Tesla Long and Short Myths
Sifting through the masses of articles and comments here on investment forums about Tesla, I find many myths which are prevalent to both the long and short. Here are four long myths, four short myths and three myths which neither side seem to be able to look at objectively.
Long myths
1. Tesla should be valued as a technology company. Car building is a capital-intensive industry, while software is not. Building store dealers is an even more capital-intensive approach. Software, on the other hand, requires a large up-front investment, but extra copies, especially on the Internet, cost close enough to zero that it makes sense to round down. This is why McAfee decided to give away a trial of their software and others have free models of some versions of their products.
2. Taking Elon’s promises literally. I don’t mean that you shouldn’t take solar roofs or the model 3 or Y seriously, but that you should take sales projections of a million cars a year by 2025 with a grain of salt. What I mean by this is that I see people who comment saying, well Tesla missed their yearly projections again, and saying that this is because Elon is always setting goals for perfection and that is why he missed the goal, but then saying that Tesla will sell a million cars in 2025. If that’s how Elon talks and makes projections, you need to keep that in mind for future projections too.
3. If a car is a compliance car, Tesla can ignore it. ZEV credits were the only way Tesla was able to gain a profitable 3rd quarter last year, so even a compliance car that doesn’t directly compete with Tesla, it can significantly eat into their profits.
4. Any EV that is not a Tesla is vaporware, even ones with working prototypes. While cars can be cancelled, most are not, they are too large of an investment. Competition is coming.
Short myths
1. Every EV is a Tesla killer. Some EVs are not in a very similar market, like, for example, the Leaf, and others aren’t geared towards the high-end segment.
2. The 373,000 deposits aren’t real because the model 3 will be late and more expensive than advertised. The deposits are Tesla’s sales to lose. They could, and the operative word is could, lose them if the Model 3 is late or more expensive on average for one that anybody would want. We don't know what the sales prices are for any configurations yet or the release date, although there are signs the model 3 will be coming soon.
3. Tesla might not be valued as a high growth company before the release of the model 3. Even the casual Tesla stock observer should realize that there will be significant growth once the model 3 is released.
4. Nevada's Gigafactory terms are a reason not to buy the stock. Whether Nevada got a good deal with its incentive package is very subjective, but really there are only two relevant things to consider in relationship to the stock price. 1. No matter if they hit or don't hit their goals in the next few years there are no claw backs coming soon. 2. Elon's reputation, as it appears he overpromised about some of the terms. If you think Elon always has lofty goals and he always is trying to push his people to get better and greater things, I'm going to guess this agreement won't change your mind. If you think Elon is always lying out of his snake-oil stained teeth, then this probably won't change your mind either.
Long and short myths
1. Payables affect the income statement. No, they don’t. Why? Accounting 101.
2. Supercharger mania. This is a long and short myth, which played out interestingly enough Here http://seekingalpha.com/article/4025607-tesla-will-suffer-blow-europe-due-standardization-ev-charging-stations. This is an article about a proposed charger network in Europe. You can see that some longs, who always are always going on about how no other car can compete with the Supercharger Network, saying all of a sudden said it didn't matter. You saw some shorts, who had previously said, "everyone charges at home anyways," now saying it was the most important development in western civilization since sliced bread. The truth is in between. It does offer Tesla a short to medium term advantage, but I think it should be obvious to anyone that once EVs become popular charging stations will be almost everywhere.
3. Misunderstanding of high growth and expenses. Any significant expenses which provide benefits to more than one accounting period are capitalized. I know I am throwing some jargon your way, but I will try and break it down for the uninitiated in accounting. What does significant mean? There is some judgment here, but an example would be a stapler. You will use a stapler for a few years, but it is insignificant, so you will expense it. A $100,000 robot is significant, and you will not expense it, you will put it on the balance sheet (capitalize it is the term for doing this) and depreciate it over its useful life. Only a small portion of the expense will show up each period on the income statement. So spending for buildings, machinery or tools and dies won't impact a high growth company disproportionately because even though a lot of money is spent on these things, they don't show up on the income statement at once. On the other hand, there are expenses that will rise quickly as a high growth company. Workers are the most expensive item on most company's budget, and new workers have to be hired and trained before they are productive. Also, a company like Tesla will also have to invest in more service centers and Superchargers, some of these expenses will be capitalized and some of which will show up as expenses on the income statement.
I am using short and long as short hand for investors who like and hate the stock, but of course, we all have our biases and many people, like me, don't have a position in the stock.
have no positions in this stock and do not plan to initiate any positions in the next 24 hours.
