Articles/megaposts by DaveT

[DaveT]

But if you are really that confident in your price projections for TSLA would it not be better to buy Jan 16 calls on margin, even including taxes? Or are you afraid of wild swings on the way?

When TSLA dipped into the 120s (from $194) I could have sold my shares and paid long-term capital gains taxes (over 33%) and then bought Jan16 calls, but when Jan16 came along and I needed to sell those calls I would have to pay another 33%+ for long-term capital gains. That's a hefty sum to pay. Further, there's always the chance that we hit a recession or a rough spot with TSLA when the Jan16 options expire (Articles/megaposts by DaveT - Page 11). If I didn't have to pay the 1/3 taxes, then I would have taken that risk. But paying 1/3 taxes changes the game for me. I'm projecting Jan16 stock price to be between $300-430, but if sentiment is bad and there's some execution error (ie., major recall) I can see TSLA being at $240/share.

Here's how I was viewing the risk/reward.

Let's say someone sold 5000 shares (note: this isn't the amount I'm holding but just an arbitrary number for this example) back in Nov13 for $125/share. Then, he bought Jan16 200 strike calls (230 contracts) at $20. In a bad scenario where TSLA ends up at $240/share in Jan16, this person would actually have been better off just holding the 5000 shares.

Now, let's compare that to the same example but if TSLA ends up at $350/share on Jan16. This would be a big win for the person compared to just holding 5000 shares.

However, $350/share on Jan16 is a good scenario and it's tough to count on it. You need to factor in TSLA volatility and the risk that it could be much lower (ie., $240/share). Obviously it could be higher than $350/share on Jan16 as well. But let's look at an "average" scenario where TSLA ends up at $300/share on Jan16.

Now at $300/share on Jan16, this person would be in a similar situation as if they would have just held on to the 5000 shares. Maybe they'd be a bit better off since it would be $1.541m post-tax while holding shares would be $1.5m pre-tax. But nevertheless, $300/share is kind of the "break-even" point where it would have been better to convert shares into Jan16 LEAPs in Nov13.

However, that's a lot of risk to incur where you're needing the stock to be at $300/shares or more to make it more appealing than just holding shares.

Let's compare this to a scenario where this person buys 2000 shares on margin.

There's a lot less possible reward (440k pre-tax gain if stock goes to $350/share) but also a lot less risk compared to Jan16 calls, since at $240/share this person still nets a $220k gain pre-tax).

I think it depends on your risk/reward profile and what the person is trying to achieve. But in my case, the risk/reward ratio is significantly less appealing when you need to pay 33% tax on your stock gains before you purchase the Jan16 calls. If I had my shares in an IRA or tax-deferred account, then I do think the risk/reward ratio would have been super compelling and I would have converted all (if not most) of my stock shares into Jan16 LEAPs in Nov13.

 

[DaveT]

The example above highlights where high taxes can alter the risk/reward ratio on an investment decision.

Now, let's look at the same example but let's say the person has 5000 shares in a tax-deferred IRA account.

He sells 5000 shares in Nov13 for $125/share and buys 230 contracts of Jan16 200 strike at $20. You can see that even in a "bad" scenario (ie., stock price at $240/share in Jan16) he still comes out ahead compared to just holding the 5000 shares.

And now let's compare it to a "good" scenario where TSLA is at a $350/share price in Jan16. You can see his final amount is $3.45 million compared to "just" $1.2 million if he had held his 5000 shares. (A "most excellent" situation of the stock at $400+/share would result in even a more impressive gain.)

This is why if I had my shares in a tax-deferred account I would have sold all (if not most all) my shares and converted to Jan16 calls. The risk/reward ratio would have been very favorable IMO, and I probably even could have lowered the risk by buying lower strike Jan16 calls (ie., 180 strike). But in a taxable account subject to high taxes, it radically changes the game and makes it much more precarious (note: a taxable account subject to low taxes (ie., 15%) would be another story).

 

[Johan]

Nice of you Dave to put numbers on that risk/reward concept. That long term vs. short term tax thing you have in the US adds another level of complexity to these situations. We here just have a 28% capital gains tax, period.

