Are we biased, what do you need to see to get out of TSLA

Well one thing that I'm not qualified enough to fully follow is the true state of the company financials. Yes, the shorts blabber all about the GAAP losses and the cars costing millions per car and that's an extreme side. We know the lease accounting is a minor risk and deferring most of the profit in those is a non-issue that is an artifact of the accounting. But I'm not qualified enough to go over the financials QoQ and understand if something could be hidden. The GM of 25-30% seems a very nice GM and should help keep Tesla financed and growing even most of the time through natural sales, but the high costs of expansion balance that strongly and is a game of timing to an extent. Tesla does have a $2.2B debt that will be due some time in Gen-III timeframe and if Gen-III is at least a mediocre success they shouldn't have trouble paying it back. But what we should have is extensive due diligence on the financials and how they develop. GAAP and non-GAAP are best practices or not, but the true state of a company comes down to wether it has money to continue daily operations and if it has money to grow as planned and wether or not it can face serious issues due to debt. We already have people doing the estimation of GAAP and non-GAAP EPS and they hit the right mark many times (DaveT for example), but do we have enough oversight here at the board about all the financials in their 10Q and other documents.

This is one of the things where I fully admit I might be glossing over with "fanboyism" and might be biased. I look at some of the numbers and they are good and the trends are good. But I'm not sure I can fully formulate a big picture of Tesla with all the intricacies and say that it's good and healthy today and likely to be in 2-3 years as well knowing what we know. So if we want cooler heads and elimination of bias, then I think that part would be excellent if people with the expertise could share their understanding of Tesla financials. For example I've learned a lot on the GAAP vs non-GAAP differences, but I'm not sure I still fully understand it as I had assumed with the rapid expansion of EU sales and states where lease accounting isn't used that the GAAP EPS loss would reduce further and approach non-GAAP more. But the other details like share compensation etc that differ between the two aren't quite what I follow in the trendlines.

The most important thing for me is "credible competition". As long as no competitors are present, Tesla can do a whole lot wrong and still be okay. Of course, if it seems like Tesla suddenly can't seem to do anything right, I would probably sell.

Some things I would require for the competition to be credible:

- All electric vehicle
- Real world range greater than 200 miles
- Seats 5+ people plus luggage
- Well executed charging network (more than 75 kW charging, multiple chargers at each location, comparable or better coverage than Tesla, low cost of use, reliable.)
- Priced lower than comparable Tesla vehicle

If I see the above starting to materialize, I'd be nervous. But so far, there are no clouds on the horizon.

I disagree, @Yggdrasill; for me the biggest risk is that nocredible competition shows up. Tesla will have its greatest success when EVs become the dominant form of personal transportation. When that happens, everyone buying a new car will give Tesla a serious look. Right now, Tesla vehicles are perceived as a specialized niche. Make the company's product mainstream, and the sky's the limit.

Robert.Boston said:

I disagree, @Yggdrasill; for me the biggest risk is that nocredible competition shows up. Tesla will have its greatest success when EVs become the dominant form of personal transportation. When that happens, everyone buying a new car will give Tesla a serious look. Right now, Tesla vehicles are perceived as a specialized niche. Make the company's product mainstream, and the sky's the limit.

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Tesla vehicles are currently percieved as a specialized niche because they cost $61,070-130,000. That will change with gen 3.

I strongly believe that Norway is now where the rest of the world will be in 5 years. In Norway, the Model S is mainstream, and it isn't because of all the comparable all-electric cars from other car companies. It has to do with cost - the Model S costs about as much as any other large family car.

*When* Tesla is able to reduce costs sufficiently to supply a gen 3 Tesla at roughly the same cost as a comparable ICE car in the rest of the world, the rate of conversion from other car brands will far exceed Tesla's ability to ramp up production. (As is also the current situation, at the high end of the market.)

Edit: Also, in my view, pretty much the only thing that can prevent Tesla from reaching that point, is if another car company manages to beat them to the punch. If they screw up in various ways, all that would do is increase the chance that someone beats them to the punch, as they would be later to market.

My investment in TSLA is based on them having no serious competition for an electric car which will appeal to the mass market. I think Tesla is in position to become the Microsoft of cars, where their battery technology becomes the standard and has to be licensed from Tesla. In order for another car to seriously compete with Tesla, it needs to be of comparable quality, comparable cost, 200+ mile range, and able to charge at least as fast as a supercharger. The superchargers are key because I think the current charging time on road trips is the maximum that the market will tolerate. Chademo won't cut it. If there were to be a genuine battery breakthrough which produced competition which would have more capacity and charge at supercharger speeds, I would sell my TSLA.

I will not exit Tesla when there is credible competition. Like Robert above, I believe that credible alternatives are actually a requirement for Tesla to succeed in the long run. Notably, Elon himself seems to think so.

I would exit if Elon Musk exits before the announced timeframe. If he leaves on time and the company continues to execute like it's doing now, I'd stay invested.

