Entering text into the input field will update the search result below

Tesla: Never A Dull Moment

Jun. 04, 2020 12:20 PM ETTesla, Inc. (TSLA)171 Comments


  • Tesla had an incredibly interesting May. Between Musk's battle with Alameda County and California in general to his big payday, there's truly never a dull moment at Tesla.
  • I discuss the Fremont gigafactory's controversial reopening, Musk's $775 million bonus, Model Y delivery time reduction, price cuts for other models, and potential pent-up demand for EVs.
  • To provide a fresh take on to my valuation process, I employ a DuPont Decomposition method to assess Tesla's business and the trends thereof.
  • I rate Tesla neutral until it reaches the $400s, at which point, I'd rate it a strong buy.
  • Looking for a helping hand in the market? Members of Beating the Market get exclusive ideas and guidance to navigate any climate. Get started today »

Source: wraltechwire.com

Welcome Back

On 8th May, I reiterated my stance on Tesla (NASDAQ:TSLA) in the $700s and $800s with a neutral rating. In that article, I shared a detailed business analysis and estimated intrinsic value for Tesla. Since then, shelter-in-place orders have been eased, Tesla's Fremont factory has re-opened, and Musk somehow managed to land in hot water again.

In today's article, I will discuss some of the latest news regarding the company, analyze the momentum of Tesla's business fundamentals, and re-evaluate the company's fair value.

Elon Musk Remains A Brilliant Idiosyncratic Risk

I explained in the last article as to why Elon Musk represents a significant idiosyncratic risk for Tesla, and his recent actions surrounding the shutdown support my claim. I want to be clear that I support him, but I am also concerned that he may step on too many toes in pursuit of his visions. There is precedent here, and it generally does not end well for the bullish CEO, nor for the company from which they are removed.

We know that Musk has been a vocal critic of the shutdown, but his comments during Tesla's earnings call surely do Tesla's and his image no favors, regardless of how right he may or may not be. He termed the stay-at-home orders an unconstitutional infringement on people's freedoms, which was fine, but then in reply to a question regarding policy push for EV infrastructure, he went on a rant:

So, this is the time to think about the future, and also to ask, is it right to infringe upon people's rights, as what is happening right now. I think the people are going to be very angry about this and are very angry, because somebody should really -- if somebody wants to stay in their house, that's great. They should be allowed to stay in their house, and

Beating the Market: Education, Returns, and Community

Did you find our analysis compelling? Would you like more in-depth, institutional quality analysis, alongside many more incredible, potentially market-beating opportunities?

At Beating the Market (my Marketplace Service), we find dividend payers, high-growth stocks, and a mixture of the two. My stock picks will not only help you achieve your financial goals, but also, they often beat the market.

So start your free two-week trial today to begin beating the market and achieving your financial goals!

This article was written by

Louis Stevens profile picture
Beating The Market buys businesses it likes and understands.
These mostly include businesses in consumer discretionary, FinTech, and software.
Here is a snapshot of my performance over the last half decade or so: https://www.tipranks.com/experts/bloggers/louis-stevens

Some credentials of mine: U.S. Army Officer in Reserve, Political Science Florida Atlantic, MBA University of Florida, inventor of the L.A. Stevens Valuation Model.

Analyst’s Disclosure: I am/we are long TSLA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Comments (171)

CentralScrutinizer profile picture
at what point do the SA writers who have been calling the top apologize to us?
Baslim profile picture
It is not going to happen. It should happen when demand is still above 500K for 2020.
Authors says Musk comments on "Lockdown" are risk to Tesla brand.....check out comment section of conservative sites like Fox and Beirtbart. Musk has suddenly become a darling.

Adding the effect of Crew launch of Space X.. Musk made significant inroads into "conservative" space...while losing a very small fringe left element.

He came out as a strong leader who stands for his beliefs, rather than safe, bland corporate CEO.
yanming_sv profile picture
Author Louis asked me about what "assumption and model" I used for analyzing TESLA.

I think, the main problem for the TESLA-Shorts are the wrong "assumption and model" they are using.

