TESLA (TSLA) INVESTMENT THESIS

Does anyone remember the flip phone of ten years past? There are only a few entrepreneurs who have challenged and revolutionized societal perceptions. Elon Musk, CEO of Tesla Inc is one. Thursday January 11, Tesla’s first mass production Model 3 arrived in it’s Palo Alto show room. Remember that date, ten years from now.

INVESTMENT THESIS

1. SECULAR TREND TOWARDS ELECTRIC VEHICLES
Automakers have committed investments of $90B into a market which is only 1% of the global market of 90 million cars. Estimates for 2030 range up to 20% market share for electric vehicles.
Cities in China are expected to restrict or even ban Internal Combustion Engine vehicles.

2. SCALE AND SCOPE
In 2017, Tesla sold 100,000 vehicles. Model 3 target production was 5000/week or 260,000/year commencing in June 2018, a 260% increase in production, with current capacity near 7500/week and scalability to 10,000/week. Tesla plans on opening a production facility in China and commencing deliveries in Europe, a market estimated to be double the US in early 2019. The US government offers a $7500 electric vehicle tax credit.

The Model 3 represents a near double in revenue within the first full production year.

Model 3 revenue can be calculated.
260,000 x $40,000 (average price)= $10.4B

The higher the Average Selling Price (ASP) the higher the revenue generation.

As production numbers increase and efficiencies in manufacturing improve, costs per vehicle decrease.

3. PRODUCT DIVERSIFICATION

Tesla has announced a semi truck for production with over 1200 preorders from companies including Pepsi, Walmart and UPS. Musk has also announced plans for a pickup truck.

The Boring Company is working to build underground tunnels under major cities to reduce traffic. Tesla Solar is targeting the roofing market in sunshine states working towards electric independenCE. SpaceX works with NASA to launch reuse-able rockets and the first manned mission to Mars can’t be overlooked.

What does that mean at MONEYWISEHQ?

Recognize Tesla for what it is, a speculative stock. But also look ten years from now. Tesla is a $60B company which had $650m in losses in 2017 and recorded it’s first quarterly profit in October 2018.

There is a secular trend towards environmentalism and electric vehicles on a global scale which provides significant growth opportunities as the EV market grows from 1% to an estimated 20% through 2030 As product revenues increase and costs decrease through scale and manufacturing efficiencies, profit will rise. There will continue to be significant investments in Research and Development, manufacturing facilities and logistics.

Tesla has first mover advantage in the EV market and has disrupted the entire auto industry, however, vehicle manufacturers are moving into the space rapidly. Development and facility costs will continue to be a function of profitability for the foreseeable future.

The Tesla share price is very volatile making it a candidate for trading strategies such as Trading Around a Core Position or Catalyst Investing. With the most recent Q3 2018 Earnings Report Tesla May be making the transition from being 'tradable' to 'investable', with a very disciplined ‘stop loss’ in place