Is $420 Per Share Too Conservative For Tesla’s Future?

AUG 12 2018 BY EVANNEX 88

AS TESLA’S TECHNOLOGY ADVANTAGE WIDENS, $420 A SHARE MAY BE TOO CHEAP

As is often the case, there was at least one important nugget of information in Tesla’s second-quarter earnings call that received little press attention. The news that Tesla will soon be deploying its own AI chip was overshadowed by the Model 3 production numbers and Musk’s lack of inflammatory remarks, and now in the wake of the bombshell about taking the company private, it’s been all but forgotten.

*This article comes to us courtesy of EVANNEX (which also makes aftermarket Tesla accessories). Authored by Charles Morris. The opinions expressed in these articles are not necessarily our own at InsideEVs.

Above: Tesla’s Model X (Image: Tesla)

Tesla Autopilot currently uses Nvidia’s Drive platform, which is also used by a few other automakers. Tesla says its new proprietary AI chip will be an order of magnitude more powerful than Nvidia’s chips, able to handle more than 2,000 frames per second of video, compared to the current 200 frames per second.

Autonomous driving is an incredibly disruptive new technology that is likely to have even more impact on our economy and society than electrification. Tesla has long been the leader in the field, and the possibility that it will further widen its lead over other automakers is hugely important.

During the earnings call, Elon Musk said it was time to “let the cat out of the bag” about the new chip, and one of those who noted the significance of the feline release was Electrek’s Fred Lambert. Fred has closely followed the development of Tesla’s AI and autonomous driving capabilities – back in 2016, he reported that the company had hired famous chip architect Jim Keller from AMD, and speculated that Tesla could be planning to create its own chips. Keller has since left Tesla, but the team is now led by Pete Bannon, another high-powered chip developer who joined the company around the same time.

Above: A look deep inside the Tesla Model 3 during Sandy Munro’s teardown (Source: Charged via Autoline Network)

During the earnings call, Bannon confirmed that Tesla has the new chip working in test vehicles on the road, and said that it will be included in a new Autopilot hardware 3 suite that will replace the existing computer in vehicles with Autopilot hardware 2.0 and 2.5. Current owners will be able to swap the old computer for the new, and Tesla has previously said that the upgrade will be free.

Tesla has been bringing more and more development of components in-house, reversing a decades-long trend in the auto industry. The impressive increase in performance for the new chip would seem to vindicate that policy. As Jonas Elmerraji, writing on TheStreet, notes, Tesla has an in-depth understanding of its neural net architecture because its AI engineers have a massive amount of training data to work with, generated in real time by the thousands of Teslas on the world’s roads.

Elmerraji compares Tesla to Apple, which has also achieved a competitive advantage by closely integrating hardware and software. The parallel isn’t surprising when you consider that Pete Bannon led the team that designed Apple’s first 64-bit ARM processor.

Above: Tesla’s Autopilot (Image: Tesla)

Tesla is much more than an automaker – it’s a tech company with a leading position in the red-hot field of AI. Some analysts have opined that Tesla’s trove of real-world vehicle data is worth billions of dollars, and a few observers are connecting the dots between this undervalued asset and the plan to take the company private. Villanova accounting professor Keith Wright, writing on CNBC, believes that Tesla investors who get bought out at $420 a share will be getting shafted – once the company begins to monetize the value of its AI assets, it will be worth many times that.

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Written by: Charles Morris

*Editor’s Note: EVANNEX, which also sells aftermarket gear for Teslas, has kindly allowed us to share some of its content with our readers, free of charge. Our thanks go out to EVANNEX. Check out the site here.

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88 Comments on "Is $420 Per Share Too Conservative For Tesla’s Future?"

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William

It depends, on which “Too Conservative” Short is wearing the Depends!

Scott

Yes I will not be happy if I’m forced to sell at $420. I was hoping to be able to hold for the long run. Now Elon did say all investors would be able to stay if they choose, but I’m not sure that will be possible. We will see.

