The ongoing X and Elon Musk Transgressions Thread

[opendoor]

Originally Posted by Enoch Root

You can't use mkt cap to compare debt, as mkt cap is a function of price. The higher the price, the higher the mkt cap, the better the ratio. So let's raise the price!

Also, debt matters, absolutely. But it's a question of the cost of the debt, as a function of earnings (as long as the debt is at reasonable levels). And the cost of that debt is already factored into the earnings (i.e. earnings are net of debt service).

TSLA makes about $3.25/share and is priced at $150, or 47 X earnings

VW makes over 32 Euro/share and is priced at 123 Euro, or 3.7 X earnings.

Each dollar of earnings (per share) that TSLA generates is being valued at 12 X what each dollar of earnings that VW generates is being valued at.

Saying they have less debt does not justify that.

Of course debt impacts a company's market cap. Debt holders get paid before shareholders do, so a company's debt levels will reduce its market cap at a given enterprise value. If you were buying a business for $10M and it had $20M in debt that you had to take on, you're ultimately paying $30M for it. So when you're looking at market cap exclusively (which includes only publicly traded common shares, and excludes preferred shares and debt obligations) you're not getting the full picture.

Enterprise Value captures the total value of a business (basically what it would cost to acquire it), so when you're comparing companies with very different debt levels, you have to account for that in some way. Which makes simple P/E comparisons between companies with significant debt and those with virtually zero debt not all that useful.

It's like when people were buying houses in Alberta for $1 in the '80s. They weren't getting houses for $1, because they were taking on the debt owing. So if you bought a $1 house and rented it out for $5K a year, you didn't have a 500,000% cap rate, because that would be ignoring the debt. Similarly, P/E for high-debt companies will tend to be much lower than low-debt companies because the market cap reflects a smaller portion of the company's enterprise value.

[Enoch Root]

Originally Posted by opendoor

Of course debt impacts a company's market cap. Debt holders get paid before shareholders do, so a company's debt levels will reduce its market cap at a given enterprise value. If you were buying a business for $10M and it had $20M in debt that you had to take on, you're ultimately paying $30M for it. So when you're looking at market cap exclusively (which includes only publicly traded common shares, and excludes preferred shares and debt obligations) you're not getting the full picture.

Enterprise Value captures the total value of a business (basically what it would cost to acquire it), so when you're comparing companies with very different debt levels, you have to account for that in some way. Which makes simple P/E comparisons between companies with significant debt and those with virtually zero debt not all that useful.

It's like when people were buying houses in Alberta for $1 in the '80s. They weren't getting houses for $1, because they were taking on the debt owing. So if you bought a $1 house and rented it out for $5K a year, you didn't have a 500,000% cap rate, because that would be ignoring the debt. Similarly, P/E for high-debt companies will tend to be much lower than low-debt companies because the market cap reflects a smaller portion of the company's enterprise value.

Of course debt levels matter - what I said was, you can't use market cap to compare debt levels, as the higher the market cap (regardless of whether it's warranted) the lower the ratio. Raise your stock price and your debt ratio goes down! Raise it more and you'll look even better!

Debt matters, but it is relative and industry specific. It is also good, up to a point - for a stable company, debt is leverage, and is good for shareholders.

Arguing that TSLA's P/E should be 10X that of other car companies, because they don't have a lot of debt, is a weak argument. As long as the debt is manageable, debt is not a problem (and for auto companies, large debt levels are pretty standard and are not a problem)

What matters for the P/E and market cap is profitability, and growth or profitability. TSLA's P/E of 47 assumes a LOT of future growth, which I think is way too iptimistic, as the other companies are closing the tech gap on them

[Mr.Coffee]

But why shouldn’t TSLA stock be treated like a tech company? According to Musk (lol) they are coming out with some game changing personal AI / robot machine aren’t they?

[Enoch Root]

Originally Posted by Mr.Coffee

But why shouldn’t TSLA stock be treated like a tech company? According to Musk (lol) they are coming out with some game changing personal AI / robot machine aren’t they?

If they come out with some game-changing tech, we can talk. And re-evaluate.

But as it stands, what do they do? And what do you buy from them? And in what industry are they competing?

[photon]

Hey they delivered 1 Tesla Semi that has a load capacity they won't tell anyone about and no where to charge that doesn't take days and doesn't do any of the things they talked about when they launched it.

