Tesla: More on the $67.12 Valuation (TSLA)

Following up on Friday's "Sure, He Called the Top In Apple and He Called the Bottom in Facebook But Tesla Fair Market Value at $67.12? (TSLA)".
From Musing on Markets:

My post on Tesla must have touched some nerves because I got more than my usual share of backlash from Tesla bulls. While some of it was just vitriol, many contained interesting counter arguments to mine. I thought it  would be useful to play devil’s advocate and present the case for being bullish on Tesla. I have to tell you that I was not able to convince myself but I may convince you.

Before I make the case for Tesla bulls, I would like to be clear on two points. First, I have no economic or emotional stake in the outcome of the valuation. I don't have a short position on the stock, and don’t plan to, and I have never owned Tesla and don’t regret missing out on the run-up either. Second, notwithstanding the hyperbole that has prefaced some of the press descriptions of my post, I don’t consider myself a valuation guru, expert or prognosticator.  If you are bullish on Tesla, I don’t view you as a sucker or a dunce and I can think of at least three justifications for your bullishness. 

A. Tesla has viable paths to higher value: In presenting my estimate of value for Tesla, I thought I was fairly explicit that it was “my” valuation and not “the” valuation of Tesla. One reason I posted my spreadsheet and left it open, for you the change, is because I understand that there are and always will be differences of opinion on the future of a company, especially one as explosive as Tesla. As I see it there are three possible paths to a value higher than the current price. 

1. The disruptor: It is possible that Tesla is one of those rare companies that disrupts an entire business and changes the definition of what comprises success. Just as Amazon upended the retail business and Apple the smart phone business in the last decade, it is possible that Tesla will create a new paradigm for a successful automobile company: a company that generates Ford-like revenues with Porsche-like margins. (My valuation for Tesla, the disruptor)
2. The power train/battery master: I may have misclassified Tesla as an automobile company and that it’s real innovations are in the power train and battery technology that will make electric cars viable. Ted Lim, one of the commenters on my Tesla post brings a great deal more knowledge than I do to this possibility and he points out the potential for Tesla to become the supplier  to other automakers making electric cars. The potential market for batteries and other original equipment may be smaller than for cars but the margins may be better. (My valuation for Tesla, the OEM company)
3. The "first mover": If Tesla is more technology than automobile company, there is the possibility that if it can establish itself as the leader in the business, there may be a tipping point, where size feeds itself. In practical terms, you are arguing that if Tesla charging and service stations are more extensive than the competitors, buyers of electric cars will be more likely to buy Teslas, thus making it the "electric car" company. (My valuation for Tesla, the network winner).

While I view these paths as narrow and difficult to sustain, I can see why others have a different point of view. There is one note of caution I would add about profitability. Some of you have pointed out that Tesla already has a 25% profit margin and that my assumption that it will generate a pre-tax margin of 12.5% is therefore way too pessimistic. There are two reasons to not get carried away with the current margin. The first is that margin that Tesla is reporting is a gross profit margin, which is significantly higher than an operating margin or a net margin; there is many a cost between the gross and the net. The second is that having a high gross margin, when you are selling relatively few cars at a high price is easier to do than maintaining that margin as you scale up....MORE

We have posts on Tesla going back to the IPO, if interested use the search blog box upper left.
A grab bag:
April 1, 2013 
Why We Don't Short Tesla: The stock is up 16% On The Day (TSLA)
April 22, 2013 
Tesla Motors Trades At All-Time High (TSLA)

The stock is at $49.75, up 4%, after trading as high as $50.19.
The thing to remember with all-time highs is there is no overhead supply, no shareholders thinking "As soon as I get to breakeven I'm getting out"....

May 9, 2013
"10 milestones Tesla hopes will make it a $43 billion (cap) company" (TSLA)