Thursday, October 26, 2017

"Tesla: A $170 Stock?" (TSLA)

The headline is a bit clickbaity but a good lead-in to the meat of the argument.
The stock is attempting a recovery from yesterday's $11+ decline but it looks touch-and-go, $326.49 last, up 0.65 (+0.20%)

First up, Barron's Stocks to Watch last Friday:
Tesla (TSLA) is falling Friday, hurt in part by a skeptical Cowen & Co.

Analyst Jeffrey Osboure and his team reiterated an Underperform rating and $170 price target on the stock today, writing that even the "true long believers" will lose patience with the bottlenecks in the Model 3 ramp by 2018, which are compounded by the company's capital needs.

Indeed, Osbourne thinks that Tesla will run through even more cash as its new Gigafactories are announced in the coming months in Europe and China, exacerbating the issue.

Ultimately, he warns that he has "more questions than answers" as the Model 3 rollout continues, and that Tesla's "vagueness," along with a lack of disclosure from management about it's true capital needs and expense levels should raise more eyebrows as time goes on....MORE
 And from the Los Angeles Times that same day, October 20:

Tesla's Model 3 'production hell' is testing Elon Musk's fix-as-you-go carmaking model
When Elon Musk talks about the future of factory automation at Tesla, he envisions new breeds of robots and smart machines compressed in dense factories with little room for human operators, guided by self-learning software.

“At the point at which the factory looks like an “alien dreadnought” — a nod to a video game spaceship — “you know you’ve won,” Musk has told investors.

But so far, the manufacturing of Tesla’s new all-electric compact sedan, the Model 3, at its Fremont, Calif., factory is moving at a more earthbound pace.

When Musk launched the car at an elaborate stage show in July, Tesla was anticipating a production rate of 20,000 Model 3s a month by the end of December. Over three months through September, though, Tesla had produced only 260 Model 3s — about three cars a day. That’s well behind a normal auto-industry production pace of about one car per minute.

The company blamed manufacturing “bottlenecks,” without saying what they are. It promised a quick fix, and contested a report in the Wall Street Journal that said the assembly line remained incomplete by early September with some body parts normally installed by robots being employee-assembled by hand.
Still, the “production hell” that Musk acknowledged in a tweet raises questions about whether the Silicon Valley model he has followed — beta testing with early adopters and launching updates via software — can be adapted for Tesla’s first mass-market product.

Musk needs to fix things, fast. Demand for the car appears strong. The company intends to sell about 400,000 Model 3s in 2018 to customers who have placed deposits and depend on the cash flow from those vehicles to keep the thus-far profitless company running.

“This is a critical juncture for Tesla,” said David Keith at the MIT Sloan School of Management. “They need to convert 400,000 orders into 400,000 happy customers.”

Tesla declined requests to interview Musk or a manufacturing executive. The company will release third-quarter earnings on Nov. 1 and the status of Model 3 production will surely be discussed during the company’s conference call that afternoon.

Silicon Valley is all about disrupting old industries: Uber with the taxi business, Google and Facebook with advertising and journalism, Amazon with retail. Musk, a native South African who earned a fortune in Silicon Valley as a co-founder of PayPal, hasn’t yet disrupted the auto industry. But the success of Tesla’s luxury Model S and Model X automobiles, with their all-electric powertrains, self-drive feature, and over-the-air software updates, has woken up incumbent automakers to the emergence of electric, autonomous and connected transportation.

Yet the Model S and Model X production has yet to exceed 100,000 automobiles a year, combined — a speck in a global market where 88 million passenger cars and trucks are sold.

“Automobile manufacturing is very hard,” said Uday Karmarkar, a specialist in operations and technology at the UCLA Anderson School of Management. “It’s amazing that Tesla has been able to build cars at all.” He meant it as a compliment.

Tesla was founded in 2003. Its first product was an electric roadster, based on a platform from British sports car maker Lotus. It was a hit.

Then came the Model S sedan in 2013, which made Tesla a household name. The full-sized sedan was sleek and powerful. It won high praise from Consumer Reports and other publications. Auto reviewers gushed.

MIT’s Keith owns a Model S and loves it. “It’s quiet, it’s fast, it’s smooth, it’s such a delight to drive,” he said.

Tesla took the Model S from design to full production faster than traditional manufacturers would consider. Tesla’s breakthrough over-the-air technology made software fixes a snap. Code to fix battery management issues, add self-drive features, or simply tweak the music system can be downloaded via the car’s Wi-Fi system.

Still, many owners complained that there were more quality problems than they expected in a $90,000 car. Outside a private school in Oakland earlier this week, a parent waited for his child beside a spotless gray Model S. When asked how he liked the car, he shook his head. “It’s mainly my wife’s car. She loves it. I love the way it drives, it drives better than anything I’ve ever driven. But there are all these rattles and noises.” To cover them up, he plays the music at high volume, said the driver, who declined to give his name....MUCH MORE
Production is hard.
August 7
"63,000 people have canceled their Tesla Model 3 orders" (TSLA)
It looks like churn, new orders matching cancellations but the fact 12-15% of folks didn't want to wait means there is a bit more pressure on Tesla to hit their production goals.
And those goals are pretty lofty, all glory and honor are Musk's if he pulls it off but I'm not betting on it.
The stock is up 70 cents at $357.61....
July 3
"Tesla Q2 Sales Miss Expectations, "Severe" Battery Production Shortfall Blamed (TSLA)":
Except for the execution risk, and the financial risk, and the macro risk, and the supply chain risk, I see no risk at all.
The stock closed down $8.99 (2.49%) at $352.62....
June 14
More on Ron Baron's "Tesla to $1000" Call (TSLA)

TSLA Tesla, Inc. daily Stock Chart

...Our last comment on Mr. Chanos' position was in May 31's "Hedge Funds: SALT Conference Losing Luster":
I don't think we even covered it this year although I did look at Chanos on Tesla.
He was early....
Looking at the last couple weeks on the chart above, yup, he was early.
But, and that's a big but, the execution skill that will be required to hit the 500,000 and above production targets is almost otherworldly and I have a suspicion we will be violating our "Don't short Tesla" admonition in a big way.
If stock is available.
And doesn't cost 100% per year to get hold of.
Feb. 26
Elon Musk Slams Unionization Drive at Tesla, Promises Free Frozen Yogurt, Roller Coaster (TSLA)

Feb. 2
"Tesla: Now Comes the Hard Part" (TSLA)