This. I was going to say even $180 is still ridiculously overpriced.
Teslas statements are not good by any means when compared to GM and are even poor when compared to a company in problem times like Ford. Tesla even has massively less capital expenditures than both GM and ford. For instance, Fords after tax income was 4 billion, they had capex of 1.7 billion, and an EPS of +0.2. Compare this to Tesla at -0.6 billion revenue, 0.7 billion capex, -4.8 EPS (and they are issuing new shares each quarter for financing). Yet Ford cost $11 a share while paying out a 5% dividend - and this is all from a company in rough patch.
I have no idea why anyone is putting so much money into Tesla. You have to give Musk credit for great marketing and creating a cult around his image and ideas.
"Chinese companies have plans for additional factories with the capacity to pump out more than 120 gigawatt-hours a year by 2021, according to a report published this week by Bloomberg Intelligence... By comparison, when completed in 2018, Tesla Inc.’s Gigafactory will crank out up to 35 gigawatt-hours of battery cells annually.
...
Roughly 55 percent of global lithium-ion battery production is already based in China, compared with 10 percent in the U.S. By 2021, China’s share is forecast to grow to 65 percent, according to Bloomberg New Energy Finance."
https://www.bloomberg.com/news/articles/2017-06-28/china-is-...
> I will announce locations for between two and four Gigafactories later this year – probably four.
This puts them in the range of around 175 (35 * 4 new + Nevada) gigawatt-hours annually. They are certainly looking to compete in this space
China comes number four on the list of lithium producing companies.
Much of the world's lithium reserves seem to come from South America.
http://investingnews.com/daily/resource-investing/energy-inv...
Rare earth element map: In 2013, China produced about 90% of the world's supply of rare earth element ores. The USGS Mineral Commodity Summary [2] reported production tonnages for Australia, the United States, India, Brazil, Russia, Vietnam, and Malaysia. Rare earth element exploration and/or development is being done in Canada, South Africa, Thailand, Malawi, and Sri Lanka; however, production from those countries was insignificant during 2013.
http://geology.com/articles/rare-earth-elements/
Further China has already show willingness to ban export of these materials (for example in 2010). At the end of the day the risk to the production of batteries in particular has motivated vulnerable countries like Japan to develop alternative processes:
http://fortune.com/2016/07/12/honda-rare-earth-battery-hybri...
I could be totally wrong, but being first will allow them to grab the lions share of the business opportunities, and let them vertically integrate aka Tesla run uber, Fedex etc.. Being second is like being second with PageRank.
Tesla has built the largest factory in the world for the sole purpose of producing batteries. Battery production is about to be dominated by Tesla.
I wouldn't buy Tesla for more than $200 but I really don't think it's hard to see why people do.
"People don't buy what you do, they buy why you do it."
https://www.ted.com/talks/simon_sinek_how_great_leaders_insp...
The why is more influential than the what. It's the same reason people are dumb enough to pay a 40% premium for Apple products that are equal in any meaningful metric to a PC.
Tesla is overvalued. If you were to take a present snapshot in time (a data point) and compare the assets and cash value of Tesla with what its stock price is it would be wildly off.
Everyone always remembers the winners, the Googles, Microsofts, and Facebooks. No one remembers the hundreds of dot bomb companies (including Cisco) that saw tremendous loss in stock when everyone thought they were "certain" to succeed.
Then again, this is why companies like Ford and GM pay dividends on their stocks ... stockholders don't expect them to grow, just keep making money.
[1]http://online.wsj.com/mdc/public/page/2_3022-autosales.html
> This. I was going to say even $180 is still ridiculously overpriced.
