Tesla in 2020 & 2021: My bet on TSLA Jan'22 Call Options

Introduction

In my Tesla Investment Thesis from three months ago I talked about my positive outlook on Tesla as a company, and about why I am a long-term shareholder. In this blog I want to zoom in a little bit, and look at a somewhat shorter term perspective that I have on Tesla.

I mentioned in my Tesla Investment Thesis that I have recently gone from being very positive about my investment to extremely positive. Part of this is thanks to the successful Model 3 ramp that has significantly de-risked the business, and that has now made it seem very likely that Tesla is no longer reliant on the capital markets to grow its business. The other recent development that made me even more bullish on Tesla than I was before was the Autonomy Investor Day, where Tesla proved to me that they are in the best position to be the leader in autonomous vehicles. However, the market does not seem to agree with me, because Tesla has recently been trading at record lows since the launch of the Model 3.

This blog is going to be about the next 2-3 years for Tesla, and why I think they will be very exciting for investors. The main reason for this is that I believe Tesla's fundamentals will get to a point where they will push the SP (stock price) to new all-time highs, and the bears won't be able to keep the SP down anymore with false narratives like "there's no demand". Furthermore, I think Tesla has opportunities in the next few years to prove that they are making significant progress in crucial areas (like manufacturing), thereby further increasing my confidence level in their ability to execute over the next decade. I'm somewhat confident already, but it could become a near certainty in my eyes that they will be the biggest player in the transportation industry in 2030.

These are some vague statements though, and I'm kind of beginning to speak in riddles. So before people start to think I'm some sort of hocus pocus Tesla fortunate teller, let's get into it.

Tesla in 2019

Before we get into 2020 and 2021, I'm going to do a quick recap of what's happened in 2019 so far, and explain the narratives that have played around the company and that have influenced the SP.

Q1'2019

After a tremendous second half of 2018 where, in spite of a terrible macro-economic environment, TSLA traded at near all-time highs of ~380$ off of two back-to-back record quarters, Tesla started off 2019 quite bad:

TSLA Q1'19 Chart:

Nasdaq Q1'19 Chart:

As you can see, TSLA went from trading in the 300-350$ range at the start of the quarter to <250$ after the Q1 earnings call, a drop of 25-30%. At the same time, the Nasdaq reached a new all-time high thanks to a very good macro-economic sentiment. There were a number of factors that contributed to Tesla's SP performing badly:

• Tesla announced a round of lay-offs and other cost saving efforts (e.g. simplification of referral program), that they announced were necessary to cut costs and be able to profitably sell cheaper versions of the Model 3. They also announced that the long-promised 35k Model 3 would only be available 'off-menu'. All-in-all, it seems like the market interpreted this as bad signs for Tesla's ability to make a profit from the Model 3 program.
• A number of decisions were made that made the market lose some confidence in Tesla's stability, leadership, and overall decision making. Tesla announced that it'd close most of its retail stores in February, and then only two weeks later announced that they partially reversed this decision. Tesla also made multiple, and at times confusing price changes, and changes to its line-up of cars and options throughout the quarter.
• Most importantly, Tesla's Q1 financial results were far under expectation, and parts of it were very worrisome. Most notably, there was a huge drop of almost 50% YoY in Model S and X sales. They also ran into logistical challenges due to the start of overseas Model 3 deliveries. These financial results caused the market to question the demand for Tesla's vehicles, and the stock price tanked as a result.

Q2'2019

The second quarter was far less eventful than the first. TSLA mostly went along with the macro-economic sentiment which was heavily influenced by the US-China trade war, and some recession fears:

TSLA Q2'19 Chart:

Nasdaq Q2'19 Chart:

You can see that TSLA tracked the Nasdaq for the middle portion of that chart. The only exceptions are the first month April where TSLA dropped a lot due to its bad Q1 financial results. and the last week of the chart where TSLA dropped significantly due to the reaction to its Q2 financial results.

In spite of Q2 being a record for TSLA in terms of deliveries, TSLA posted a larger than expected loss. This was mostly due to Tesla selling pre-Raven update Model S+X at a discounted price, and to a smaller extent due to a couple of small items not going Tesla's way (one-time expenses, few tax credits recognized, etc.). Nonetheless Tesla finished the quarter with a very healthy cash balance, and positive FCF (free cash flow), but the market was disappointed in the loss and reacted very negatively.