Those OLD "assumption and model" are for all OLD companies and ICEs.

For Elon Musk, the person with the path of Zip2, PayPal, TESLA, SolarCity, SpaceX, and Boring;
with the person using the "First Principle Thinking",

any use of those OLD "assumption and model" will lead to wrong prediction.

For example, the author here, did NOT use the information on the progress of TESLA's effort to become the "Best in Manufacture".

This NEW goal of becoming the "Best in Manufacture" (plus all the advantage TESLA has now) is the KEY for TESLA's future, it relates to many crucial things used in analysis.
Louis Stevens profile picture

So... no assumptions?

I think that's called "blind faith"...
Louis Stevens profile picture

By the way, I am long Tesla and will hold in perpetuity.
yanming_sv profile picture
"any use of those OLD "assumption and model" will lead to wrong prediction."

NOT "No assumptions".

Even you are "Long", but, the method you used is still not suitable for analyzing TESLA.
Louis Stevens profile picture
Check out how we are playing the greatest secular growth trend of the 21st century (and no, it's not 5G):

yanming_sv profile picture
"Tesla quietly acquired automated manufacturing firm to design factories"


This is the type of info to help us to do evaluation for future TESLA.
Guy Whitehead profile picture
@louis Stevens, an interesting and well written article. However the section on free cash flow and valuation troubles me. Usually free cash flow from a business is good, since the business is generating cash for the shareholders. However in Tesla’s case almost all positive free cash flow in profitable quarters comes via stock based compensation. In losing quarters (which are more common for Tesla), sbc is the only cause for positive FCF, when it occurs. 
SBC is inevitably a cost to the shareholders via dilution.
Since Tesla’s FCF is of no benefit to shareholders, how it be used as a valuation measure? Or do you see the nature of Tesla’s FCF fundamentally changing going forward?
Article assumes cash flow rises 20% in line with with revenue increases II guess.
However that can be more or less depending on economies of scale for a company.
Tesla has terrible economies of scale and that's why never profit no matter how much revenues increase.

2014 revenues: 3.2 bn Expenses+interest: 3.49 bn
2019 revenues 24.58 bn Expenses+interest: 25.25 bn

Cash flow increase to be expected in line with change of revenues - expenses.
In Tesla case about 0%.

And profits are needed for positive cash flow which will be difficult to achieve with recent $2000 price cuts.
SharpAnil profile picture
Situations are different in 2014 and 2019 for Tesla

2014: Expenses and interest used to fund
Model 3 Development

2019: Expenses and interest used to fund
China Factory,
German Factory,
Model Y Launch,
Energy and Solar

In 2020: Add these to the list
Texas Factory
Cyber Truck

If Tesla decide not to expand at their pace, expenses will go down, but so will growth. Based on the shareprice, shareholders will expect investment in top-line growth.

for example 2019 24.58 bn expenses:
cost of revenue: 20.5 bn
Selling/Gen/Marketing: 2.65 bn
Research and development 1.34 bn.

1,34 bn is really low especially for a 164 bn company and has to be more if Tesla doesn't want to be caught up in technology soon.

mobileeye plans tobotaxis in 2022 at initial price $ 15.000 and expects price $ 5000 eventually.

SharpAnil profile picture

That is interesting data. Tesla doesn't advertise. So I am surprised that their accounting shows more money spent in Marketing than R&D. I am not an financial accounting so I cannot comment with how the money is allocated - and I understand why Tesla Bears might feel frustrated.. The only thing I can say is that Tesla is definitely investing in more growth.
Why is tesla model 3 sales are worsening in Norway? In May tesla sold only 8 model 3, seems competition is too strong? Or something wrong with Tesla service?
Andreas Hopf profile picture
For Q2, Tesla is mostly concentrating on the U.S. and China, for obvious reasons.
In Q1 Norway and Sweden were just above 1200 model 3 each.
In May Sweden is 69 while Norway is at 8.

How can they pay their delivery staff if only 2 model 3 per week are delivered?

Maybe Tesla wants to concentrate on bigger markets only.
Looks like they have given up on Norway.
Previously their best market in Europe.