Steve Jobs used to say that you know a company is done when the product people are pushed aside and the sales guys take over. So if the new leaders take Tesla off its product-oriented focus and start implementing a sales and marketing-driven approach, I'm out.

I'll exit when Elon exits. People call us a cult, but bias goes both ways at least ours have facts behind it. We're not crying that the BMW i8 and i3 are Tesla killers. At least we know what the product is about.

emupilot said:

My investment in TSLA is based on them having no serious competition for an electric car which will appeal to the mass market. I think Tesla is in position to become the Microsoft of cars, where their battery technology becomes the standard and has to be licensed from Tesla. In order for another car to seriously compete with Tesla, it needs to be of comparable quality, comparable cost, 200+ mile range, and able to charge at least as fast as a supercharger. The superchargers are key because I think the current charging time on road trips is the maximum that the market will tolerate. Chademo won't cut it. If there were to be a genuine battery breakthrough which produced competition which would have more capacity and charge at supercharger speeds, I would sell my TSLA.

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I disagree. Gen 3 will be an extremely compelling option vs traditional ICE cars. So other than perhaps a minority of customers who would fundamentally insist on the few remaining advantages of gasoline cars, almost every other automaker would be screwed before a miracle-battery car would impede Tesla. I highly doubt someone can develop this tech and produce enough volume to take over enough of the market to do so in the next three years. If some miracle battery breakthrough happens, it's actually likely to help speed the adoption of EV's (and thus EV infrastrucutre) and indirectly help Tesla.

Despite the OP asking to set aside the rose tinted glasses, it seems it is hard to get the fanboy out of the TMC poster . Competition or no competition it's all good it seems. Disclaimer : I was in TSLA but got out in 2013 because the stock frankly was too volatile/risky for my conservative investment goals. I stick around here because I like the tech so much that I want the company to succeed. Obviously I am emotionally a bit smarting about the upside that I did miss by getting out earlier, but rationally I know that was the right decision for me (and still is)

Personally I think execution is absolute key for Tesla. They have a unique product, they have the funding, the have the brand name, they have the plan and they have the experience. But their value as a stock (certainly at these levels) depends on moving beyond model S and X. Specifically becoming a mass producer of gen III cars. To do so they will have to take everything I named before that they have and execute on it. It seems simple, but, if we are honest, execution is hard and there are generally more ways to fail than to succeed.

As such I am looking for signs that show how well they are able to execute according to plan. The biggest key for me is "are they able to keep the pipeline full both in research, production and delivery". The evidence at this point is a mixed bag.

In the research department they are missing several features that have been promised but not delivered on or only after severe delays. There has even been some setbacks of where progress seemed to flow backward. Things like chademo, firmware updates and software capabilities. On the other hand supercharging seems on track and continuously improves (from 90 over 120 to 135).

Production as well has positive and negative signs. The number of cars the factory gets out is increasing steadily and grosso modo according to plan or even better. But on the other hand, some quality problems remain. There are still many reports here and elsewhere of people having their drivetrain or battery pack changed under warranty and that number does not seem to go down. On top of that, securing a supply of good battery cells seems harder than originally thought. To get the increase in energy density and the decrease in price, Tesla had to enter the battery production game themselves. That means a loss of management focus and even larger funding needs than if it could just source them from competing manufacturers.

Lastly, delivery of cars to customers means two things. One winning enough customers in the first place and secondly getting the cars in their hands. The unique selling method of Tesla has proven itself exceptionally well. It gives the company flexibility and the ability to control its customer perceptions from sale to after sale (and the reviews are generally raving). Going forward I only want to see how well Tesla will execute in an environment where they need to advertise instead of having customers come by. I have no idea how the company will perform. Secondly getting the cars in their customers hands follows plan. Every new market they open there are slight delays but nothing to worry about.

My biggest sign if I still was in this company, would be model X slipping. If it slips a few months, that's to be expected. If it starts slipping more than that or the ramp up in model X production/delivery isn't significantly faster than the ramp up for model S was that could point to problems in their execution that might carry forward for gen III.

I echo the points of view about compelling competition being a good sign, and possibly even a necessity for Tesla's long term health.

The personal 'metric' that I'm using to monitor my long term "buy and hold it forever" investment in Tesla is based on the degree to which the various pundits, both short and long, understand the paradigm shift associated with owning and driving an EV on a daily basis. Whether short or long, as long as most of the articles I read reveal ignorance of the nature of the paradigm shift, then my investment thesis holds. As those articles and reporting begin to shift, and exhibit better understanding of the paradigm shift, that's where I believe the value in the Tesla investment will start to shift. That doesn't mean I'm exiting at that point, but it will be time to reconsider.

I guess I'm saying that the serious investment value in Tesla comes from the disconnect and misunderstanding in the press and amongst financial analysts about the EV paradigm shift, and that creates the mismatch in expectation of how the company will perform, that creates the investment opportunity I can take advantage of.

To reinforce the point, I ignore pundits that are long Tesla as completely as pundits that are short when they exhibit ignorance of the paradigm shift.


