Tag Archives: TSLA

3Q2016 earnings for Tesla (TSLA): still a “dream” stock

October 27, 2016 By in cash flow/share vs. earnings/share, earnings conference calls, earnings surprise, Uncategorized Tags: , , Leave a comment

TSLA reported 3Q16 results yesterday after the New York close. The numbers were better than admittedly modest expectations:  the company sold a record number of cars: it had profits; cash flow was strongly positive–although flattered by better management of working capital and sale of pollution tax credits.  Still, a plus.  And the stock is up by about 4% in pre-market trading as I’m writing this.  (I should mention that other members of my family and I hold small positions in TSLA.)

The fact that a $30+ billion market cap company earned $22 million in a quarter would scarcely be considered good news under most circumstances.  Annualizing and rounding up to $100 million for a full year would imply a PE of 300x for the company’s stock!  However, TSLA is still to a considerable degree a “dream” or “concept” stock.

 

The prototypcial “dream” stock is a firm that starts up with the intention of prospecting for gold.  It makes what it thinks/says is a significant strike.  While the company creates the mine and associated processing facilities, speculation about the quality and extent of the orebody runs rampant.  After all, there’s no factual information to contradict any rumors that may float about.

Then the mine opens.  There are now facts available about ore quality and mining costs.  So there’s no more dream–only brass-tacks reality.  The stock typically peaks the day the mine opens.

TSLA’s case is an unusual one.  Auto production has been under way for some time.  Yet the stock hasn’t reverted to trading on actual results.  To some degree the dream has been dented–I find it hard to imagine TSLA could repeat today its 2014 convertible bond offering, whose conversion price was set at $350.  But Elon Musk has expanded and reset his aspirations for TSLA  often enough during its short life as a public company that at least some version of the dream remains alive.  Unless/until TSLA disappoints severely in its results, I’d think the stock will continue to trade without a strong connection to earnings for some time to come.

 

 

 

Elon Musk’s master plan for Tesla (TSLA)

July 25, 2016 By in Tesla, Uncategorized Tags: , , , , , , , 1 Comment

Last week, Elon Musk issued his second master plan for TSLA as a blog post on the company website.

The plan has four parts:

—autonomous driving, with the goal of making self-driving cars 10x as safe as those operated by human drivers.  The main issue here is, according to Musk, compiling enough safety date to convince governments to allow autonomous driving on public roads

—expanding the product line, to include pickup trucks and compact SUVs, plus heavy trucks and urban buses.

Although what he writes on this topic is not 100% clear, one goal under this heading seems to be to reinvent the auto manufacturing process in a way that the new/improved factory is 5x – 10x as efficient as current ones.  One ambiguity I see is whether this means 10x the efficiency of, say, a Toyota plant, or 10x the efficiency of the current TSLA operation.  I presume he means the former.

Another is exactly what “efficiency” is.  I’m taking it to mean that Musk intends to create factories that, for the same capital investment, will produce 5x – 10x as many cars in a given time as current factories do.  My cursory inspection of auto 10Ks (other than TSLA, I don’t think I’ve owned an auto stock since the 1980s) tells me this won’t mean a huge jump in unit profits for any auto firm, including TSLA, since most of the costs of making a car are in materials and labor, not capital equipment.  Greater efficiency would boost overall profits, however, as well as allow TSLA to dramatically increase its vehicle output.

—sharing.  Musk thinks that in an era of autonomous driving, some people won’t own cars themselves anymore.  They’ll simply call for one from a sharing service when they need it.  Other people will own cars but will allow their vehicles to be used in a sharing service when they don’t need them.  TSLA intends to organize sharing services for its vehicles.

This is a much more revolutionary statement than it seems.

The average car is used only 10% – 15% of the day, according to Musk.  If sharing boosted that usage figure to, say, 30% in highly populated areas, then those regions would need only half the cars they do today   …maybe fewer.  At some point, this would mean an implosion in demand for new autos–and the end of the car manufacturing industry as we know it.