[afc wimbledon]

Originally Posted by photon

Hey they delivered 1 Tesla Semi that has a load capacity they won't tell anyone about and no where to charge that doesn't take days and doesn't do any of the things they talked about when they launched it.

Yes I believe it delivers nacho chips for Frito Lay inc, you know how heavy corn chips are, that thing must be a beast!!!

[Mickey76]

Tesla is only about growth. Are all the jurisdictions that have said they’re going to ban internal combustion engines going to follow through? If they do I don’t think Teslas earnings increasing 3-4x seems unreasonable. If they get a share of the highway tractor market and if they win self driving 10x-20x earnings is easily possible. The potential of highway tractors and self driving is enormous. They could end up leasing entire fleets to all the mega carriers. It’s a rich valuation but I would rather be long than short.

[nik-]

Originally Posted by afc wimbledon

Yes I believe it delivers nacho chips for Frito Lay inc, you know how heavy corn chips are, that thing must be a beast!!!

Light in the bag, heavy as a brick after you eat them.

[GGG]

Originally Posted by Mickey76

Tesla is only about growth. Are all the jurisdictions that have said they’re going to ban internal combustion engines going to follow through? If they do I don’t think Teslas earnings increasing 3-4x seems unreasonable. If they get a share of the highway tractor market and if they win self driving 10x-20x earnings is easily possible. The potential of highway tractors and self driving is enormous. They could end up leasing entire fleets to all the mega carriers. It’s a rich valuation but I would rather be long than short.

Why would one believe that Tesla would beat google or amazon in terms of self driving cars. They may win semi autonomous but I think the same thing that allowed them to have electric cars faster (not having a combustion engine already) will be what hamstrings them on self driving (They already have human driven car business to support and maintain)

[Locke]

Originally Posted by Mr.Coffee

But why shouldn’t TSLA stock be treated like a tech company? According to Musk (lol) they are coming out with some game changing personal AI / robot machine aren’t they?

[Sainters7]

I'm surprised so many are taking his poll about stepping down seriously . I'm taking it the same way I've taken all his other antics to this point, including "RIP Twitter" last month: he's just ruffling feathers and poking the bear. IMO he's not going anywhere, at least not yet.

He just likes to mess with "the Libs": get people frustrated, get them worried, get their hopes up...it's all a big game.

[Wormius]

Originally Posted by Sainters7

I'm surprised so many are taking his poll about stepping down seriously . I'm taking it the same way I've taken all his other antics to this point, including "RIP Twitter" last month: he's just ruffling feathers and poking the bear. IMO he's not going anywhere, at least not yet.

For me anyway, he's firmly in "I need to see it to believe it" territory. He just likes to mess with "the Libs": get people frustrated, get them worried, get their hopes up...it's all a big game.

Not sure why he cares more about upsetting the libs than running the company properly and not scaring off advertisers and traffic-drawing users.

[Locke]

Originally Posted by Wormius

Not sure why he cares more about upsetting the libs than running the company properly and not scaring off advertisers and traffic-drawing users.

Because he's goddamned nuts!

The guy is pretty clearly window-licking batcrap!

[opendoor]

Originally Posted by Enoch Root

Of course debt levels matter - what I said was, you can't use market cap to compare debt levels, as the higher the market cap (regardless of whether it's warranted) the lower the ratio. Raise your stock price and your debt ratio goes down! Raise it more and you'll look even better!

You're talking like companies raise their own stock price unilaterally, but it's investors (who base their valuation on things like debt) who determine the price. In an efficient market, the market cap will tend to be total company value minus debt and preferred shareholder value. So a $500B market cap company with no debt is being valued similarly by the market to a $200B market cap company which has $300B in debt. But the first company will have a P/E that's 2.5x that of the second company at a given net income level, which is why P/E on its own isn't a particularly useful metric.

Debt matters, but it is relative and industry specific. It is also good, up to a point - for a stable company, debt is leverage, and is good for shareholders.

Arguing that TSLA's P/E should be 10X that of other car companies, because they don't have a lot of debt, is a weak argument. As long as the debt is manageable, debt is not a problem (and for auto companies, large debt levels are pretty standard and are not a problem)

What matters for the P/E and market cap is profitability, and growth or profitability. TSLA's P/E of 47 assumes a LOT of future growth, which I think is way too iptimistic, as the other companies are closing the tech gap on them

No one's arguing that long-term after their earnings stabilize more, that Tesla's P/E is going to be completely out of whack with its competitors (at least after accounting for debt levels). But a company with low debt in a growth phase can have a higher P/E than their debt-laden competitors and that can be sustainable.

