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Thread: Why does TSLA stock not crash?

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    Blogger Daniel Payne's Avatar
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    Why does TSLA stock not crash?

    When a publicly traded company posts a loss of $675 million in Q4 of 2017, then why don't investors panic and sell the stock, punishing the company for poor performance? TSLA somehow has a magical allure that makes it shares immune to bad financial news.

    I personally love the idea of an electric car, and admire the use of semiconductors to control the car and provide semi-autonomous driving, but at what point does the Emperor have no clothes on?

    Tesla losses spike as it fights to ramp up Model 3 - Feb. 7, 2018

    Why does TSLA stock not crash?-tsla.jpg

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    Currently I don't have TSLA, so free to speak. Here's my 2 cents:

    There's lots going on.

    Zeroth of all (ok, I added this point after I added first), there's a recovery of what seems to be the 'XIV-induced fake crash' of two weeks ago, after which some people had to sell lots of shares because they needed money to pay the lost bets on VIX they made. And if you're an 'investor' and need cash for your failed bets, what better way to raise money than sell TSLA?

    First of all, TSLA stock is going up ad down anyway. It's an 'emotion stock', owned by lot's of non-profi enthusiast, who don't use formula's to calculate it's value. Same for AMD I'd guess.

    Second, nobody cares about loss as long as it's an investment. AMZN P/E has been astronomical, as has ARMH's been in the past (or even Soitec!!!). And for all three rightfully so, I'd say.

    However, here's the beef: In contrary to businesses like search engines or ride hailing services, where there is not such a high threshold to start a competitor if customers are able to walk away (Altavista --> Google, Uber and Lyft???, Whatsapp --> Telegram & co), Tesla operates in a market where the threshold to enter is really, really high. Tesla's failure to ramp up production of Model 3 is the very best example of how hard it actually is to build a car in mass production. If Tesla has troubles, then why would a new entrant succeed?

    Tesla has both giga-factory and knowhow how to produce a car which adheres to the rules, which is hard to copy. I read somewhere that of new car manufacturers 'in the West' in the last few decades, only two survived. Now anybody can try to make an autonomous or electrical vehicle, but the road is paved with failures. George Hotz didn't succeed for example, big mouth but didn't last one minute after authorities started asking simple basic questions. So unrealistic hopes of a new 'garage-entrant' who builds the next autonomous car-AI for two dollars are gone now. And succeeding to enter AFAIK neither did Faraday Future, Uber, Google and not even Apple(!!). To make a car, it seems having wild ideas, hiring smart people, putting them in a hotspot like Berlin, throwing billions at it and being founded in Silicon Valley is not enough to start a company, disrupt the entire automotive market and become the new leader. Contrary to what some semicon-people (and Apple managers?) may think, computer chips are not the only element of a car which are actually hard to make, design and produce by the millions. Tesla is really the only one to successfully have done so the last few decades, apart from BYD of course.

    Uber lost 1 billion dollar AFAIK, and still people want to invest. There's probably not enough network-effects / vendor lock-in (in contrary to Google / MSFT / AAPL) to keep taxi drivers and clients tied to Uber to make it impossible to walk away; Uber is quite easy to copy I think. So Tesla seems like the wiser investment than the so-manieth internet-combine-demand-and-supply website (Uber, Lyft, AirBNB and what-have-you these days). Fords market cap may be lower than Tesla's. But Uber's valuation may be around 70B, then it's really OK for Tesla to have a valuation for 56B, as long as the FED/ECB and friends enables cheap money to gamble in the online casino mentioned!

    OK, so Tesla has showed it's capable of mass production with Model S. It showed it's capable of - together with Panasonic - building the biggest battery factory in the world, even in the middle of a freaking dessert. It showed it's able to mass produce car batteries. It showed it's able to build a good ADAS. It also has a service department, and fixes problems if the care have any. It showed it produced millions of cars of which most don't crash; something Apple, Faraday Future and Google can't claim - despite their capability to invest by the billions.

    Now tell me, why is an original painting more expensive than the fake one, even when the two look just alike and are just as beautiful? Here's the simple answer: The value is based on reputation. Van Gogh, Picasso, Da Vinci: Even if the fakes would look better and had better durability (coating which lasts 10 centuries?), people still want the original ones. This also goes for Tesla: The valuation is based on reputation.

    Besides, investors / gamblers at 'the biggest online-casino in the world called NASDAQ' (count me with the latter group, I'm afraid) don't like to be unsure about things. Better have public knowledge how much loss a company made, than have fear it lost the very same a mount. That's the whole idea about option pricing as well: Options have intrinsic value (difference between strike price and current price), but also an 'insurance' part. So there was the fear model 3 didn't work in mass production, now it's for sure. And model 3 failure was probably also already priced in?

    That's why TSLA didn't crash yet I guess, which doesn't necessarily mean I agree to it's current valuation above Ford or BMW. Once cheap gamble money is halted by the 'banks' (issuers of monopoly money some might say???), the monopoly-money needs to be returned, demand for 'real' money rises and 'proven stocks' will be rebalanced with 'mad money' stocks like SNAP, FB and other firms which, apart from network effects / lock in don't have any real product that can't be copied easily. Somewhere in between the 'proven' and boring stocks, the kind Warren Buffet would invest in, and the mad money stocks, lie the 'half proven / half mad money' stocks, such as AMZN and TSLA. Just as good companies like Intel, ASML, AMD and lots of others survived the dotcom-boom and their stocks eventually rose back to the dotcom-heights, I think stocks such as AMZN and TSLA may as well survive any 'mad money implosion' which may follow; because they have a real, hard to copy product; and brick and mortar (or metal?) distribution buildings and soon groceries in case of Amazon.