G2

Why would it not be possible to stay?

Nix

Tesla would have to create a special investment class for shareholders who can’t own direct shares in a private company. There are rules about what can and cannot be invested into a private company. For example, if you have an IRA where you have invested in TSLA shares, the rules of most IRA’s generally don’t allow for investment in private companies.

There are ways to get around much of this, usually centering around what disclosure rules Tesla would follow, and how much they would disclose of their financials. Currently SpaceX manages to get around quite a bit of the private investment problems. We really have no idea at this point what will be offered, and who will be able to stay invested, either directly or indirectly through a special investment instrument.

But I’m sure the next line of attack on Tesla will be fear-mongering on this issue, long before we know what will actually happen!!! Get ready for the doom and gloom.

REXisKing

Move your money to a self-administering 401k.

SJC

They can not force you to sell, you just can not sell on the open market.

Nix

No, all stocks are subject to a forced sell based on appropriate votes of authorization by the appropriate number of board members and shareholders. Been there, done that many, many times. You are a SHAREholder, a part owner, subject to the will of the vote of the collective ownership of all shareholders.

This already happened to SCTY shareholders when they were bought out. Force sells are common.

MikeG

I believe SJC is talking about if the shareholders retain shares in the privately-held company, there will be limited opportunities to sell. But, you’re right about if the majority of Tesla shareholders go for taking the company private, you will be forced to sell. You’ll also lock-in whatever capital gains you made whether you wanted to sell or not as I don’t think Tesla can structure this transaction to be exempt from capital gains.

MikeG

Sorry, misread who SJC was responding to. Yes, he’s wrong.

Nix

Yes, there are a couple of different issues being discussed here, and it is getting confusing between the issue of people taking their shares private and selling their shares for various reasons.

There would’t be any capital gains on shares converted to private equity. It is no different than if you own stock in a company and the company is sold to another company and your old shares in the old company are delisted and you receive new shares in the purchasing company. That is not considered a taxable event.

The same goes if you have your TSLA shares in an IRA. Selling the shares and reinvesting them elsewhere inside the IRA is not a taxable event as long as you don’t withdraw the $$.

Obviously selling your shares to a shorter at $500 dollars or whatever would trigger capital gains. As would selling your shares to Tesla for $420 instead of moving your investment into whatever investment vehicle they offer.

Will

NiX is right on the subject. Mutual Funds and IRA.

Fteo

Not if this price for taking Tesla private can be approved by shareholders!. Once done, it can raise money on multiple fronts to build the China and EU gigs factories quickly without much fanfare… Elon needs to tweet more on SpaceX than Tesla issues….

SJC

The top institutional investors can take it private then fire Musk.
He has a small weak board with is brother on it, they need a new board and CEO.

Pushmi-Pullyu

You’re one of the serial Tesla bashing Usual Suspects, are you not? Probably a short-seller?

It seems safe to assume everything you have to say on this subject is FUD or at least completely wrong.

Roy_H

SJC, that is right but it can be done private or public. In fact some share holders already tried to do that and lost. The sentiment will not change just because it is private. A new vote will have the same result.

Nelson

All TSLA owners should help out the shorts by placing limit sale orders for $1,000 per share.

NPNS! SBF!
Volt#671 + BoltEV + Model 3

Roy_H

Actually I’m going to hold out for $3,000. If it doesn’t sell, then I will keep my shares with the privatized Tesla. Selling for $420 would be stupid. The short squeeze is a real thing. They will be forced to cover at whatever price available shares are asking, they do not have an option.

William

$2,999. is my last and final offer!

Take it, or lEaVe it!

$3k just seems a little over the top!

REXisKing

Very smart. You’ll get 10 years of growth in days. I’ll have to look into this too.

Nix

Yes, putting a limit sale order also shrinks the pool of shares potentially available for shorters to borrow, and drives up the interest rate they pay. Interest rates for shorts are calculated off the number of shares theoretically available for shorters to borrow.

