UBS Bank’s negative opinion of TSLA, which caused a big dip yesterday, is outlined below by International Business Times. The italicized responses come courtesy of TeslaMondo:
* Tesla would need to grow its luxury car market share from 0.6 percent today to 8.5 percent by 2020, making it six times larger than Porsche, twice as large as Lexus and just behind Audi and BMW in terms of annual sales. “These automakers will not cede share easily,” says the note. Tesla’s goal is to accelerate the advent of the electric car via increasingly affordable machines. Luxury market share doesn’t align with that goal and isn’t a key metric for investors either. Model III hardly befits a “luxury” tag anyway.
* UBS’s best-case scenario, based on the company’s projected future sales and profit margins, suggests the company’s 12-month stock price should be $300, or roughly $31 less than the current stock price. The downside scenario, where future sales and profit margins are less than expected, would put the company’s 12-month price at $48 a share, way under its current price. Tesla’s stock price hasn’t made sense since early 2013. TSLA is about sentiment as much as volume and profit. People are excited about this new and promising company, and its demonstrable influence on the dusty, rusty automobile world. The excitement isn’t close to wearing off either, because Tesla won’t let it. People may wonder why Tesla is so focused on milking every drop of performance from its machines. Well, Tesla can’t simply get away with “competing” with gas cars. Remember, it’s trying to force a paradigm shift in motoring. That requires street credibility. What better way to achieve street cred than by spanking every single gas “dream machine” you can name? One can imagine kids taking down Lambo posters and replacing them with Tesla posters. That kind of thing.
* The company’s current stock price assumes it will be selling 1.5 million cars and using all of its battery production capacity annually by 2025. UBS believes this is “unlikely.” No, the stock price simply assumes successful deployment of Mothra X in September and increasing demand for its wares, both automotive and stationary. Nobody is thinking about 2025 auto sales volume — except analysts who have nothing else to think about.
* To sell 1.5 million cars by 2025 “would require adding two more assembly plants and probably two more gigafactories” at a cost of $6 billion to $9 billion. And so we’d have more of the same, which is solid revenue growth offset by equally solid capital outlay, with little or no profit left over. That doesn’t seem to bother us now. Yes, Musk guessed at full-year profitability around 2020. Let’s say it doesn’t happen. If Tesla simply stays the course, executes Model III on time, and continues to sign Tesla Energy contracts as foreshadowed in 2015, even a lack of full-year profitability in 2020 won’t crush the stock. Sure, the seed-planting stage does need to end. Flowers need to bloom at some point. But investors do expect a long ramp-up in this hostile auto sector.
* Early orders for Tesla’s Powerwall and Powerpack energy storage units are misleading. “Customers did not put down deposits, so these are just solicitations of interest,” says the report. Early adopters will drive up initial orders, but making a leap to the mass market will be a big challenge. Not as big a challenge as creating a high performance all-electric car for $35k, and doing so in only three generations of product (Roadster, Model S and X, Model III) while gas-powered cars have enjoyed hundreds of generations of refinements and scalability without achieving any comparable price reduction. They should cost $1,000 by now.
So summarize, this UBS analyst is yet another chart-humper who gets off on dry, rational formulae, and analogies, and then decides Tesla stock is overrated. We’ve seen other pundits fall victim to the same faulty approach. Even Tesla bull Adam Jonas from Morgan Stanley screwed up by saying low gas prices would harm Tesla. That makes perfect sense, yet it has turned out to be perfectly false. Tesla doesn’t make sense. It hasn’t made sense since its very conception. Even Musk thought it would probably fail. Doubtless UBS would have laughed at Musk if he’d approached for seed money.
Analysts should burn their charts. You cannot employ old-school tools to measure Tesla’s significance, share price or future. Normal metrics are useless here. And stop thinking 2020-2025. Think September, 2015, when websites of all stripes. automotive and otherwise, descend on Mothra X.