On a personal note, I got extremely lucky having cash available to me on the 31st of May, the 2nd best day in recent years to buy Tesla stock. I would've been psyched to buy a month earlier at ~240$, but I knew I had to wait a little longer and was hoping every day the stock wouldn't go up. Lucky me, it went down further and I ended up doubling my TSLA position on the 31st of May for 185$ a share. Pure luck.

Q3'2019

As I'm writing this, we're still awaiting Q3 financial results, but for the most part it has been a very quiet quarter where TSLA tracked the Nasdaq fairly closely:

TSLA Q3'19 Chart:

Nasdaq Q3'19 Chart:

Likewise, there wasn't much noteworthy news that moved the stock up or down this quarter. The delivery numbers from early October were a new record, but only barely. At this point it seems to me like the market is far more concerned about Tesla's profits than minor increases in its delivery numbers, and more concerned with the overall macro-economic uncertainty than Tesla's (in my opinion) strong position.

Catalysts in 2020 & 2021

As I start talking about Tesla in 2020 and 2021, I'm first going to use this section to discuss all the things that investors should pay attention to in the next few years, namely:

1. Fundamentals, and the impact of Giga 3, China, and Model Y on them
2. The machine that makes the machine
3. Battery tech & supply breakthroughs
4. Autonomy progress
5. Gigafactory 4
6. Macro-economics
7. Others (Truck unveil, Semi release, Roadster tech, Energy)

After explaining why and how these things will impact Tesla as a company, and potentially the SP directly, I will go over the next two years in detail in 6 months increments, and with the help of financial models explain exactly when and to what extent I expect these things to impact Tesla and its SP.

One last footnote before we start: There has been a lot of talk about Tesla soon being able to start recognizing deferred revenue from FSD features. The TMC Near-future quarterly financial projections thread has been quite busy trying to figure out how this will impact Tesla's financials. I do personally understand how the deferred revenue works, but I am not sure exactly when and how much deferred revenue Tesla will be able to recognize, and I'm not sure anybody outside of Tesla knows. I'm also aware, but for now skeptical of Elon's comment that they will eventually achieve 30% profit margins for their car sales, thanks to being able to increase the price of the FSD package. For these reasons, I have chosen to omit all of this in this blog post, but maybe it's a good topic for a future post.

1: Fundamentals, and the impact of Giga 3, China, and MY on them

To start off this section, I'd like everybody to take a look at this chart of Tesla's market cap, and these charts of Tesla's SP, TTM revenue per share, and PS ratio (price-to-sales ratio / revenue multiple):

Tesla's Market Cap:

Tesla's SP, TTM revenue per share, and revenue multiple:

As you can see, after the ramp of the Model S in 2013 Tesla was valued by the market between 25-35B$, and since the ramp of the Model 3 in 2017 between 40-60B$. This all sounds pretty reasonable until you take a closer look and start to consider the amount of money Tesla brought in in terms of revenue.

Tesla first ramped MS production in 2013, but initially they only brought in 2B$ of yearly revenue. Nonetheless the market valued Tesla at >20B$ giving them a PS ratio of over 10. In 2015 Tesla still almost exclusively sold MS cars, but their revenue had doubled to 4B$, yet the market valued Tesla almost the same, giving it a PS ratio of about 6-7. The valuation attributed to Tesla by the market in 2013 might've been a bit overzealous, because even Elon went on the record saying he didn't think they deserved such a high valuation. However, this trend of a declining PS ratio as Tesla has grown has gotten even more extreme in recent years, just take a look at this table:

Data was taken from the graph above.

Basically what's happening here is that Tesla is executing tremendously well, and is growing at rates (61% CAGR) that are almost unheard of in any industry, especially one as capital intensive as automotive manufacturing. Meanwhile the market doesn't seem to be aware of this, is overly concerned with short-term profitability, and/or is making too much money from manipulations, because Tesla's valuation has not increased in accordance with how well the company has progressed.