Shares subject to a conditional sale order are excluded from this number, increasing what shorters pay in interest even on contracts they already entered. The interest rates are not fixed, they are more like an ARM mortgage.

MikeG

Interesting. But aren’t there costs in placing a limit sale order? I don’t know what those costs are, though.

Nix

Depends on your broker, but usually there is only a fee if the transaction completes. I’ve never paid a fee for just entering an order, but I can only speak for myself. Obviously consult your broker.

Will

Markets haven’t open and there haven’t been any news on this secure funding so let’s not get ahead of ourselves

REXisKing

Since you have no inside information and neither to we, it’s not smart to wait one second.

TM3x2 Chris

Yes, it’s too conservative for a long-term Tesla investment. I believe TSLA can reach $500 in a year.

Bob

I think Tesla was headed to $500 after its solid ER, leading to what would be an incredible next ER and the Saudi revelation it took a 5% stake in company was the final nail in short sellers coffin. I think Elon knew this and knew it was his last chance to take Tesla private before it got too expensive

eject

Will be below $300 by the middle of next week.

John

Good call on the short look. I think the article is talking about the long hold, though. Only shorters care about the short span.

Kbm3

Just noticed you’re missing an R from the front of your name.

antrik

Why?

Larry D

Tesla will be $260 trillion in 2 years. Easy for Elon.

Micke Larsson

Billion… they won’t reach a trillion for at least a decade…hehe… 😉

Clive

If that.

It takes awhile.

Apple just hit a trillion.

William

Tesla will be the first to reach a market cap of a Quadrillion, during the next upcoming short squeeze to the Moon!

Shorts, now you can’t say, that you haven’t been warned!

This may be one of those margin calls, that the shorts don’t really want to take. Better probably just to let the call go on over to VM!

Will

Not.

Nix

I sense the sarcasm force is strong with this one!! *grin*

Troy

$420 is a market cap of $70B, CVS’s market cap.

CVS had $10B in operating income on $180B in sales in 2017, paying a 3% dividend

TSLA had $12B in sales and lost $1.6B last year.

You gotta smoke the 420 to think TSLA is going to be $420 once BEV is mainstream next decade.

Getting sensor data is not a hard problem, it’s sitting out there free for the taking.

The hard part is having the right sensor suite.

Going on on how TSLA’s AI is great when it literally killed someone earlier this year on the 101 is a bit rich.

Micke Larsson

So what you are saying is that Tesla is undervalued at 420? Because in the next decade they will have sales higher than that and definitely an operating income above 5,6%.

So maybe two, three times that valuation would be more fair?

Troy

BMW is at around $55B market cap and selling 2M cars/yr, 10X Tesla’s 2Q18 production rate.

It is reasonable to envision TSLA becoming BMW-sized someday, but there’s no guarantee of that.

If and when TSLA moves beyond the 4-door soapbar silhouette the company will be more interesting to me.

If the Model 3 came in an AWD Supra-like package [at $1000/kWh] I’d be their biggest fanboi.

Nix

At the same sales numbers as BMW, Tesla would be a much more valuable company. Tesla owns their own sales/distribution/service network globally. BMW doesn’t.

Will

They do, big issues is thier sales model. I love the direct to consumers model but there is some markets here in the US they are not allow to sale. It’s boutique model will be outdated when mainstream consumers would want a test drive on the spot and it’s service centers are few and far between. They need to expand rapidly after the 3 slowdown to get ready for the Y. I see the stock where it is now in the next 5 years if they don’t go private. $500 for auto company that’s make great electric cars but not great with everything else is too much. Just be an Auto company that’s all that I want

Nix

To be clear, there are no states where Tesla is completely banned from using their direct to consumers model to sell to citizens of those states.

Tesla can do INTERNET direct to consumer sales in all states.