My thoughts:
- Goldman Sachs (GS) makes buy helping other people buy and sell Tesla-related securities, profiting whether Tesla shares go up or down, and I simply don't trust the recommendation enough to make bets on the recommendation's value
- No one knows if the stock is overvalued because no one has perfect information about how Tesla will actually perform, including both Tesla & GS
- If I actually did know where Tesla shares would go, I wouldn't tell anyone, unless revealing the price would be a bigger windfall for me than keeping the information confidential
I would say that most of the big investors who are betting against Tesla are finance people, with a relatively poor understanding of the real potential for this company. They tend to see it purely as a car company. They don't understand that Tesla's battery production, their solar and utility-scale energy storage businesses are also worth quite a bit. They don't understand that the self-driving technology has a lot of value as well. They also don't understand that Tesla's electric cars are currently outperforming every other electric car, and every production ICE car as well. And lastly, they don't understand that Tesla is basically the Apple of cars, they sell cool, hot ticket items. Finance people who think "Tesla just can't unseat GM and Ford" are have definitely not "priced in" all the information.
The people who are betting for Tesla are either people more familiar with technology, or people who are just really rooting for change, and happy to see a newcomer finally shake things up. The latter have not "priced in" much information either, they are going based on hope. I personally think that Tesla has a very good shot at succeeding. Not only because Elon Musk does seem to eventually deliver what he promises, but also because the company has so many people rooting for it. These days, when Tesla needs financing, they just issue more shares, and people buy them up. This basically means that Tesla can pull itself out of debt very easily. I don't think that Ford and GM can say the same, they do not have millions of small investors rooting for them, ready to pull them out of debt. If Tesla slips up in its Model 3 deliveries, even by quite a bit, I do think the stock price will suffer, temporarily, but I think that most people will forgive them. Many people, myself included, are just very happy to see electric cars finally becoming a reality. I know that if Tesla ever drops near $200 again, I will be buying a whole lot more of it.
Perhaps some market participants value the price targets of Goldman Sachs, and this new information triggered a price readjustment to the extent that these participants traded the stock today?
I'm willing to pay up to a certain amount for a Model 3, just like I'm willing to pay up to a certain amount for a share of Tesla. No matter how much I like a Model 3, I'm not going to buy the last car on the lot for 2x the price because it's the last one. I'll just wait until there's another one at the regular price.
That is the question for which everyone wants to an answer that only they know :) You can build really sophisticated models to predict stock prices, but all models are really just making guesses about what a fair stock price is.
Some common questions to ask are:
- Does it have a positive the ACID test ratio? [1] Looking at the balance sheet [2], do the current assets exceed the current liabilities? If everyone thinks Tesla can pay it's bills, but you think they will have trouble doing so, you may believe a fair price is lower than what everyone else thinks.
- Does the company have a sensible price-to-earnings ratio? [3] Looking at the stock info [4], how much weight should you put on the P/E when determining what a fair price is?
- How fast is the company growing? Looking at the income statement [5], do you believe Tesla will grow faster or slower than it has been? And is your estimate higher or lower than what other people are guessing?
- How much will Tesla have to pay for Lithium in the future? [6] Do you predict that Lithium will cost more or less than the other people are guessing, and how much should your estimate factor into determining a fair value for Tesla stock.
[1] http://www.investopedia.com/terms/a/acidtest.asp
[2] https://finance.yahoo.com/quote/TSLA/balance-sheet?p=TSLA
[3] http://www.investopedia.com/terms/p/price-earningsratio.asp
[4] https://finance.yahoo.com/quote/TSLA/?p=TSLA
Also, in your comparison of the financials you have called Tesla's after tax income for 2016 their revenue. And Fords capex for 2016 was just under 7B. From where did you source those figures?
(Ford) http://www.marketwatch.com/investing/stock/f/financials (Tesla) http://www.marketwatch.com/investing/stock/tsla/financials
Judging Tesla based on current numbers is simply being short-sighted. They have yet to produce a mass-manufactured car, sure, but unless you've been living in a cave, you know that the release of the Model 3, a car with over 400,000 reservations, is coming soon, and that's going to create somewhere between $13-17 billion in revenue as people pony up the money for the car.
There is nothing so disastrous as a rational investment
policy in an irrational world.The stock market is fundamentally not meant to be an algorithm mapping company statistics to valuation. Treating it as such is nonsensical.
