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Analysts go to the mat on Tesla

  • With shares of Tesla Motors (TSLA) down nearly 40% from their recent highs, Wall Street is still vigorously debating if the stock is now cheap or still grossly overvalued.
  • Deutsche Bank's Dan Galves says the stock is now discounting pre-Gen 3 earnings and the sell-off creates a favorable entry point. "We are reiterating our Buy recommendation as we see a series of positive catalysts over the next several months that could lead to renewed confidence in earnings trajectory. These include: 1) A favorable resolution of the NHTSA investigation; 2) Initial news on (what we believe will be very strong) China order flows; 3) Increased visibility on an accelerating order/production ramp, and; 4) Further gross margin improvement and operating expense leverage (which may be significantly better than consensus). The firm maintained a Buy rating and price target of $200.
  • Meanwhile BofA's John Lovallo says shares remain overvalued even after the sell-off. He reiterates an Underperform rating and $45 price target, saying the company would have to 348K vehicles/year by 2020 to justify the current valuation.
Comments (19)
  • Dan Fichana
    , contributor
    Comments (1795) | Send Message
     
    And..how many times has Lovallo been right with his price estimates about Tesla? He has consistantly given extremely low price points concerning this stock for the past year and the stock has never even come close to his estimates.
    27 Nov 2013, 08:37 AM Reply Like
  • Tales From The Future
    , contributor
    Comments (4096) | Send Message
     
    So has the Deutsche Bank analyst, he followed the price this year.

     

    His PT at the beginning of 2013 was below $30!

     

    He had a hold on the stock, the first buy only came in late July when TSLA was trading close to $140.

     

    TSLA sells a fraction of cars more than was guided when his PT was $28...no material difference, yet the analyst switched his PT from $28 up to $200 over the course of 2013.

     

    Riddle me that.

     

    PS: And he wonder how and if he and other analysts modeled in the battery "giga factory" cap ex.
    27 Nov 2013, 08:42 AM Reply Like
  • Dan Fichana
    , contributor
    Comments (1795) | Send Message
     
    Here's an experiment:
    I'm not going to do it, but I'll track it on paper none the less. No day trader crap, no stop losses, let it ride out for 3 months

     

    Take Lovallo's estimate:
    Short it at $122

     

    Use the DB estimate
    Go long at $122

     

    Let us revisit this in 3 months when the results come out

     

    You could also do the experiment with naked puts and naked calls. Good way to lose money.
    27 Nov 2013, 08:49 AM Reply Like
  • rockinghorse
    , contributor
    Comments (240) | Send Message
     
    tftf, they did not model the battery supply problem, because it is nonexistent in longer (>2 years) time scales. It is just your imagination.
    27 Nov 2013, 08:53 AM Reply Like
  • chickensevil
    , contributor
    Comments (639) | Send Message
     
    Even though I know TFTF is a heavy shorter of this stock, I actually have to agree with him in this case... these analysts don't seem to know anything about the stock or the company... they are just pulling numbers out their ass.

     

    I will say that the 328k by 2020 will not only be reached but surpassed. All they need to do is fix the battery supply issue. As long as they can do that, they could easily ramp up production again. This is the only major break in the supply chain.
    27 Nov 2013, 09:02 AM Reply Like
  • Jacob Steinberg
    , contributor
    Comments (814) | Send Message
     
    "Here's an experiment:
    I'm not going to do it, but I'll track it on paper none the less. No day trader crap, no stop losses, let it ride out for 3 months

     

    Take Lovallo's estimate:
    Short it at $122

     

    Use the DB estimate
    Go long at $122

     

    Let us revisit this in 3 months when the results come out

     

    You could also do the experiment with naked puts and naked calls. Good way to lose money."

     

    How about we do that experiment at a time when the Fed isn't pumping the market with unlimited free money? If it wasn't for the Fed's monetary policies, Tesla would be trading around $60-70 today. Then again, Dow wouldn't be anywhere near 16,000.
    27 Nov 2013, 12:21 PM Reply Like
  • Jacob Steinberg
    , contributor
    Comments (814) | Send Message
     
    "tftf, they did not model the battery supply problem, because it is nonexistent in longer (>2 years) time scales. It is just your imagination."

     

    Oh really? I wish life was that simple. So when will batteries start raining from the sky so that Tesla can collect them for free?
    27 Nov 2013, 03:11 PM Reply Like
  • Tales From The Future
    , contributor
    Comments (4096) | Send Message
     
    " tftf, they did not model the battery supply problem, because it is nonexistent in longer (>2 years) time scales. It is just your imagination."

     

    We will see. How is the giga factory construction coming along for..

     

    20-40 GWh needed for TSLA cars

     

    560+ GWh needed for TSLA to become a licensing company to other car manufacturers ("powered by TSLA" scenario)

     

    so that TSLA can surpass Toyota by 2020 in market cap?

     

    I heard 600 GWh is really "easy" to achieve, only 52.5 billion battery cells/year needed.

     

    Probably also super-cheap.

     

    Maybe TSLA interns will build the plant in a few months in their spare time.

     

    Irony over.
    27 Nov 2013, 04:30 PM Reply Like
  • Tales From The Future
    , contributor
    Comments (4096) | Send Message
     
    Space-X could get the 52.5 billion battery cells/year from Mars.