—merger of TSLA and SolarCity (SCTY).  In his Master Plan, part deux, Musk says he wants to create a “smoothly integrated and beautiful solar-roof-with-battery product that just works, empowering the individual as their own utility, and then scale that throughout the world. One ordering experience, one installation, one service contact, one phone app.”

He says this can’t happen while TSLA and SCTY are separate companies, something he describes as “an accident of history.”

I’m not sure I buy this.  I do think that Musk created clear economic superiority of TSLA over SCTY when he decided to place the Gigafactory for solar batteries inside TSLA.  To my mind, that makes SCTY radically dependent on TSLA today.  Merging the two companies would put SCTY back on an even footing.  For TSLA shareholders, arguably the main benefit of the combination is obtaining SCTY at a cheap price.

Tesla (TSLA) is bidding for SolarCity (SCTY)

June 22, 2016 By in Autos, mergers and acquisitions, Uncategorized Tags: , , , , , , , , Leave a comment

The offer is an all-stock deal, with TSLA willing to exchange 0.122 – 0.131 of its shares for each outstanding share of SCTY.  The exact figure will depend on a closer examination of SCTY’s books.  The proposal was announced after yesterday’s close.

My thoughts:

–in today’s pre-market trading, SCTY shares are up by about 14% and TSLA’s stock is down by around 12%.  This has little to do with the merits of the deal.  It’s all about arbitrage.  To the degree the market regards the acquisition as a done deal, it ceases to look at SCTY as an independent entity.  SCTY becomes instead equivalent to a deferred issue of TSLA stock.  Because the bid is at a premium to the pre-offer price of SCTY, SCTY is a relatively cheap way to own TSLA.  So arbitrageurs sell short the “expensive” form of Tesla, i.e. TSLA, and use the money they receive to buy the “cheap” form of Tesla, i.e., SCTY.  So SCTY goes up and TSLA goes down.

–my guess is that there’s no other bidder.  Elon Musk, who owns 20%- of TSLA also owns 20%+ of SCTY.  As is often the case with family-owned empires, one firm ( TSLA) is the heart of the enterprise.  Other companies are arrayed as satellites around the central hub.  Those tend to be more highly specialized, sometimes riskier–and invariably dependent on the main core for essential goods/services.  In this case, the Gigafactory being built by TSLA is going to the be the source of the batteries that SCTY will be distributing to customers.  Who else needs one of these?

–price is the main motive, I think.  SCTY is less than a tenth of the market cap of TSLA, so acquisition won’t make a radical difference in the latter’s fundamentals.  In most cases I’ve seen, the hub-satellite relation persists for decades, with third-party shareholders content with their stepchild status as an adequate tradeoff for the satellite’s narrower focus and faster earnings growth in specific circumstances.

–arguably, this is a good chance for adventurous to buy TSLA shares toward the lower end of its recent trading range.  I’m going to sit on my hands for a while, though, to try to gauge how severe selling pressure on TSLA may turn out to be.

 

Tesla (TSLA)’s new common stock offering

May 20, 2016 By in public offering, Uncategorized Tags: , , Leave a comment

the motivation

TSLA has been surprised and pleased by the public response to its proposed new Model 3 (the company has reservations–and deposits of $1,000 each–nearly 400,000 units for a car slated to appear in limited numbers next year or the year after).  …so much so that it has junked its plan to become cashflow breakeven this year (meaning operations would no longer consume cash and might generate it).  It has decided instead to accelerate its factory building to speed the debut of the Model 3.

To do so, it needs fresh capital.

the offering

So, for the third time in three years TSLA is having a public offering.  In a preliminary prospectus revision filed today, TSLA indicates it intends to sell 9.3 million new common shares at a price of $215.  Of that number, 2.8 million are being sold by Elon Musk to pay taxes due on exercise of options on 5.5 million new TSLA shares. The underwriters have the right to sell an extra 1.4 million shares in what is called an “overallotment.”

When the dust clears, TSLA will have raised between $1.4 billion and $1.7 billion and will have about 145 million shares outstanding.