Only point-of-sale direct to consumer sales are banned in some states. So far that hasn’t been such a high bar for Tesla to overcome. And bans on point-of-sale locations do not automatically mean their service locations are also banned. Tesla has service locations in states where they are banned from doing point-of-sale transactions, so you can to an internet direct to consumer sale and still have your car serviced.

So far every single Model 3 sale has been done without a single test drive.

Pushmi-Pullyu

I realize that a short-selling FUDster like you is easily confused, but try to keep it straight: Tesla is the company; TSLA is the stock. Tesla makes cars, TSLA does not.

Chris O

If Tesla goes private nobody will sell shorts trying to cover below $420 and they will probably be squeezed into much higher prices than that, so $420 could look like a bargain real quick. Exciting times to be a Tesla short;)

Pushmi-Pullyu

Is it even possible to short stock in a private company?

CDAVIS

@Pushmi-Pullyu said: “Is it even possible to short stock in a private company?
————

Short answer is no.

Longer answer is theoretically possibly yes vis-vis a private 3-way repurchase agreement that operates like a short sale contract sans broker & public exchange… the private company would need be a party to the agreement to consent to the share transfer details because private shares normally have ownership restrictions tied to them that don’t support such an agreement.

Nix

That is the problem, all short positions all have to be closed when the stock is taken private. The short positions can’t carry over to the privately owned shares.

Will

The owner a part of the company they could do whatever they please

Nix

Shorts are not owners of part of the company. They have borrowed someone else’s shares, and then sold those shares in the open market. They do not hold any TSLA shares at all. Zero. None. Nada.

They can’t do as they please, they have to do EXACTLY what their contract to borrow and short shares says they have to do. No different than an ARM mortgage that has no limits on the interest rate rising. Those contracts mandate that when the stocks are recalled that the shorters have no choice but to purchase shares to return to the owner.

This is called the “Recall Risk”. It is very real, and there are no limits on how much loss shorts are forced to take in order to purchase stocks to cover the recall. All shares must be recalled by the owner before they are converted into private shares.

Pushmi-Pullyu

No, Tesla’s semi-autonomous driving system (neither “TSLA” — that’s the stock, not the company — nor “AI”) did not kill anyone, “literally” or otherwise.

Altho there were many lives saved by Tesla Autopilot+AutoSteer since it was first deployed, this one life it failed to save.

But nice try at FUD, Mr. Tesla Death Cult troll! 🙄

Troy

The driver who got killed on the 101 had his car on cruise control at a faster speed than the car in front.

When the separation lane opened up on the left, the car’s AI decided that was a good time to pass the car.

Unfortunately for the driver the separation lane terminated in a crash barrier & concrete divider.

https://imgur.com/a/0YR40Lq

Nix

Seatbelts and airbags have caused deaths in otherwise survivable accidents. What is your point?

Troy

Tesla’s AP may not yet actually justify its dotcom-quality PE ratio yet??

nix

You are aware that the story is about hardware they just announced, and not existing hardware already in cars, and nothing that was in the car in question, right?

Again, what is your point, because it has nothing to do with the valuation based on a product they are releasing in the future. And that’s exactly what they have in common with dotcom-quality PE ratio’s. Future valuation based upon high-tech product pipeline.

Are you not familiar with the value of products that are in the pipeline for dotcom-quality PE ratio’s?

Roy_H

I don’t believe the car will automatically change lanes to overtake the car in front. The driver has to toggle the signal lever to make the car change lanes. I suspect that the car it was following, took the left exit and the car started to go left but then because its programmed route was straight, corrected to go back into the lane to the right but did’t recognize it was a median, not a lane.

Troy

“Within the span of eight seconds, the Model X was following a “lead” vehicle and maintaining a 65 mile-per-hour speed, began a left-steering motion while following the lead vehicle, and began accelerating when it was no longer following a vehicle. The vehicle sped up from 62 miles per hour to 70.8 miles per hour before striking the crash attenuator in the highway median, with “no pre-crash braking or evasive steering movement” detected, according to the report.”

https://www.mv-voice.com/news/2018/06/07/new-report-tesla-sped-up-moments-before-fatal-101-crash

nix

again, what’s your point? The story is about Tesla new proprietary AI chip will be an order of magnitude more powerful than Nvidia’s chips that were in that car.

