enable the company to grow faster and in the end that could also cause its value per share to go up but immediately it doesn't really make sense for it to
I don't see how that is a however, my point was that there is some threshold below which an investor is basically irrelevant when it comes to control of the company, not something about whether there are large holders of shares. As a small investor, this usefully informs reasoning, because you are not buying control of the company, you are giving control over your investment to the people who do have meaningful amounts of stock.
(For instance, when Google IPO'd, they made sure that everybody buying stock in the IPO was irrelevant to control of the company by issuing a different class of shares to the founders/insiders)
Keeping the same voting rights as before would mean the new shares would be issued with no voting rights. Which is possible, but would then discount the price people are willing to pay for them.
In principle whoever holds TSLA at $238 does so because they think it's worth more than that. And they are being diluted, the intrinsic value of their shares is now worth less than before the capital increase. Stock holders who find TSLA overvalued should be happy, but I don't think there are many of those.
(Edit: I don't disagree with the parent comment, the effect on the stock price will be because people will re-evaluate the company and not because of the new shares themselves, which by the way are not priced yet. I was addressing the dilution part of GP's questions).
You need to know more about an investor's view of the world to figure out whether an investor thinks this is good or bad. Given the capital-intensive nature of the business, I think many investors would be expecting TSLA to spend at least some of its lifetime running negative cash-flow (as indeed it as for the last three quarters). Depending on how much investment you see as being required in the future, you may or may not have predicted that they would need additional financing in the future (ie, after your investment). If you did not predict the need for additional financing, this is probably bad news for you. If you did predict it, than what matters most is how the terms of this financing compare to the terms you were expecting. If you think the stock is worth $1000/share, and expected them to do a secondary at some point, you're probably happy they're doing it now as opposed to later, when you suspect the price will be converging to your value. If you thought they would be able to raise all needed capital with 30 year bonds paying 2% interest, you're probably not happy about this.
> If you think the stock is worth $1000/share, and expected them to do a secondary at some point, you're probably happy they're doing it now as opposed to later, when you suspect the price will be converging to your value.
The only reason I see to be happy with the new shares being issued sooner rather than later is if I'm going to keep buying shares, they won't be diluted because it already happened. Otherwise I don't get why would I prefer the new shares to be issued at a lower price. If they raise $500mn at $250 it will take longer to get to $1000 than if they can wait until the stock trades at $500 (because the dilution would be lower in the second case).
> In principle whoever holds TSLA at $238 does so because they think it's worth more than that.
Not really, more like:
- Investors holding TSLA think its fair priced at 238.
- Investors buying TSLA think its worth more than 238.
- Investors selling TSLA think its overpriced
Obviously these roles can overlap, but if you are a shareholder whos thinks TSLA its worth more than 238 you should take part in this offering and buy more stocks - even just to avoid the dilution.
If you think the current price is fair, why would you hold the stock? Unless you think they're going to declare a dividend (not likely) then you might as well sell while the price is at a fair level and keep the cash.
Because it fits the asset allocation you want? Because selling costs you transaction costs without gaining anything? (if its a fair price the stock is worth exactly as much as the same amount in cash)
I assumed that the likelihood and size of possible dividends is already included in your estimate of what the stock is worth.
A better way to think about this is to look at what they will do with the capital they are raising. If they can put it to work in very high return-on-capital projects that have a return that is higher than their cost of capital, then the net impact will be to increase their earnings per share, which presumably will lead to a still higher valuation for the stock.
The other piece of the equation is the decision behind financing with debt vs equity. A company may choose whichever financing is 'cheaper' for them. Therefore if equity financing were chosen due to it being 'cheaper' then it may be a signal the stock is too high.
This kind of reasoning is probaby why the article mentions Musk himself is buying this round of equity - to give shareholders confidence in the stock price.
Yes, ceteris paribus, all else equal, this is dilutive. Tesla is creating new shares to sell to the public. This is also considered a primary share offering. This stands in contrast to secondary offerings where no new shares are issued. Instead a company sells shares which they already own, like treasury stock.
Think of it as old fashioned capitalism - they raise more capital in the capital market and spend the money on physical capital (plant and stuff) which pays for itself. The capital is not diluted it just changes from money to physical form.
Dilution happens when you issue more ownership of a limited resource.
In practise it is not quite so simple, which is why often capital raisings were issued to shareholders as rights to buy into capital raisings, which could be sold and other means, because control is dilutable as a limited resource.
