Short-Term TSLA Price Movements - 2015

[jhm]

As to Tesla Energy, I've seen a number of analysts pricing it in at ~$25 per share, which is about $3 billion in market cap. I think it's worth noting that Tesla Motors had a cap at that level after winning Motor Trend Car of the Year unanimously, and reaching a 20K/year production run rate, which Elon described roughly as crossing out of the life/death period. Tesla Energy may become a stunning success, but in my view a $3 billion T.E. valuation given a not totally unreasonable "show me" view from many on Wall Street isn't surprising. Elon basically made repeated comments on the last earnings call telling the analysts the business can't really be valued until we see where things are in a year. I wrote about those Elon comments in more detail the day after the call, and can find that post if you like.

Let's see if we can put a share price on 1 GWh of stationary storage capacity. Suppose $250 revenue per kWh, 10% net income on storage, and 20 time price earnings. This works out to $500M market cap per GWh. On 126M shares this adds about $4/share/GWh. Sup posing just 15 GWh storage in 2020 works out to $60/sh in that year or around $30/sh today. I think this is fine for now. I do think Tesla has its sights on doing more stationary than just 15 GWh in 2020, but has not made any firm commitments yet to exceed this. Perhaps we will soon get word that the Gigafactory will be expanded 50% to 100%, and we can recalibrate on new plans.

My hope is that in 2020 Tesla will do 35 GWh auto and 70 GWh stationary. Thus stationary would contribute about $280/sh and auto $560/sh (at $1000 revenue per kWh ) for a total share price of $840 in 2020, which the market can discount as it sees fit. So I would like to see a definite plan for how we get to 105 GWh capacity before 2020.

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Given Elon's past comments about expecting the Model X to do as well to a little better than the S (his extrapolation of SUVs generally do a little better than sedans), I think he's saying whatever global demand for the S is, X will add the same. I read that as a pretty strong showing as it implies any cannibalization between the products would be offset by the demand of a well received X.

"Cannibalization" would only happen when shoppers prefer the X to the S. Thus, demand is strictly incremental. We should all hope that the Model X is so awesome, that Tesla decides to suspend making the Model S for a couple of quarters.

 

[MikeC]

Given Elon's past comments about expecting the Model X to do as well to a little better than the S (his extrapolation of SUVs generally do a little better than sedans), I think he's saying whatever global demand for the S is, X will add the same. I read that as a pretty strong showing as it implies any cannibalization between the products would be offset by the demand of a well received X.

But why use the word "volume" instead of "demand"? Doesn't that imply that they will have the capacity to produce double but not have the demand without the X? Otherwise, they would be able to just make twice as many Model S if the X for some unlikely reason wasn't "well received".

 

[aznt1217]

But why use the word "volume" instead of "demand"? Doesn't that imply that they will have the capacity to produce double but not have the demand without the X? Otherwise, they would be able to just make twice as many Model S if the X for some unlikely reason wasn't "well received".

I think he's using volume because he was talking in the frame of sales. If he uses the word demand we can all probably guess how it would go the next day. Tesla is having demand issues but the X will fix it or some silly headline like that would be created due to one word being taken out of context. Sales volume being doubled means that Model S volume sales wouldn't be cannibalized mentioned in the other post.

 

[Lump]

China -6%
http://www.zerohedge.com/news/2015-07-07/china-futures-plunge-8-over-half-stocks-suspended-margin-debt-crashes-most-record

 

[SteveG3]

But why use the word "volume" instead of "demand"? Doesn't that imply that they will have the capacity to produce double but not have the demand without the X? Otherwise, they would be able to just make twice as many Model S if the X for some unlikely reason wasn't "well received".

Mike C, I'm not entirely clear what you are asking.

fwiw, the fact that Elon spoke of doubling volume rather than using a specific number (or even year) for projections, may at least partly be because even S global demand is quite a moving target (upwards, though hard to pin down the timing).

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"Cannibalization" would only happen when shoppers prefer the X to the S. Thus, demand is strictly incremental. We should all hope that the Model X is so awesome, that Tesla decides to suspend making the Model S for a couple of quarters.

jhm, not sure if you meant the suggestion of demand being strictly incremental literally or just joking around. fwiw, I think it will have the appearance of looking strictly incremental, because I think the mix would be somewhat higher for the X (and/or a bigger battery may come out for the S with increasing demand for that masking some lost sales to X), and probably talked about as not having had cannibalization, but I find it unlikely there wont be some cannibalization.

