Short-Term TSLA Price Movements - 2014

[SteveG3]

I'm pretty confident on TSLA's direction and the direction of EV in general, but I'd have a hard time putting faith in anyone's ability to guess the magnitude and speed of change over more than a few years out.

I think Elon said, a year or so ago, that he thought that within 10-15 years more than 1/2 of cars sold would be electric. How the heck does an analyst even being to come up with numbers in that sort of scenario? There are trillions of dollars of ICE/gas infrastructure across the globe and even if EV adoption explodes in 5 years, how could anyone make a good guess now where the bottlenecks will be and who will be hurt the most?

The ability to predict out very far is swamped by the chaos in the permutations.

Bingo. It's extremely hard to say what things will look like 10+ years from now. Though Tesla is a rare company that one can see a high probability they will have large growth opportunities in 10+ years, the shape of those opportunities is hard to call (ie what will be open in terms of future growth as an automaker, vs. grid storage, vs supplying drive trains to others, vs. TBD). As an analyst, once you've laid out a future scenario that justifies a buy rating, there's little upside, and much downside to sticking your neck out with more bullish detailed projections into the future.

Indeed, on the difficulty on calling developments 10+ years out, that remark from Musk is to me the most stunning reminder that even with his tremendous intelligence, calling such far off developments with precision correctly is very unlikely. Here's what Elon said in 2012, that now looks very improbable (as I suspect he'd now agree if asked):

"Speaking on Friday, as he was handing over the keys to the first Model S buyers, Musk said: "In 20 years more than half of new cars manufactured will be fully electric... I feel actually quite safe in that bet. That's a bet I will put money on."
According to Reuters, Musk said, "It's probably going to be in the 12- to 15-year time frame.""

Tesla CEO Elon Musk: Half Of New Cars Will Be Electric In 15-20 Years

 

[jhm]

If Tesla is forced to intervene in the interest of shareholders, then it can issue conservative guidance or other well considered information to investors. Winking at analysts is not a suitable form of shareholder communication. This should all be above board and professional.

Some have suggested that the factory down time may have been longer than expected. If so, the proper way to protect shareholders would be to inform them and set new guidance if there is to be a material impact. Sowing seeds of negative sentiment through indirect means does not benefit this shareholder.

 

[ecarfan]

Looks like a buying opportunity for those of us like myself who believe in Dave's 2.0 or 3.0 scenarios.

 

[SteveG3]

In his 2011 report he forecasts Tesla sales to be "just under 500k by 2025":

"We forecast that Tesla will have unit sales of 42k by 2015, 240k by 2020, and just under 500k by 2025. The lower-priced Gen 3 model range accounts for the vast majority of our volume growth projections from 2017, accounting for nearly two-thirds of our 2025 Tesla revenue projection."
​

It seems like he's always viewed Tesla's potential to be as a relatively small manufacturer. He did raise those numbers a bit in his Feb 2014 report (1.1 million units in 2028), but that's still relatively small as an auto manufacturer.

Today he just reaffirmed his beliefs.

Dave, I think Jonas saying in 2011 Tesla would produce 500K vehicles was at the risk of being treated as a "joke" by the rest of the investment world. In 2011 that was an extremely bullish report.

What's more, what you've shared from the February 2014 report indicated he was suggesting grid storage and supplying drivetrains to other manufacturers could be worth an additional $180/share, or roughly $25 billion. A pretty bold thing to say, even if it's not his base scenario.

I don't think it's so much that Jonas has a timid vision of Tesla's potential, but rather he's not as convinced as you seem to be that Tesla's continued growth and increasing value is defined by reaching Toyota or GM like Tesla vehicle volumes. I think he's looking at multiple possibilities of future growth which he can not yet exactly say how they will play out (which I agree with), but he is confident enough that some combination will play out well enough to recommend the stock (which I also agree with). So, he creates and shares a model with his clients that substantiates his buy recommendation with bullish assumptions, but not committing himself to bullish vehicle sale volumes he's not sure will play out and are not necessary to justify a price target high enough to recommend the stock.

 

[ckessel]

"Speaking on Friday, as he was handing over the keys to the first Model S buyers, Musk said: "In 20 years more than half of new cars manufactured will be fully electric... I feel actually quite safe in that bet. That's a bet I will put money on."
According to Reuters, Musk said, "It's probably going to be in the 12- to 15-year time frame.""

I think 20 years is probably still a pretty safe bet.

