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Investment Ideas / Re: TSLA - Tesla Motors
« Last post by Dynamic on Today at 05:12:39 AM »
My thoughts as an EV enthusiast, who has never held a position on TSLA, long or short.

If I had a position, I'd want to understand the best version of my opposite number's argument (steel-manning their argument before looking at my counterargument, rather than straw-manning their argument and deluding myself).

So Tesla just released its lower cost (45k), mid-range Model 3.

Seems again to be news where both longs and shorts find evidence of their theses. My take (as a bear):
1. The announcement seems to coincide with increasing evidence that the US / Canadian backlog of the more costly versions of the M3 is exhausted

I agree that it's a sign that the high-end high-margin customers in USA/Canada who want AWD, long range and performance versions and want them and can raise the money by December may have substantially reduced. There would doubtless be some who want it but not just yet, and probably a vast number who really are only looking to spend $35,000 to $45,000 tops.

Tesla have admitted that they're not yet at the volume or the battery cost reduction where the $35,000 200-mile Model 3 could be made profitably and to sell it too soon "would kill the company".

It could be taken that (either accounting for backlog or not) they realise that a lot of early reservation holders are a little frustrated with the delay, because they do want the RWD model at around the $35,000 price point and cannot justify or afford spending $45,000 to $60,000 or even more on a premium or performance model.

Equally it's cleverly positioned so that someone with the full benefit of the full Federal Tax Credit could get the basic Mid Range Model 3 in black with aero wheels for $35,000 USD effective cost (once they have the benefit of their tax rebate during the 2017 tax year), and they might still upsell them on a few thousand bucks of autopilot, metallic paint, fancy wheels or premium audio that keeps the price within their affordable budget and probably boosts the margin. They're then perhaps trading off the likelihood of getting the full $7,500 EV tax credit instead of $3,750 from January 2019 against the increased upfront cost, and effectively getting a worthwhile boost in range and probably a mild improvement in performance "for free" compared to waiting a year more to get only a $3,750 reduction in their Federal taxes and at least a few months more to get their car.

From Tesla's side, it also slightly reduces the number of battery cells going into each car, slightly the reducing the ramp up in raw materials supply required as car production ramps up. It also serves to positions them closer to the price-point of some of the other decent range EV newcomers such as the Kia Niro / Hyundai Kona and the Chevy Bolt, but with the sexiness and Tesla driving dynamics that are still distinctly a premium attraction. For some people's image, driving a Tesla rather than a Kia/Hyundai/Chevy is worth a few grand.

It could be taken as a signal that some design and production improvements have lowered the cost about half way towards the ultimate goal of the $35,000 Standard Range base model being economically viable, and bulls could argue that it's a sign of improved production efficiency gradually coming online, boding well for the future.

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-> Since the European homologation process is not yet final this version had to be released to "keep the growth story going"

From the bull's point of view, they could envisage there's quite a lot of pent up demand for both high-end and lower-priced Model 3s in Europe, where the sheer width of the Model S and Model X makes them a bit lumbering and hard to manoeuvre on urban and rural roads built around historic horse and cart traffic (single lane roads in towns instead of three lane streets of modern cities). I really like my tiny city car for town, country and long-distance driving in the UK and northern Europe, especially for parking. I was also happy enough with my Nissan X-Trail before that, even though its width was occasionally awkward. I'd say the Model 3 is more like standard width for a European mid-range to luxury car and will be very popular. At the same time, Renault Zoe ZE40 is also looking pretty attractive for the majority of my driving.

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2. Delivery of this version is already in 4 to 8 weeks: more evidence from point 1
3. Posts from Tesla sales reps on Twitter seem to indicate that sales reps were not informed prior to the announcement: also more evidence of point 1 + indication that internal organisation is clearly a mess

Certainly a possible story, but equally the production rate is getting so much higher, and the middle-ground argument also makes some sense. They wouldn't want rumours of an imminent cheaper Model 3 to surface before they were ready in case they lost customers still willing and able to buy the premium models who decided to wait for the mid-range instead, so naturally, they get ready at the factory and announce it at the last possible moment, still many weeks before the showroom staff will see one.

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4. The Full Service Drive option has disappeared from all models: word is out that this could be due to DoJ investigation (Tesla misleadingly claiming that FSD is close to happen + asking 3k for this option)

Well, that's certainly a possibility. All the YouTubers etc seem to say it's not worth ordering Full Self Driving at this point as it's probably years away, and likely wouldn't cost more than a few grand more to get then rather than at delivery. Perhaps take up of FSD is actually insignificant, so they're simplifying the options process by taking it out with little impact on their cashflows and with nothing sinister behind it.

I can certainly see the short arguments and I'm very wary of the capital intensive, highly competitive, profit-crushing nature of the auto industry and that Tesla's stock valuation is very rich, demanding a lot of growth and profitability for many years in the future to provide a reasonable return in the long run. It's also likely to be volatile ride between now and "the long run".