I don't want to give the wrong impression by my having used the "c" word... I think S/X combined volumes will be as good or better than what the street generally seems to expect next year, ~90K (by backing out of their average revenue projection at $100K/vehicle, which is conservative as I ignored the fact there are some other revenue sources (ie, TE) in the analysts estimates).

 

[MikeC]

Mike C, I'm not entirely clear what you are asking.

I think I just need to wait to hear the actual quote in context. I am confused by the tweet because it seems self-evident that a well-received Model X would double demand, I don't know why that would even be worth tweeting.

 

[SteveG3]

I think I just need to wait to hear the actual quote in context. I am confused by the tweet because it seems self-evident that a well-received Model X would double demand, I don't know why that would even be worth tweeting.

here's a little more context from an article out now,

"Tesla Motors Inc.’s new Model X sport utility vehicle will double the company’s sales volume, Chief Executive Officer Elon Musk said.
Musk, speaking with reporters Tuesday at the annual Allen & Co. media conference in Sun Valley, Idaho, didn’t elaborate."

Tesla's Musk Says Model X Will Double Company's Sales - Yahoo Finance

This was probably the case of his being asked something he's already answered, giving an answer and it being reported as news by people who weren't paying attention and/or know a tweet or article about Tesla and Musk is always good for business (couple months back, several in the media "broke" the story that Model 3 would be a sedan and a cuv... we heard this multiple times as far back as Spring of 2013). Elon's pretty consistently told us he thinks the X will do as well to a little better than the S. As exciting as it would be, I don't think he's suddenly decided X will have double the volumes of S (which, I for one, incorrectly first thought he might have said when I saw Lebeau had tweeted it).

 

[anticitizen13.7]

My guess is that Model X could easily more than double Tesla's total sales. The big question for me is whether Tesla can ramp up Model X production quickly enough to meet expectations.

 

[jhm]

China -6%
http://www.zerohedge.com/news/2015-07-07/china-futures-plunge-8-over-half-stocks-suspended-margin-debt-crashes-most-record

Chinese stock decline may have something to do with the 10% decline in oil recently.

The oil decline might not be a bad thing for Tesla as price changes have been negatively correlated lately.

 

[bh1783]

I think doubling the company's sales is conservative. The market for premium SUV's in America is 4 to 5 times larger than the market for premium sedans. Look at Porsche:

Porsche's SUVs (macan and cayenne) outsold the Panamera 110k to 25k in 2014, nearly a 5:1 ratio between SUVs and their sedan.
It seems pretty clear that the Model X will outsell the Model S by more than double(if Porsche is a good reference point).
The usual downsides to SUVs won't apply to the Model X (fuel efficiency, handling) and all the benefits are magnified (storage capacity, utility).
If Tesla can sell 50k Model S's per year, there is definitely a market for more than 100k Model X's.

 

[SteveG3]

I think doubling the company's sales is conservative. The market for premium SUV's in America is 4 to 5 times larger than the market for premium sedans. Look at Porsche:

Porsche's SUVs (macan and cayenne) outsold the Panamera 110k to 25k in 2014, nearly a 5:1 ratio between SUVs and their sedan.
It seems pretty clear that the Model X will outsell the Model S by more than double(if Porsche is a good reference point).
The usual downsides to SUVs won't apply to the Model X (fuel efficiency, handling) and all the benefits are magnified (storage capacity, utility).
If Tesla can sell 50k Model S's per year, there is definitely a market for more than 100k Model X's.

I'd be very surprised if 5:1 is not Porsche specific. I generally think S/X will do 100-150K combined the next few years. With the batteries they will have in 2020 (cheaper S/X with more range, and by then hopefully substantially faster SuperCharging), I think there will be demand for 200-300K... but Tesla may use that battery supply instead to address "off the hook" Model 3 cuv/sedan demand (by then, 1 million/year may be quite conservative), even if S/X would mean more profits.

 

[CyberDutchie]

Chinese stock decline may have something to do with the 10% decline in oil recently.

The oil decline might not be a bad thing for Tesla as price changes have been negatively correlated lately.

I think China's stock market problems have more to do with margin calls, 2014 apparently was a record year for investors buying on margin.