A while back in one of these threads, someone posted a picture of downtown in New York (or some major city) comparing the same street 10 years apart back in the early 1900s. The first street had a ton of horse and cart and one car. 10 years later, it was all cars. Change will be swift once the tipping point hits and the chaos in the industry will be mind boggling. I may live the 30 years or so it'll take to see the final shake out.

 

[mershaw2001]

If Tesla is forced to intervene in the interest of shareholders, then it can issue conservative guidance or other well considered information to investors. Winking at analysts is not a suitable form of shareholder communication. This should all be above board and professional.

Some have suggested that the factory down time may have been longer than expected. If so, the proper way to protect shareholders would be to inform them and set new guidance if there is to be a material impact. Sowing seeds of negative sentiment through indirect means does not benefit this shareholder.

I agree strongly with this quote. I find it very inappropriate for Elon to be commenting on the stock price, especially when he has inside information that people can only speculate at. When he says it's hi, and he knows about the length of time spent retooling the line, does that mean he's taking this inside information into account? That seems quite inappropriate.

 

[SteveG3]

I think 20 years is probably still a pretty safe bet.

A while back in one of these threads, someone posted a picture of downtown in New York (or some major city) comparing the same street 10 years apart back in the early 1900s. The first street had a ton of horse and cart and one car. 10 years later, it was all cars. Change will be swift once the tipping point hits and the chaos in the industry will be mind boggling. I may live the 30 years or so it'll take to see the final shake out.

That picture is from the 2011 Jonas report... he was out in front on the magnitude of the opportunity.

I think it will take far more than 12-15 years, and probably far more than 20. I say this based on a simple calculation... if one gigafactory costs $5 billion, and produces batteries for 500K vehicles, it would take 200 GFs to produce batteries for the 100 million vehicle global production rate expected in 2020. That's $1 trillion. Unless China or the oil companies start spending hundreds of billions on this, I don't think we'll reach $500 billion spent on GF infrastructure (or likely some new form of energy storage by that point in time) to reach 50% of cars in production being EVs for decades. Perhaps China might do it.

 

[DaveT]

Dave, I think Jonas saying in 2011 Tesla would produce 500K vehicles was at the risk of being treated as a "joke" by the rest of the investment world. In 2011 that was an extremely bullish report.

What's more, what you've shared from the February 2014 report indicated he was suggesting grid storage and supplying drivetrains to other manufacturers could be worth an additional $180/share, or roughly $25 billion. A pretty bold thing to say, even if it's not his base scenario.

I don't think it's so much that Jonas has a timid vision of Tesla's potential, but rather he's not as convinced as you seem to be that Tesla's continued growth and increasing value is defined by reaching Toyota or GM like Tesla vehicle volumes. I think he's looking at multiple possibilities of future growth which he can not yet exactly say how they will play out (which I agree with), but he is confident enough that some combination will play out well enough to recommend the stock (which I also agree with). So, he creates and shares a model with his clients that substantiates his buy recommendation with bullish assumptions, but not committing himself to bullish vehicle sale volumes he's not sure will play out and are not necessary to justify a price target high enough to recommend the stock.

I look at it more like his vision of Tesla's potential (ie., 500k-1M units by 2028) was decent bullish pre-2013 since expectations and Tesla's market cap was so low. In other words, Adam Jonas had TSLA 1.0-1.5 expectations when the stock was at TSLA 0.5-1.0 levels.

But now the stock is no longer undervalued, and the stock is running off of high expectations (gravitating toward TSLA 2.0 expectations of Tesla becoming one of the major manufacturers). And this concerns Adam Jonas, since he doesn't believe Tesla is going to become a major manufacturer. He thinks they're potential is that of a small manufacturer.

I've bold-faced a few of his comments from today's note:
"We view Tesla as a niche player, not a mass manufacturer. We increasingly find investors with volume expectations far above our own on the basis of the gigafactory benefits to battery cost approaching levels as low as 100 per kWh. Our assumptions are nowhere near as high. In fact, our 371k number by 2020 may be amongst the lowest, if not the lowest, on the street. We believe the disparity comes from our views of progress of internal combustion technology. When we ask investors about their assumptions of ICE improvement, we rarely get an answer of any assumption. Elon himself has stated many times that the biggest competition for his EVs is the internal combustion engine. Moore's Law can help liberate BTUs too."

In other words, he's saying that he doesn't view Tesla as a "mass manufacturer" (I take that as one of the major auto manufacturers w/sales in the range of 3-10+M per year) rather he views them more niche (ie., 1M units by 2028). He states that others have higher volume expectations, but he reaffirms their low volume expectations for Tesla. And he gives the reason as his bullish view on ICE technology.