 

[DaveT]

#2 The Three Stages - TSLA 2.0 (The Case for TSLA at $2000-3000 by 2030)

(This is post #2 in a series laying out my TSLA investment thesis.)

In my last post I shared about how early TSLA investors pulled the trigger to buy shares while TSLA was still below $35/share. I’m going to call this “first stage” of TSLA investing as TSLA 1.0. In this post I’ll share more about TSLA 1.0, introduce TSLA 2.0, and share why I think it was difficult for TSLA 1.0 investors to hold on to their shares.

TSLA 1.0 was basically Tesla Motors on track to deliver 20k Model S units and 15k Model X units annually, while eventually selling Gen3 at a few hundred units a year with a $43 billion market cap by 2020. The Elon Musk CEO incentive plan in 2012 shares a roadmap;: (Tesla Motors - Quarterly Report)

Elon Musk would earn 5+m shares if certain milestones were met. “Each of the ten vesting tranches requires that the Company meet a combination of operational milestone achievements and a significant increase in our market capitalization of $4.0 billion. For example, if our average market capitalization for the 30 trading days prior to the Effective Date is $3.5 billion, the first tranche would only vest when we more than double our market capitalization to $7.5 billion and at least one of the operational milestones described below is met. The second tranche would vest only if there is another $4.0 billion increase in our market capitalization to $11.5 billion and when two of the operational milestones described below are met. The remaining tranches are structured in a similar manner, so that the CEO Grant would be fully vested when we achieve a market capitalization of $43.5 billion and all ten operational milestones described below have been achieved.”

The ten operational milestones for the CEO Grant are:
• Successful completion of the Model X Engineering Prototype (Alpha);
• Successful completion of the Model X Vehicle Prototype (Beta);
• Completion of the first Model X Production Vehicle;
• Successful completion of the Gen III Engineering Prototype (Alpha)
• Successful completion of the Gen III Vehicle Prototype (Beta);
• Completion of the first Gen III Production Vehicle;
• Gross margin of 30% or more for four consecutive quarters;
• Aggregate vehicle production of 100,000 vehicles;
• Aggregate vehicle production of 200,000 vehicles; and
• Aggregate vehicle production of 300,000 vehicles.​

Let’s see how this would look like in a chart. This chart shows TSLA growing 35 points every year starting 2012 (commencement of Model S production). By doing so, TSLA 1.0 would reach $43 billion market cap when the stock price is roughly $300/share or in 2019.

This was the expectation/hope for early TSLA investors, namely that Tesla would someday achieve status as a legitimate non-niche auto maker with a market cap of $43 billion or more. In other words, the expectation/hope was to someday be as valuable as Ford or GM.

However, this is not to say that some investors had bigger expectations for Tesla. But in 2012 or earlier, there was so much chatter about the possibility of Tesla going bankrupt that for most investors they’d be very happy with a 10x return on their investment in 7 years.

Now something happened in 2012 that drastically altered TSLA 1.0. In short, Tesla produced a stellar product that was better than expected. In 2012 it started to become evident to some people that Tesla could surpass their goals of TSLA 1.0 (ie., $43 billion market cap in 8-10 years) and become a much larger auto maker, maybe eventually become as valuable as a Honda, VW or Mercedes. However, in 2012 the stock price was still depressed and there was a battle in the media over whether Tesla would survive as a company or not.

Then, on April 1, 2013 Tesla released a press release that they would be profitable in Q1 (Elon Musk had tweeted as well earlier), Tesla Model S Sales Exceed Target (NASDAQ:TSLA). This basically started the end of the idea that Tesla would go bankrupt and started to seal in people’s mind that TSLA 1.0 could become a reality.

However, on May 8, 2013, Tesla released the Q1 earnings (GAAP profitable, GM 17%, etc) and mentioned that U.S. demand would exceed 15,000 units a year for the Model S and global demand would likely be above 30k units/year.