 

[electracity]

Musk did give the guidance at the last shareholders meeting that 50% growth (total sales, presumably) is doable for a few years. I think they hope to do that with cars alone, but probably aren't sure about 2017 without significant model 3 sales. I think they will sell all the powerwalls/power packs they can make in 2016.

I'm very positive about Tesla Energy, which is an area I follow. But it is going to be tough to really put a number on the potential for several years. As Steve indicates above, there is the potential for the car business to throttle the battery business by having high sales and consume a high portion of battery production.

 

[bh1783]

Musk did give the guidance at the last shareholders meeting that 50% growth (total sales, presumably) is doable for a few years. I think they hope to do that with cars alone, but probably aren't sure about 2017 without significant model 3 sales. I think they will sell all the powerwalls/power packs they can make in 2016.

Tesla still has a lot of international expansion left. Some of the largest markets for premium sedans and SUV's hasn't even been reached yet. Places like Dubai, Abu Dhabi, Seoul, Singapore, Taipei, Jakarta, Kuala Lampuur, Tel Aviv are all locations where electric cars make sense (islands, or geographic or political boundaries that prevent long distance travel). Tesla could easily grow 50% just by addressing those markets.

 

[jhm]

jhm, not sure if you meant the suggestion of demand being strictly incremental literally or just joking around. fwiw, I think it will have the appearance of looking strictly incremental, because I think the mix would be somewhat higher for the X (and/or a bigger battery may come out for the S with increasing demand for that masking some lost sales to X), and probably talked about as not having had cannibalization, but I find it unlikely there wont be some cannibalization.

I don't want to give the wrong impression by my having used the "c" word... I think S/X combined volumes will be as good or better than what the street generally seems to expect next year, ~90K (by backing out of their average revenue projection at $100K/vehicle, which is conservative as I ignored the fact there are some other revenue sources (ie, TE) in the analysts estimates).

Actually, I did use "demand" literally, meaning the amount of money consumers are willing to spend on Tesla vehicles. The demand is strictly incremental. So long as the Model X is moderately well executed it can only add to the dollars consumers are willing to part with for either model.

It would be fine if everyone understood the word "cannibalism" in a value neutral way. Unfortunately, it easily carries a negative connotation, as it is something Tesla should wish to avoid. But when it comes to adding a new product in a made to order business, cannibalization is a very positive outcome. Imagine the Model X as such an advance over the Model S that all buyers order only the Model X. This would in fact be the very best outcome, though bears would have a field day using the "c" word. As long as we use the "c" word as if it is something to be avoided, we reinforce it's use in the FUDsters lexicon. This is why I am enthusiastic about the X cannibalizing the S. We want the X to supercede the S.

Hitting $9B next year in combined revenue from S and X would be an unmitigated success regardless the mix of products. It is also the next step toward in the 50% annual revenue growth trajectory.

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I think China's stock market problems have more to do with margin calls, 2014 apparently was a record year for investors buying on margin.

My language was not so clear. I was thinking the decline in China causing the decline in oil. Not the other way aronund. Any sort of economic decline in China raises serious demand questions for oil. It appears that the bubble in China may in part have been due to the government trying too hard to stimulate business with capital. So assets got inflated and investors got carried away. Shanghai index was up 80% in 12 months! But all this cheap capital disguise weakness in the economy. So what is left in the aftermath may be bad news for energy and commodities.

 

[bh1783]

Actually, I did use "demand" literally, meaning the amount of money consumers are willing to spend on Tesla vehicles. The demand is strictly incremental. So long as the Model X is moderately well executed it can only add to the dollars consumers are willing to part with for either model.

It would be fine if everyone understood the word "cannibalism" in a value neutral way. Unfortunately, it easily carries a negative connotation, as it is something Tesla should wish to avoid. But when it comes to adding a new product in a made to order business, cannibalization is a very positive outcome. Imagine the Model X as such an advance over the Model S that all buyers order only the Model X. This would in fact be the very best outcome, though bears would have a field day using the "c" word. As long as we use the "c" word as if it is something to be avoided, we reinforce it's use in the FUDsters lexicon. This is why I am enthusiastic about the X cannibalizing the S. We want the X to supercede the S.

Hitting $9B next year in combined revenue from S and X would be an unmitigated success regardless the mix of products. It is also the next step toward in the 50% annual revenue growth trajectory.

It won't be cannibalization since the Model X is going to be priced higher than the Model S (which is rare in the market, usually the premium sedan is more expensive than the SUV). Also, most people that buy a 100k sedan don't have just one vehicle(especially families). If Tesla earns higher revenue from the X over the S then it can't be considered cannibalization.