Up to a certain point this can happen, because Tesla is a growth story. If one would freeze time and ignore growth rates, Tesla would be the most preposterously valued car company of them all:

All this data comes from Yahoo Finance. Growth rates compare Q2'18 with Q2'19.

So people who don't do their research could be influenced to believe that Tesla's valuation is rich, because it's still valued higher than most car companies. I think the market has come to undervalue Tesla for the following three reasons:

1. There is a lot of uncertainty about Tesla's continued growth in the form of "there's no demand" and "Tesla can't scale production" narratives.
2. There is some ignorance about the fact that Tesla is the world leader by a significant margin in the technologies that will actually matter in the transportation industry in 2030 (electrification, and autonomy), and the fact that a lot of what other auto manufacturers are good at (Internal Combustion Engines) is going to be useless.
3. The market is skeptical/ignorant of Tesla's ability to turn revenue into consistent profits.

I think these three factors have contributed the most to the drop in Tesla's PS Ratio.

There will come a point though at which the market will no longer be able to ignore Tesla's fundamentals. A point at which even if there's only a 10% chance that Tesla will successfully launch a new product, and it will take twice as long as Tesla says it will, that is enough to increase its market cap, because it's valued similarly to GM who has a 0% chance of doing this. A point at which Tesla's business becomes large enough that it'll show consistent positive EBIT (income from operations), taking away a large part of the worries about a lack of profits.

I believe that this point is near, and very likely to happen in the next 2-3 years. I think that after ramping up production at Gigafactory 3, and production of the Model Y, Tesla's SP will reach new record highs strictly off of fundamentals. When and to what extent this will happen, I will discuss in later sections with the help of financial models, but for now let's take a look at the second thing investors should keep an eye on in the next few years.

2: The machine that makes the machine

I don't know how quickly and efficiently (or slowly and inefficiently) Tesla ramped up production of the Model S in late 2012 and early 2013, because I wasn't an investor yet, but I remember the Model X ramp quite clearly, because it was right after I first invested in Tesla. Tesla started producing the MX in Q3'15, and it took them almost an entire year to fully ramp production to ~1200 cars/week. The delay in the ramp up was received quite negatively by the media and the market. The reasons that Tesla and Elon gave at the time were that they went overboard with the design, and that the teams that worked on MX parts at suppliers were mostly B-teams. Tesla felt that they were still not being taken completely serious by the industry.

The M3 production ramp up in 2017-2018 was even more ambitious. Elon said that they expected to reach 5k cars/week by approximately the end of 2017, in just six months. But similar to the Model X, things took much longer, and it took Tesla twelve instead of six months to achieve this target. Tesla and Elon's explanations for this delay were that they tried to automate too much of the production process, even parts that are more efficiently done by a human, and that they had one supplier screw up massively in designing part of the battery pack production line. Elon has also said that they have learned from the mistakes they made during the MX and M3 production ramps, and believes they will not make the same mistakes in the future.

In 2016 during various conference calls and at Tesla's annual shareholders meeting, Elon began to talk about something that he referred to as 'the machine that makes the machine'. Elon explained that he had started to think of their factories as as much of a product as their cars. He said that much less effort has gone into perfecting factories than automobiles, and therefore believes that there is room for orders of magnitude of improvements in factories. Considering how enormous Tesla's future plans are*, I think the importance of manufacturing is an incredibly underappreciated part of Tesla as a company. Over the past decade, the automotive industry has proven to be reluctant to transition to EVs, and almost completely unwilling to invest in the all important production of batteries. Therefore it's looking like Tesla will have to build factories that can produce not hundreds of thousands of cars, not millions of cars, but ten or tens of millions of cars, if it wants to succeed in transitioning the world to sustainable transport. The degree to which Tesla is able to build state-of-the-art battery and car factories swiftly and efficiently, is directly correlated to Tesla's degree of future success.

*To transition the world to sustainable transport, probably with the help of others, but by itself if it must.

