

Tesla Is The New Bubble Stock - minnesota_boy
http://www.forbes.com/sites/investor/2013/10/17/tesla-is-the-new-bubble-stock/#

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austenallred
This article is the perfect example of why why the financial industry and
looking at the bottom-line so often falls short of the entire picture. If you
think the value of Tesla is in its current line of vehicles you _completely_
miss the point. The Roadster, Model S and Model X aren't Tesla's real value
proposition, despite the numerous awards they've won and the incredible cars
they are; those were merely the entrance fee.

And yes, I realize this is exactly what people were saying when the .com
bubble happened, but Tesla is turning a profit on a small scale, and the
potential for it to profitably scale up is obvious.

Before Tesla, very few people took electric cars seriously, for a few reasons:

1\. Small range.

2\. Too high cost for the car.

3\. Looked cheap/corny.

4\. Impossible to make long roadtrips.

In short, electric cars used to be toy cars.

The purpose of Tesla's fist three models wasn't to make a bunch of money, but
to change both the reality and the perception of electric cars; to show that
they could be a desirable and economically feasible daily driver, and they
_nailed it_. The above points are less true with each model and other
incremental advancement (supercharger network, charging station) Tesla
releases.

I would unashamedly invest in Tesla, not because its earnings are so stellar,
but because it has begun to crack the code and reinvent the entire automobile
industry.

~~~
potatolicious
You're still ignoring the big elephant in the room:

Is Tesla worth more than Fiat, is it worth half of GM? In its current state,
with its current sales, of course not.

But with its _potential_ state, its reinvention of automobiles, is it?

That part is very, very hard to say. In a world where Tesla was the only real
electric car player, sure, we know electric is the way forward. But their
competitors aren't incompetent, and they aren't sitting still. We are seeing
full-EV cars come out of every major car manufacturer, and they're improving
rapidly.

We also know that the high end of the electric car market is just a test
environment, the real battle will be fought in the "regular car" market. Not
the Roadster, not the Model S, and not the new SUV. Tesla may have beaten
everyone to the punch and built incredible luxury automobiles, but can it beat
the incumbents when pricing pressure is very real, and very heavy?

I believe in electric cars, but I am very skeptical that Tesla will beat GM,
Ford, Chrysler, Nissan, Toyota, Honda, Volkswagen, and Hyundai in the low/mid-
end.

I'm also skeptical that they can maintain their current lead when luxury
automakers like BMW and Daimler want a slice of the pie.

Tesla surely has done a lot to dispel the negative connotations of electric
cars, but where they go from here is anyone's guess. There is way too much
uncertainty to IMO justify such an insane valuation.

Think about it this way: Apple was first to market with the iPhone, a device
that dispelled many perceptions about smartphones being stupid, clunky, and
only for businesspeople. It was beautiful, and it was a wild departure from
anything seen up until that point - and most importantly, it was incredibly
well executed. For a little while it looked like the iPhone was going to
swallow the world.

And then Android showed up and completely ate the low and mid-end markets.
Apple isn't dead by any means, and perceptually they are still the top dog in
town, but anyone who bet on Apple assuming majority market share is now, well,
wrong.

In Apple's case, the competitor sort of came out of nowhere - Android I don't
think was a serious contender on anyone's radar initially. In Tesla's case,
they are going up against very experienced, very wealthy, and very serious
competitors - competitors who have in recent years demonstrated their ability
to adapt to market conditions and turn themselves around. Anyone who still
sees the big automakers are stodgy and unable to change should go look at what
the Ford Motor Co has done recently.

~~~
ChuckMcM
_" Is Tesla worth more than Fiat, is it worth half of GM? In its current
state, with its current sales, of course not."_

I'm not so sure those things follow. There is a tremendous amount of
baggage/inertia in existing car companies, no where was that more apparent
than seeing GM convulse when it was bought out by the US government. Could I
beat Usain Bolt in the 100 yd dash? Hell No! If you tied his shoelaces
together? Damn straight I could!

Tesla has no other cars, no other obligations, no other legacies, no other
technical debt to pull backwards on it. One of the most interesting things I
read was a car analyst comparing Tesla to Fisker. Fisker built an electric car
with the best batteries they could find. Tesla didn't build an electric car
until they had built batteries that met the requirements of an electric
vehicle.

The difference there is profound. Prior to Tesla there were no batteries in
the world that could be bought which would let you build a Model S. Car
companies weren't telling battery makers how to make batteries, and battery
makers weren't telling car makers how to make cars. But Tesla sat down as a
company and designed an electric car from whole cloth, from the AC induction
motors to the battery chemistry. That is an insanely stupid thing to do, it
has huge risk. But they pulled it off.

From a _thinking_ perspective, Tesla should be bigger than GM and Fiat
combined. Compare the Volt or the EV-1 (which is unfair since technology has
advanced so far since then) to the original Tesla Roadster. One company is
thinking, one company is designing. I think thinking wins in this case.

~~~
potatolicious
I think the iPhone analogy is very apt here. It may have taken a company like
Tesla to make electric cars a practical reality, but once they make the leap
copycats will have no trouble following along and wind up taking the majority
market share. Apple was there first, and indeed no one even thought an iPhone-
esque device was _possible_ pre-Apple, but yet Android owns the lion's share
of the market now.

I also think maintaining a distinctly 1990s view re: incumbent car companies
is potentially strategically disastrous. After the near-collapse of the US car
industry, saved by the grace of the government, we've seen a dramatic and
near-miraculous turnaround.

Ford went from making cars nobody wanted and burning money at a prodigious
rate, to profitable and actually building cars that sell well. It is a common
refrain to portray the automotive industry as constantly tripping over their
own incompetence and baggage, but the reality is that after their near-death
experience they've proven their ability to fight, survive, and even prosper.

Tesla may be on top, and they may be the most visionary of the companies on
the playing field, but there are many, many perfectly competent competitors
yet, who are far more experienced in factors that Tesla has yet to contend
with - i.e., the economics of economy cars.