Why are you looking in the rear-view mirror, when the story is about what is on the road ahead? Trying to see what is in front of you is very difficult when you are blindly focused on what is in the rear view mirror.

Pushmi-Pullyu

“I don’t believe the car will automatically change lanes to overtake the car in front. The driver has to toggle the signal lever to make the car change lanes.”

That’s right. Troy’s summary of the incident was at best misleading. Tesla Autopilot+AutoSteer will never initiate a lane change in order to pass another car.

The primary cause of the accident was inattentive driving, but the secondary cause was a lack of clear lane markings, which confused Autopilot and allowed the car to wander into an area between lanes, where there was a barrier. If there was a car which Autopilot+AutoSteer had been following, a car that changed lanes, then that might well have contributed to Autopilot being confused.

Pushmi-Pullyu

According to Tesla’s report on the accident, the driver had at least 6 seconds to react to the danger, to brake or turn the wheel or both. He did neither. Autopilot+AutoSteer failed to save him from his inaction, but the driver was responsible for the crash, not AutoSteer. Tesla makes you go thru a “nanny screen” every time you turn on AutoSteer, to remind you that you’re responsible for maintaining control of the car at all times.

Or are you claiming adults are not responsible for their own actions? If so, you’re claiming that adults should be treated as children. Personally, I don’t enjoy being treated like a child. Perhaps you feel differently?

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Will

Yelp. It’s in the owners manual. If you use auto pilot, you must maintain of vehicle at all times

James

I think, based on your articles, that Tesla would still be a bargain at $100,000 per share. My next question is, “Who would win if Elon Musk were playing against the Chicago Bears?”

Chris O

Intel paid $15 billion for Mobileye so clearly there is major value in autonomous driving tech. Not quite the $70 billion market cap that goes with $420,- maybe but definitely a pretty chunk, especially if this new AI chip turns out to be all that Tesla is expecting of it.

Asak

Companies often severely overpay for things. Look at MSFT’s acquisition of Nokia. Basically money flushed down the toilet.

Asak

Yes, a valuation that puts it much higher than most operating car companies that produce 50 times as many cars is certainly way, way too cheap. Seriously, there’s nothing more delusional than Tesla stockholders.

Regardless of whether you want the company to succeed or not, the stock is way overvalued even at its current price, let alone $420. I’ll be impressed if Elon can find a sucker willing to overpay that much for the company. The Saudis might be dumb enough to.

Nix

*yawn*

Yea, yea, nothing different than you nutters have been saying since the stock was in the $20’s. Same story, different year. Always with the “overvalued” stuff, we should all sell, short the stock it is going to crash, yadda-yadda-yadda. We’ve all heard it before ad-nausea.

All you guys prove is how you’ve consistently gotten the buy/sell call wrong for an astounding EIGHT YEARS+ straight with no signs of ever getting the call right over the long term.

REXisKing

A short is a guy that didn’t get in at $20,$30,$40 or $50 and he’s held a grudge ever since.

REXisKing

so, you still have not driven the car.
Tesla produces Best In Class product, for the last 9 years.
Tesla has been growing geometrically in the same time period.

Your math isn’t taking that into account.

Another Euro Point of view

It is hard for me to see what Elon Musk gained out of this announcement, stock price is back where it was before, he got himself 2 lawsuits, if some private equity fund investors were in discussion with him they must be likely pissed by now. IMO it only makes Musk appearing even more like a loose cannon tweeting CEO which is I guess OK for many retail investors but hardly a plus for seasoned private equity fund investors.

Kbm3

It surprises no one who has read your previous comments that you do not understand something

I’m sure you find very many things hard to see.

It’s ok.

Pushmi-Pullyu

If you want to find it easier to see, then take off the Tesla Hater Reality Distortion goggles that you insist on wearing.