During 2020 and 2021 Tesla will do two new production ramp ups, and will have two chances to show the public that it has learned from the less-than-perfect MX and M3 ramps, and that they are getting better at building factories and creating production lines. The first of these two, the M3 ramp at Gigafactory 3 in China, may not be a new vehicle, but there are brand new production lines, at a new factory, in a different country with new employees. Some of these could create new challenges, but the fact that the vehicle is the same, makes me hopeful that Tesla will be able to ramp up to its goal of 3k cars/week by the end of Q2'20 at the latest. If they manage to do it faster (e.g. end of Q1'20), that in my eyes would be a very good sign that Tesla is getting better at building the machine that makes the machine, and would increase my confidence level in Tesla being the world's largest car manufacturer in 2030.

Similarly, the Model Y ramp up that is set to begin around Q3'20 just like the M3 production began in Q3'17, is another chance for Tesla to prove it has learned from past mistakes. It took Tesla twelve months to reach a production rate of 5k M3 per week, so if they are able to do the same thing with MY in six or nine months by Q1'21, or even Q4'20, that would be an extremely positive sign, and significantly increase my estimate for the number of cars Tesla will be producing in 2030.

So I will keep an eye on how well Tesla ramps up production at the Gigafactory 3 and of the MY, as well as closely follow other Tesla manufacturing developments. I expect that the upcoming Battery Investor Day in early 2020 will also talk a fair bit about manufacturing (they promised to unveil a roadmap to 1TWh/year after all), albeit more so on the battery side than the car side.

3: Battery tech & supply breakthroughs

Talking about Battery Investor Day and batteries, this is another thing that I will be paying close attention to in the next few years. Elon said at this year's annual shareholders meeting that he thinks investors should most closely pay attention to progress in batteries and autonomy. I think he should've included manufacturing in that list, but I certainly can't argue with him about the importance of batteries to Tesla's future success. Batteries affect Tesla's cars' range, cost, efficiency, longevity, reliability, performance, charging speed, and safety, and are therefore the single most important thing that determine the competitiveness of and demand for Tesla's products. Tesla's lead in batteries is why the M3 is outselling the competition by large margins.

There's a lot more potential to make progress in battery technology than in ICE technology. Car prices have stayed the same in the past two decades (unless you account for inflation), but the forecast for lithium ion battery prices is that they will continue to drop for the foreseeable future. I'd imagine the same is true for electric motors and powertrains, simply because these technologies are much newer, and have not been perfected for decades by traditional car companies. Of course the companies who supply Tesla's competitors will also make progress on this front, but I don't think they're quite as incentivised as Tesla, because I foresee there being more demand than supply for Lit-Ion batteries in the next decade, so I expect they will have no issue selling their batteries in the near-term.

This year alone Tesla acquired two battery companies: Maxwell, and Hibar. Nobody knows for sure exactly when and how these acquisitions will benefit Tesla, but the Battery Investor Day next year should provide more information. I expect that sometime in the next few years they will help Tesla improve both its battery technology, leading to increased range, performance, etc. And help Tesla improve its battery supply chain in some way, leading to cost reductions that will benefit Tesla's bottom line and/or lower its cars' prices.

4: Autonomy progress

It's no secret that Elon has claimed Tesla will have 1M+ robotaxis on the road by the end of 2020, and it's also no secret that I, in my Tesla Investment Thesis, labeled this claim as overly optimistic, and very unlikely to come true. Even Tesla having an operational robotaxi service by the end of 2021, is still optimistic in my opinion.

However, as of right now the market appears to believe Tesla has practically no chance of ever developing a robotaxi, because Tesla is valued at ~40B$, whereas Waymo is valued at over 100B$, and various other companies in the space (MobilEye, Cruise) are valued around 20B$. This just does not seem right considering Tesla appears to be far ahead of all competitors, as I explained in my Tesla Investment Thesis, and has a booming EV business on top. This is one reason why Tesla investors should closely monitor autonomy progress in the next few years. The market appears to incorrectly attribute little to no value to autonomy at the moment, but this could suddenly change with further progress.

The other reason why this might be the single most important thing to pay attention to is the tremendous impact it can have on Tesla's future value as a company. Like I showed in my Tesla Investment Thesis, Tesla can become one of the world's largest companies from manufacturing and selling EVs alone. But if Tesla also is able to solve autonomy, and capture even just a relatively small percentage of the robotaxi market, it could be worth not just a trillion dollars, but trillions of dollars.