We all thought (or at least most of us) that Adam Jonas was a TSLA uber-bull who bought into the full electrification of vehicles, but in today's note he shares his ultimate conviction that he can't shake loose; namely that he is more confident in ICE technological progress than he is in TSLA.

In the words of my wife (today): "Today a fake uber-bull was revealed."

 

[Krugerrand]

I agree strongly with this quote. I find it very inappropriate for Elon to be commenting on the stock price, especially when he has inside information that people can only speculate at. When he says it's hi, and he knows about the length of time spent retooling the line, does that mean he's taking this inside information into account? That seems quite inappropriate.

*slaps forehead* That's NOT what Elon Musk said. Why do people insist on quoting him out of context? And he wasn't 'commenting' on the stock price per sa, he was 'answering a question' that was asked of him about the stock price. On the surface that may seem like semantics, but in the context you're using, it's not.

We all know at this point in time that when asked a question he's going to answer with something other than 'no comment'. Indeed, I don't think he's ever used that phrase even when he didn't want to comment on a specific topic. We're not always going to like what comes out of his mouth, but we should all be able to agree on the honesty of it. He's done nothing to date to suggest he's being shady (inappropriate) in any way.

 

[Twiddler]

IMO, any comment made by the CEO or other insider regarding the current stock price (semantics aside, that was the question asked), positive or negative, fairly priced or not, is inherently unprofessional given inside knowledge, outside of a formal declaration. Just as the "Tsunami of pain" comment, he should keep it to himself, or release it through appropriate channels. Elon imay be great, Elon may be honest, but I agree that commenting on the stock price just because he feels like it is not his inherent right, regardless of his motivations.

 

[SteveG3]

I look at it more like his vision of Tesla's potential (ie., 500k-1M units by 2028) was decent bullish pre-2013 since expectations and Tesla's market cap was so low. In other words, Adam Jonas had TSLA 1.0-1.5 expectations when the stock was at TSLA 0.5-1.0 levels.

But now the stock is no longer undervalued, and the stock is running off of high expectations (gravitating toward TSLA 2.0 expectations of Tesla becoming one of the major manufacturers). And this concerns Adam Jonas, since he doesn't believe Tesla is going to become a major manufacturer. He thinks they're potential is that of a small manufacturer.

I've bold-faced a few of his comments from today's note:
"We view Tesla as a niche player, not a mass manufacturer. We increasingly find investors with volume expectations far above our own on the basis of the gigafactory benefits to battery cost approaching levels as low as 100 per kWh. Our assumptions are nowhere near as high. In fact, our 371k number by 2020 may be amongst the lowest, if not the lowest, on the street. We believe the disparity comes from our views of progress of internal combustion technology. When we ask investors about their assumptions of ICE improvement, we rarely get an answer of any assumption. Elon himself has stated many times that the biggest competition for his EVs is the internal combustion engine. Moore's Law can help liberate BTUs too."

In other words, he's saying that he doesn't view Tesla as a "mass manufacturer" (I take that as one of the major auto manufacturers w/sales in the range of 3-10+M per year) rather he views them more niche (ie., 1M units by 2028). He states that others have higher volume expectations, but he reaffirms their low volume expectations for Tesla. And he gives the reason as his bullish view on ICE technology.

We all thought (or at least most of us) that Adam Jonas was a TSLA uber-bull who bought into the full electrification of vehicles, but in today's note he shares his ultimate conviction that he can't shake loose; namely that he is more confident in ICE technological progress than he is in TSLA.

In the words of my wife (today): "Today a fake uber-bull was revealed."

Dave, I'd say more that an uber-bull was revealed as being an uber bull also willing to play Wall Street games.

Going to what you highlighted, if those comments are meant to imply that ICE vehicles will start improving along the lines of Moore's law (as I think they are meant to but in cryptic language so as to limit the damage of having such an improbable statement on his resume), I simply do not believe Jonas could possibly actually believe it. I think this is simply a Wall Street game.

 

[MikeC]

Elon himself has stated many times that the biggest competition for his EVs is the internal combustion engine.

I find it hard to believe that Jonas is not smart enough to realize how he is twisting that statement to support ICE. Elon was referring to the Model S taking market share from the ICE cars in its class and not competing with EVs in a different class like the Leaf or Volt. In no way did Elon ever suggest that ICE technology was a future threat to Tesla.

Andrea James was always my favorite analyst, anyway.

