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Tesla as an opportunity of investment

I belive that all people that are reading this post think that Tesla is a great Car Company, the most advanced, the most innoative and the most oriented at the future.
This is the reason for which I'm evaluating tesla as an opportunity of investment and i would like to discuss with you about this.

First order executed...

The 40$ resistance has proved really hard to break, tesla announced the date of the 4 quarter result wednesday 20 feb. how do you feel about the year-ended result ?

The stock is becoming more attractive now thanks to the NYT piece and Musk's defensive stance.

Not sure how long this plays out but below $34.50 it becomes a buy for me. If it keeps falling, get all you can at $28 (unless the reason it's falling is catastrophic). So if it goes to $34 this week and then the earnings release next week goes badly, you can average to $31.

Of course, it might not drop to $34 at all, but it's a possibility given the current media cycle.

I'm concerned it's taking so long to release the log information. It might be complex and not trivial to present in a simple, clear manner that proves Tesla's case. If so, it could end up reassuring the converted but not help with the general public.

I don't think the piece has a long term impact though. The car will speak for itself and it will be in the hands of over 10,000 people within a few months.

Elon needs to take this as an opportunity to sell the car to the general public. He has garnered a lot of attention with this stand off. It would absolutely be the best time to talk about how recent owners ms have handled in the cold, how the range is fantastic when used in the most effective manner, how much you saved on gas charging at home in off peak hours, how the maintenance is minimal, how when you take your car in for maintenance they know exactlly what to fix because they have detailed logs with no way of cheating you llike many ice mechanics, car has only three moving parts as opposed to hundreds, how it's the only car on the market that improves over time, etc... I could go on for a long time and so should Elon with all the attention he's stirring up.

This is the time to take the offensive and sell the sh*t out of it!

Thinking about selling my solar city and buying more tesla with the dip? Any thoughts?

cprenzl: this week probably the shares price will drop down for a couple of dollars. next week the 2012 balance will be published so i think it's better buy at different's times, last day i bought 50 stocks, maybe tomorrow i will buy other's. the next month other's and accumulate... the sentiment about tesla is really good, they have got a strong industrial plan. I think that the next year the share's price can be around 50$ or more...

In the short term what will count is the demand. Tesla could ramp up production from current estimated 20k/year to theoretically double that with 2 shifts/day and still do the maintenance functions. Other constraints may develop like in the supply chain, trained labor, etc.

What is the main hold-up? Range anxiety. What can reduce that over the short term? Superchargers 100 miles apart on the major highways, especially. 240V/50 amp/100 amp charging location at hotels, public places like MacD, etc. Cold climate performance, charging performance when plugged, etc is a concern. A lot of that can be resolved with software upgrades that can keep the battery pack warm after charging is finished, but the car is still plugged.

Looking at the VIN numbers, it looks like the company delivery is slightly ahead. It remains to be seen if this demand is sustainable with the current design and battery tech. After making all kinds of investing mistakes, the lesson I learnt is that even with good research, I will make frequent mistakes. Have to manage risk with your capital and this is a risky stock at this stage. I would consider putting an amount that one can loose if the stock looses $10/s. If the stock does well, the investor can double the position as the risk goes down.

This is no easy stock. Personally, I think the company has to make money on the Model S to pay for overhead and R&D of $400M/year. 20k cars/year at ASP=80k and margin of 25%, barely break even. No enough to recover the sunk costs of Model S, let alone pay for Gen III R&D, plant, etc. The only way out is for Tesla to stimulate demand for the Model S, X with superchargers, plus other charging stations. Get combined demand to 50,000 autos/year. I would prefer a higher number. Achieve economies of scale and cut costs.

It is a tough execution. So far Elon Musk has delivered and may deliver beyond expectations, but the risks are still huge. Got to adjust the investment for this risk. No need for a Stalingrad. There are lot of opportunities in investing. No need to risk the farm here.

Bubba2000 --

Nice assessment. The only thing I am curious about is how you see 400m being what future r&d will be? CFO stated in Q3 conf. call r&d would be lumpy. What I take from that is it will expand and retract according to financial conditions. Also, Elon has stated the MS platform will be exploited for multiple variants so costs associated with r&d in that respect has already happened. I also heard Elon state he would like to Give the MS and MX a chance to make money for a year or so. This means to me they might cut costs (maybe specifically future vehicle r&d) and encourage margins that will sustain profitability. Elon's goal is actually 30% margins so I feel they will make aggressive near terms decisions to get to that. For some reason, a few posters believe costs are almost fixed and don't see how a profit can be made. Just have to look at the sec reports and see there are many places where it's reasonably possible. I think the whole reservation payments situation throws a lot of people off.