The thing that I will be keeping an eye on is not how fast Tesla releases new features. I believe that they are already close to what Elon calls 'feature complete', because they already have in-development versions of the software that can navigate city streets that work reasonably well. The thing that I will be paying close attention to is the rate of improvement of features, and I will try to extrapolate that to get an idea of when Tesla passengers can truly fall asleep behind the wheel.

As of right now, we can't look at the rate of improvement of advanced summon yet, because it has only just been released, nor the rate of improvement of city street driving, because it has not been released to the wider public yet, so the only thing we can look at is NoA (Navigate on Autopilot). NoA seems to have improved dramatically with the recent V10 update. Out of all the videos I have seen, this one does the best job of explaining how NoA has changed over time, but there are numerous other videos showing NoA being able to navigate entire commutes without any disengagements.

All in all, the early signs from NoA are positive. However, we have to keep in mind that highway driving is easier than city street driving and navigating parking lots. And as of right now we only have anecdotal evidence to go by. I wouldn't be surprised if Tesla at some point in the next couple of years will start publishing more detailed statistics about how its autopilot performs, that will include the miles per disengagement. If/when this happens, it will give the public hard data on how close Tesla is to full self-driving, and this should cause the market to at least attribute some valuation to Tesla's self-driving tech.

5: Gigafactory 4

The Model 3 has already posted some crazy sales numbers in Europe:

https://cleantechnica.com/2019/10/03/the-netherlands-surpasses-wildest-predictions-for-tesla-model-3-sales/

https://ofv.no/registreringsstatistikk - Tesla Model 3 had 28.9% market share of all cars sold in March 2019

https://europe.autonews.com/automakers/tesla-model-3-was-uks-no-3-selling-car-august

Even though these numbers are already immensely impressive, I think there is still a lot of room for further growth in Europe, because the Model 3s being sold in the EU are all made in and shipped from the USA. Just take a look at the price of the cheapest Model 3 in various countries:

Tesla.com prices converted to USD with Google.

Part of this is due to higher sales taxes in parts of Europe, but part of this is due to shipping and import costs, which can be avoided with localized production at Gigafactory 4.

Furthermore, Tesla stated in their Q1'19 Shareholders Letter that they expect to spend at least 50% less capex per unit of production capacity at Giga 3 than they did in Fremont/Reno:

Image from Tesla's Q1'19 shareholders letter.

I suspect that this is why the M3s made in China will be so much cheaper than the ones they've been importing. Tesla China's M3 order page is currently showing the made-in-china M3 as ~5,000$ cheaper as the imported version, for a price reduction of a little over 10%. Cheaper labor might also play a part, but all-in-all I think that a Gigafactory 4 in Europe is likely to reduce prices by a similar amount of close to 10%.

Elon said during the Q2'19 conference call that Giga 4 will be announced before the end of the year, and that production will start by the end of 2021. I personally think this is a bit optimistic, because I don't expect a European country to approve and build everything quite as quickly as the Chinese have built Gigafactory 3. Nonetheless, I think I could be proven wrong, and either way it will be interesting to see how fast things progress. I am hopeful that construction will start by early 2021.

6: Macro-economics

I'm not an expert in economics. Even if I were, I doubt I'd be able to accurately predict movements of the economy and the public market's reactions to them. If I were able to do this, I probably would be writing this blog from the beach of my private island while sipping on martinis.

With that being said, I do think that most people who are paying any attention can see that there is a lot of unrest in the public markets, and a lot of uncertainty and worries about the overall macro-economic environment:

• Europe's economy in general, and Germany's economy specifically seem to be struggling.
• Brexit could become a catalyst that not only hurts the UK's economy, but also the rest of Europe's and the global economy. Watch this video and read the comments for an overview of Brexit, and its impact on the global economy.
• The US China trade war has already had a negative impact on global markets, and is still ongoing. Nobody knows when and how this will end. Watch this video for an overview of the US China trade war, and its impact on the global economy.
• The geopolitical unrest around Hong Kong and China are currently somewhat contained, but if it continues to escalate it could impact the US China trade war, and global economies.
• There have been recession fears since the end of 2018, and these have intensified this year. Even Elon commented during the Q3 or Q4'18 conference call that he thought it seemed likely a recession would happen in the next 12-18 months.

