20181007 - Should we long or short Tesla_Let me_ - GooglePlus

Should we long or short Tesla?

Let me try to use "First principle rule" to analyze it.

1. Is Tesla making good products?

Yes. And the demand from market is huge, especially in Europe. Many people are happy to give up ICS luxury car for Model 3, S, X.

2. Is Tesla facing fierce competition?

No. From what I can see, there will not be any real competition in the next 3 years. (thanks God that Japanese and Korean companies are still focusing on other technologies)

It's a bit like SpaceX. Other companies got no chance to even catch up.

3. Is Tesla making good money?

All right. This one is the real challenging question. Even at 2018Q3, Tesla is not going to make substantial profit. It may just stops bleeding.

(I have no idea how the SG&A got so high. It's a joke to spend $18,428 on each car sold. This number is based on 2018Q2 earnings report: 750,759,000 / 40,740 = 18,428).

4. Is Tesla going to be better or worse next year?

Finally, Tesla doesn't need to spend much money on Model 3 development anymore. I also can see that Elon learned a lot from Model 3, and he has no plan to repeat the production hell with Model Y, Semi-truck or Pickup. That's bad news to consumers as they may need to wait for one or two more years, but that can save huge amount of money and time for Tesla.

And, I have no doubt that Tesla will improve SG&A, to make it lower than industry standards: $8000.

And, eventually Tesla will be able to make 10,000 Model 3 per week.

And, Tesla Energy will also contribute some net profit.

But bad news are still there: there is no enough cash on the balance sheet. Shorts will not let the stock price stay above $360 before January, so Telsa may need to pay the due debt in 201902. That's $880M. At the end of 2018Q2, there is $2.2B cash on the balance sheet. If Telsa can get $0.1B net profit in 2018Q3, and $0.4B net profit in 2018Q4, then they may have $2.7B cash. After paying off $880M, there is $1.82B. Is that enough for Tesla? I am not a financial expert, but if investors believe that Telsa will get more net profit in 2019, it should be all right.

How about lose $0.1B in 2018Q3, and even lose another $0.4B in 2018Q4? That's not likely to lose money in 2018Q4, I am pretty sure about that. Without extra expense on R&D and "restructuring", I don't think that's possible. 2018Q3 is tricky, but not likely to lose A LOT.

Conclusion.

The turning point of Tesla is coming. But it will take quite a while for the price reach $420.

Should I buy it next Monday? I suggest don't buy too much, and it's also not a good time point to sell it.

PS: please let me know if you noticed any error here. Any comments/help is appreciated.