Wait a minute. TSLA 1.0 plans were that the Model S would sell 20k units a year globally. But here’s Tesla sharing that Model S demand is above their initial projections. By how much? By at least 50%. But could and probably would be more.

So, here’s the dilemma. If demand for the Model S is 50-100% more than initially projected then what does that do to these TSLA 1.0 stock price projections?

It basically means that these stock price projections are too conservative. 50-100% more demand, means 50-100% more revenue, which means faster growth, potentially more profit and more momentum to reach a much bigger Gen3 market than originally expected.

So on May 8, 2013, TSLA 2.0 was birthed. All TSLA 1.0 projections were in a moment showed to be too conservative and TSLA would be on a new, more steep trajectory. It would sell more cars than originally expected, grow faster, and be worth more.

So, here’s how TSLA 2.0 looks like on a chart.

Now the assumption is that TSLA would grow 70 points every year (vs 35 points/year in 1.0) and could reach a $80 billion market cap in 2019.

But as TSLA 2.0 was launched many early investors were still stuck in TSLA 1.0 mode/mentality. When the stock price shot up past their expectations and far quicker than what was comfortable (ie., TSLA 1.0 chart), they started to assume/conclude that the stock price was too high and that TSLA would dip back to reality later. But they didn’t realize was that the TSLA 1.0 that they had invested in was no longer existing, and that it had morphed into a much sexier company as TSLA 2.0 that would command a much higher stock price.

One of the reasons I was able to hold and accumulate more shares during this time was because I started to catch that TSLA 2.0 was coming in 2012 (btw, others caught this as well). The light went on for me after I test drove the Model S in early November 2012. The Model S was drove/performed better than my already-super-high expectations. I could hardly believe it. Right then, I knew that TSLA 1.0 expectations were going to be too conservative and I knew demand would be higher than Tesla's expectations (which would lead to greater revenues, greater profit, faster growth, more momentum). That was why I was expecting TSLA to blow past $100 and onto $150+ by the end of 2013.

As some early TSLA 1.0 investors started to sell their shares, new TSLA 2.0 investors started to join in. Their expectations were not $43 billion market cap in 8-10 years (TSLA 1.0 expectations), but their expectations were much higher. It wasn’t about challenging GM or Ford’s market cap in 8-10 years (ie., $40-50 billion), but it was about challenging Mercedes, BMW, Honda, or VW’s market cap in 8-10 years ($60-100 billion).

The past year+ we’ve seen a struggle as the investment mentality around TSLA shifted from 1.0 to 2.0. Nowadays, it’s clear that TSLA is headed on a trajectory that’s steeper than what was initially outlined in the 2012 CEO incentive plan.

But on March 23, 2014 Tesla announced the Gigafactory that would change the outlook of TSLA once again and introduce a new paradigm/stage for TSLA, namely TSLA 3.0, and would start a new struggle for TSLA 2.0 to hang on to their shares just as TSLA 2.0 presented a struggle for TSLA 1.0 investors.

But before I go into what TSLA 3.0 is, I’ll pause for now and allow some discussion to take place.


(Edit: corrected Gigafactory announcement date)

 

[austinEV]

DaveT: Awesome. Reading with great interest. I feel I should point out books have been written with less research. You could contract a ghost writer and write a non-fiction entrant on a topic with high current interest. But, by all means get it out here and let us do your editing for you

 

[TSLAopt]

Thanks DaveT, this is a good episode...I agree that 3.0 is upon us and will be curious to see how you classify 3.0.
the shift from 1.0 to 2.0 I think was most easily evident to any of us who both own the car AND study the company/stock very carefully.

what was tricky about it is that so many knowledgeable people in the media were saying over and over it is a bubble and over-valued that it made it very easy to second guess ourselves and panic, especially in its volatility which only heightens emotions/panic.

However, what I realized most importantly is that these people in the media saying the stock is a bubble all had one thing in common ---> none of them owned an S and in most cases none of them never even test drove an S...
they would even say things like "It's an amazing car but can't justify its valuation or stock price because...." One big fault of all these analysts/bears is they then compare the product (S) and the company (Tesla) to other cars and car companies as if it was apples to apples so they could use their same models/formulas they use for I other cars and car companies on the S and Tesla.