 

[ckessel]

commenting on the stock price just because he feels like it is not his inherent right

First, he's typically asked about it, he doesn't volunteer a comment just "because he feels like it".

Second, barring regulations saying otherwise, I'm pretty sure it actually is his "inherent right" to make comments.

 

[DaveT]

Adam Jonas' 9/15/14 note and my comments

Here’s most of today’s MS report and my comments under each paragraph:

“Recently when asked about Tesla's stock, Elon Musk admitted he felt the share price was a bit ahead of itself. We agree. We believe the shares are worth $320, but perhaps not so quickly and not for some of the reasons we believe are driving the market.”

Doesn’t make any sense, if you believe the shares are worth $320 then you think they’re worth $320. But to say you think they’re worth $320 but not so quickly means that you don’t think they’re worth $320. And if you don’t think they’re worth $320 (ie., now or in the near future), then why did you release a report in Feb 2014 with a $320 price target?

My take: maybe Adam Jonas regrets his $320 PT from Feb 2014 and is trying to squirm his way out of things w/o giving a lower price target.

“We are big believers in Tesla's strategy and stand firmly by our claim that it is the world's most important car company. Securing key gigafactory partners (both public and private) and upcoming Model X details provide an excellent runway for the story. These are genuinely historic times for the auto industry and Tesla is writing its own chapters at a furious pace. But we do not expect the stock to appreciate so consistently and one-directionally from here. Some more sobering factors to consider:”

Ummm, what does he mean “stock to appreciate so consistently and one-directionally”? Look at the stock price after his Feb 2014 report and you’ll see it’s far from a consistent one-direction stock rise. Again, makes no sense.

“1. EVs are failing categorically on a global scale. Tesla aside, nearly the rest of the auto industry's efforts to successfully commercialize pure electric propulsion have fallen well short of the mark. In fact, many of the worlds largest OEMs appear to have put major EV development on ice (See our note: EVs are Dead, Long Live Tesla from May 28th), pushing hydrogen as the future of emission free transport (see our note: Hydrogen Cars, a Bunch of Hot Air from June 25th). We would not underestimate the influence of the global industry to lobby for a substantial revision of existing CARB rules to slow down the pace of milestones they have little hope of achieving (besides Tesla). In fact, we expect a revision. Thankfully, Tesla is developing products that sell on attributes of consumer experience and sheer driving pleasure and are not dependent on government incentives. But the shot across the bow won't help the debate.”

Weak argument. Just because sales of other EVs are slow doesn’t mean Tesla’s sales will be impacted. If you’re going to say EV demand is slow and thus Tesla demand will be impacted and slowed, then he should state that as his reason why he thinks the stock is overvalued. Rather, he makes a very vague statement of EVs in general and doesn’t connect it to Tesla, Tesla demand, or TSLA’s stock price.

“2. China demand growth may be severely limited by Tesla's ability to develop the supporting dealer and service infrastructure. Tesla is not interested in achieving short term profitability at the risk of disappointing new customers, particular in the world's largest, fastest growing car market. We believe demand for the model S and X in China will far outstrip Tesla's ability to meet it, perhaps for many quarters or years to come. Challenges with infrastructure, local business practices and impeded technology enablers could prove agonizingly tough to develop as fast as the market's expectations.”

Ok, so he’s saying China roll-out might have more challenges than expected and that could “severely limit” China demand growth. This seems like a bold claim. So, is he saying that Tesla won’t be able to roll out the necessary stores and service centers to support growth in China? Where is his evidence or data points? Or is this entirely conjecture? IMO, to support China growth Tesla needs service centers and superchargers. We know they’re aggressively rolling out both. So, if Adam Jonas is going to say “China demand growth may be severely limited” then he should back up his claims with some more concrete facts.

“3. Democratization of EVs is going too far, as it requires breakthroughs that may be too unreasonable to take for granted as a base case. Gigafactory benefits should be expected to make the Model 3 a better product, not a cheaper product. We view Tesla as a niche player, not a mass manufacturer. We increasingly find investors with volume expectations far above our own on the basis of the gigafactory benefits to battery cost approaching levels as low as 100 per kWh. Our assumptions are nowhere near as high. In fact, our 371k number by 2020 may be amongst the lowest, if not the lowest, on the street. We believe the disparity comes from our views of progress of internal combustion technology. When we ask investors about their assumptions of ICE improvement, we rarely get an answer of any assumption. Elon himself has stated many times that the biggest competition for his EVs is the internal combustion engine. Moore's Law can help liberate BTUs too.”