Shares are valued by people based on three things. Future direct cash you receive from the company based on the shares you hold (e.g. dividends/distributions and share buybacks). Voting power (i.e. control) in the company based on the shares you hold. And finally the ability to sell the shares you hold on the open market in the future (i.e. price speculation). Issuing more shares (usually) directly affects (i.e. dilutes) #1 and #2. But #3 is not directly affected in any way.
It is dilution but doesn't necessarily reduce the price the stock trades at. That depends on how confident investors are that the money will be spent wisely.
So how do secondary offerings work, practically speaking? They've named the amount they want to raise, not a number of shares. So do they wait until trading closes one day, issue how many shares they need to to make that work out to $500M and then sell it to people who've "registered" to purchase $X of it? And then when the market starts the next day there's just an extra $500M in market cap but all the shares trade similarly?
If by "contribution toward our future", you mean giving money to Tesla, buying their stock in the secondary market (i.e. the "stock market") doesn't transfer any money to them. You'd have to get in on the IPO or a secondary offering to have that effect.
However, supporting the existing stock price could have an effect - typically the market price influences the price of a secondary offering like this.
That's always been a point of confusion for me with respect to the idea of 'ethical investment funds'. Buying shares in solar companies on the market, for example, just transfers money to people who have elected to get out of owning solar. Why would it be 'ethical' to give those guys money? What if they then take that money and go invest it in oil?
As you say, the market price has an influence on secondary offering prices, so it affects a company's ability to raise further funds, but buying stock secondhand seems like a fairly indirect way of supporting a company's goals. Just like if you enjoy a band's music, you don't demonstrate your support by buying second hand records...
Yeah me too, but not really. You make absolutely no difference when you buy a few shares of stock. Can you buy the car? I believe consumers can make a big difference by helping new technologies. (e.g buy LED lights, hybrids, EV's). We can also help by supporting Kickstarter projects that make a difference. VR was Kickstarted. Maybe home solar or robotics will be next.
I've ordered a Model X not because I need a fancy car, but to contribute towards Tesla revenue (I've been saving up specifically for this since I bought Tesla stock when they IPOd years ago).
Yeah me too, but not really. You make absolutely no difference when you buy a few shares of stock. Your shares matter in proportion, it may be a small number, but it isn't zero. A hundred thousand one dollar bills are worth just as much as a 100,000 dollar check, you can't just round the dollar bills down to zero.
If that's the case, this is the rare case for your money to actually go to the company. Unless you're buying shares "directly" from the company (ignoring the middle-man for now), the company never sees your money. So if you want to do that, now's the time (or if you think they'll have another public offering in the future, wait, I guess).
Once a stock is trading on the stock market, buying the products of a company is a better way to support them then buying their stock IMHO.
When you buy Tesla stock on the stock market Tesla gets no money from you - you are actually buying the stock from another entity independent from Tesla. Tesla only receives money when the stock is sold for the first time, by the Tesla Corporation to an outsider.
I always find "intrinsic value" is a very strange way to interpret stock price. All stock prices are trying to predict the future not the present. With large, older, stable companies it gets easier and easier to predict the future "This company is growing by 10% per year so in one year it should be worth 10% more all things being equal and its peers as a group are trading at some multiple (usually profit) so if I think it's at that multiple (or better yet less) and I think 10% is a good return for my money over 1 year then I'll buy some."
With new, rapidly growing, highly speculative companies in big markets (auto, space, energy) it becomes very difficult to predict where they'll be in 1 - 5 years. Investors are still (typically) intelligent and will look at what other disruptive companies have done in the past, look at the management team and leadership etc and place a "bet" on the stock. Because these companies are sometimes growing 50% to 100% per year and someone is happy to hold a stock for 3 - 5 years they will pay a substantially high price for stock in terms of _today's_ revenues or profits. It doesn't mean they won't get it wrong - ie if a company falls to growing "just" 40% per year that makes a huge difference 3 years out. It doesn't mean that the stock price for the new stock is any more or less correct than for the older more stable company. it just means it's much more likely to fluctuate over the next 3 - 5 years as risk and upside is better priced in with more knowledge in place.
My experience with Bitcoin has caused me to smile every time this turns-out-it-is-completely-bullshit concept is thrown around
All values are subjective. All of them. There is no "real" or "intrinsic" value (except by consensus agreement of subjective values). The emperor wears no clothes, and there is no rabbit in the hat. Unless we consensually believe there is, that is.
As you perfectly expressed, "efficient market" is nothing more than an hypothesis. In fact, it has been proven essentially false repeatedly, theoretically by Kahneman among others, and in practive through many a crisis, bubble, etc.