Look at Toyota coming out of the financial crisis. Their P/E was 30-35 in 2011-12, which taken at face value would suggest that their stock was significantly overpriced. But the opposite happened, as their stock price doubled in the next few years because they kept increasing their earnings.

In light of that and their lack of debt, Tesla's forward P/E of 29 isn't obscenely high if they can continue to grow their earnings. Will that happen? Who knows. I'm not personally invested, as I think their stock price usually assumes everything going right. But I also don't think it's a $30-40 stock unless sales really crater (which could certainly happen).

[PeteMoss]

Originally Posted by opendoor

You're talking like companies raise their own stock price unilaterally, but it's investors (who base their valuation on things like debt) who determine the price. In an efficient market, the market cap will tend to be total company value minus debt and preferred shareholder value. So a $500B market cap company with no debt is being valued similarly by the market to a $200B market cap company which has $300B in debt. But the first company will have a P/E that's 2.5x that of the second company at a given net income level, which is why P/E on its own isn't a particularly useful metric.

No one's arguing that long-term after their earnings stabilize more, that Tesla's P/E is going to be completely out of whack with its competitors (at least after accounting for debt levels). But a company with low debt in a growth phase can have a higher P/E than their debt-laden competitors and that can be sustainable.

Look at Toyota coming out of the financial crisis. Their P/E was 30-35 in 2011-12, which taken at face value would suggest that their stock was significantly overpriced. But the opposite happened, as their stock price doubled in the next few years because they kept increasing their earnings.

In light of that and their lack of debt, Tesla's forward P/E of 29 isn't obscenely high if they can continue to grow their earnings. Will that happen? Who knows. I'm not personally invested, as I think their stock price usually assumes everything going right. But I also don't think it's a $30-40 stock unless sales really crater (which could certainly happen).

One could argue argue their lack of debt is hurting their business more than helping. They can't keep up with demand and are running out of runway on their head start in the market. May have been wise to spend like wild to this point to fill the demand that is out there and build up brand loyalty with people who are looking to buy their first electric car.

Quite possible they look back at this as missed opportunity to pull an Amazon who spent like mad in a developing market, they didn't turn a profit forever, but now they are the dominate player in a giant market.

[afc wimbledon]

Originally Posted by Locke

Because he's goddamned nuts!

The guy is pretty clearly window-licking batcrap!

Cocaine, it's a hell of drug!!!

[Locke]

Originally Posted by afc wimbledon

Cocaine, it's a hell of drug!!!

I have met cocaine addicts. They are calm, rational and sane compared to Musk.

That guy's brain is like a bag of cats.

[The Yen Man]

Originally Posted by Locke

Because he's goddamned nuts!

The guy is pretty clearly window-licking batcrap!

Lets be honest. The guy likes the smell of his own farts. He thinks he's the smartest guy in the world playing 4D chess with everyone, when in reality, guy just likes stroking his ego. You see how he wilted at the Chappelle showing after all the boos? His ego took a hit, and guy just shriveled. He's like every other egomaniac.

[AFireInside]

Originally Posted by Wormius

Not sure why he cares more about upsetting the libs than running the company properly and not scaring off advertisers and traffic-drawing users.

It's because he's bitter about covid policies, and he really likes to treat his employees like absolute garbage.

Being super rich in California also seems to have this affect, taxes, homelessness etc..

[Mickey76]

Originally Posted by GGG

Why would one believe that Tesla would beat google or amazon in terms of self driving cars. They may win semi autonomous but I think the same thing that allowed them to have electric cars faster (not having a combustion engine already) will be what hamstrings them on self driving (They already have human driven car business to support and maintain)

Because they have the natural sales channel of making the hardware. I assume self driving works better in electric vehicles and as long as they stay the leader in EV’s self driving will come from them at least for teslas. Similar to John Deeres integrated auto steer.

The big advantage though is the Semi Truck/commercial freight industry. I think Tesla gets there first and yes there are lots of obstacles but they could own that industry overnight.

Is it a risky stock buy? Sure but ultimately I like a stock where your competitors are getting legislated out of business.