~~~
ChuckMcM
Well they have been pretty prolific in the patent area [1]. So some of the
'following' will either generate licensing revenues or require some
engineering investment (aka time)

[1] [http://patft.uspto.gov/netacgi/nph-
Parser?Sect1=PTO2&Sect2=H...](http://patft.uspto.gov/netacgi/nph-
Parser?Sect1=PTO2&Sect2=HITOFF&p=1&u=%2Fnetahtml%2FPTO%2Fsearch-
bool.html&r=0&f=S&l=50&TERM1=Tesla&FIELD1=ASNM&co1=AND&TERM2=&FIELD2=&d=PTXT)

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6ren
Toyota or General Electric are reasonable comparisons, both around 10x Telsa:

    
    
      TSLA	Tesla Motors Inc	182.14	-1.42	-0.77%		 22.13B
      TM	Toyota Motor Corp...	129.95	-0.29	-0.22%		205.93B
      GE	General Electric ...	24.30	-0.06	-0.23%		247.50B
    

Of course many slips are possible along the way - not least that Musk could
get "hit by a bus".

GE is not a bad comparison: founded by Edison, based on electricity, created
power station infrastructure...

~~~
bluedevil2k
What are you comparing? Why is GE a reasonable comparison?

~~~
SuperChihuahua
I believe it was Kevin Rose who argued that Tesla might become an energy
company if their charging infrastructure becomes an industry standard. So
companies like GM will pay Tesla to let GM cars use the Superchargers and swap
stations.

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bluedevil2k
The part of the article that really resonated was the comparison to current
car companies. Is Tesla really worth the same as Porsche? Porsche has an
amazingly strong brand, is the most profitable car company in the world, has 5
models, and a 80+ year tradition of building cars. Tesla has 1 model, is
barely profitable, and only a few years of building cars. Saying that these
car companies should have the same market valuation does seem a little silly
when you compare them that way.

That all said, a stock's price is driven tremendously by its potential for
growth, not necessarily the underlying cash flow. While Porsche may have the
stronger cash flow, obviously Tesla has the stronger potential for growth.

The bubble will pop if/when their growth metrics start to show signs of
slowing. If/When they start missing sales targets, the stock will crash,
quickly.

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viraptor
> The thing to do is to study the past and note how these mad stocks pan out.
> Here is Apple and Netflix to give you a flavor:

This is confusing. The only thing I see on those graphs is that good companies
recover even after relatively big failure. Even if you invested in Netflix at
the last moment before the failure, you could still make a gain by waiting.
Apple haven't recovered yet, but are going up... I definitely believe in Tesla
recovering from short problems too.

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pyrrhotech
Not overvalued at all. Sure it's shot up a lot recently, and very well may
fall some in the next year or two. But if you look at companies the right way,
with a long-term perspective, you have a potential 50-bagger at current levels
over the next 20 years. That's a phenomenal investment opportunity. The
economy is changing, we will be shifting to clean tech, electric vehicles,
automation and robotics. I'd put my money with Elon Musk and Tesla

~~~
DEinspanjer
50-bagger? I'm not that good with the stock market, but doesn't that mean you
believe the company could be worth approximately one trillion dollars in 20
years, not adjusting for inflation? Is that reasonable?

~~~
pyrrhotech
that's right. Tesla is one of the only stocks I see that could break the
trillion dollar market cap in real terms from here. They will benefit hugely
from the massive economic change that is about to take off over the next 20
years.

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tslathrow
A superb short, but a very expensive one (more than a third of float is
short). Too much risk of a squeeze right now. I have fair value at $65 with
8-10% WACC even with optimistic top-line growth for the next 6-10 years and 4%
terminal growth. That said, it's not wise to short on valuation (especially
with today's levels of retail money flow).

Throwaway because I'm in the industry (and currently hold TSLA puts)

~~~
bluedevil2k
I've always liked the quote (I think by Keynes) who said that the market can
stay illogical longer than you can stay liquid. In other words, you'd be wiped
out before the stock crashed.

~~~
SuperChihuahua
Most traders will try several times until they find the turning point. They
will get several small losses and a large profit.

~~~
tslathrow
Right now it's a very expensive short. I would personally wait for retail
inflow to peak and short float to dip to 25% or lower.

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revelation
I frankly flagged this. It's opinion and "technical trading" (read: nonsense)
on Forbes blogspam section.

~~~
SuperChihuahua
Technical trading is not nonsense - Paul Tudor Jones and many others have made
a lot of money from it.

~~~
Luc
The parts of it that are not nonsense are common sense. See 'Evidence Based
Technical Analysis' by Aronson. Conclusion of the book: it doesn't work in a
way you can make money from.

~~~
001sky
The difference between algo trading and technical trading is what, exactly?

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acoleman616
Holy crap is the Forbes site busy (in terms of "stuff", not traffic)...

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wellboy
It's a bubble if the valuations are based on nothing. If you look at Tesla,
you have the world's best (!) entrepreneur as the CEO behind a company who
wants to create electric charging stations fueled by solar cells on his
hyperloops all across the country.

Think again.