Equally, I can see that many Tesla shareholders are there to support the mission or because of the buzz and popularity behind it, with little to no regard to price versus value and the company's accounts and future cash flows. This is reminiscent of the dot-com boom when tech stocks were at lofty valuations that only a few have gone on to justify a decade or two later.

And it's almost a pantomime - with hero and the villain being cheered and booed.

I think there are longs/bulls and EV enthusiasts without skin in the game, who are hopelessly deluded and away with the fairies, engaging in conspiratorial thinking and all sorts. Then again, I think there are powerful interest groups doing their best to stem the tide of change away from fossil fuels to prolong the return-earning duration of their assets and spread fear uncertainty and doubt as far as possible. But some of the enthusiasts/bulls offer stupid hollow straw-man counter-arguments in far greater quantity than I can take.

There's the media in the middle, going for clicks and sensationalism, polarising the stories, focusing minute attention on any Tesla crash or fire, while utterly failing to put it into the context of gasoline car electrical fires, autopilot versus human error and overall vehicle safety.

There's Elon doing some seriously ill-advised things, especially of late, seemingly trying to be self-destructive.

At the same time there are certain people on the short side who seem to draw faulty conclusions and cherry pick circumstantial evidence to present things in the worst light, especially for Tesla. And some of the famous shorts have continually changed the story of Tesla's impossible challenges after challenge after challenge has been surmounted over the years. Tesla has achieved a hell of a lot that the naysayers said they couldn't.

This is fascinating to watch, and for the sake of the planet, I hope Tesla's mission succeeds (and the mission statement is about hastening adoption of cleaner technology to reduce reliance on fossil fuels and make progress towards combatting climate change, not making a profit commensurate with their stock price).

Economics wins out in the end. If it all works out more cost-effective for the consumers (whether or not externalities are appropriately priced), green tech will replace fossil fuels.

I think the evidence that climate change is likely to have serious consequences is very compelling (though my Physics PhD and career means I'm not fully versed in the field, but I've found no compelling flaws in the argument), and even if it turns out to be less serious than predicted, it can do no harm to develop all the great new technology to preserve fossil fuels as chemical feedstock and capture, store and use energy more efficiently and cheaply with less reliance on politically unstable regions.
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Strategies / Re: The case for Europe
« Last post by Ulrich on Today at 04:39:53 AM »
There is a big Gap in Oil Stocks between Europe and the US.

Take ENI S.p.a. . An Oil Major, that is more focused on E&P. Not so strong in Downstream like Exxon or Shell. But it trades for under 5 times EV/EVITDA and with higher Oilprices this year the valuation is very attractive.

It has low leverage , good growth in Production and i think over 7 million in proofed Barrels.

Cons: Reserves often in more unstable countries (Lybia for example), controlled by the Italian state. Dividendtax in Italy.

But ist not a state piggy bank. It has a long history paying dividends. And it created a lot of value since it s IPO in the 90s.

But really with that kind of reserves and in an financial strong position that would be worth much more on an US Exchange.
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General Discussion / Re: European banks
« Last post by Spekulatius on Today at 04:30:55 AM »
Thanks for sharing above article, The scope of the fraud is true truly staggering and will be very expensive for the enables that are going to get caught. The EU has become much less forgiving to while collar fraud, tax evasion, and collaboration to stiff competition than in the past and the fines have become much much higher,
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General Discussion / Re: Companies Most Like to Benefit From Rising Rates
« Last post by frommi on Today at 04:29:18 AM »
Your question implies that you are looking for confirming evidence to feed your confirmation bias. Better ask in what type of environment you don`t want to own any financials and how likely it is that this will happen over the next 3-5 years.
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Fairfax Financial / Re: IndiaInfoline
« Last post by petec on Today at 04:25:41 AM »
This thing's absolutely collapsed recently. Anyone following it?
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Also, Uber and Lyft  have no advantage as it pertains to electric and/or autonomous vehicles. They have a user base and an app, that’s it. If a company comes out with an autonomous vehicle and they have capital and a user base like GOOG or Apple, they could put out Uber and Lyft out of business. There is no indication to me thet the benefit of lower cost from electric or autonous vehicles (if indeed there is one) will accrue to Uber or Lyft.
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Investment Ideas / Re: SHLD - Sears
« Last post by Spekulatius on Today at 03:58:11 AM »
NYT article, where Fast Eddy comments SYW.
Quote
Mr. Lampert insisted to me that ShopYourWay was showing promise but required far more time and capital than Sears could muster. “If I could have raised billions, I could have done things differently,” he said. “The ability to incubate ideas requires a huge investment.”
https://www.nytimes.com/2018/10/18/business/sears-edward-lampert-bankruptcy.html?rref=collection%2Fsectioncollection%2Fbusiness
If I could have raised billions,
He should've said: 'If i didn't waste $6.5B on buybacks'....

