Tesla continues defying the odds


Tesla reported 2nd quarter earnings for the year – and once again, defied odds and rose 15% today.  Earning numbers are complicated by all the accounting inclusions and exclusions, but generally, it appears as if Tesla made a profit of 5 cents (or 20 cents depending on how you account for it) per share, when everyone was expecting a loss of 17 cents.  By any form of valuation, or any comparison relative to any other car company, Tesla is ridiculously overvalued.  The company has produced 13,000 cars and is valued today at $17.7B.  For some comparisons, nearly $18B means

  • Larger than Fiat ($9B) or Tata Motors ($15B)
  • 1/3 the size of GM ($50B)
  • 1/4 the size of Ford ($67B)
  • 1/5 the size of Volkswagen ($109B)

Even compared to other stocks I own, Tesla’s market cap is above the majority of holdings in my portfolio – and they’ve done this by producing 13,000 Model S’s.

I can only define this as momentum investing or cult-like behaviour.  Investors in Tesla today aren’t looking at today’s earnings or numbers – they’re looking at the company 7-10 years out – where Elon has painted a great picture:

  • Model S: 20K demand / year in North America, 10K in both Europe and China
  • Model S margins on target for 25% by end of year (minus the always confusing ZEV credits)
  • Model X: expected to roll out at end of next year and in full production in 2015
  • 3rd Gen Vehicle: a $35,000 (without subsidies) that can go for 200 miles
  • Free electricity for all (who own a Tesla car)
  • Company valued at $43B in 2022

What?!  $43B in 10 years?! Recently made public is Elon’s long-term inventive plan allowing him to buy 5.3M Tesla shares at $31.17.  The kicker – Elon’s ability to exercise those options are broken up into sections based on both Tesla market cap; and operational milestones:

  • Successful completion of the Model X Engineering Prototype
  • Successful completion of the Model X Vehicle Prototype
  • Production of the first Model X Production Vehicle
  • Successful completion of the Gen III Engineering Prototype
  • Successful completion of the Gen III Vehicle Prototype
  • Production of the first Gen III Production Vehicle
  • Gross margin of 30% or more for four consecutive quarters
  • Aggregate vehicle production of 100,000 vehicles
  • Aggregate vehicle production of 200,000 vehicles
  • Aggregate vehicle production of 300,000 vehicles

The total amount applies when Tesla reaches a market cap of $43.2B and all 10 operational milestones have been accomplished.  This must all be completed by 2022 else whatever options are still remaining are lost.

It’s great when you have a CEO tied directly to the performance of the company; and especially with long term goals that he feels are achievable.  Of course, this is also the same person building rockets into space and solar systems to power Tesla “gas” stations.  Perhaps not so wise to bet against a man with that vision (as 30% of Tesla stock is still being sold short).

For me, I’ve stopped it with my insurance plays – both times having been a waste of money.  Having sold a portion to reduce our exposure, I’m happy with just owning this company and its future – and watching it meet (or miss) quarter by quarter. Momentum is definitely something you do not want to try and get in front of.  It’s a great vision I’m investing in, and I’m sure there will be lots of future opportunities to buy – it’ll just be a question of whether it’s getting the shares for $75 (falling from $150) or for $150 after falling from $300.




2 thoughts on “Tesla continues defying the odds

  1. Pingback: Is This Chinese Developer a Cheap Stock or Value Trap? | Fearless Cal's Investment Journal

  2. Pingback: Tesla: Short Squeeze or Irrational Exuberance? | Fearless Cal's Investment Journal

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