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    Last edited by hkwint; 02-19-2018 at 04:30 PM. Reason: Minor spelling corrections
     

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    Life is a series of bets, some better than others. Most of life is just pure luck. How, when, in what condition, your parents, the political system, social structure and numerous other factors largely determine who you are and have limited control over. We all figure odds and all do it differently. Many times I have literally made split second decisions on 50k in under a second at close of market. This is time stamped on my record. Most have been under six tenths of a second. Sometimes speed can be a very good friend, but caution is required. Already this year I have done several of these transactions.

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    How Many Tesla Model 3 Cars Have Been Made?

    The ramp-up has finally started, and sticks a little more to the forecast than before.

    As mentioned by hkwint, being able to do this ramp-up is already great, even if it's 2 quarter late.

    Also, which automotive company can brag about having people accepting to wait up to 3 years to get their hands on the car ?

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    I'd agree with @hkwint. It's easy to see what Tesla has got wrong, but there is a substructure of things they have also got right, and those are perhaps not as easy to copy as one might think.
    For example dealing with charging is (as far as I can tell) just all round so much nicer with Tesla, from the larger batteries to the wide network of super chargers to the fact that plugging in the connector at the charger just works with no hassle, no weird randomness, no nonsense with credit cards or waving your phone or otherwise trying to pay.

    My GUESS (only a guess) is that it is reasonable to believe that someone with deep pockets and better manufacturing competence (Apple? GE? Toyota?) at some point will consider it worth the cost to acquire Tesla and pick up the good parts (reputation, charging network, probably many patents, gigafactory) while re-organizing the problematic parts (allow for electronics upgrades every few years, bring Autopilot up to best of breed skills, fix volume manufacturing; and that this possibility provides a floor to the stock price.

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    Tesla didn't ever produce millions of cars.
    The total production for 2017 is just over 100k to compare with 10.7M by Wolkswagen Group, 10.6M by Renault-Mitsubishi-Nissan Group, 10.5M by Toyota Group and 9.6M by GM. By comparison Ferrari is roughly 10k cars a year.
    So, although they have been very good at building an electric car ecosystem, its market evaluation keeps looking suspicious to me. It is a niche quasi-luxury car which people wait endless for delivery just to have a status symbol. Nothing that proves it has what it takes to become more and penetrate the mass market in the next foreseable future has been shown yet.
    Some may even think it is an elaborate Ponzi scheme......

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    Blogger Daniel Payne's Avatar
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    I'm with you on the Ponzi scheme feelings, and then from a design viewpoint the Model 30 dashboard has no instrumentation directly in front of the steering wheel where you want to merely glance down and see Speed, Charge remaining, warnings. Instead, you have to turn your head away from looking forward by veering to the right, the center of the car to see the center console. Epic design fail.

    Why does TSLA stock not crash?-597bceae4528e621008b58b2-750-468.jpg

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    Ponzi scheme? Please present a single fact justifying that claim. It's a public company, the numbers are all available.
    Here's the SEC's definition of a Ponzi Scheme: Ponzi Scheme | Investor.gov
    Here's Tesla's financial reports to the SEC: Financials & Accounting | Tesla, Inc.

    We're waiting...

    Betting against Elon Musk is like betting against Jeff Bezos. Amazon showed pitiful performance for a decade while they destroyed every retail then networking industry paradigm they could find. That was Bezos taking advantage of the same positive vibe that Tesla has now (and Amazon still has). Nice summary here:
    Amazon’s epic 20-year run as a public company, explained in five charts - Recode

    Second, have you ever driven in a Tesla? Try it, then try to dismiss Tesla as a flash in the pan. More than one car magazine, who have depended on the automakers for most of their revenue for 5+ decades, called the Model S "best car ever."

    Elon Musk must be quaking in his boots knowing that the financial giants over at SemiWiki called Tesla a ponzi scheme! Sorry for the jab, would have debated the facts if you'd presented any.

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    Last edited by davemill; 04-23-2018 at 01:25 PM. Reason: grammar
     

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    Tesla is the most shorted stock in the market.. but people holding long are basically betting on Elon and not on the company I guess...

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    Quote Originally Posted by Daniel Payne View Post
    When a publicly traded company posts a loss of $675 million in Q4 of 2017, then why don't investors panic and sell the stock, punishing the company for poor performance? TSLA somehow has a magical allure that makes it shares immune to bad financial news.

    I personally love the idea of an electric car, and admire the use of semiconductors to control the car and provide semi-autonomous driving, but at what point does the Emperor have no shorts on?

    Tesla losses spike as it fights to ramp up Model 3 - Feb. 7, 2018

    Why does TSLA stock not crash?-tsla.jpg
    I guess it's mainly because Tesla has a really bright future. Electric cars are being implemented in almost every corner of the world and it does not seem like that revolution will go south any time soon. It's pretty obvious that this is one of the reasons why people invested in Tesla and I'm sure no one will panic if there is a slight dip in the share prices.

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  12. #12
    Blogger Daniel Payne's Avatar
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    At least Consumer Reports agrees with me that the Tesla Model 3 is not a recommended vehicle.

    Consumer Reports: We can't recommend Tesla's Model 3

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