tag:blogger.com,1999:blog-8152901575140311047.post7109377673733921890..comments2024-03-28T06:23:58.716-04:00Comments on Musings on Markets: Tesla: It's a story stock, but what's the story?Aswath Damodaranhttp://www.blogger.com/profile/12021594649672906878noreply@blogger.comBlogger13125tag:blogger.com,1999:blog-8152901575140311047.post-43708453017344162822016-09-20T02:06:52.978-04:002016-09-20T02:06:52.978-04:00Hello Professor Damodaran -- this saga of the Tesl...Hello Professor Damodaran -- this saga of the Tesla/Solar City buyout is potentially coming to light.<br /><br />The following was posted on seekingalpha this evening along with comments by a couple of posters.<br /><br />I sense they may be reading your blog posts.<br /><br />http://seekingalpha.com/article/4007178-lawsuits-delay-tesla-solarcity-gopros-new-gear-facebooks-upside-eye-tech<br /><br />CheersSophiehttps://www.blogger.com/profile/18037330317427856629noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-36676688630022265132016-09-20T01:58:01.992-04:002016-09-20T01:58:01.992-04:00Professor Aswath Damordan; here is an article tha...Professor Aswath Damordan; here is an article that was posted on Seeking Alpha regarding pending lawsuits on the Tesla/Solar City merger. <br />Here is the link http://seekingalpha.com/article/4007178-lawsuits-delay-tesla-solarcity-gopros-new-gear-facebooks-upside-eye-tech<br /><br />The comments section by two responders also articulates points of view. They must have read your post etc...Sophiehttps://www.blogger.com/profile/18037330317427856629noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-2179041790616258112016-09-18T23:18:16.913-04:002016-09-18T23:18:16.913-04:00Really helpful!
My big problem with Tesla as a sto...Really helpful!<br />My big problem with Tesla as a stocm is the range of possible outcomes is too big.<br /><br />It couls become a major car company + utility + battery manufacturer. It could become Tucker. And anything in between.<br /><br />I think with a large range of uncertainty I'd avoid buying unless it's cheap... which may never happen.<br /><br />Also... I think with large story stocks on long and uncertain runways the probability of business is high (remember Netflix getting killed when they separated their business?<br /><br />If Tesla makes it 10-20+ years they are bound to stumble and likely have an unreasonable price drop.<br /><br />Too hard for me is like too early :).Hermann Phttps://www.blogger.com/profile/13473452242791255745noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-50330663589674452752016-08-05T17:13:31.762-04:002016-08-05T17:13:31.762-04:00@Fung
You're ignoring share count. TSLA will ...@Fung<br /><br />You're ignoring share count. TSLA will likely not reach a $1 trillion valuation without issuing additional shares in exchange for capital, which increases the share count and lowers the present value one can ascribe to each share today. <br /><br />Note - an ever increasing market capitalisation does not automatically translate into an ever increasing share price.<br /><br />Darcy D.Darcyhttps://www.blogger.com/profile/04061962968169183386noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-57443364390668398792016-07-26T05:25:37.611-04:002016-07-26T05:25:37.611-04:00Hi Aswath, I would really like to see your thought...Hi Aswath, I would really like to see your thoughts on an EV company listed on Nasdaw that is currently in stage 3 (High Growth). It is the polar opposite of TSLA in terms of valuation given to it in the market. Ticker: $KNDIAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-87037082422688203932016-07-25T20:52:12.409-04:002016-07-25T20:52:12.409-04:00Great post. I think the obvious reason why your va...Great post. I think the obvious reason why your valuation is so far off from current prices and other investors' valuations is that they do believe in Musk and therefore do not really factor in the time value of money into the valuation. Think of it this way - if you believe Musk will come through on his intentions, then Tesla is pretty easily a $100B+ company (selling ~500,000+ vehicles a year at 15-20% margin + tesla energy). Investors who believe this are essentially waiting until 2019 or 2020 to start their valuations. Using your model, that yields a share price of $450. I'm not saying this is smart, but if you do believe in Musk then the addressable market and their margins can lead to a very large valuation. It's not like Groupon or another niche company - the addressable market can justify a huge valuation.<br /><br />I'd also say that Bezos' vision is seemingly all over the place. An online bookstore? then an online version of walmart? now designing and producing hardware? web services and cloud? none of these steps along Amazon's way seem to have an aligning vision, and yet he's been able to articulate it well and they've been successful. There seems to be MUCH more synergy and commonality between Musk's vision (you just haven't heard it for long enough yet): Environmentally friendly, sustainable energy production and consumption. The battery technology is kind of a necessity instead of an ends itself, as batteries are needed to accomplish the goal of sustainable energy, but not the goal itself. Batteries also connect all parts of that vision. They're necessary in the cars, obviously, and are necessary to make solar panels economical in the long run. I'd say the technology side of Tesla (autopilot, etc) are more meant to differentiate their product, thus enabling higher margins and increase survival likelihood, instead of being the end goal. For most companies, the main goal would actually be to make the best and coolest cars you can. For Tesla, it's to make environmentally friendly transportation (which makes it somewhat ironic that Tesla is doing a better job at accomplishing the goal of all other car companies, even though it's not their main goal).<br /><br />JoshAnonymoushttps://www.blogger.com/profile/08624688228875387120noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-86739475557303561762016-07-18T04:24:30.957-04:002016-07-18T04:24:30.957-04:00Dear Prof. Damodaran,