In most other European countries sales appear to be not much different from February.
its impact of having just 1 factory. Situation will greatly improve by year end when Model 3 and Y are full operational from Shanghai.
yanming_sv profile picture
"I rate Tesla neutral until it reaches the $400s, at which point, I'd rate it a strong buy."

This Technician doesn't know how to do value-investing.
Louis Stevens profile picture

Share your assumptions and your model...

I do not use TA at all.
yanming_sv profile picture
The author,

I do NOT have any assumptions and your model.

Before, I agree with a Long-analyst here (Calsion? he posts less now).

And, now, I agree with Cathe Wood ARK investment analysis.
CentralScrutinizer profile picture
Warren Buffet dumped the airlines at the absolute bottom.. man has lost his touch
He hasn't lost his touch. He just didn't expect the FED to be so extravegantly stupid
"Warren Buffet dumped the airlines at the absolute bottom."

Don't count your chickens. New record bottoms are on their way.
05 Jun. 2020
Please comment on how you factored in EV credit sales (which comprised around $350 million of Tesla revenues in Q1 2020). Thanks.
06 Jun. 2020
No response. My guess is you have no response because factoring in those credits, which fall almost completely to the bottom line, makes all your calculations a lot less valid.
06 Jun. 2020
Those aren’t sustainable and are worth less in the coming years when other manufacturers produce and sell more EVs
07 Jun. 2020
Absolutely and I don’t see any of that reflected in the Author’s calculations unless I missed it. It’s not recurrent in any way shape or form and it mostly drops directly to the bottoms line. Yet many analysts seem to just glide over it and act as if it is the same as recurring revenue from actual sales.
It is frustrating that the Author won’t answer my question but not unexpected.
Excellent article.

But a $337.89 SP is still over-egging the pudding imo. For it's reliant on all kinds of planned/projected things happening that are not going to happen.

Of course people will pay what they will pay for $TSLA shares nevertheless. What they are truly worth is irrelevant with a highly manipulated story stocks like this one. And no one can really predict when reality is going to catch up with Tesla and it's Board.

Sub-$100 is all but guaranteed (imo) within the next few years or possibly months.
All the Tesla profitable quarters combined 715m (16m+105m+143m+139m+312m).
Elon's 775m bonus more than that!
Andreas Hopf profile picture
Now consider regulatory credits incurred since 2013: $2,641,756,000.
FYI: If you're a Tech investor ? Louis's service is a must have tool ! I've been sampling different trials and this one has exceeded my expectations and I'm not easy to please. What , I found super refreshing is he doesn't get caught up on calling the markets macro direction and trying to time it. He simply identifies great companies with bright futures and offers entry price suggestions. what blew me away is that he's willing to have private ZOOM chats with members to discuss companies. He didn't ask me to write this. I wrote it because I believe in acknowledging great work and effort. Pastor Rick Gordon
@Louis Stevens

Too conservative growth rate. Tesla growing at 40%. Will have at least four full operational factories in two years, producing 400k units each. Will be selling approx 1.6M vehicles in two years. That's 4x from 2019. And this does not include energy, solar, autonomous or other software.

It's important to get the model right. Good to be conservative, but being too conservative can significantly underestimate growth and lead to missed opportunities.
Louis Stevens profile picture

Thanks for commenting, and I agree!
Steve Funk profile picture
I count three factories. Really four if you count Model S line @ 100k. Do we know planned volume for Berlin? Two Tesla volume problems: They won't reach 1.6M. Second, you can't survive as an auto company with that low production. Look at FCA and now Daimler. Must partner with someone.
Baslim profile picture
@cwDeici Thanks for your reply. It helped me figure out why my model is wrong. I was discounting for risk and not realizing it. That is incorrect thinking. Your model should have the 50% growth for the next 3 years with a higher probability of failure. Which is $9B earnings in 3 years at 50K x 395K x 1.5 ^ 3 x .2 - 4.4B?
This leads to a current price of $1000 at $9B * 40 / 210m / 1.1^3. * .8
So with a 20% that they fail and 80% that they succeed they are undervalued slightly.
truwa profile picture
As I understand you value Tesla only for EV sales.

