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I look at value and contrarian ideas as well as emerging technologies/growth stocks worldwide, both on the long and short side. I also like to discuss the influence of monetary policy on stock markets. I usually do not engage in short-term trading and myopic analysis (quarter by quarter,... More
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  • BMW Is Apparently Worth 725 Billion Dollars In Teslaland - Comparing BMW And TSLA 18 comments
    Aug 8, 2013 3:51 PM | about stocks: TSLA, GM, TM

    Since BMW is soon getting into EV/PHEV sales with the "i" sub-brand (BMW i3, BMW i8 and possibly more models in the future), it is maybe helpful to compare BMW and TSLA sales and valuation numbers:

    Sales of the entire BMW group (including Mini, Rolls Royce etc.) were close to 2 million units per year:

    BMW said today its global sales for July [2013] set a company record with 152,349 vehicles delivered to its worldwide network of dealers, up 12.3 percent over the same month last year.

    The German automaker also said that year-to-date sales reached an all-time high with 1,106,876 units sold over the first seven months, 6.8 percent higher than last year.

    ( www.wltx.com/news/article/245351/2/BMW-P...)

    In 2013, BMW is on track to sell over 2 million units for the first time if sales keep up. As for valuation, The WSJ made a good comparison with TSLA. BWM would be worth over 700 billion USD if it enjoyed the same multiple(s) as TSLA:

    $725,230,041,600: If BMW were valued like Tesla, it would be worth that much. And yes, that is 3/4 of the way to $1 trillion.

    http://on.wsj.com/15ScHls

    One of course needs to keep in mind that TSLA (in an optimistic scenario) is in full growth mode while BMW has a low P/E around 10 as a more "mature" company.

    (On a side note, wouldn't it make sense to assign BMW a higher P/E thanks to its new EV "i" division in case one is so bullish for EVs ?)

    Even so, BMW is just worth over twice the current market cap of TSLA in reality. In addition, BMW also pays out a dividend while TSLA doesn't (and probably won't for a very long time).

    Does this TSLA valuation make sense - especially now that BMW is introducing is own "i" sub-brand of EVs and entering Teslaland so to speak with a P/E of just 10?

    (The "i" will not be a single BMW vehicle, BMW is just getting started with the first model, the i3. "i" will become a sub-brand - with an i1 and and i5 model rumored for 2015-2016 - like "Prius" already is for TM. Prius of course also started as a single vehicle at Toyota and now collects a portfolio of cars, acting as TM's green/hybrid sub-brand.)

    In my opinion, it will be hard for TSLA to even get past 200-250k/yoy vehicles sold. In my estimates, these aggregate numbers include:

    - Model S and Model X combined (and maybe a new sports car to replace the discontinued Tesla Roadster): 75-100k/year

    - Model Car III (estimated for 2017): 100-150k/year *

    TSLA optimists will probably argue this figure is much too low, especially for the Gen III car: "Tesla has a first mover advantage [in EVs and EV infrastructure]." They also like to point out a production capacity of up to 500k cars/year, achieved at Tesla's current California factory under its former ownership (GM/Toyota JV, NUMMI).

    My reply: First of all, Tesla is not the EV market leader in sales and doesn't have a first mover advantage in the mass-market segment - only at the high-end of the EV car segment (and maybe soon in highend EV SUVs with the Model X, but again, this is not the mass car market).

    The unit market leader in EVs is Nissan-Renault. By July 2013, it sold 100k EVs in total. Its most popular model is the Nissan LEAF, selling over 70k units so far. TSLA will probably not reach this number before 2015 while Renault-Nissan keeps expanding its EV car portfolio globally.

    The average selling price of a new car is just 28k USD in North America.

    Let's define the mass market for EVs at the 25-40k USD price range.

    In my opinion, the likely market leaders in the mass-market EV/PHEV segment will be the GM Volt, the (upcoming) BMW i3 and the Nissan Leaf. Plus Toyota will press on with PHEV Prius and Aqua models.

    Most importantly, Tesla will not even have a car for sale in this lower segment for another 4 years, maybe even 5 years globally.