Arguably "mainstream economics" could be nothing more than a religion, and a very dangerous one by its very high though undeserved power.
Nobody knows what the intrinsic value actually is -- you can try to model it with historic cash flows, but it's very inaccurate to do that with a company without a solid cash flow trend. But because its enterprise value to revenue multiple is way, way out of whack with respect to normal companies, it's a pretty safe bet that there's a lot of expectations priced in to the stock. That's not inherently a bad thing, and in fact it is normal for young companies, but what it really means is that much of the growth potential of Tesla is "priced in" to the share price, meaning that if you buy TSLA at current prices, it may not rise all that much in the event they are wildly successful. If they are anything less than that, the share price could drop dramatically.
Tesla right now is a bet that their battery technology will be insanely profitable and have some sustainable advantage over competing technologies. It's an interesting stock to play with as part of an algo strategy because it's so volatile (again, this is typical of young companies), but I wouldn't own TSLA as a buy-and-hold right now. The share price is just too expensive, and they're going to need massive, continued infusions of capital to continue (as evidenced by the article).
Basically, the risk with Tesla is that if they are crazy profitable, their share price likely won't rise all that much because investor expectations are high. If they are not crazy profitable, the share price will drop over time.
Very good analysis and bonds well with my thinking as well. For me, TSLA doesn't have the fundamentals to be so expensive. In theory, TSLA shareholders are actually losing money right now if you exclude the share price movement by speculation.
Wtf are you talking about. There is no such thing as an 'intrinsic' value vs the price of a share. The market determines the value of each share. Just because that represents a higher p/e than you like just means you don't want to pay.
Intrinsic value is something of a misnomer; in reality it simply means: I've done some sort of analysis, looked at the future cash flows, and discounted them back to the present at some rate. In reality there is nothing intrinsic about it; your valuation is your opinion about the future based on a multitude of assumptions, nothing more.
But even if your valuation is remarkably different than the public markets it does not then follow that you should short; this ignores the importance of time in making a good investment decision. This is compounded by the fact that shorts and options are incredibly effective means of losing lots of money in a short amount of time.
Because the market can stay irrational far longer than you can stay solvent...
Saying that a share is overvalued against its "intrinsic" value is not saying the share is overvalued or will go down, it's just saying that it's currently being priced with an expectation the company will be worth more in the future.
> Saying that a share is overvalued against its "intrinsic" value is not saying the share is overvalued
It is exactly what it means [1]
> or will go down.
The intrinsic value of a lottery ticket is below the price you pay, it doesn't mean you can never win. That said, nobody knows the intrinsic value. In the case of TSLA you have a range of sell-side analysts telling you it's somewhere between $178 and $400. (Edit: to be fair, probably they are using multiples [2] and not a proper intrinsic value calculation. A DCF doesn't get you very far in the current market, much less so in companies like Tesla. For a discussion based on fundamentals see [3]).
In fact some would say the stock is trading at these levels due to a prolonged 2-year short squeeze. The initial squeeze brought in new retail (and institution) investors forcing margin calls which in turned raised the price more creating more short sellers and retail longs.
I bought stock and options when this was trading at 35 and sold at around 140 as I put my fair market value at about 125 for this company. Would gladly reenter at that price.
So here's a thought. If I have lots of businesses with a high chance of failure, and I bring them under one roof, any one business is more likely to destroy my entire company. So if I have two high-risk businesses (electric cars and energy storage) having both in the same company greatly increase the total company's chance of insolvency and failure.
On a higher level, I LOVE Elon Musk, but what made Steve Jobs so great is that he could innovate like crazy and make gobs of cash. Right now, Elon is innovating, but his companies are really struggling to even sniff profitability.
That makes sense if the businesses are unrelated, but that's not the case here. Batteries are critical to both Tesla's cars and energy storage products. Even before the Powerwall announcement, a lot of people called Tesla a battery company that just happened to sell cars.
Tesla has always been a bet on batteries. And if you're going to bet on batteries, why not expand that bet?
Regarding "gobs of cash," Tesla would be profitable now if it weren't pouring money into future expansion. The Model S sells well (given Tesla's size) and has high prices and margins. But that money (and more) is being put into design and production of a new model, and a gigantic battery factory.
I don't think Jobs is a good comparison to Musk. Jobs's recipe for success was to take products that existed and were popular in a niche, and refine them so that they appealed to a wider audience. The Apple II was a friendlier PC (used in the generic sense, not "IBM PC compatible," of course) with mass-market appeal, the Macintosh took existing GUIs and refined them to the limit, the iPod did nothing that existing MP3 players didn't do, but was made to have far greater appeal, and on and on.