Even SYW was a misapplication of capital,IMO and would not have succeeded even when he had spent a couple more billions on it. In the mean time, he starved totally fine operations like the car centers, Craftmans tools (which dominated several categories like tools, garden ), Diehard and made them generic brands with little residual value.
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Leveraged financials, some insurance, any stock with good pricing power, but with a caveat. It's large, unexpected swings in inflation that can wreck havoc with this or any business that has debt or liabilities. Liabilities are priced by people which embed their expectations into them. Fast changes are not usually assumed. I'd read footnotes about their expectations if you're worried about this. Sometimes I think a government monopoly or duopoly may be good as long as a return over inflation is guaranteed and if the measuring stick benchmark is honest. Also companies that have just finished a large wave of capital investment, naturally inflation makes new capex more expensive so if you've already done it, that's a benefit. Fast growing companies that far exceed the rate of inflation...
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Investment Ideas / Re: SHLD - Sears
« Last post by Value^2 on Today at 02:21:02 AM »
NYT article, where Fast Eddy comments SYW.
Quote
Mr. Lampert insisted to me that ShopYourWay was showing promise but required far more time and capital than Sears could muster. “If I could have raised billions, I could have done things differently,” he said. “The ability to incubate ideas requires a huge investment.”
https://www.nytimes.com/2018/10/18/business/sears-edward-lampert-bankruptcy.html?rref=collection%2Fsectioncollection%2Fbusiness
If I could have raised billions,
He should've said: 'If i didn't waste $6.5B on buybacks'....
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@AdjustedEarnings

Did some further digging and it seems like SaaS multiples are overheated (http://tomtunguz.com/publi-arr-multiples/), and if I'm guessing based on all the new unicorns sprouting up daily, I'd say early round raises globally could well be happening at bubbly valuations right now.
On the other hand, large cap private market valuations don't seem that crazy as I mentioned above.
In other words, I think there are pockets (some noticeable) of definite over-valuation but also some reasonably attractively priced tech companies that are excellent potential investments at their current market caps.
Sam Altman had a reasonable take on the situation (https://www.youtube.com/watch?v=6MAs4pae3cI).


@bizaro86

Juno tried taking them on in NYC during 2016. Raised $30M and didn't even make Uber/Lyft blink. They offered better pay and half the business equity to drivers. Also, the guy who ran Juno was no dummy. Talmon Marco built Viber, which had 400M users when he sold it. Juno was later sold to Gett. Anyway, I'm not trying to say it's impossible for any amount of money with an A-plus team, but I do think there are a limited amount of VCs (Softbank, Sequoia, Benchmark, Tencent, etc) who could come up with the funding needed, and they're all already invested in ride-hailing leaders.

Not only that, but rolodexes are a massive competitive advantage for the best VCs. In other words, Bill Gurley or John Doerr or Alfred Lin has way more connections and sway with ex-Apple, Google, Amazon, etc, executives and when you're scaling a high-growth start-up, those are the people you need to hire into your top VP positions.
There's a reason that Sequoia, Accel, a16z, etc, see the best deal flow, because entrepreneurs and everyone in the industry knows that they have the most experience in building the Apple's, Google's, and Facebook's, of this world, plus they have way more pull with the people you will eventually want to hire into your management team.

Anyway, my point is that the management and building of a company that's growing at an exponential rate and will become one of the world's biggest is simply not one that most people or venture capital firms have the ability or experience to do. It really depends a lot on being able to hire people who are very sharp and having a bunch of VCs who can give you substantially better advice and help at crucial stages along the way. When you're growing at 100's of percent a year in the early stages, a mis-step can cost you a lot and give your competitors everything, so you want funding really from the best, most experienced VCs who've seen all the major mistakes before and know what to avoid. The group of people who can actually do that at an exceptional level, and help build a genuine megacap, are not as numerous as some people might think.

There are similarities to soccer clubs and coaches. If a player truly wants to achieve greatness, they'll eventually have to join up with a Barcelona, Real Madrid, Bayern Munich, etc, in order to have access to the best coaching, physiotherapy, and team-mates who they can learn and improve from. Once there, they'll hopefully also get a manager like Guardiola, Mourinho (current form notwithstanding), etc, who are not only the most competitive people to be in business with, but also those who understand the fundamentals of management far, far better than almost anyone else. Of course, it helps to have deep pockets too, and again there are only a few clubs which have those. Put all that together, and is it any wonder the same teams get the best players and the best players move to the same teams and get even better until they're sometimes close to unstoppable?
Not really. Occasionally, a Manchester City will come along every decade (see the VC's at a16z) but mostly its the same old clubs/VC firms who win everything, produce the best teams, and are chosen by the greatest players. It's actually the ecosystem that exists around these founders and VC firms that creates the vast majority of these results, so it makes sense to keep in mind that not everyone can do this and come out on top. It might look that way from outside, but the reality is far more complex and competitive.

Anyway, that still doesn't mean it can't be done but I think with the buy-in Uber & Lyft have across the big VCs, banks, etc, the challenge would be all uphill the whole way and the chance of success would be slim. If anything, you'd be better off using those billions to build a self-driving EV and build your own fleet, because that'd get you ahead of the game instead of having to compete on a level playing field. Ha. That's a different discussion for another time though.


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