Also, I have realized that as Tesla delivers more and more cars there are more and more 2.0 and 3.0 investors being born each week...my friend and I both have an S and use the SuperChargers occasionally and have been keeping an informal poll anytime we see another owner at a Supercharger we ask them 1)are you an investor? And 2)did you reserve the X?
So far the sample size is still very small (more than 5 but less than 10) but it's about 50% for #1 and we just are just starting to ask #2.

 

[techmaven]

Fantastic post, Dave.

I'm thinking about it after your post, and I'm not sure we're on a TSLA 3.0 yet. In some ways, Gigafactory is a necessary part of making TSLA 2.0 a reality. In order to hit TSLA 2.0 2020 target, Tesla would have had to secure the cell supply one way or another. Doing it themselves with the help of Panasonic is maybe TSLA 2.5, but maybe I'm cutting too fine of a point.

In any case, the fascinating issue in my mind is access to capital. Tesla's growth to a super bull is bounded only by the capital they can obtain. There is always execution risk, but the big boundary is capital, either through sales, financing, or secondary share offering(s). It would be interesting to plot potential scenarios based on the limits of capital. On the other hand, maybe this is all only making sense in my mind because my mind is currently mush after working way too many hours and driving too many hours in the past few days.

 

[c041v]

I think this is becoming my favourite thread. I am really kicking myself now for not having paid attention and studied things a little bit more. I was fortunate enough to drive my first S in December 2012, and I drew the same conclusions as DaveT. The problem was, my investor maturity was still quite adolescent, and I had no idea how to react to the massive (to me) balance in my trading account. I got scared after Q3 '13, and sold. I was smart enough to get into LEAPs, but I will forever regret selling my shares. Trying to learn about options at the same time wasn't helping matters.

Looking forward to all of the future posts.

 

[austinEV]

Fantastic post, Dave.

I'm thinking about it after your post, and I'm not sure we're on a TSLA 3.0 yet. In some ways, Gigafactory is a necessary part of making TSLA 2.0 a reality. In order to hit TSLA 2.0 2020 target, Tesla would have had to secure the cell supply one way or another. Doing it themselves with the help of Panasonic is maybe TSLA 2.5, but maybe I'm cutting too fine of a point.

In any case, the fascinating issue in my mind is access to capital. Tesla's growth to a super bull is bounded only by the capital they can obtain. There is always execution risk, but the big boundary is capital, either through sales, financing, or secondary share offering(s). It would be interesting to plot potential scenarios based on the limits of capital. On the other hand, maybe this is all only making sense in my mind because my mind is currently mush after working way too many hours and driving too many hours in the past few days.

I agree about the capital constraint. If you concede the Tesla Bull-case assumptions of high quality cars, practically endless demand, and continuing battery improvements, the whole story will boil down to the acquisition and deployment of capital. We need to start modelling the building of battery and car factories. I think self-financing doesn't get a very fast growing capacity curve. This is where the smart Bear case lies. To get to where they are a minor player in absolute delivery numbers there must be some secondary offerings along the way. The new smart Bull case must therefore counter this. How is capital not a concern? I think the answer must lie in the redeployment of existing factory capacity, but I sense that Tesla doesn't want to do this.

 

[DaveT]

However, what I realized most importantly is that these people in the media saying the stock is a bubble all had one thing in common ---> none of them owned an S and in most cases none of them never even test drove an S...
they would even say things like "It's an amazing car but can't justify its valuation or stock price because...." One big fault of all these analysts/bears is they then compare the product (S) and the company (Tesla) to other cars and car companies as if it was apples to apples so they could use their same models/formulas they use for I other cars and car companies on the S and Tesla.