    The crucial two questions for TSLA's future valuation:

    - With economies of scale etc. kicking in who will the be market leader in volume sales in 2017 and beyond? I would assume it will (still) be the Nissan Leaf or a similar vehicle available on the market today, maybe a Prius EV variant.

    - Will EV margins shrink or grow in that market segment (25-40k USD range)? Obviously TSLA enjoys high gross margins at the moment - so does Porsche. High gross margins can be expected at the top-end slice of almost any market, but as soon as TSLA enters the mass market its current margins will likely shrink below Porsche's.

    Summary: Is Mr. Market drunk with euphoria for the new entrant? I do think so at TSLA share prices over 150 USD as of today. Or as another commenter on SA named "WallStreetDebunker" aptly put it:

    Tesla speculators seem to have a Warren Buffett type investment horizon with a twist: It will take 10 or more years for Tesla to earn its way into its current stock price assuming everything goes right. Even with everything going right, Tesla shareholders will likely suffer through one or two severe bear markets in the next decade (>50% declines for cyclical automakers) on the way to earning its way into the current stock price.

    ( Source: seekingalpha.com/user/1056791/comments )

    In case the Gen III from TSLA becomes reality in 201x with all of Tesla's promised features (at or below 35k USD, 200 miles of range, attractive or at least healthy gross margins) one thing is for certain in my opinion:

    If it indeed becomes possible to build such a car (and battery) for TSLA then every other automaker will do the same within 2-3 years, shrinking TSLA's margins and increasing EV competition further.

    That was the ultimate goal of CEO Musk all along (move personal transportation and the auto industry away from fossil fuels to EVs quickly)- but the financial result of this outcome may not please TSLA shareholders so much.

    ___________

    * Of course, no one has even seen the Gen III car outside of TSLA. According to Tesla's plans, it should cost just 35k USD (before rebates) and have a (pure EV) range of around 200 miles.

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Comments (18)
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  • Sellinpanic
    , contributor
    Comments (595) | Send Message
     
    I understand your conclusions and you have very well thought out many of your variables and comparisons but the matter is not as simple as you predict. BMW is a traditional car company and Tesla just simply put, is not.

     

    What happens in 4-5 years time is too speculative at this point of time taking into account what the actual car market will and can be. There is much more to add to the big picture to what we can now envision. I believe that the way we actually transport (and drive cars) will quickly change in the next 5-10 years and this is partially what is affecting TSLA's valuation and somehow in effect TSLA is thought to be the leader and the pioneer to the new future.

     

    To elaborate better what I mean, I'll give a comparison from the mobile and smart phone history. Back in 2007 when Apple brought the first iPhone to the markets, I clearly remember what the writings where then, Nokia and competition will crush them and better everything what Apple does etc. and Apple will only marginally sell their phones and they don't stand a chance. What actually happened is that whole concept of thinking and using mobile phones was totally revolutionized and who would have thought of tablets, iPads, smart phone applications and so on just under five years ago? This is what I truly think is happening in the auto industry and the traditional foundations are now finally starting to shake after over 100 years of ruling. Nothing stays for ever, even ancient Rome finally came to its end and they where the BMW of their time, don't you agree?

     

    Ultimately the market decides what is the correct price for each stock, drunk or not. TSLA, in my opinion, is seen as the next GOOG, AMZN, NFLX, AAPL, '90s NOK. Me, personally I just don't see a bubble but a new industry emerging and pricing that is near impossible with using old traditional metrics. Call me crazy, but if you vision something, you either believe in it or not. I have chosen to believe in this story and put my money where my belief is.

     

    Take care tftf and I have to say I really enjoy reading your comments!
    9 Aug 2013, 10:04 AM Reply Like
  • Tales From The Future
    , contributor
    Comments (4125) | Send Message
     
    Author’s reply » Glad you enjoyed reading the comment even if we have a different opinion - that makes a market :)

     

    PS: I make it a hobby to read different opinion regarding my positions to avoid confirmation bias.
    9 Aug 2013, 11:44 AM Reply Like
  • 6151621
    , contributor
    Comments (1169) | Send Message
     
    Sellinpanic, "the market decides what is the correct price for each stock" This is true but a market for a stock is only those who trade it at the moment with all their emotions involved. This is clearly a dream for the future stock which is what the author's point is anyway. By the way, I don't think EV and Smartphones are a good comparison.