I also think a lot of records and other "firsts" will happen this year. No one has ever sold 20k Evs in a single year, maybe even more sales in one year than all ev sales combined in history. Could also be the highest selling premium sedan of the year (over BMW and Mercedes). Could also be the largest revenue increase year over year in auto history. Could also be the sharpest reversal of short position in Nasdaq history. The list could go on... More and more momentum will happen as the year concludes, orders will continue to come in creating a strong demand through 2014 right when the X comes out to keep interest at a high level. Have to also account for spacex and solarcity success as helping tesla sales by association. Because of this, I wouldn't be surprised if they do another public offering to accelerate geniii because of the preset demand for it. Anticipation is already starting to mount, so I'm sure the market would welcome a way to get there sooner and see the stock soar. I also think they won't care if profitability happens so as long as demand stays high and production rolls out cars to meet it.

@jk;
+1
Nice analysis, yourself! I think the TM designers are multi-tasking, blending extrapolations of their existing tech with new stuff in the pipeline. And given the quality of what's done so far, that is very enticing.

jk2014,
I got the $400M estimate for Selling and General Administrative + R&D cost by extrapolating the 3Q2012 statements. The company will have to continue to invest heavily in R&D to improve/test different battery chemistries, electronics like the motor, inverter, tablet, electronics as well as optimize current and future designs.

As volume goes up and with time the cost of outsourced components like Al sheets, castings, gearbox, drive train, tablet, electronics come down. Even the battery that is bought from Panasonic will come down not only because of volume, but also with time. Moore's Law applies to electronics. Internally the cost of labor does not increase as fast as production, especially in stamping, bodybuilding, painting which is done with robotics. Final assembly cost is tied to labor, but even here there is room for productivity increase.

Costs will not as fast as in microprocessors. However, it may fall similarly to appliances that are electromechanical. With enough volume, they could achieve 30% gross margins. They do need supercharger networks.

The biggie is always the technology disruptive changes. Double the battery capacity at half the cost. No easy task. I would happy if the battery capacity increased by 40% in 5 years and the with of the Model S dropped by a 1,000 lbs with the use of stronger Al alloys and efficient structural design.

With short interest huge, the very sophisticated big money is betting the company will fail. I am long because Model S is simply impressive. A friend of mine bought a Sig and now he hardly drives his Mercedes S.

I am going to plot the reported Vin numbers versus date in a log chart and see what it looks like. Wondering if production went up significantly and if it accelerating.

BrianH -- thanks for the comment. It will be interesting to see where the next variants will land. You'll probably be the one to check with soon on that I bet.

Bubba2000 -- more great detailed analysis. Can't forget about increases in ZEV credits, drivetrain sales to Daimler and Toyota,European sales, maybe even a strong leasing program over the summer... Looking forward to your future vin/prod numbers.

"Looking forward to your future vin/prod numbers."

+1

Bubba2000,

I recently attended our local AEE chapter meeting in Chicago.
A PHD from Argon labs presented the JCESR program,
(Energy Research Storage think tank).
Their charter is to develop battery technology
For appliances and transportation as follows:
5x energy density
5 years
1/5 current cost.

His trend graph of lithium ion battery energy density
Showed 1ma/h 13 years ago and
4 ma/h today.

Battery chemistry chemistry seems to be improving
At very good rate.
simple anode/cathode material changes seem to provide
Remarkable avenues for performance improvement.

It may soon be possible to drive an entire day at
Rated speeds and not empty your battery.
Exciting times

I will believe it when I have tested it myself. This just sounds too good to be true to me.

-3% now around 37 $, what sensation about the next week ??

I looked at the kind of jobs Tesla advertised in their website in the last 1 year. Many of the production/manufacturing jobs (CNC, painting, etc) specified swing shift and some night shift. It is likely they are running extended day shift and moving to night shift. The big question is if Tesla need the extra shifts just to produce 400 cars/week OR did they need the shifts increase production beyond 400 cars/week?

I looked at the reservation postings and deliveries, but could not get conclusive info about production. Will look at this again.

There is a lot of nervous money around both on the short side and long side. The volatility shows.

Range is the issue resurfacing right now, which Tesla anticipated from day one 10 years ago. If Tesla can publish actual range numbers under all weather conditions from current customers it will compel those sitting on the buy/sell bubble to commit one way or the other decisively. I think tesla is in a good position if they can frame all negative attention on this issue. I think the real achilles heal right now is customer service and maybe newly emerging quality control issues. Should continue to keep these problems out of the spot light until they have the time to their act together as they scale.

Bubba;
Who said they're stuck at 400/wk? They took the 1st week off, and in 6 weeks have racked up about 4500 VINS. That's pretty close to 700/wk.