I definitely agree. Those who were early owners and those who test drove the car early definitely had an advantage. I was fortunate to have had an interest in performance cars prior to investing in TSLA and I had test-driven dozens of fast/performance cars. So when I test drove the Model S in late 2012, I had very, very high expectations. But the Model S blew those super high expectations away. There's something about how it accelerates quietly yet super fast, handles well, feels planted, and all the tech just works. I remember driving a supercharged BMW M3 and when I floored it, my wife and I exclaimed that it felt like "the hand of God" was behind us. There wasn't any other way to describe it. With the Model S (Performance), it was like the "hand of God" behind us but only quieter and more elegant. The more a person experiences the Model S, the clearer the see and understand the imminent demise of the ICE.

- - - Updated - - -

... I had no idea how to react to the massive (to me) balance in my trading account.

Yeah I stopped looking at my accounts/balance a long time ago. I also separated my holdings into 3-4 different brokerages so I it's more difficult to get a total value amount.

- - - Updated - - -

I'm thinking about it after your post, and I'm not sure we're on a TSLA 3.0 yet. In some ways, Gigafactory is a necessary part of making TSLA 2.0 a reality. In order to hit TSLA 2.0 2020 target, Tesla would have had to secure the cell supply one way or another. Doing it themselves with the help of Panasonic is maybe TSLA 2.5, but maybe I'm cutting too fine of a point.

Actually, I'll explain my thoughts on TSLA 3.0 in a later post. But right now we're predominantly in TSLA 2.0, IMO. It's just that the concept/vision of TSLA 3.0 was seeded with the Gigafactory announcement (ie., TSLA 3.0 is about many Gigafactories supplying millions of Gen3 and beyond cars).

In any case, the fascinating issue in my mind is access to capital. Tesla's growth to a super bull is bounded only by the capital they can obtain. There is always execution risk, but the big boundary is capital, either through sales, financing, or secondary share offering(s). It would be interesting to plot potential scenarios based on the limits of capital. On the other hand, maybe this is all only making sense in my mind because my mind is currently mush after working way too many hours and driving too many hours in the past few days.

I agree about the capital constraint. If you concede the Tesla Bull-case assumptions of high quality cars, practically endless demand, and continuing battery improvements, the whole story will boil down to the acquisition and deployment of capital. We need to start modelling the building of battery and car factories. I think self-financing doesn't get a very fast growing capacity curve. This is where the smart Bear case lies. To get to where they are a minor player in absolute delivery numbers there must be some secondary offerings along the way. The new smart Bull case must therefore counter this. How is capital not a concern? I think the answer must lie in the redeployment of existing factory capacity, but I sense that Tesla doesn't want to do this.

I actually disagree with the capital constraint. I think Tesla can raise as much money as they want and the stock would only go higher. Here's my reasoning. The reason for Tesla to raise money would be basically for two reasons:
1. To build more gigafactories
2. To build more car factories (ie., Asia, Europe, Texas, etc)

So, if they raise more money for either of these purposes, it means that they're expanding supply aggressively which means that they are growing and growing fast (ie., faster revenue growth, earnings, etc). So, if/when Tesla needs to raise more money for more gigfactories/car-factories, I see investors only getting excited about it and not penalizing the stock at all. In fact, it makes Tesla even more sexy as a stock and gives more credence to their growth trajectory.

The way I look at it, as long as Tesla keeps executing well and demand for their cars remain super high, Tesla can raise basically unlimited amounts of capital with little to no negative impact on the stock (probably the impact would be positive to the stock price). When people see the Gen3 reservation numbers, investors will be begging Tesla to raise more money and people will give it to Tesla at very attractive rates/terms.

Another factor is that as long as Tesla keeps growing/executing and demand for Gen3 is high, Tesla can continue to issue convertible notes that mature 5-7 years later and they can limit dilution with hedge transactions.

 

[austinEV]

I actually disagree with the capital constraint. I think Tesla can raise as much money as they want and the stock would only go higher. Here's my reasoning. The reason for Tesla to raise money would be basically for two reasons:
1. To build more gigafactories
2. To build more car factories (ie., Asia, Europe, Texas, etc)

So, if they raise more money for either of these purposes, it means that they're expanding supply aggressively which means that they are growing and growing fast (ie., faster revenue growth, earnings, etc). So, if/when Tesla needs to raise more money for more gigfactories/car-factories, I see investors only getting excited about it and not penalizing the stock at all. In fact, it makes Tesla even more sexy as a stock and gives more credence to their growth trajectory.