Press reports indicate the offering has occurred today, even though the prospectus says underwriters expect the offering to happen next Wednesday.

my thoughts

–the prospectus contains the most up-to-date data on the company

–the new money will allow TSLA to being volume production of the Model 3 in 2018 instead of 2020

–I’d be a little miffed at the offering price if I had participated in the 2015 stock offering at $242 a share, or bought convertible bonds in 2014 with a conversion price of $350.  Neither, of course, makes any difference for new buyers

–if the press reports are correct, that hasn’t mattered too much to the investing public, either

–I wonder how much retail participation in the offering there is.  Lack of institutional support is usually a bad sign, although I’m not so sure that rule holds true here

–TSLA could barely get off a stock offering half this size last year

–achieving a stock sale like this almost always marks a near-tern bottom for the stock price

–dilution of existing shareholders is minimal and bringing forward the volume launch of the Model 3 by two years is probably a very big positive thing.  So, if the Model 3 is the success it appears to be, the offering will have been good for everyone.

 

 

 

 

 

 

what I find most surprising about Tesla (TSLA)

April 8, 2016 By in Autos, Technical Analysis, Uncategorized Tags: , , , , , 3 Comments

a concept stock

My California son got me interested in TSLA a couple of years ago.

It’s a “concept” stock.  That is, the stock trades on the dream or vision of future revenue and profit.

…like Amazon

In many ways, it’s like Amazon (AMZN) was in the late 1990s.

That company seemed to me to be on the verge of financial disaster for most of the first decade of its existence.  It only began to be profitable after it expanded from its original virtual bookstore idea to becoming an online department store.  In my view, had AMZN not aggressively raised a lot of capital during the Internet Bubble, it would not have survived.  After all, it lost money eight (?) years in a row before breaking into the black.

the center of an empire

TSLA is the seat of the Elon Musk empire.  Some say it’s a car company (me included); some would characterize it ultimately as a battery company, with cars as the wrapper that contains the principal TSLA product.

the stock

The stock is now trading at $260 or so a share, giving TSLA a market capitalization of about $39 billion.  Suppose we think, to make up a number, that the stock should trade at 30x earnings.  If so, the current price expresses investor belief that at some point the company will be making $1.3 billion a year and still have, say, 20% growth in annual profit in prospect.

back of the envelope numbers

Let’s say TSLA is a car company and that it will be making on average $7,000 a car, after tax, on its output at some future date.  If so, the current market price already factors into it that TSLA will be selling about 200,000 cars a year–and expanding rapidly.

I think that’s possible.  More important, the market says that’s what investors are willing to believe, and pay for.

risks

There are risks, yes, the most obvious of which is that the company keeps pushing back the date when it will turn cash flow positive.  What cash flow positive means is that the company will be able to generate enough cash from operations to cover costs, and will no longer be eating into its cash reserves to make ends meet.

what I find surprising

What’s stunning, though, is that less than two months ago the stock was trading at just over $141, or just over half today’s price.

New information has come out since then:

–TSLA began taking deposits for its $35,000 base price Model 3.  In less than a week, it has collected $1,000 each for about 300,000 units, with enough add-ons to bring the average selling price to $42,000. Most won’t receive their cars until 2018.  This support seems to me to show there’s potentially huge demand for electric cars, even at today’s lower oil price.

–the company announced that it missed its 1Q16 sales target because of parts shortages.  Presumably this means it did not turn cash flow positive as anticipated during the quarter.  That’s bad, especially since we’ve heard this song before.

the stock price

The stock is up $10-$20 a share on the two items, which were announced at roughly the same time.

What I find interesting is that a relatively large market cap company can move from $140 to $240 in a matter of weeks on a change in sentiment.  That’s about 70%!

So much for efficient markets and investor rationality   …not that anyone outside the ivory tower believes in this stuff.  But this is a huge move.

algorithmic trading?

I think it’s evidence of relatively naive algorithmic trading at work (based ultimately on two other wacky academic ideas–that the most important thing in investing is to control costs, and that there’s no craft skill/specialized knowledge involved in investing).

I also see it as support for my view that trading can be unusually profitable in this environment.   We should look for other instances where this may be happening.