Sifting through the masses of articles and comments here on investment forums about Tesla, I find many myths which are prevalent to both the long and short. Here are four long myths, four short myths and three myths which neither side seem to be able to look at objectively.
Long myths
1. Tesla should be valued as a technology company. Car building is a capital-intensive industry, while software is not. Building store dealers is an even more capital-intensive approach. Software, on the other hand, requires a large up-front investment, but extra copies, especially on the Internet, cost close enough to zero that it makes sense to round down. This is why McAfee decided to give away a trial of their software and others have free models of some versions of their products.
2. Taking Elon’s promises literally. I don’t mean that you shouldn’t take solar roofs or the model 3 or Y seriously, but that you should take sales projections of a million cars a year by 2025 with a grain of salt. What I mean by this is that I see people who comment saying, well Tesla missed their yearly projections again, and saying that this is because Elon is always setting goals for perfection and that is why he missed the goal, but then saying that Tesla will sell a million cars in 2025. If that’s how Elon talks and makes projections, you need to keep that in mind for future projections too.
3. If a car is a compliance car, Tesla can ignore it. ZEV credits were the only way Tesla was able to gain a profitable 3rd quarter last year, so even a compliance car that doesn’t directly compete with Tesla, it can significantly eat into their profits.
4. Any EV that is not a Tesla is vaporware, even ones with working prototypes. While cars can be cancelled, most are not, they are too large of an investment. Competition is coming.
Short myths
1. Every EV is a Tesla killer. Some EVs are not in a very similar market, like, for example, the Leaf, and others aren’t geared towards the high-end segment.
2. The 373,000 deposits aren’t real because the model 3 will be late and more expensive than advertised. The deposits are Tesla’s sales to lose. They could, and the operative word is could, lose them if the Model 3 is late or more expensive on average for one that anybody would want. We don't know what the sales prices are for any configurations yet or the release date, although there are signs the model 3 will be coming soon.
3. Tesla might not be valued as a high growth company before the release of the model 3. Even the casual Tesla stock observer should realize that there will be significant growth once the model 3 is released.
4. Nevada's Gigafactory terms are a reason not to buy the stock. Whether Nevada got a good deal with its incentive package is very subjective, but really there are only two relevant things to consider in relationship to the stock price. 1. No matter if they hit or don't hit their goals in the next few years there are no claw backs coming soon. 2. Elon's reputation, as it appears he overpromised about some of the terms. If you think Elon always has lofty goals and he always is trying to push his people to get better and greater things, I'm going to guess this agreement won't change your mind. If you think Elon is always lying out of his snake-oil stained teeth, then this probably won't change your mind either.
Long and short myths
1. Payables affect the income statement. No, they don’t. Why? Accounting 101.
2. Supercharger mania. This is a long and short myth, which played out interestingly enough Here http://seekingalpha.com/article/4025607-tesla-will-suffer-blow-europe-due-standardization-ev-charging-stations. This is an article about a proposed charger network in Europe. You can see that some longs, who always are always going on about how no other car can compete with the Supercharger Network, saying all of a sudden said it didn't matter. You saw some shorts, who had previously said, "everyone charges at home anyways," now saying it was the most important development in western civilization since sliced bread. The truth is in between. It does offer Tesla a short to medium term advantage, but I think it should be obvious to anyone that once EVs become popular charging stations will be almost everywhere.
3. Misunderstanding of high growth and expenses. Any significant expenses which provide benefits to more than one accounting period are capitalized. I know I am throwing some jargon your way, but I will try and break it down for the uninitiated in accounting. What does significant mean? There is some judgment here, but an example would be a stapler. You will use a stapler for a few years, but it is insignificant, so you will expense it. A $100,000 robot is significant, and you will not expense it, you will put it on the balance sheet (capitalize it is the term for doing this) and depreciate it over its useful life. Only a small portion of the expense will show up each period on the income statement. So spending for buildings, machinery or tools and dies won't impact a high growth company disproportionately because even though a lot of money is spent on these things, they don't show up on the income statement at once. On the other hand, there are expenses that will rise quickly as a high growth company. Workers are the most expensive item on most company's budget, and new workers have to be hired and trained before they are productive. Also, a company like Tesla will also have to invest in more service centers and Superchargers, some of these expenses will be capitalized and some of which will show up as expenses on the income statement.
I am using short and long as short hand for investors who like and hate the stock, but of course, we all have our biases and many people, like me, don't have a position in the stock.
have no positions in this stock and do not plan to initiate any positions in the next 24 hours.
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