The way I look at it, as long as Tesla keeps executing well and demand for their cars remain super high, Tesla can raise basically unlimited amounts of capital with little to no negative impact on the stock (probably the impact would be positive to the stock price). When people see the Gen3 reservation numbers, investors will be begging Tesla to raise more money and people will give it to Tesla at very attractive rates/terms.

Let me rephrase. The bull case will be some form of what you have said, that the past will replay and additional offerings will be positive with investors and not hurt the stock's valuation. That has certainly been the history. The bear case would show there is just too many billions needed between here and there to make sense. I am not turning bearish here at all. But I think we would do ourselves a favor by modelling such capital raises and factory building and coming online. Call it the 2020 and beyond Tesla. Also, probably post-Elon Tesla. It is a long way away, but is a stage we need to be thinking about. I am all talk, I don't have a factory capacity model in my pocket; I just wish i did.

The one, tiny, niggling fear I have for long term investment is that Elon is looking to cross a certain finish line in 2018, or 2019 when Gen III is selling 500k units a year (or whatever milestone you want to use) and he will check out and focus on spaceX. In the intervening years we need to see new factory capacity dovetailed in with the existing plan. If they wait until 2018 it will be too late to keep output growning. The plan so far is great, the gigafactory addresses the main glaring factory issue. But sometime between now and gen III we at least need to be hearing about the next car factory.

This is hardly a crisis and we TMC nerds have years to work all this out

 

[DaveT]

Alright, let me give some more specifics/numbers on why I think raising capital (and dilution) won't be a big issue for Tesla in years to come.

Here's a chart of how Tesla can raise enough capital to build 21 gigafactories and 21 car factories by 2028. Now, we're going to assume that they can raise convertible notes that mature in 7 years and that they will hedge dilution via hedge transactions (ie., basically buying OTM option calls to act as hedge against dilution). Since the convertible notes don't mature until 7 years, it's not until 7 years after the capital is raised until dilution factors in. And when dilution happens, TSLA will be at a much higher valuation/stock price than 7 years prior so the dilution will be minimal. Sure, there will be dilution and that's inevitable but it's a small price to pay for fueling your growth into becoming one of the largest/most valuable companies in the world (hint: this is TSLA 3.0 talk).

Here's a few more notes on this chart. Since dilution will happen 7 years after the convertible note is raised, then I'm factoring TSLA stock price to double in 7 years (ie., 2025 stock price is double of 2018 stock price). So for the money raised in 2018, the dilution will happen in 2025 at 2025 stock price. In other words, dilution will be half compared to if they did a typical secondary offering in 2018 at the 2018 stock price. This way they'll be able raise a ton of money with half the dilution that a normal secondary would entail.

Edit: I personally think that there will be less dilution than the chart shows and the stock price will be higher as well, but these numbers are for illustration.

 

[JRP3]

The one, tiny, niggling fear I have for long term investment is that Elon is looking to cross a certain finish line in 2018, or 2019 when Gen III is selling 500k units a year (or whatever milestone you want to use) and he will check out and focus on spaceX.

Remember that while Elon has said he will likely step down as CEO at some point he plans to always be involved with Tesla in some capacity. He originally did not intend to be the CEO.

 

[austinEV]

Alright, let me give some more specifics/numbers on why I think raising capital (and dilution) won't be a big issue for Tesla in years to come.

Well done. You answered the question better than I could pose it so I will shut up and listen. Apologies for getting ahead of your lesson plan.

Side note not needing answering: I wonder if we would ever see ICE plants being sold to TM... The environmentalist in me hates to see greenfield construction when factories are inevitably shuttered, but I sense that the "savings" would be minimal and TM would want to build factories designed by them. (I am aware Fremont was a GM/Toyota factory, but it is also not ideally configured).