Duh.

Benz

According to a news article on the website of Autoweek in the Netherlands:

Tesla is talking to the Saudi State Investment Fund regarding a buyout of shares of Tesla in order to take Tesla private.

Has anyone read this via any other news channel yet?

Nix

This seems to be a widely spread rumor based on the fact that the Saudi sovereign wealth fund (PIF) has been accumulating TSLA shares for quite a while. There has been no official statement. Every financial news organization is desperately searching for news they can publish, while any company involved with Tesla privatization would be under NDA and can’t talk to the press. Ironic, eh?

PIF has been divesting itself of oil investments and US Treasuries, and investing in stuff like Uber, etc in an effort to remake itself into a modern investment house to attract outside investors, instead of just being a holding container for state oil profits. So it would not be surprising for them to keep their shares they already own and move them into Tesla private shares. It would match their investment makeover profile.

Benz

After the process of taking Tesla private will have been completed, they might announce huge investments in a number of new Tesla Gigafactories in order to accelerate the development of Tesla as a global player in the field of Solar, and in Energy Storage, and in the Automotive Industry. A new chapter in the history of Tesla will start.

Seven Electrics

If Saudis buy Tesla, they will kill it to preserve their oil lifeline.

REXisKing

The Saudis have been moving into Solar and Wind for some time. Yes, to move off oil and be the leading supplier of electricity to Europe, before the oil industry in the EU wakes up and tries the same thing.

They want to be first to market with Electricity at commodity prices.
If you don’t make your product( Oil ) Obsolete, someone else will. — Disruption 101.

Nix

That’s very funny, since nobody is suggesting that they are going to purchase the whole company, or anywhere near a controlling vote.

How do you propose they kill Tesla if they don’t have a controlling vote?

Sorry, nevermind. I forgot I was dealing with a brainless regurgitater who doesn’t let little things like facts and reality get in the way of a good rant.

gagaga

vertical integration by producing a revolutionaly Chip leaving NVidia, Intel & Co in the dust ?
Reminds me of a solar-roof, that beats existing technology, a battery swapping ability, alien dreadnought production facilities struggling with the friction of the air, and product development technology so advanced, that the tests performed by all the old school competitors can be skipped safely.
Reality is: Tesla now is way behind in autonomous driving according to all serious market survey.

Ricardo

Man, just came here to read the latest delusions from the musketeers and found you. It’s still early in the morning but I don’t think I’ll be reading anything this funny again for a whole month. Thank you

Pushmi-Pullyu

Please do keep shorting Tesla stock. We’ll laugh all the harder when Tesla is taken private, and you’ll be forced to sell your “short” position at an even greater loss than if you do it now!

gagaga

Thats your only, or at least most important, argument ?

Seven Electrics

Libeling again?

Will

Has anyone payed for FSD on thier model 3? If the hardware that’s on car is not going to feature then why advertise it like so or the hardware is going to be switch to a newer hardware later on

gagaga

Real FSD will most likely require Lidar, and not come anytime soon, and not with the current hardware.
The lawsuits regarding this are under way.

antrik

They said right from the start that if the hardware turns out to need replacing, they will do so at no extra charge. This was confirmed again after the announcement of the new hardware.

Seven Electrics

If you wish to avoid Tesla selling to Big Saudi Oil, now is your time to protest.

Ron M

Production of TM3 has remained over 5,000 a week near 6,000. Battery storage and solar roofs has tons of pent up demand. China factory in future. So Tesla will be worth double the $420 as production continues to ramp up. In a few years people will wonder why they didn’t buy today when stock price was so cheap. Tesla is the Apple or Amazon that you can buy today.

William

Apple and/or Amazon are much different capital plays, in many different ways, than future Tesla shares, and its potential for capital equity appreciation.

antrik

These things are known, and thus already priced in. (Minus shorters somewhat depressing the share price…) Future increases hinge on further good news that most people don’t expect yet.