I completely agree that TSLA is overvalued. But that doesn't mean GS is issuing a report and lowering a price target in order to help out small, retail investors like us.
[0] https://en.wikipedia.org/wiki/Goldman_Sachs#Controversies_an...
It's entirely to gain value from a bubble as long as the bubbles life span is longer than your goals. However you must exit the bubble before it pops by transferring ownership to someone who doesn't believe it is a bubble.
The timing is important because you need the right mix of doubt and hope. When good news hits, it's actually a great time to offload the bubble gains as there is a spike in hope with more buyers believing in a longer bubble. This may account for why good news often is followed up with a drop.
This is irregardless of belief in the stock. Bubble gains may be locked in to buy at a more reasonavke price because belief in the fundamentals of the stock are still strong. However the duration of the bubble causes the stock price to lose all growth rate information.
As a tangent, this is why I don't believe wall street provides much value. Price discovery and liquidity is important yes, but most of the money made seems to revolve around psychological manipulation moated by lack of transparency.
I don't see it that way. To me, a stock is worth the 'fundamental value', i.e. the future divided payments discounted by an appropriate interest rate. If no-one is willing to buy my shares I'm still happy because I get the future dividends.
I don't understand this statement. Barring a default, if you hold a bond until it matures you get paid the face value, period.
Also how is betting on future interest rates moves any less riskier than betting on future stock price moves?
Just to be clear, I'm not saying stocks are bad, they typically always earn more in the long run, but they are volatile, much more than bonds.
We can all disagree on what the proper valuation of Tesla really should be, and there are good arguments on both sides, but this comment exhibits a fundamental and simplistic misunderstanding of how stocks such as Tesla are valued, and it's something HN as a group needs to do a much better job at understanding. To say that its valuation is purely based on a "popularity contest" is simple enough that it feels right, but is dead wrong.
The value of any asset is the present value of its future cash flows. In other words, find all of the cash that a company (or any other thing) will ever generate, sum it all up, and then translate that cash back into a value today using an interest rate you choose (since cash today is worth more than cash tomorrow). With that behind us, it's fair to say, "Ok — but how in the world can you ever know how much cash a company will generate next quarter, let alone next year or throughout its entire existence?" And that is the challenge of valuation, especially at this stage - Tesla's future cash flows will vary wildly based on whether or not it can execute.
That's why growth is so important in startups and other relatively young companies. If your company has revenues of x and will grow them at x^n, the n will matter so much over time that the x is nearly irrelevant. Because these sort of projections are often overly optimistic, HackerNews has become incredibly biased against this kind of valuation, and tends to focus on the times when it's way too high. But in doing so it ignores the times when they're way too low - something that's very easy to do. Everyone was saying Instagram was an obvious sign of a bubble when it was bought for $1B, but now it kicks off over $1b in revenue every year. We cried "bubble" along with DHH when Facebook was valued at $33B, and now it's comfortably at 10x that, spitting of $8B in revenue per quarter. The likelihood of that growth curve and those projections being wrong is usually priced in.
The question around Tesla isn't whether or not their market size will be big enough if they do what they say they're going to do (they're building the largest battery factory in the world, building an electrical recharging grid, have easily the largest data set anywhere for self-driving cars, etc.), but whether it's possible. That is Tesla's fundamental value, and fluctuations in its price are based on disagreements around what its fundamental value actually is.
So maybe that all comes to naught; maybe Tesla is wrong. That risk is priced in. Tesla's market cap is roughly the same as Ford's.
I'll just say that, for my money, if I had to choose whether I would own 100% of Tesla in 20 years or 100% of Ford, I would choose Tesla in a heartbeat.
1.https://en.wikipedia.org/wiki/2010_Flash_Crash#Evidence_of_m...
Although equities historically are the asset class providing the best return over the long-run, this is why I prefer bonds. With a bond, if your analysis is right, you get paid at maturity. With a stock, you can be right, and it doesn't matter. Stock is only worth what somebody will pay for it, and that can largely be determined by sentiment.