Musk, on the other hand, is pushing the envelope. First electric car with a long range. First electric car capable of long-distance travel. First electric car that can compete with gas cars on its own merits. First reusable rocket (still trying).
If they were in the same market (and if Jobs were still alive), Musk's companies and products are the sort of ones Jobs would have been appropriating and refining a few years down the line once the concept is proven and demand is demonstrated.
The battery factory is going to reduce the cost of the batteries in the vehicles, increasing their profit/reducing their cost to being mass-affordable; on top of this they're turning the battery factory into a product itself, so we could see other companies purchasing and building them further strengthening the ecosystem Elon's trying to create.
He'll be the market leader in both electric vehicles and battery production - they'll be able to undercut everyone perfectly positioned for when "everyone" is buying electric vehicles.
Hang on, they're not unrelated businesses. This is kind of the same as Steve Jobs even.
Apple is a software company that also creates hardware for their software to run on. They're two businesses under one roof. Hardware is definitely a pretty high risk business too.
Tesla is an electric car company that also creates batteries for their cars to run on.
Tesla has more chance to make higher profits by controlling their battery operation, and also has higher chances of failure. This is the same as Apple and creating their own hardware instead of letting their software run on all hardware. There's differences, but I think your argument doesn't hold much water and has nothing to do with whether Apple or Tesla can be successful businesses.
Sure, well - you could say Apple is a hardware company, and Tesla is a battery company that creates cars for their batteries to use. Either way, that's the point.
Well don't forget PayPal which innovated like crazy and is super profitable. But for modern day Musk I think you're forgetting his businesses are by definition very capital intensive. He has to build out the entire means of production as well as the end product. It would be awesome in some ways if he could just pay Foxconn and have them shoulder all that infrastructure build out cost to build him some more Teslas but it doesn't work that way with what he's doing. The flip side is if he pulls this off he can hit a tipping point where he's the AWS of batteries for a whole range of industries and becomes a huge profit machine.
With MPT, you're not necessarily running a business, you're holding securities/assets that cannot have a negative value. (i.e. they can't become liabilities, you can't have a stock or bond that you owe money on)
With a business, the net value can become negative and in some cases when it does, you declare bankruptcy. This is why you'd want to ring-fence/separate out the more risky ventures from your main business, so that it's a separate entity that can rise/fall on its own.
Let me tighten up my argument a bit. Assume two businesses with an 80% chance of success, where success is worth $1000, and a 20% chance of failure, where failure is worth -$2000. But of course these are stocks, so they can't be worth less than zero, so the expected value of each is $800.
But the expected value of the combined company (where all outcomes are floored at zero) is only $1280 (not $1600), because there's a real chance that one business blows through the profits of the other.
Looking at it from another perspective, this is exactly why you want to incorporate if you start a business, instead of just going as a sole proprietorship. That way you have two entities (your person and your business) and if one fails (your business goes under) the assets of the other are protected (they can't take your house).
This is why Alphabet is stupid. But in Tesla's case, the two businesses are clearly related and may benefit one another so as to compensate for this effect.
I think Tesla is somewhere between Apple and Amazon/Ebay/Paypal. Trying to sell a desirable Apple-like product but at Amazon-like margins to try get wider uptake which is important for this type of product where critical mass is required for it to succeed.
Tesla is one business, "Battery Manufacturer". They currently have a few products in their line. Home batteries, Industrial batteries, and some battery powered vehicles.
Again, they're not losing $4000 per car in the sense that their cost to produce one car is $4000 more than what they're selling for. (Meaning if they sold 50k more cars, they'd lose $200M)
They had significant CapEx and so their revenues - costs worked out to an amount that was $4000 for every car they did sell. Had they sold more, their net loss would have been less, not more.
Yeah, for whatever reason that headline stuck even on sites that are typically less click-baity and/or pro-Tesla. My favorite way I saw the headline explained was something like:
I had major medical expenses this year and had to dip into my savings such that I ended up spending about 12k more than I brought in this year. I also ate 12 pizzas in the year. Their headline is like me saying "I lost $1k per pizza this year". It's accurate in a sense, but they're not related.
Well, then I suppose they're projecting their anger and don't understand how holistic ecosystems and macro economics work then if they think what I said is bullshit.
[1] http://www.scmp.com/business/companies/article/1846965/tesla...
[2]Flagged HN thread from 3 days ago: https://news.ycombinator.com/item?id=10030101