Wednesday, June 13, 2012

What is Tesla Motors Worth? (TSLA)

 Yesterday the stock closed at $29.66.

Although it is smack dab in our Energy/Policy/Alt wheelhouse we have very few posts on Tesla.
On a personal level I didn't have much interest in government subsidized $100K playthings.
On the other hand, as an investment the stock always seemed to be in stronger hands* than the battery companies or other fashion-forward issues, poo-pooing it didn't seem like good advice for our readers.
So I didn't post much on TSLA.

The stock is down 25% from the $39.95 all-time high it hit back March 30 showing that it is not some irresistible force of nature and a very interesting look at the valuation arrived in yesterday's email.
From AltEnergyStocks:
Tesla's Troubling Risk-Reward Profile
While the broader market focuses on trivial issues like Asia, the Eurozone and an upcoming presidential election, a small but extremely vocal segment of the car shopping public is breathlessly awaiting the dawn of a new age with the first deliveries Tesla Model S electric cars to customers on June 22nd. The excitement among fervent Tesla Motors (TSLA) acolytes is palpable, but I have to at least ask whether their view of the company's risk-reward profile is rational.

Is Tesla a great investment opportunity, or are we witnessing a weird form of transference that attributes a visceral hatred of oil companies and a love of flashy cars and speeding tickets to a moneyed adult population that couldn't care less? In four years of blogging about energy storage and vehicle electrification, the only truly compelling pro-EV argument I've heard is embodied in the mathematical equation: EV ownership = HOV lane access. The rest is coal smoke and mirrors.

Tesla's stock currently trades at space cadet levels of 19.9 times book value because the company plans to build 5,000 cars this year and 20,000 next year. With prices ranging from $57,400 to $105,400 (before subsidies), Tesla's potential revenue is huge, but I'm very unclear about who's going to buy all those cars. Seriously, how many people are willing to pay twice the national average salary for HOV lane access? Frankly I find Tesla's Ray Kinsella approach, "if we build it they will come," more than a bit disconcerting. In fact, it strikes me as a prescription for disaster.

In an effort to assess the reasonableness of Tesla's lofty sales ambitions, I started by cobbling together historical data from "Dashboard Reports" on the HybridCars website that break monthly green vehicle sales down by model and manufacturer. I learned that over the last year, sales of HEVs averaged 122,600 units per quarter and about two-thirds of those cars were made by Toyota. Plug-in vehicle sales for the same period averaged about 9,000 units per quarter with the GM Volt taking the lead at 4,075 units per quarter, the Nissan Leaf running second at 3,180 units per quarter and Toyota coming on strong with a plug-in version of the venerable Prius that launched in March and sold 3,638 units in three months. In comparison, green vehicles from Tesla and BMW in the Model S price range stumbled along at 262 units per quarter. Ouch!

While it's too early to reach firm conclusions about market behavior for new plug-in vehicles, the typical trend seems to be a respectable volume ramp for three or four quarters after a launch date followed by a sharp decline once the customers who were waiting for a particular model get their wish. When I study the following graph of quarterly sales for the leading plug-in vehicles, I don't see anything that even resembles a stable or sustained growth rate. As near as I can tell, the only reason for this year's surge in Volt sales was, you guessed it, HOV lane access in California....MORE
*From our June 29, 2010 post "Who Wins in the Tesla IPO?" (TSLA):
This is neither an offer to sell nor a solicitation of an offer to buy...

I went over some of my reasons for shying away from IPO's when A123 came public in September, 2009. 
(priced at $13.50, first day close $20.29, close yesterday $9.88)
I am interested in the VC biz and here earth2tech did a bang-up job:

Tesla Motors, the electric car startup scheduled to launch an IPO on Tuesday, has racked up millions of dollars from a slew of investors since its founding in July 2003. For some of those backers who took a chance on this greentech venture early on, Tesla’s initial public offering could spell “ka-ching.” Here’s the rundown on who among Tesla’s executive directors and officers own what portion of the company, who will and won’t be selling shares at the IPO, according to Tesla’s S-1 filing, and what their stakes will be worth (on paper, at least) if Tesla’s stock trades at $15 per share, the mid-point of the company’s estimate.
Shareholder Pre-IPO Stake Shares Being Offered Value of Offered Shares*
Elon Musk, CEO, Chairman and Product Architect. Also the CEO, CTO and Chairman of SpaceX, and Chairman of SolarCity. Co-founded PayPal and Zip2. 28.3M shares (35.62 percent) worth more than $424.5M at $15 apiece. 909,212 $13,638,180
Herbert Kohler, member of Tesla’s Board of Directors since May 2009. Heads up electric vehicle development for Daimler and serves as VP of Blackstar Investco, owned 60:40 by Daimler and Abu Dhabi’s Aabar Investments. If Musk leaves the CEO post before 2013, his replacement has to beapproved by Kohler under Tesla’s financing agreement with Daimler. 7.48M shares (9.56 percent) worth more than $112.3M at $15 apiece. 0 $0
H.E. Ahmed Saif Al Darmaki, member of Tesla’s Board of Directors since September 2009, representing Abu Dhabi’s Al Wahada Capital Investment. Darmaki is Planning & Development Director of the Abu Dhabi Water and Electricity Authority, which invests through Al Wahada. 7.3M shares (9.32 percent) worth nearly $109.5M at $15 apiece. 0 $0
Antonio Gracias, member of Tesla’s Board of Directors since May 2007, representing Valor Equity Partners, where he is chief executive officer and chief investment officer. 4.91M shares (6.27 percent) worth nearly $73.7M at $15 apiece. 0 $0
Steve Jurvetson, member of Tesla’s Board of Directors since June 2009, representing VC firm Draper Fisher Jurvetson, where he is managing director. Jurvetson is also a director of Musk’s SpaceX. 2.8M shares (3.53 percent) worth nearly $41.5M at $15 apiece. 0