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Value Investing Tesla Presentation

footer: @eloy, 2018 slidenumbers: true slidecount: true

Value Investing - Tesla

TSLA: 343.06

  • The Business
  • The Financials
  • The Management
  • The Valuation

The Business

What does the company do? In less than 2 sentences.

Electric automaker for average consumers and energy storage products.


The Business

Vehicle Starting price Bells & whistles Range in miles
Model 3 $36,000 $66,000 310
Model S $62,700 $147,000 259
Model X $67,800 $151,000 295
Roadster $200,000 620
  • roadster base model: fastest production-made car ever, 1.9 secs 0 to 60 mph

The Business

Technology Starting price Supporting hardware Notes
Solar Panels
Powerwall $5,900 $700 7+ days continuous power
Solar Roof
Commercial
Utilities

The Business

Does the business have a competitive advantage?

Brand

  • New and forward leaning technologies
    • Tesla made electric vehicles exciting
      • Electric vehicles that look good (leaf?)
      • Electric vehicles that are fast
      • All electric that can travel 100+ miles on one fill
  • Push the human race forward enviornmentally

The Business

Does the business have a competitive advantage?

Network Effects

  • Charging stations More charging stations the more buy-in there is for all electric vehicles
  • Purchasing one product contributes the next
    • Solar tiles
    • Charging walls
    • Electric vehicle

The Business

Does the business have a competitive advantage?

  • Switching Cost
    • Unknown resale market for Tesla vehicles
    • Builtin Powerwall currently not compatible with other electric vehicles

The Business

Does the business have a competitive advantage?

  • Low Cost?
    • Currently; $7,500 EV Tax Credit (but for how long?)
    • Speculation: They insist that the best production lines have significant inefficiencies which they intend to capitalize on

The Business

Does the business have a competitive advantage?

  • Intangible Assets
    • Reputation for building superb products
      • Roadster transformed the image of electric cars
      • Fast full electric vehicles (which most didn't consider possible)
      • Set record for highest speed (0 to 60) production sedan in history; that beats some supercars
      • Serving direct; no third-party dealerships

The Business

Does the business have a competitive advantage?

  • Intangible Assets (cont.)
    • Reputation for building superb products
      • Cares more about good service, good product, and honesty rather than making money
      • No sign that other automakers have figured out how to adjust their business approaches to compete in -his “human” side of the equation

The Business

How durable is the competitive advantage?

  • Speculation: Planned 2020 gigafactory production exceeds 2013 global production
    • 35k GWh/year production
  • Ubiquitous fast charging stations
    • Competitors have left this to the market to solve
  • The price of the charging station is also rolled into the price of the vehicle.

The Business

How durable is the competitive advantage? (cont.)

  • Software several leagues above the competition
    • Most mobile, dashboards, and navigation systems of electric vehicles is clumsy and difficult to work with.
      • Amazing software and existing services are left to trusted companies like Google.
      • Over the air updates

The Business

Does the company have favorable relationships

  • Customers
    • High loyalty of existing customers
    • Some customers are growing impatient waiting for their vehicle
  • Suppliers
    • Suppliers don't trust them; so they're not over producing supplies
    • This is a self-fullfiling prophecy, putting Tesla in a tough position

The Business

Does the company have favorable relationships (cont.)

  • Employees
    • Exciting place to work
    • High turn over
    • High expectations
    • Want to unionize
  • Regulators
    • No issues with regulatory framework

The Financials

Does the company have enough cash to maintain its business?

  • current-assets/current-liabilities; should be >= 2
  • 6.5B7/7.6B = 0.85
  • They need outside funding to continue operations
2017 2016
Current assets $6,570,520 $6,259,796
Current liabilities $7,674,671 $5,827,005

The Financials

Does the company maintain reasonable debt levels?

  • No (reasonable is 3 to 5 years to pay off debt)
  • Long term debt 2017 9.4B
  • Cash flow from operations: -60M

The Financials

Can the company generate a strong amount of free cash flow from operations?

  • In the last three years, have never been positive
  • Trending positive
2017 2016 2015
$(60,654) $(123,859) $(524,499)

The Management

Can the company generate a strong amount of free cash flow from operations?

  • Is management properly incentivized to protect shareholder interests over its own?
    • Elon Musk (CEO) owns ~22%
  • Has management handled excess capital in a shareholder friendly way? Buybacks and dividend payments?
    • It's all being reinvested, and probably will be for a long time

The Management

Can the company generate a strong amount of free cash flow from operations?

  • Is management open and honest?
    • Michell Krebs (Detroit-based executive analyist for Autotrader
      • Missing deadlines is "part of their track record"

The Management

Can the company generate a strong amount of free cash flow from operations?

Vehicles promised

Promised Promise By when Reality short
March 2015 55k 2015 51k 4k
Feb. 2016 16k Q1 2016 14,820 1180
May 2016 20k Q2 2016 17k 3k
Q4 2016 1.5k Model 3 Q3 2017 260 1240

The Management

Can the company generate a strong amount of free cash flow from operations?

More Vehicles promises

Promised Promise By when
Q3 2017 5k/wk March 2018
Q1 2018 500k/yr in 2108
1 million/yr in 2020
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