I find it very interesting that a day or two after GS issues a sell, in comes Andrea James asserting that TSLA is a $200 stock.
Except do the research on Andrea James. Does she come by her valuation due to her vast experience in the auto industry, or studying manufacturing businesses, or perhaps even from some long experience in stock analysis? No. She is 3 years out of school, about 30 years old, lives in Seattle area. Former Journalism major.
Her report made quite a splash though, and was picked up by several major news services. Even made for a TV appearance. Helped TSLA's share price avoid a continued and well-deserved slide after the Goldman Sachs downgrade.
So let's just believe her. Does TSLA really deserve to be trading at 80X book value or much greater? Does it deserve its $15 billion market cap? That makes it worth more today than Fiat/Chrysler, more than Peugeot/Citroen (8th largest auto mfg in the world), and worth about 1/4 the market cap of mighty, profitable Ford.
Ford produces over 3 million cars annually, very profitably thank you, and TSLA is shooting for 20,000.
Don't forget, TSLA will be required by law to stock spare parts available for their dealers/service centers for 10 years. Have they figured out the service aspect of their business yet? We have no idea. The cars just arrived on the road.
I am a fan of the product.
But this company has more monumental risks ahead of it that other car companies do not. Those risks should ding its valuation vs. other car companies.
Andrea James may be clueless along with other longs on the long side, but so are the shorts who have been shorting the stock since the IPO and got their heads handed over to them in the squeeze. Tesla has been a hi risk, hi reward stock since the IPO, especially when the short interest was nearly 50% of the float and the stock was under $35. Expectations were certainly low and it did not take much to beat them.
Now, Tesla got their factory going, the product sells and they got $750M in the bank, thanks to the shorts. They got a shot at making big time, if they make their manufacturing efficient like Toyota, battery costs falls as expected and supercharger deployment takes place in US+Canada, Europe and China. Meanwhile, battery performance needs to improve.
Yes, it is a long shot asymmetric bet. However, the rewards are huge if they succeed in disrupting the ICE auto business. They do make very nice cars. I suspect most of shorts and many of the longs have not test driven the car, let alone visit the factory.
I have been long between 35-40. Sold chunk of my position after it crossed 100, so I reduce risk and lower my cost basis. Capital management is important, whether long or short.
Not sure how slander and libel are relevant here. Do a google search for Andrea James and you'll see the data I shared above about her background match up with her linkedin profile.
I'm all about giving new analysts a chance, but I'm more concerned about the small investors out there who are betting their savings on a company with a completely unrealistic valuation. I also am generally upset when professionals who call themselves stock analysts make outrageous recommendations and small investors get burned.
Not even the best case scenarios support this valuation. I am an admirer of Tesla and the Model S, but I'm not going to sit by while people say it is worth more than 80X book value and 200X 2014 EPS estimates.
Reminds me of when eToys was worth nearly as much as Wells Fargo in the 1999/2000 era.
Risks facing TSLA not facing other auto companies include:
- one product in portfolio
- one plant
- one indispensible leader: if Elon Musk gets distracted or gets sick or leaves, what then? Ford, GM, and the rest have bench strength and leadership talent in the wings.
- one supplier for most of its key items. Ford and the rest have multiple suppliers for key items.
- TSLA has no dealers. Company-owned locations only. Dealers of other brands have service technicians who have made careers out of servicing vehicles. How solid will the technicians be who are servicing Model S cars when they come in for a check up? How new will they be, and how qualified? Will they be an island at their service center? A team of 1 servicing Tesla's in a whole market? The other brands have lifelong training programs for their dealers' technicians to practice and hone their skills. The technicians at other brands stay busy and efficiently allocated by working on a few related brands at a time (e.g. Volkswagen, Audi, Porsche).
The list goes on. These issues and especially supply chain issues are definitely being overlooked by the 20 and 30-something analysts giving this stock these absurd buy recommendations.
Careful with the risk on this stock's valuation. It deserves to be about 8X EPS (future) vs. 10X EPS for Ford. That puts it closer to ~$10/share.
LOL, that video was hilarious. There was someone else on the TV program that was a TSLA short. He brings up very real questions of valuation metrics. Andrea James responds "But have you even driven the car yet? I have!"
LOL... does she not get that EVERYONE on the planet loves the car and thinks its amazing? No realistic short is even bashing the quality of the car. Its the valuation and risks that lie ahead! Even the whole supercharger battery swap business model can and SHOULD be questioned, but that is a discussion for another thread.
The point is, Andrea James lives in la-la land, where numbers don't matter. It doesn't matter that its a nice car, that doesn't mean they can make 500'000 of them a year - a number that would SOMEWHAT justify the 1/4 market cap value of Ford, after you factor in growth AFTER that point. But not at 20'000.
Well put, just bumped a terrific post by exKPMGpartner54 that pointed out Porsche's best year ever occurred last year at approx. 146K units. What happens when all the luxury marques have Tesla's product category in their crosshairs?
Tesla proved the category is worth investing in and grabs consumers' attention. Now the other manufacturers, who are understandably more risk averse, will pile in and competition will heat up.
Good luck to Tesla to sell and manufacture even 30,000 total in 2015, let alone have the supply chain expertise to provide a satisfactory service experience to existing customers once parts start needing to be replaced.
yes the whole "Andrea James" upgrade is very suspect. If you look on Elon's twitter account he actually links to a personal video of hers. There is obviously a connection there.
And where there is a connection there is a bias...
I found the Bloomberg interview on the web. She is funny. Does anyone really believe any of that stuff. I don't know what she is smoking but many of her followers must be using the same stuff.