So for my first post I will review the above article. The link is here: https://www.businessinsider.com/teslas-biggest-bear-explains-45-price-target-on-the-stock-2019-7 And off we go…

They are quoting Gordon Johnson of Vertical Research who is a bear, of course, predicting a 80% drop in the share value this year.

“Tesla is currently being valued as a technology company,” he said in a note to clients. “However in reality, it’s a capital intensive, auto company, in an industry defined by cyclicality. We believe as the Street re-rates the company lower as an auto company versus a technology company, it’s price-to-book ratio will trend downwards.”

While yes it is an auto company it is also an energy company, generating and storage, and potentially a very valuable tech company, see Waymo and Uber. (Ignoring Supercharger and Service centers as I believe Elon Musk has stated they are not profit centers and insurance as I don’t have figures). Personally I only see selected areas for Robo taxi’s before about 2022 and even then a slow roll out due to nervous regulators and slow to transition ICE manufactures bribing politicians. (No other way to put ‘bribes’ nicely although they will be packaged in semi legal ways)

But once Robo taxi’s are on the loose it will be too late to enter a rising share price without paying over valuation. I see valuation rising in H2 2020 and 2021 from the Robo taxis.

So Johnson has to ignore anything but the auto side of Tesla to make his case which is weak at best as I explain below.

” cyclicality ” !

Traditional auto companies are cutting jobs at this moment but BEV auto sales worldwide are only headed upwards, for increased sales YoY unless he wants to wear blinkers and only compare Tesla’s 2018 Q4 with 2019 Q1. Obviously Gordon Johnson did not get the memo about the majority of the world moving to BEV and phasing out ICE sales.

Tesla’s energy storage has doubled YoY (104%) and 81% QoQ. Tesla is talking about scaling to 1 Terrawatt as their initial plan although a time frame has yet to be forecast.

” Johnson is using a price-to-book ratio. Using that measure, Tesla trades at more than six times its book value while most other automotive stocks usually trade at roughly 1.1 times the measure. With that multiple in mind, Tesla should be worth $45 per share, Johnson says.”

Are these ‘other automotive’ companies almost doubling their YoY sales numbers? If not why try and compare them unless he is trying to squeeze Tesla into a box that it just doesn’t fit in.

He tries to explain with the following.

“People keep saying ‘look at their revenue growth and value them on a revenue multiple,'” Johnson said. “We believe you’re going to see revenue decline, because in the third quarter you have another $1,850 cut to the EV incentive which took effect July 1.”

Again Johnson is ignoring that Tesla can move sales if necessary to the ‘rest of the world’. By not addressing sales outside the USA seems an admission that he doesn’t know how to account for them so best to ignore them. And what about Gigafactory 3 in China? Or is this just a short term prediction from him, Q3? Buying a new ICE today seems like a gamble unless you plan to sell within 2-3 years or hold on to it for the life of the vehicle. Trying to sell an ICE after 2024 with new rules coming into effect and many more BEV models available seems a guaranteed way to lose most of your investment.

“We believe” seems an admission of guessing which I and anyone else can do.

“Tesla’s cap-ex in the quarter was a joke,” he said of the $249.7 million reported line item. “For the past three quarters running, Tesla’s cap-ex has been under its depreciation and amortization, meaning it’s not investing enough to upkeep its equipment. That’s not what growth companies do.”

Although I definitely don’t know enough or all most anything about needing to upkeep it’s equipment most of it’s equipment is only a few years old. Perhaps it is still under warranty.

And finally

” Competition will also be a problem, as more high-end electric models from automakers like Audi, BMW and others hit the market at a quickening pace, according to Johnson. “

When? These other automakers are still not committed to BEV’s and new cars are rolling out slowly and in low volume. Obviously competition is coming, about 7-10 years behind Tesla, but I see the market growth of BEV’s increasing faster than other automakers can take advantage of to slow Tesla.

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