     

    They are being built there by advanced alien technology. That would be another likely scenario :)

     

    Seriously, I didn't pay much attention in physics, but even I know how much 40 GWh or 600 GWh are in battery terms.

     

    The current global capacity is 25-30 GWh (and we are using a few of those GWh for all the AAPL and Samsung devices in our pockets).

     

    Sorry to repeat myself, but the numbers don't add for TSLA sales unless TSLA and peers start building / financing giant factories asap.
    27 Nov 2013, 04:37 PM Reply Like
  • rockinghorse
    , contributor
    Comments (240) | Send Message
     
    348k vehicles is reasonable target for 2017 or 2018 sales. Therefore it seems that current value is close to target price. Perhaps around $150 is good target for one year forward price. So there might be some money making opportunities. But perhaps today it is better to wait and see how $TSLA evolves.

     

    Tesla Motors however is risky investment opportunity, because it does not issue dividends so the only way to make profit out of it is to try to beat the markets. And this is gambling. And typically in gambling the House always wins in a long term.
    27 Nov 2013, 09:01 AM Reply Like
  • Value Horizon
    , contributor
    Comments (699) | Send Message
     
    Indeed, Lovallo's comments reveal that he finds the current price fair value if Tesla underperforms their targeted goals, and his price target is based on Tesla massively failing to come within a small fraction of their targeted goals.
    27 Nov 2013, 12:21 PM Reply Like
  • Nigel D'Souza
    , contributor
    Comments (171) | Send Message
     
    Tesla highlights the divergence of implied share price values due to different assumptions. Analysts can only justify the current market price by looking 5-10 years out and assuming Tesla generates a high volume of unit sales from the Gen-III model. If you make more modest assumptions which include increased cap ex for the battery plant, supply chain restrictions and a more modest growth rate, then Tesla is highly over-valued.

     

    How likely is the following scenario? Going forward Tesla is unrestricted by its supply chain, maintians 25% gross profit, acheives exponential unit sale growth and resolves battery issues. If you think it's highly likely, then go long $TSLA and I wish you the best.
    27 Nov 2013, 09:07 AM Reply Like
  • Joe Dirnfeld
    , contributor
    Comments (1128) | Send Message
     
    The shorts are assigning amazon a walmart p/e . Price target there would be $15 per share. Move over to netflix, similar price objective.

     

    Tesla in its hyper growth phase will not trade at a p/e multiple of 10. The range will be 30 to 50 times forward earnings, trailing earnings are irrelevant now.
    27 Nov 2013, 09:11 AM Reply Like
  • Tales From The Future
    , contributor
    Comments (4096) | Send Message
     
    "Tesla in its hyper growth phase"

     

    If so, I invite you to point me to an article how and when TSLA can get or produce billions of additional battery cells/year for that growth in 2017+.

     

    I only see supply secured for the smaller S and X car numbers.

     

    There are no moving EVs without a working battery inside.

     

    I doubt TSLA is going to start selling ICE cars or 1:1 scale models with a voucher for a battery pack delivered a few months later.
    27 Nov 2013, 04:44 PM Reply Like
  • Jacob Steinberg
    , contributor
    Comments (814) | Send Message
     
    Dan Galves reminds me of the analysts that gave 95% of the internet stocks "buy" ratings during the dotcom bubble of 1999. Didn't several of Mr. Galves' previous "strong buy" picks already go bankrupt in the last few years?
    27 Nov 2013, 12:19 PM Reply Like
  • Robert Duval
    , contributor
    Comments (2927) | Send Message
     
    What earnings, Mr. Galves?
    27 Nov 2013, 04:43 PM Reply Like
  • Tippydog
    , contributor
    Comments (1806) | Send Message
     
    Deutsche Bank is Tesla's house pet research analyst.

     

    He was the one who put out the strong buy at 168, that got the stock to 190. Saying that the VIN numbers showed demand and near term ramping far higher than the street expected. It was a good call for a short while, wasn't it?

     

    And said there were no near term catalysts that could contribute to a revaluation lower.

     

    He's the one after the first fire that said it was a fluke, and a huge buying opportunity.

     

    Deustsche Bank is a house bank for Tesla. And one that needs to say happy things to stay on the inside. DB is a marginal bank in the U.S. in equities.

     

    There are a lot of future fees at stake in Tesla. Massive financings to fund massive Cap ex, causing massive dilution. But thats the definition of great client in banking. And if you are a 3rd tier bank like DB, you need to hang close.

     

    He isn't going to be dissuaded by the fact that his buy side clients have lost a lot of money if they listened to his calls. HIs big client is Tesla. Thats who is going to put the kids through college. Not some hedge fund.
    27 Nov 2013, 08:49 PM Reply Like
  • WingWise
    , contributor
    Comments (5) | Send Message
     
    Hmmm... price targets of $200 and $45. Let's just take the average... $122.5. Seems were pretty close to right on today.
    29 Nov 2013, 01:30 AM Reply Like
  • J. Perkowski
    , contributor
    Comment (1) | Send Message
     
    I live in Beijing and have been involved in China's auto industry for the past twenty years. I'd be curious to learn what evidence Mr. Galves has of "strong order flows from China."
    2 Dec 2013, 10:44 AM Reply Like
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