Nobody can predict if and exactly how any of these factors will impact the global economy and Tesla specifically, but there is a lot uncertainty looming with regards to what will happen to the economy next year. I personally think a recession will affect Tesla's short-term sales, financials, and obviously SP. I also think it could slightly hurt Tesla's short-term growth, because they might have to cut spending here and there, so it could delay construction of Gigafactory 4 for example. However, I do not think there is almost any risk of it affecting Tesla's long-term prospects, nor that it would force Tesla into bankruptcy. I don't even see a need for Tesla to raise funds in the case of a recession, because of the following financial model I've created.

TSLA Recession Model - Automotive*:

https://drive.google.com/drive/folders/1FoCewbs9X3kzeHynpchaDUEX7Hztm0o6?usp=sharing

TSLA Recession Model - Income*:

https://drive.google.com/drive/folders/1FoCewbs9X3kzeHynpchaDUEX7Hztm0o6?usp=sharing

TSLA Recession Model - Cash Flows*:

https://drive.google.com/drive/folders/1FoCewbs9X3kzeHynpchaDUEX7Hztm0o6?usp=sharing

*I've uploaded PDF, Excell, and Numbers files of this financial model to Google Drive, accessible with the link in the captions of the images.

This model has Tesla dropping sales slightly in Q4'19, significantly in the first half of 2020, and showing little to no growth in the second half of 2020 and first half of 2021 compared to now. Even in the case of a recession, I'm doubtful that it would actually get this bad, but if it does, these numbers would absolutely decimate Tesla's SP. However, in spite of this, thanks to Tesla's current large cash position of 5.5B$, Tesla would still have a cash balance of 1.7B$ at the end of Q1'21 after paying off more than 1B$ worth of debt. Therefore, I think the chance that Tesla would somehow not survive a recession is 0% after rounding to no decimal points.

So in short, I think it's likely that Tesla's SP, and to a lesser extent Tesla as a company, will be affected negatively by macro-economics in the next 1-2 years, but I expect Tesla to survive and to thrive in the wake of it.

7: Others (Truck unveil, Semi release, Roadster tech, Energy)

There are a couple of other factors that I will be keeping an eye on in the next two years, even though I don't expect them to significantly change neither my opinion of Tesla, nor the market's. These things are:

• Tesla Pick-up Truck Unveil. This is still planned for this year, although I wouldn't be surprised to see it slip to next year. Tesla will be very focussed on the continued M3 ramp, and MY ramp until at least mid-2021, and it doesn't have to start hyping up the Pick-up Truck until 12-18 months before release. The Pick-up Truck is likely to be one of Tesla's top 3 most profitable vehicle programs (alongside M3 and MY). I don't expect the unveil alone to help me in estimating how many Tesla will be able to sell, but comments during quarterly conference calls at some point in the next two years might.
• Tesla Semi Truck Release. The Semi was originally supposed to go intro production by the end of 2019, which is definitely not happening. The most recent comments from Tesla pointed towards start of production some time in 2020, but even this is unlikely in my eyes, because they will be extremely busy with the MY ramp. I think optimistically production could start towards the end of 2021, but I wouldn't fault Tesla for focussing on the Pick-Up Truck first, which I expect will bring in more money than the Semi Truck. If the Semi does somehow go into production in 2021 though, this would be very exciting to follow, and to see to what extent it catches on in the Semi industry.
• Roadster Development. Although the roadster was originally promised for 2020, I think there is almost no chance this will go into development before 2022. It simply doesn't make financial sense to prioritise this over the MY, Gigafactories, Pick-up, and Semi. It does appear though that Tesla is actively developing technologies for the new Roadster that will also trickle down to the MS and MX. If this does indeed happen, this could be interesting and boost the as of late somewhat lackluster MS and MX sales.
• Tesla Energy. As I mentioned in my Tesla Investment Thesis, I'm not super bullish on Tesla Energy at the moment, and would rather see Tesla focus all its efforts on its car business, and leverage that into an energy division later. That does not mean Tesla's energy division has no potential though, and although I'm skeptical that there will be any developments in the next two years that will significantly change my opinion, it's not out of the realm of possibility.