     

    It's true the potential for $150 to someday seem cheap for this stock is possible. My bias is the stock tries to go for $200-300 and then collapse with end of main bull market well below it's current price. And then end up very profitable but having hurt lots of dreamers just like DOTCOM did 13 years ago (e.g. MSFT, CSCO)
    11 Aug 2013, 11:14 PM Reply Like
  • Sellinpanic
    , contributor
    Comments (595) | Send Message
     
    6151621,
    when comparing smartphones and EV in my example, I would rather highlight the part when the first iPhone came out people declared Apple was on a road to nowhere and how competition will crush them. The same they are saying now of TSLA and how EV's won't stand a chance, I believe the opposite.

     

    On the dotcom part I simply don't agree that applies to TSLA. TSLA is a solid business, with a robust product/s and as it stands today it is a five star example of how to start a business from scratch when you have everything planned to the smallest detail and executing accordingly. Most dotcoms were just badly run with terrible business ideas and some of them were even fraudulent attempts to get boatloads of quick money from the markets. However, GOOG is a good example of the dotcom-era of how business can thrive if everything is designed and executed perfectly and you believe in your plans, wouldn't you agree? And they were a dream of the future stock back then...

     

    TSLA is part dream of the future stock but they are also part of the future reality where mankind must move on if we want to be environmentally more responsible. Besides environment there are plenty of other examples also and truth to be told, we can't speculate what will happen in 4-5 years time. TSLA's share price will of course fluctuate up and down, but I believe they are here to stay and they will not hurt anybody, on the contrary, they will make us smile and enjoy our earnings...:)
    15 Aug 2013, 08:02 AM Reply Like
  • Tales From The Future
    , contributor
    Comments (4125) | Send Message
     
    Author’s reply » On the other hand, dotcoms (successful ones such as GOOG) or IT companies like AAPL could ramp up production very quickly:

     

    - Virtual goods such as software (basically unlimited, immediate supply, just add more servers)

     

    - Gadgets like the iPhone which can be outsourced. Fast ramp-up within months to produce millions of units.

     

    If Tesla were an IT company and the Gen III car a "gadget" it would probably be outsourced. Millions of Gen III could be produced much earlier, faster etc., say 2015 already.

     

    That is not possible in the auto industry or at least poses great risk (see eg. Fisker which outsourced production of its PHEV to FInland and had many quality and design issues).

     

    Bottom line: TSLA can't grow that quick and can't outsource, this leaves time for the established car competition to catch up by 2020 - that is my bearish prediction.

     

    PS: Doesn't mean TSLA will have to fade away, but I see its future in the high-end slices and niche (Model S and X), similar to Porsche in ICEs.
    15 Aug 2013, 10:31 AM Reply Like
  • Sellinpanic
    , contributor
    Comments (595) | Send Message
     
    tftf,
    Just to point out a small detail in order to avoid misunderstanding, the Finnish factory (Uudenkaupungin autotehdas, link in English here:
    http://bit.ly/15JvDgr) was not to be blamed for the quality issues Fisker Karma had and in that respect I don't believe outsourcing the car assembly was the actual problem. It was the battery provided by A123 that caught fire, wasn't it? I come from Finland and actually live 50 miles from this factory and I've even taken a test drive with the Fisker car (nice design, but otherwise, ummm, nothing special). The factory is of high quality and they are mass producing Merc's new A-class model as we speak (and I believe you know this already).

     

    Anyway, Fisker was a good example of how a car manufacturing business should not be handled. In this respect TSLA has taken a totally different approach and most obviously they have also carefully studied Fisker's mistakes. You can see that in their production methodology, TSLA manufactures as much as possible them selves, especially the critical battery assembly, which is key to their competitive advantage is done in-house. The batteries of course come from Panasonic, and as such anyone can buy them separately, but the correct alignment and power management is the key to their success. All of this of course is patented and therefore competition in this respect is not a threat until the patents expire.

