Results, great things to come

Tesla released results last evening. Elon Musk is amazing, his energy is electric and contagious. His simplicity of explaining what is essentially a very complex product is the hallmark of a great businessman and can-doer. There are many people that would have approached the projects of space travel and make it cheaper (much cheaper), electric vehicles and better technology with very different methods. If at all. Yet he finds the time to immerse himself into these projects for the betterment of humanity, at the expense of his personal life. Sadly. I guess that is somehow how life works, the best and amazing people in terms of their business lives aren't as successful in their personal lives. Whatever makes you happy, I am all for it, pity nobody, be generous.


Back to Tesla, the company that is run by the modern day Iron Man and the company that is trying to change the world one invention at a time. Read through the Tesla Motors - First Quarter 2015 Shareholder Letter. If you want to see the earnings transcript, sign up at SeekingAlpha and then read it. Tesla Motors (TSLA) Elon Reeve Musk on Q1 2015 Results - Earnings Call Transcript. I learnt that Musk's second name is Reeve, that is what I learned today.


I also learned that the Powerwall and Powerpack units (the new batteries) are sold out until the middle of next year, in the one week that they have been available. Musk said: "So, it's like crazy off the hook. Yeah. And it seems to have gone super viral." The Gigafactory is key to the rolling out of the battery product en masse. The question that I hear asked often, what is it that Tesla does that someone else can't do better? Or cheaper? The answer lies in other consumer products. You can buy one kind of smartphone, if money were no object you would certainly buy the BEST one. Ditto with Tesla, they are not the cheapest, they certainly (like another technology company I know well), make beautiful products. Are they the best? Time will tell but as expected, Musk certainly thinks so.


How do you value this company? After all, they sell only around 11-12 thousand vehicles a quarter. That is nothing in the bigger picture. They spend an enormous amount of money on R&D, the company makes a loss. Revenues for the whole quarter a little above 1.1 billion Rand. That means for a company that sells in the region of five billion Dollars worth of cars a year, with a market capitalisation of 29 billion Dollars, big things are being expected. All the other manufacturers have price to sales ratios (total value to total sales) of between 0.5 and 1 times, from Toyota to Daimler. In fact for the less luxury manufacturers, the ratio of closer to 0.5 times. In Tesla's case this ratio is 9.2 times. In other words, it is overpriced on that metric of a factor of 18-19 times. They do have better gross margins, Tesla that is. Daimler also has revenues of 145 billion Dollars, there is size and scale there. I am pretty sure that Tesla does not want to churn out millions of cars, it would be *nice*, I get the sense is to focus on the quality of the vehicle.

The company is NOT going to be profitable any time soon. As a shareholder the ride is going to be wild, it could be very bitter if the execution is wrong. The metrics, in terms of valuations look out there and too much to pay. It is a disruptor. We could be on the cusp of the next energy revolution, not too dissimilar to when nuclear technology took hold. Ironically it is off the grid, away from reliance on utilities and more onus is passed on to the individuals. The more rich people you get, the more demand there will be for the product. The more conscious people get of their surroundings, the more the economics are less likely to form part of the equation. This investment is NOT for the investor who prefers steady and predictable, this investment is a big bet that the future of battery and transportation is changing rapidly, and these guys are at the forefront. You are going to have to be VERY patient along the way, for the time being momentum is definitely with Elon Musk and his company, expect a few broker upgrades in the coming days.