 

[Auzie]

Well done. You answered the question better than I could pose it so I will shut up and listen. Apologies for getting ahead of your lesson plan.

Side note not needing answering: I wonder if we would ever see ICE plants being sold to TM... The environmentalist in me hates to see greenfield construction when factories are inevitably shuttered, but I sense that the "savings" would be minimal and TM would want to build factories designed by them. (I am aware Fremont was a GM/Toyota factory, but it is also not ideally configured).

It is expensive to convert long established manufacturing plants to a different purpose plant. The conversion often results in compromises that add to running costs. There might be some savings if buildings layout is adequate for the new purpose, infrastructure is good enough and some machinery might be good enough for reuse.

With greenfield plants, there are no layout design restrictions, infrastructure inadequacies that need costly corrections, legacy problems etc.

Cost benefit analysis of conversion vs greenfield, on a case by case basis, would determine the outcome.

 

[Auzie]

Alright, let me give some more specifics/numbers on why I think raising capital (and dilution) won't be a big issue for Tesla in years to come.

Here's a chart of how Tesla can raise enough capital to build 21 gigafactories and 21 car factories by 2028.

Here's a few more notes on this chart. Since dilution will happen 7 years after the convertible note is raised, then I'm factoring TSLA stock price to double in 7 years (ie., 2025 stock price is double of 2018 stock price). So for the money raised in 2018, the dilution will happen in 2025 at 2025 stock price. In other words, dilution will be half compared to if they did a typical secondary offering in 2018 at the 2018 stock price. This way they'll be able raise a ton of money with half the dilution that a normal secondary would entail.

Great analysis Dave, thank you for preparing and sharing it.

My only concern is that the analysis assumes best case scenario, with no new counter forces at play in the future.

It is difficult, if not impossible, to account for some yet unknown trajectory changing forces, but it might be wise to discount your projections a bit for few 'spanners in the works' thrown in by fate.

One counter force that is almost certain to happen is market downturn. Market downturn is likely to have major impact on Tesla. We just do not know when it will happen.

Some other difficult to predict events might negatively impact Tesla trajectory.

If there were no possibility of these negative forces, there would be no risk to investing in Tesla.

I see a risk in executing on growth. Tesla team is moving to (for them) uncharted territory. It takes different skill set to build factories around the world to what they have been doing by now. They have proven their skills to build great car, they have yet to prove themselves in building multiple efficient factories in various locations.

Market is likely to punish any execution hick up in this area.

Tesla team also increasingly have to prove themselves as being good employer. In order for Tesla to thrive (or survive) there are many trade offs and judgements that must be made in respect of employees, every day. To make these judgements wise ones, Tesla must strike the right balance and achieve equilibrium between employees who are a liability and an asset at the same time.

So far execution was exceptional. I personally never sold any of my core shares position, just kept adding to it in both shares and leaps. That speaks about my risk evaluation at this stage.

If I see any blunders, I will start getting out.

 

[AlMc]

Dave, Great posts with detailed analysis/reasoning. I will echo Auzie's thoughts on macroeconomic events perhaps being of some concern that are difficult to predict but can cause some real problems for your projections. In addition, while most on TMC, including me, feel that TM has a nice first disrupter moat I do not know how competition will affect your model. While ICE manufacturers in the US may never catch up, I do believe we will see some compelling vehicles coming to market from Nissan and the Germans (who pride themselves on innovation). I think BMW and MB have the capital, the 'brand name' and eventually the will to be formidable competition in 5-7 years.

You are much more (and better at) analysis than I, but I do not see some of the profitable ICE makers going down without a fight.

I am very bullish on TM/TSLA over the next 3-5 years (your stage 2) but am less so farther out.

 

[chickensevil]

Dave, Great posts with detailed analysis/reasoning. I will echo Auzie's thoughts on macroeconomic events perhaps being of some concern that are difficult to predict but can cause some real problems for your projections. In addition, while most on TMC, including me, feel that TM has a nice first disrupter moat I do not know how competition will affect your model. While ICE manufacturers in the US may never catch up, I do believe we will see some compelling vehicles coming to market from Nissan and the Germans (who pride themselves on innovation). I think BMW and MB have the capital, the 'brand name' and eventually the will to be formidable competition in 5-7 years.