     

    Interestingly though as you mentioned outsourcing, what stops TSLA outsourcing the actual car assembly when GenIII arrives? If they deliver the critical parts like the battery pack to the assembly factory they can speed things up considerably and save in-house manpower to more important things. That is what Mercedes is doing with their A-class model...
    15 Aug 2013, 12:26 PM Reply Like
  • Tales From The Future
    , contributor
    Comments (4125) | Send Message
     
    Author’s reply » You are correct that the biggest issue probably were the A123 batteries (also supply-wise, after A123 went under) coupled with design issues:

     

    http://aol.it/14NT0w3

     

    Most people and reviewers agree that the Model S is a better car in respect to the Karma.

     

    Re batteries, you write:

     

    "The batteries of course come from Panasonic, and as such anyone can buy them separately, but the correct alignment and power management is the key to their success. All of this of course is patented and therefore competition in this respect is not a threat until the patents expire."

     

    I'm unsure whether TSLA can maintain that perceived price/design advantage given that competitors can either

     

    - buy an upstart (Envia or many other battery names I listed in the comments)

     

    - add more R&D (Nissan is doing lots of inhouse battery production and R&D, for example)

     

    - or work around TSLA patents and add 18650-type battery designs over time.

     

    Also, Panasonic (or Samsung) probably has to build new battery plant to be able to supply the Gen III car, this could cause delays in maket introduction and require lots of capex.

     

    Finally, outsourcing the Gen III car would lower TSLA's margins even if it didn't have the Fisker's quality issues.
    15 Aug 2013, 01:28 PM Reply Like
  • Tales From The Future
    , contributor
    Comments (4125) | Send Message
     
    Author’s reply » Some comments I made in other threads copied here:

     

    1. TSLA international sales outlook

     

    There will be sales spikes in countries with incentives or bias towards to EVs, most likely:

     

    Norway, Sweden, Netherlands, Hong Kong and Switzerland are outliers - quite small countries, but high per-capita sales of EVs.

     

    (And California, if it were a country :)

     

    These regions also have spectacular sales of other PH-EVs (Leaf, Prius...).

     

    Tesla sales in these countries shouldn't be extrapolated to other countries, otherwise sales figures will be too optimistic.

     

    It's not by accident that TSLA is shipping its first euro cars to Norway and Switzerland (see TSLA PR for details).

     

    2. On TSLA and "saving the planet" by buying an electric car (hhmm ?)

     

    I don't want to take the discussion too far, but cars (and planes) are just a small part of the eco puzzle even if personal transportation is switched to EVs over time.

     

    If we were really serious about the environment, we would also have to

     

    - stop eating meat (methane gases etc.) and trow away less food
    - live in efficient housing (zero-enery buildings)
    - use more public transport (and travel less)
    - have fewer children

     

    and in general consume less and reduce our energy footprint (water, oil etc.) in the "first" world.

     

    Your Prius (or Tesla) won't save the planet alone :)
    9 Aug 2013, 12:09 PM Reply Like
  • markwbrooks
    , contributor
    Comments (100) | Send Message
     
    Interesting take. I too think that Teslas stock has runaway from reality. I sold my tesla at $105 a couple of weeks ago as this was the upper range of my near term end targets. Kicking myself now but guess u don't go broke taking a profit. Still I would never short such an active growth stock with such a disruptive teck and a disruptive business model. It's competition has simply too many liabilities that are stopping them from shifting too the new tech and sales model.. The classic case is many of the current GM dealers refusing to tool up for and sell / service the volt. They get at least 2k on the sale but almost No money from the usual service milk cow, so its a raw deal for them.
    GM, BMW and others need to overcome issues like this to Make the shift to EVs...
    10 Aug 2013, 01:23 AM Reply Like
  • Tales From The Future
    , contributor
    Comments (4125) | Send Message
     
    Author’s reply » Thanks for your comment. Markwbrooks wrote: "They get at least 2k on the sale but almost No money from the usual service milk cow, so its a raw deal for them."