 

[breser]

My bet is that the executive rear seats disappeared because they weren't really meeting peoples expectations. From what I understand the seats weren't adjustable (nicer than the bench seat but still not adjustable) and didn't have rear controls (where is the phone app controls that was promised in the app when executive seating was added).

I suspect a new design that better fulfills customer expectations reappears sometime in the future.

I'm not betting on the Model S 2.0 though. There might be some changes but I don't think they'll be overly drastic.

 

[SteveG3]

jhm, bh1783, perhaps our only difference is in semantics.

by cannibalization, I mean that I expect Model S volumes will be lower in 2016 with the X available than they would have been if the Model S remained Tesla's only vehicle. Again, I think this will happen, but be masked by the fact that I think Model S volumes are likely to be as good or better than 2015 for other reasons (such as, hopefully a bigger battery, some geographical expansion, and even the intro of the X bringing more attention to Tesla... so the X itself having a negative impact on S sales somewhat offset by an X positive impact).

I think you could largely categorize Tesla buyers in 3 groups... those that want a Tesla foremost, those that want a Tesla Model S foremost, those that want a Tesla Model X foremost. Obviously, plenty of people fall somewhere between the first and second or first and third. I think that first group is a pretty significant percent of total buyers. I'm mostly in that group myself, because mostly, I've decided, I'm not waiting for the Model 3 to have a Tesla as a daily driver. The way I look at it, someone like myself who would by a Tesla in 2016 with or without the X, if the X wows me and I buy it... it's an X cannibalization of a would be S sale.

I'll just repeat for context, despite my saying there will be some "c" factor, I think S/X total sales will be better than Wall Street is currently modeling.

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My bet is that the executive rear seats disappeared because they weren't really meeting peoples expectations. From what I understand the seats weren't adjustable (nicer than the bench seat but still not adjustable) and didn't have rear controls (where is the phone app controls that was promised in the app when executive seating was added).

I suspect a new design that better fulfills customer expectations reappears sometime in the future.

I'm not betting on the Model S 2.0 though. There might be some changes but I don't think they'll be overly drastic.

re Model S 2.0, I agree. If there's a change re the nose cone with the X, I think this will come to the S as well, but that's about it as far as styling and interior beyond minor tweaks. However, I do think it's better than 50% we see a bigger battery with both vehicles.

 

[chickensevil]

Steve, I think you and JHM Are speaking the same language. JHM is merely pointing out that in the best case all sales flock to the X because it is such a powerful product that it outdoes the current flagship. Think iPhone to iphone2... The only people still buying the first after the second came out was because of the price drop and nothing more. So if the X in a perfect outcome is better in every regard such that no one wants the S at all what you have done is completely change the scope of what it means to drive electric all over again. That competition that is supposedly coming one of these days will now have a brand new bar to hit that is head and shoulders above the current face of electric vehicles.

releasing the iPhone competitor when the iPhone 2 is already on the market would be laughable at best. So you will still see that 9B in revenue just from a different and arguably better mix being weighted toward the X. The 50% growth remains but now Teslas competition is itself all over again and they would be forced to make the S as good of a sedan for sedans, as the X will be a killer SUV for SUVs.

that being said, I personally see the S remaining quite strong simply because instead of being iPhone vs iPhone 2 we have iPhone vs iPad. Some will want an iPhone, some will want an iPad and some will want both. Some will want an S, some an X, and some will certainly have both.

 

[SteveG3]

chicken, I can understand what you are saying in terms of competitors wanting to deliver a long range EV it's similar to iPhone and iPhone2. good point, the bar has been raised and they haven't even gotten to the previous height. as far as Tesla itself, and the notion of cannibalization, I view it more like the iPhone and iPad situation you described at the end.

a piece out now from CNBC makes it clear Elon was only stating what we've heard him say many times before re S and X volumes (some comments from Elon on SpaceX' investigation of lost rocket),

"As for Musk's other company, Tesla, he said the SUV in the works - the Model X - would drive the company's next leg of growth.
"It has the potential to double Tesla's volume because demand for SUVs is about equal," the magnate said. "That would suggest if the ModelX is well received it would double Tesla's volume. That's fairly significant."

http://www.cnbc.com/id/102816680?__...adline|headline|story&par=yahoo&doc=102816680