Oops, more like 3500 VINS, so just under 600/wk average. Though the current rate is likely 800.

Wow, they are producing 800 Tesla Model S EV's per week.

The Q4 report and Q1 guidance could really, massively go either way.

Key figures are sales, production, and ASP. I think the range thing fades away. CNN was more effective than Musk's blog posts. In any case the range thing will change the mind of nobody.

It will be more about the numberes and expected profitability. Sales and production above all.

Range affects potential consumer purchases, and consumer purchases are what make the bottom line.

Brian H: Thanks for the info on the VIN. Even a conservative 600 Model S/week amounts to 30,000 cars. If ASP drops to $80K, that would amount to $4B in sales and gross profit of $1B at gross margins of 25%. Admin + R&D will amount to $500M, especially with GIII. They will need the extra $500M just to tool for the Model X, inventory and service debt.

What is your estimate of the reservations? Estimated cancelation rate? The company got to move from the initial upper middle class adopters to regular upper middle class adopters and wealthier. At least with Model S+X. It is possible, but the SC network has to be deployed.

Ultimately, the price of Model S/X have to come down the cost curve to stimulate demand as well.

Cancellations are really hard to figure or analyse just now; the big "price change" shuffle around year-end produced a lot of juggling by reservers, etc. And those counting on later delivery caught short by the speed up, those with overlapping leases, etc. So there were duplicate reservations being trimmed, and replacement reservations being placed, etc. (Much less "disincentive" to drop to the back of the line now that it is months long, not years.)

But now that the delivery time is so short, the base rate of cancellations should fall drastically. There's almost no time now between reserve and finalize, so any purchase decisions will be "firm" from the beginning.

It's only 6 days till the s/h call. It is pointless to speculate about trends without waiting, unless you're trying to anticipate the news and "ride" the share price. Dangerous game.

Bubba2000 - you are evaluating TM as it was GM. There is an economy of scale, but there is also a cost of scale. If Ford needs $500M to do something a smaller company like TM can do same for let say $50M. I am working for a large company and know about the cost of scale.
- Model X mfg tooling was funded about 6 month ago. TM $50M + $10M from California. It uses the same mfg line as the Model S so no big ticket items are needed
- 2 shifts are needed: 1st shift ( engineers are at work ) will have set up building Model X betas while second shift sustains the Model S production.
- SC network is cheap ( $20k-&40k per SC according to J.B.Straubel). So 100 SC are about $4M and it is paid for out of the advertising budget ( a super bowl clip is ~$5M ). The holdup is not the cost but getting the permits and locations.
- I don't expect the base price for the Model S/X to come down anytime soon, but instead more option packages to please a larger clientele - e.g. console & door pockets for the folks that need their clutter around and a sensor package for folks challenged to park the car. Each package should cost TM no more then $200-$300 in mfg and can be retailed easily for $3k-$5k.
- Gen3 will be a 60kWh battery going 265 miles EPA. There is no big battery improvement in automotive quantities in the next 2 years. So Gen3 improvements has to come from drive train ( motor, inverter) and chassis design ( weight, size, tires etc).
...just my 2 cents

Kleist;
That's worth at least 10¢. Thx!

Gen3 with a 60 kWh battery and going 265 miles EPA. What if they can configure it with a 85 kWh battery?

Kleist--

Great stuff, appreciate it. Look forward to reading future posts...

Benz;
Thimk. (IBM motto.) The skateboard is smaller, so fewer cells. Of course when the 10X energy miracle cells come out, the GenIII etc. will be able to go 2000 miles ... but need to be charged with a 1MW cable. By robots.

Tesla Motors are still very US focused right now. Almost nobody here in the UK even knows what a Model S is just yet, they havn't even scratched the surface of the surface. Just wait until the cars get to Europe, UK, Japan etc. There will be almost no range anxiety whatsoever. The much smaller size of our countries and culture mean almost no one ever drives more than 250 miles a day except delivery drivers! Any more than that and it's on to trains and planes. Multihundred mile car journeys per day just don't happen like in the states, and even if they do, free filling at superchargers when our gas is over $9 to a US gallon, Tesla will clean up.

My take on things would be to buy all the stock you possibly can now whilst it's in a dip thanks to our NYT friend. Then watch it carefully until sometime after the earnings are out when the short squeeze happens. If you time it right, you can resell all your stock when the squeeze happens, then rebuy with all the proceeds you've just made a day or two later when it settles back down to a sustainable figure, now settle down for the long haul... Ten or twelve years down the road... sell up and enjoy your very comfortable retirement ;) Well thats my plan anyway!


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