     

    That is an advantage TSLA enjoys thanks to its direct distribution model. BMW (and others) will have to walk a fine line, for example BMW tried two innovations:

     

    - Create a sub-brand (i for EVs) and separate the distribution, establish new showrooms in cities similar to what Apple and Tesla did. Only select BMW dealers will sell the Ev cars.
    This is similar brand positioning Toyota achieved with the Prius. Many people now say they "drive a Prius" (not a Toyota), same could happen for the BMW "i" series over time.

     

    - Second, BMW also tries selling some of the "i" cars online, creating a ruckus among its dealers:

     

    "According to Lorraine Kruger, sales director of BMW Group, the officials are considering pushing the new i3 electric car towards online sales, with serious intentions of extending this feature for all their other units, in the near future"

     

    http://bit.ly/18jQXgf

     

    This won't be a fast transition, but it could happen over time.
    10 Aug 2013, 12:20 PM Reply Like
  • Tales From The Future
    , contributor
    Comments (4125) | Send Message
     
    Author’s reply » As for the battery tech that will be needed for a TSLA Gen III or competing cars, it's useful to look at R+D in this space:

     

    - AIST
    - Argonne National Laboratory (ANL)
    - Envia Systems
    - Fudan University
    - GS Yuasa
    - Hanyang University
    - IBM
    - Korea Institute of Energy Research
    - Kyushu University
    - Massachusetts Institute of Technology (MIT)
    - Mie University
    - Newcastle University
    - Pacific Northwest National Laboratory (PNNL)
    - Polyplus Battery Company
    - Samsung Elecronics (Samsung Advanced Institute Technology)
    - Seoul National University
    - Sion Power
    - Toyota
    - US Army Research Lab.
    - University of Dayton Research Institute
    - University of Rome La Sapienza
    - University of St. Andrews
    - University of Texas at Austin
    - University of Waterloo

     

    Another list can be found here for the US:

     

    http://bit.ly/139E3TW

     

    I had never heard of Sila, for example...

     

    http://1.usa.gov/14hX00L

     

    Some companies have not updated their homepage for a long time (Envia Systems, for example. Some couldn't get past development stage for years, like EEStor).

     

    Other efforts from larger companies, such as IBM, are well-known

     

    http://bloom.bg/14hY3h8

     

    This won't be a walk in the park and it could very well be that a proprietary technology will be used by a TSLA competitor first.

     

    Anyone who thinks TSLA has clear leadership in battery tech (and pricing) over the next 5-10 years is mistaken imho.

     

    It's clear that TSLA is not alone in this race and development is full of pitfalls and delays (eg. A123, former ticker AONE, was hyped since the IPO and is now delisted.)
    10 Aug 2013, 03:58 PM Reply Like
  • Tales From The Future
    , contributor
    Comments (4125) | Send Message
     
    Author’s reply » I forgot to add another useful link with US battery tech companies, some are also on the lists above:

     

    http://bit.ly/W3GDSf

     

    PS: Until energy density improves, this is the issue:

     

    Carrying extra battery weight around (Tesla) or carry an engine around (EREV) = six of one, half-dozen of the other.

     

    And the engine is cheaper to make at the moment.
    11 Aug 2013, 12:02 AM Reply Like
  • Tales From The Future
    , contributor
    Comments (4125) | Send Message
     
    Author’s reply » Finally, a word about EV infrastructure (fast charging outside the home/office):

     

    The rest of the industry has agreed upon and uses the Chademo (Japan) or the new CCS (USA, Europe) fast charging standards.

     

    There will probably be tens of thousands of these stations in a few years, Chademo already offers thousands of stations today worldwide.

     

    Where's the advantage of using the proprietary TSLA stations by then?