In other words you assume that:

1. FSD will never be achieved and no significant income will come from it. FSD subscriptions or deferred revenues will be insignificant. Tesla robotaxi or ride-share network like uber will never happen.

2. Solar and energy storage will never take off.

3. Million mile battery does not happen. Even if it happens its benefit to Tesla's EV and energy storage business will be insignificant.

4. Virtual power plants and vehicle-to-grid will not happen in the long term.

5. Tesla insurance is not important to mention.

6. Income from premium connectivity services and software will be insignificant in the long term.

7. Revenue from superchargers and services-repairs will be insignificant or will never happen.

That is a lot of assumptions.
Louis Stevens profile picture

Keep in mind I am long and completely agree with you on nearly every account.

But I want to implement a margin of safety.

I am not a "buy at any price" investor. I am homed in on the greatest secular growth trends of our time and have a strong vision for what they will look like, but I am also a financial analyst first; therefore, I must make conservative assumptions and base my investing operations on them.

I demonstrate how anybody can invest like this in my marketplace:

Assumptions 1-7, even if they all come true (that IS a lot of assumptions), ie, they don't produce significant revenue, they all help sell more BEV's.
"That is a lot of assumptions."

Works both ways pal.

Promises, faith and beliefs in the future being XYZ are all just assumptions.
I hear all about the robo taxi future where one car serves multiple families and no one owns a car. . If this is true, less car sales are needed in the future which defeats the growth story.
You mean after Tesla supplied the world with robotaxis, there wont be any demand after that? ok.... sure....
@cbx6cylinder @WillMetz I think the best solution for the environment is just to work from home and cut out unnecessary commuting and business travel. A lot fewer cars and taxis and Ubers required in this new world. It appears Tesla's business model has been disrupted. We now know there is a better way.
You can do both: Work from home AND ban new ICE sales.
Asymmetric Upside profile picture
I think Tesla will be trading in the $400-1k range for the first half of the 20s, the same way it traded in the $150-400 range throughout the second half of the 10s.
Louis Stevens profile picture
@Asymmetric Upside

I like this a lot. I'm strongly inclined to agree.

Hence, our intelligent portfolios have it as a hold presently in our marketplace service.

Gordonr profile picture
You’re long! Good for you! 💰
You get it! Tired of hearing “never made a profit” for the last 10 yrs.
But that’s all the shorts got left.
And you can’t make it to the top without stepping on toes. (Elon does that well)!
Gates, Zuch, Jobs, Bezos have all had their feet in the fire 🔥
He’s in good company.
Aussie Machead profile picture
Musk is just a little more intelligent than all of them ? but certainly more intelligent than Zuck
That 5% difference between EV reduction vs overall reduction comes across as an overall net gain for EVs, especially with what we're reading about Germany and other countries strongly promoting EVs as the CV-19 issue begins to wind down. And don't forget, the disease hasn't gone away and we could well see a strong resurgence at any time between now and the time a vaccination becomes available.

I do expect to see a slip in overall market prices for this quarter but beyond that is still a guess that depends as much on the CV-19 virus as it does on the overall economy as a result of the virus these past few months.
Roger Knights profile picture
"So, Musk got an option to purchase 1.69 million shares at a strike price of $350, which translated to a net payout of $775 million (at a stock price of ~$805)."

But Musk must hold the shares for five years before selling, so if the SP is back down to $350 or below by then, as I expect, his profit will be zero.
Gordonr profile picture
Good point! But I think it will be closer to 1000. And that’s conservative. I wouldn’t bet against him. As many shorts found out the hard way.
@Roger Knights
"But Musk must hold the shares for five years before selling, so if the SP is back down to $350 or below by then, as I expect, his profit will be zero."

Can he borrow against those shares or use them as collateral to scam a bank?
Roger Knights profile picture
"Can he borrow against those shares or use them as collateral to scam a bank?"

Not if he had to borrow to buy them in the first place! AFAIK.
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.