So now it appears that Adam Jonas is an uber-bull regarding ICE technological progress. So much so that he says, “Moore's Law can help liberate BTUs too.” And he cites this belief/conviction in the bullish future of ICE technology as the main reason why he has lower volume projections for Tesla than other analysts.

“4. In an autonomous world, why will people buy a Tesla? Our 15 year DCF coincides with the end of human driving and the dawn of crowd sourced mobility and mega fleets. Assuming people even buy cars at all, what will determine Tesla's strategic and competitive advantage as a provider of mobility? We see scope for an array of new entrants who can apply Moore's Law and compute power to move people and things around the surface of the earth. The rules are changing and at least some incumbent OEMs (i.e. BMW) are not falling asleep at the (disappearing) steering wheel.”

Now he’s going off somewhere talking about “the end of human driving” in 15 years and questioning if Tesla will have a competitive advantage. So, this is one of the reasons he thinks TSLA stock is overvalued right now? Strange, to say the least. And even stranger to say this while not referencing Tesla as one of the leaders in autonomous driving.

 

[Twiddler]

First, he's typically asked about it, he doesn't volunteer a comment just "because he feels like it".

Second, barring regulations saying otherwise, I'm pretty sure it actually is his "inherent right" to make comments.

First, he does not have to volunteer any comment when asked. Hence the retort "no comment."
Second, my post was started with IMO. IMO = in my opinion. Of course he did not violate laws by commenting as he did. Hope that clears things up.

 

[DaveT]

Dave, I'd say more that an uber-bull was revealed as being an uber bull also willing to play Wall Street games.

Going to what you highlighted, if those comments are meant to imply that ICE vehicles will start improving along the lines of Moore's law (as I think they are meant to but in cryptic language so as to limit the damage of having such an improbable statement on his resume), I simply do not believe Jonas could possibly actually believe it. I think this is simply a Wall Street game.

My main gripe (or one of them at least) with Adam Jonas' note today was that if he is going to say that the stock is overpriced then he should make a compelling argument for that. For example: Our Feb 2014 $320 price target was a mistake for "X" reasons, and our new price target is "$X" for for the following reasons."

However, his note is an exhibit of nonsense and doesn't help me to understand why he thinks TSLA is overvalued.

All I get from his note is that he's bullish on ICE tech progress and thinks human driving may end in 15 years.

Regarding his Moore's Law comment (as applied to ICE), I think it's stretching it to say that he doesn't believe what he wrote. I think he believes in all that he wrote today. And it just shows how convoluted and illogical his thinking/beliefs are.

 

[Krugerrand]

First, he's typically asked about it, he doesn't volunteer a comment just "because he feels like it".

Second, barring regulations saying otherwise, I'm pretty sure it actually is his "inherent right" to make comments.

+1 all day long.

- - - Updated - - -

First, he does not have to volunteer any comment when asked. Hence the retort "no comment."

He doesn't, but he will. That's how he rolls, we all know it. And contrary to your opinion, it is his 'inherent right' to decide to do such.

 

[mitch672]

I think it's so much simpler than what's been conjectured:

Here is what I read into it: "all of our large clients have massive profits in TSLA, we phoned them up last week and told them to dump it and go short, we have a new stock to pump this Friday, Alibaba". A simple "pump and dump", happens ALL of the time on Wall Street, nothing new going on here, move along you Looky Lou's. When I say "major" clients, I am talking about clients with millions invested, in other words, not retail investors.

 

[Johan]

Today's research note from Adam Jonas is indeed very peculiar in its wording and conclusions, both of which are all over the place. It is poorly written and in several place nonsensical and with contradictions even within the same paragraph. One thing though is that in a way he actually did lower his price target today by leaving the $320 figure unchanged. How so you ask? Well, in February 2014 his price target was $320 meaning that a year from that, in February 2015, he expected the stock to trade at $320. Now in September 2014 he believes that a year from now, September 2015, the stock will trade at $320. Wouldn't that in a way count as if not lowering your PT then at least delaying the believed timing of the stock hitting a given price point?

Also 100% agreed on the pump and dump. And I do believe the theory that Morgan Stanley's investment branch may have had a strong interest of getting the stock lower, either due to options expiry or wanting to get in at a better price point. Yes I know completely illegal and there are supposed to be air-tight seals between the analyst departments and the investment department but come on - who are we kidding here?

 

[maoing]

DaveT,

Do you think the market will react similarly to the Goldman Sach downgrade last year? I wasn't the shareholder at that time, probably you can shed better light.