     

    Details about CCS for those interested:

     

    http://bit.ly/16G7zgV

     

    Companies such as ABB sell combined chargers offering both CCS and Chademo, these two plugs will cover virtually all EV cars produced from now on:

     

    http://bit.ly/16G81vL

     

    I see many malls, restaurant chains etc, installing or subsidizing these combo chargers over the coming years and maufacturing costs coming down as well with economies of scale.

     

    Which again leaves TSLA and its proprietary system with no advantage by 2017-2020 (no big difference between 50/86/100 kW in CCS , 50/100 kW in Chademo and 120 kW Tesla Superchargers).
    12 Aug 2013, 07:17 PM Reply Like
  • Tales From The Future
    , contributor
    Comments (4125) | Send Message
     
    Author’s reply » My summary prediction for the EV market going forward:

     

    By the time the Gen III is ready and on sale globally in 2017-2020, there will be:

     

    - Thousands of CCS and Chademo fast charging stations worldwide, especially the new CCS standard or a successor thereof. No advantage for fewer proprietary TSLA stations over CCS or Chademo. ( See "FastNed" project in Netherlands as prime example and first mover).

     

    - At least 10-15 additional PHEVs / pure EV models from majors in showrooms (not just compliance cars, models available worlwide)

     

    - Price cuts and economies of scale in EVs and PHEVs from the majors.

     

    - Advances in battery R&D, range of 50-75 miles pure battery range for PHEVs and probably 150-250 miles for EVs will be "normal" in mass market price ranges (no range advantage for TSLA Gen III)

     

    - Really intense price competition in the 20-40k $ EV car segment with lower margins as a result (see latest price drops in Volt and Leaf as a start).

     

    Now, TSLA can easily stay relevant at the high-end with the Model S, the X and probably a new sports car (so does Porsche in ICEs today), but it will be hard to justify its high valuation - especially using blended gross margin projections in the EV mass market in about 3-5 years.

     

    This concludes my comments about TSLA for the time being.

     

    I hope the links collected above regarding battery technology, sales and EV charging infrastructure / plugs prove useful when looking at the PHEV and EV market going forward.

     

    I will also update the comment section or add a new Instablog in case I add to my TSLA short position in the future.
    14 Aug 2013, 01:42 PM Reply Like
  • Tales From The Future
    , contributor
    Comments (4125) | Send Message
     
    Author’s reply » Forgot my short-term predictions for TSLA for remainder of 2013 in note issued to clients. Here they are:

     

    - Increased guidance for 2013 from 21k units to 23-25k units based on robust early sales in Europe (catalysts in Norway, Netherlands, Switzerland)

     

    - GM reach 22-24 % at the end of Q4 (will fall as soon as Gen III is in the mix)

     

    - Gen III car pushed back one year to 2017 US, 2018 globally (similar to Model X postpone). One major reason is battery production capacity and pricing, new factories needed from Panasonic, Samsung or other suppliers...
    15 Aug 2013, 06:26 AM Reply Like
  • Tales From The Future
    , contributor
    Comments (4125) | Send Message
     
    Author’s reply » The actual delivery numbers for 2013 are 22.5k units:

     

    "With today's number, we have the following delivery numbers: Q1 - 4,900 units, Q2 - 5,150 units, Q3 - 5,500 units, Q4 - 6,900 units. Total deliveries are then at about 22,450 units for 2013."

     

    http://bit.ly/1dNjnjB

     

    PS: My estimates (23-25k) were for 2013 production numbers, not deliveries.
    14 Jan, 12:29 PM Reply Like
  • Tales From The Future
    , contributor
    Comments (4125) | Send Message
     
    Author’s reply » About the third point I raised above (battery production constraints), CEO Elon Musk now talked about this himself:

     

    http://cnb.cx/153Vvu5

     

    Even Samsung and Panasonic combined will have issues as suppliers at today's production levels.

     

    In the past some people didn't believe me when I noted this fact alone could postpone the Gen III car to 2017-2018.
    22 Aug 2013, 10:33 PM Reply Like
  • Tales From The Future
    , contributor
    Comments (4125) | Send Message
     
    Author’s reply » Typo above, should read: "...BEYOND today's production levels."
    23 Aug 2013, 10:47 PM Reply Like
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