I have read one of your pap...Dear Prof. Damodaran,<br /><br />I have read one of your papers on taxes in valuation, namely dealing with deferred tax liabilities (both current and the PV of future ones based on the difference between marginal and effective tax rates), and have been able to fully grasp the logic. However, I was surprised to see it was not incorporated in your valuation model that you had provided (on Apple, in this very case). I would appreciate if you could clarify the reason (perhaps, it is insignificant and ignored on purpose)?<br /><br />Kind regards,<br /><br />TimTimhttps://www.blogger.com/profile/16231184752945989649noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-81593265530315553392016-07-16T06:01:05.777-04:002016-07-16T06:01:05.777-04:00Hi Professor,
Thanks for the great post. I have ...Hi Professor, <br /><br />Thanks for the great post. I have a few questions about your 2016 valuation of Tesla. <br /><br />In your cost of capital worksheet, you used Auto & Truck + Electronics (General). So I am assuming you are using Electronics (General) as the tech reference.<br /><br />If so, your numbers don't tally. <br /><br />1) Operating Margins<br /><br />Average operating margins for Electronics (General) for US (and global) are not 12%. Where did you get this 12% from? <br /><br />2) Terminal Cost of Capital <br /><br />Your story highlights that the cost of capital should be 50% tech, 50% auto. The initial cost of capital of 8.13% matches this. <br /><br />But how did it become 7.5% in the terminal year? Average (US) for Electronics (General) is 7.43% while Auto & Truck is 4.7%. How did you get to 7.5%?<br /><br />3) Sales to Capital Ratio <br /><br />Average Sales to Capital Ratio for Electronics (General) for US is 1.40. How did you get 2.24?<br /><br /><br />PS: I know these differences could seem trivial, but I found that small differences led to big changes in value for Tesla. If possible, could you kindly explain how you got the above numbers?Stefnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-13439447032548137762016-07-15T18:06:31.043-04:002016-07-15T18:06:31.043-04:00Why is the Marginal Tax Rate 30%, instead of 40% f...Why is the Marginal Tax Rate 30%, instead of 40% from Sheet of Country Tax Rates? Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-15845433334673151892016-07-15T13:53:09.010-04:002016-07-15T13:53:09.010-04:00nice attempt at story telling Aswath.
if at some ...nice attempt at story telling Aswath.<br /><br />if at some point it becomes of interest to you to put story telling attempts aside and discuss the valuation of Tesla, give me a shout, I'd enjoy that.<br /><br /><br /><br /><br /><br /><br /><br /><br />Anonymoushttps://www.blogger.com/profile/09408330447204015528noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-39957015553514594172016-07-15T00:40:10.718-04:002016-07-15T00:40:10.718-04:00Thanks for the great post.
There are a couple thi...Thanks for the great post.<br /><br />There are a couple things that I disagree with:<br />1) There cannot be a story stock forever. Ultimately the story has to be aligned to the numbers. In short, story stocks don't last for long.<br />2) In view of the above, it is time that Amazon aligns itself. Sure, Bezos has stuck to his story. Nevertheless, the numbers have been telling something else. It amazes me that markets have been forgiving and patient for too long. In your parlance, Bezos has remained a builder. When does he get to become an opportunist, a defender and so forth?<br /><br />It is easy to plug revenues, margins and reinvestment into Tesla valuation. Yet, Tesla would defy our numbers and show up way different in future. Musk himself wouldn't know what the numbers are going to be. <br /><br />I do agree with your assessment, though, that Tesla is overvalued and hyped. <br /><br />SP.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-53049127992227775912016-07-14T22:21:03.789-04:002016-07-14T22:21:03.789-04:00I have an over-simplified way to value Tesla, but ...I have an over-simplified way to value Tesla, but I guess most people would disagree with me.<br /><br />Elon is a man with substance, though he has some punctuality problem, but when he says Tesla can be a trillion dollar company, I bet he has a long-term vision on how to achieve it. If anything, I think it is achievable: (1) Tesla is the "Apple" of EV, (2) it will be the largest battery seller in the world, (3) it is the largest residential solar-panel guy in US (growing fast and may grow faster with Tesla brand), and (4) we don't know what other awesome shits are in his masterplan.<br /><br />The real question is: WHEN?<br /><br />It can be in 10 years, 20 years or 30 years.<br /><br />Let's ignore the cash flows and just discount back the terminal value ($1 trillion) at 10% a year.<br /><br />$1 trillion at 40th year, PV = $22.1 billion<br />$1 trillion at 30th year, PV = $57.3 billion<br />$1 trillion at 20th year, PV = $148.6 billion<br />$1 trillion at 10th year, PV = $385.5 billion<br />$1 trillion at 5th year, PV = $620.9 billion<br /><br />At $35.5 billion market cap (post-dilution of SolarCity), the market is expecting Elon to hit his trillion dollar vision 36 years later. Well~~~ I guess that's a little bit too bearish.<br /><br />Caveat: if you believe in this model, be sure to hold Tesla stock for at least 10-20 years, so that others would finally agree with you (or maybe not).<br /><br />P/s: Prof, I think you come out with this piece too soon, Elon is to reveal his latest masterplan later this week.<br /><br />Cheers,<br />Fung C.F.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-45495681063651484722016-07-14T18:27:45.025-04:002016-07-14T18:27:45.025-04:00So you have:
-Steadily reduced your Year 1 throug...So you have:<br /><br />-Steadily reduced your Year 1 through 5 growth rate<br />-Significantly dropped Year 1 through 5 operating margins<br />And your valuation of TSLA increased?<br /><br />Where is the 'reinvestment' going to come from? Aren't you saying that TSLA will need to find over $25B to keep the lights on? That investors would have to wait 8 years before seeing a dime in positive FCFF?<br /><br />The valuation increase is a function of your terminal year growing. But with significant losses for the foreseeable future and no new products until 2018, TSLA's terminal year will come much sooner.<br /><br />All the same, thanks for tackling this.<br />-JohnJohnSiemerhttps://www.blogger.com/profile/02966083150232003471noreply@blogger.com