I'm also keeping an eye on how Tesla is executing, but history of the work Tesla produces has me feeling good on this front. This is one of many minor secondary considerations (today) for me. Within this bucket, product and other delays are something I'm keeping an eye on. In general, delays in delivery aren't an investment concern for me. I do worry about it, but as long as the shipping product(s) are well received, then taking longer to get new products right is more important to me. I realize that I could be wrong about this view of things, but it's how I see and think about product delays.

(As Model X reservation holder, I have a different view of the Model X release schedule - that's for another forum!)

schonelucht said:

Despite the OP asking to set aside the rose tinted glasses, it seems it is hard to get the fanboy out of the TMC poster . Competition or no competition it's all good it seems.

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I don't think someone who is a fan of the company necessarily excludes them from making a rational and intelligent conclusion. With regards to competition, I've voiced my opinion above that it's a definitely a factor that may affect Tesla's business, but not likely in a meaningfully negative way once Gen3 comes around.

I do agree with a lot of the risks you mentioned, especially with regards to longer term vehicle repair outlook. That is one of the biggest single risks to the whole story.

However, I don't think MX delays are a bellweather for the company's execution. There are possibly some very good reasons to do so intentionally (MS demand stronger than intended, perfecting the details to optimize before production, etc). I also don't think a half year delay in MX necessarily pushes out Gen3 timeline by 6 months, a lot of it happens in parallel and the key ingredient for Gen3 to come to fruition is the gigafactory, which they are pushing forward aggressively.

And in the bigger picture the risky business pivot to oversee the battery cell production could end up being a huge business advantage, if successful. My view is that it took far more business acumen and execution ability to get Tesla from Roadster -> Today than Today -> Gen3, and the talent is arguably stronger than ever.

I respect that Tesla is definitely not the right risk and volatility profile for your (and a lot of other investors') portfolios, but I think it's possible that an intelligent investor can still rationally come to conclusion that an investment Tesla may be worth the risk/reward. The fact that the investor may also be, or become, a fan does not necessarily invalidate his rational conclusion. So I think it's unfair to say all fans have irrational rose-tinted glasses (but hey, I admit I may be one ).

For me a change to long term holdings (with caveat that there may be some trading ins and outs)

1. valuation increases to point where sales over next 3 years will not catch up. For example, currently the market cap is ~$25B and the guidance is for 35k cars at ~ $100k each or $3.5B, if next year sales are 50k for sales ~$5B and 2016 is 75k for ~$7B (all without gen3) then I am comfortable paying 7 times today for something that I would expect go to 5x next year and 3.5x the year after - will substantial growth possibility beyond 2016. Of course any sort of earnings multiple will seem expensive currently, but I expect that the company with "grow" into the valuation and then beyond.

2. Model X is a dud - see above

3. Substantial delay to GF - see #1 f

4. Competitor coming up with 200mile vehicle based on a battery that is more advanced than Tesla's and sub $50k price point

5. Substantial failure rate in battery or motor that does not get corrected / potential for significant flaw in underlying technology (unlikely at this point, but still somewhat unknown based on no official data on these issues)

schonelucht said:

My biggest sign if I still was in this company, would be model X slipping. If it slips a few months, that's to be expected. If it starts slipping more than that or the ramp up in model X production/delivery isn't significantly faster than the ramp up for model S was that could point to problems in their execution that might carry forward for gen III.

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Model X production has already slipped a year.

My evaluation point regarding what to do with my TSLA position has always been when Gen III hits the market. What I expect to see (massive orders) vs. what I actually see will dictate where I go from there. Until then, I hold.

If anything negative happens between now and then that causes the price to plummet, I'll just buy more.

There is bias from both sides. The question is who's got it right. IMO, Model X development is far enough along that it is not a big concern for me.

For me as a long term investor, the biggest risks are:

1. Delay in ramping up production. This includes the current ramp of Model S and X (which has been progressing but has not been stellar) as well as the gigafactory development in order to meet long-term production needs.

2. Drying up demand. (unlikely based on current trends)

3. Departure of Elon Musk. (very unlikely but possible if there is some unexpected event)

One thing I feel doesn't get enough attention is that the market is severely underestimating Model S and X demand. I consider the 20k each for NA/EU/Asia to be a very lowball target and they can easily exceed that in all 3 regions. China was a wildcard, but is now appearing to be a home run, but the market has not valued this into the stock price. The real demand for Model S and X is at least 200k annually.

I'm sure I have my biases, but I don't worship companies or follow blindly. A company I invest in has to earn and keep my trust.

I think most people here are similarly level-headed.

bonnie said:

My evaluation point regarding what to do with my TSLA position has always been when Gen III hits the market. What I expect to see (massive orders) vs. what I actually see will dictate where I go from there. Until then, I hold.

If anything negative happens between now and then that causes the price to plummet, I'll just buy more.

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I have to agree with Bonnie 100%. This is exactly how I have felt since I bought stock in 2012.

$400 and I'll be happily out!