You are much more (and better at) analysis than I, but I do not see some of the profitable ICE makers going down without a fight.

I am very bullish on TM/TSLA over the next 3-5 years (your stage 2) but am less so farther out.

His 21 factories is only a little more than 10 million cars a year. That would simply put them on the level with where Toyota is today. Since the car market is still growing, it is likely by that time Toyota could be at 15 or 20 million. It is also pretty fair to assume that not every car maker will successfully make the transition to EVs (or possibly hydrogen if that manages to take hold... hope not... but it could happen). Keep in mind that there outside of the biggest players we have heard nothing from some of the medium to small car companies.

So far the only ones with any real plans that I think can of off the top of my head: BMW and Nissan... (excluding Chinese and Indian since I am not familiar enough with those countries). On the other hand you have Toyota, Hyundai, and I think Honda (not sure) pushing in the HFCV direction... where is everyone else? Sure you have Ford, GM, and Daimler pushing out half baked EVs... but that seems like compliance more than anything...

I really do not think that all car companies are going to be able to stay afloat through that same 2028 timeframe... and a lot of buyouts and bankruptcies are coming.

 

[TSLA Siempre]

Dave, excellent posts. I'm enjoying reading this.

However, I'm still nervous about execution risk for the gigafactory. I think it is the single greatest factor to watch going forward. In fact, I think the tesla 1.0 story didn't even include the gigafactory. My sense was that TM was hoping that after the big splash the Model S made, that other OEM's would start making EVs and battery makers would start building more factories themselves.

I think two things happened....the Model S was a bigger success than anticipated (as you've already established) and that the OEM's did not behave as expected. This resulted in TM becoming supply constrained much sooner than anticipated. So they had to build the gigafactory themselves.

Another problem, none of the projected scenarios can get to their eventual targets without the gigafactory. This is why it is so key. Tesla 1.0 becomes Tesla 0.7 without the GF. In fact, even though we might be on a Telsa 2.0 or 3.0 trajectory, without the gigafactory, they go all the way back to Tesla 0.7

If tesla can successfully execute on the gigafactory, then TSLA goes to the moon.

 

[DaveT]

Dave, Great posts with detailed analysis/reasoning. I will echo Auzie's thoughts on macroeconomic events perhaps being of some concern that are difficult to predict but can cause some real problems for your projections. In addition, while most on TMC, including me, feel that TM has a nice first disrupter moat I do not know how competition will affect your model. While ICE manufacturers in the US may never catch up, I do believe we will see some compelling vehicles coming to market from Nissan and the Germans (who pride themselves on innovation). I think BMW and MB have the capital, the 'brand name' and eventually the will to be formidable competition in 5-7 years.

You are much more (and better at) analysis than I, but I do not see some of the profitable ICE makers going down without a fight.

I am very bullish on TM/TSLA over the next 3-5 years (your stage 2) but am less so farther out.

TSLA 2.0 is about TSLA becoming one of the major manufacturers (ie., like a Honda, BMW, VW or Mercedes) but not the leading manufacturer, while TSLA 3.0 is about Tesla outdoing the competition and becoming the largest and most valuable auto company in the world. But I'll share more about TSLA 3.0 in later posts as I just started laying out the case for TSLA 2.0.

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His 21 factories is only a little more than 10 million cars a year. That would simply put them on the level with where Toyota is today.

Actually my illustration above for 21 giga and 21 car factories in 2028 is only using capital raised via convertible notes. This does not include money Tesla can use from their own profits/earnings to invest into factories, which obviously they will. So, the number of factories they can open by 2028 is much larger than the illustration above. Also, if EVs pick up like Elon is forecasting (1/2 of new car sales will be electric by 2030) then I don't see Toyota growing the car sales (ie, to 20 million/year) unless they become one of the leaders in EV sales because by 2030 their ICE sales will suffer big time.