Tesla in 2020 & 2021

Now that we know what to pay attention to in the next two years, let's look more closely when these these things might impact Tesla, and to what extent. I am going to cut up these two years into four 6 months sections, plus the second half of 2019, for five sections in total: H2'2019, H1'2020, H2'2020, H1'2021, and H2'2021. Each section will start with my projections for automotive sales and income statement, and a brief explanation of these. The rest of the section will then explain if and to what extent I see each of the seven 'catalysts' impacting Tesla during this period.

If you're on a computer, it might be easier to follow along by opening these files from my Google Drive:

- TSLA 2020 2021 Model Numbers

- TSLA 2020 2021 Model PDF

- TSLA 2020 2021 Model Excell

Blue fields are estimates. Red fields indicate something funky about the data, often due to changes in the way Tesla has reported these numbers over time.

H2'2019

Notes:

• Q3 delivery numbers are already out. Most notable to me was the 15% of MS+X being leases. It's been around 10% in the past, so I'm not quite ready to revise my model yet, but if Q4 also has a lease % of significantly over 10%, I might have to adjust my model slightly.
• MSX margins should be much better compared to the 11-14% of H1'19, because no pre-Raven inventory MSX had to be sold at a discount.
• I think with the help of the start of production at Gigafactory 3, Tesla will deliver ~90k M3 in Q4 to achieve the low end of their 360k-400k delivery guidance for 2019. They're currently at ~255k deliveries, so these numbers would push them to 362.5k.
• I have SG&A increasing a fair bit in the second half of 2019 alongside the ramp up of Gigafactory 3, but some of the people posting their financial models on TMC disagree with me, and expect it to stay more or less flat.

Catalysts:

1. Fundamentals. I don't expect significant volume from Gigafactory 3 by the end of the year, and therefore Tesla's fundamentals won't change that much. Q4 should turn out slightly better than Q3 in terms of revenue and profits, but only barely. Besides, Wall Street is already expecting Q4 revenue of 7.4B$ and non-gaap EPS of 0.77, and I actually don't think Q4 will be quite that good. So if anything, I see fundamentals hurting Tesla's SP.
2. Machine that makes the machine. There could be some early signs towards a swift production ramp at Gigafactory 3 in Q4. I'm not keeping my hopes up on significant volume in Q4, because during the original M3 ramp the numbers in the first four quarters were: 222, 1.542, 8.182, and 18.449. If Tesla can some how some way produce a few thousand cars in Q4, and exit the quarter with a production rate of over 1k/week, that'd be a huge success in my book.
3. Battery tech & supply breakthroughs. I doubt we'll see anything on this front in the last few months of 2019.
4. Autonomy progress. The continued progress of NoA, and early improvements to Advanced Summon will be very interesting to follow, but I highly doubt it'll impact the stock at all. Especially because Advanced Summon has only just been released, there will be a large number of mistakes and minor accidents that will be used by manipulators to make things seem worse than they are. Furthermore, it's likely that Tesla will miss its self-imposed deadline of feature complete by the end of 2019.
5. Gigafactory 4. Although Tesla has said they will announce the location of Gigafactory 4 by the end of this year, the location by itself doesn't matter too much. Construction and production plans, and actual progress is what will be really interesting, but it's unlikely we will see any of these during this period.
6. Macro-economics. Once again, if I could accurately predict the timing of macro movements, I'd be writing this from the beach of my private island. On one hand it doesn't seem likely that we'll enter into the depths of a recession within the next two to three months, but on the other hand it also doesn't seem likely that all the recession fears and macro-economic uncertainties will dissipate by year's end.
7. Others. The Pick-up Truck unveil is still planned for this year, so although it's unlikely we will have much more clarity about the scale of this program, it'll be fun to see the design and potentially some positive hype for Tesla.

H1'2020

Notes:

• I expect Gigafactory 3 to start producing in significant volume during Q1'20 and Q2'20. Q1 is seasonally weaker, and there is an important tax benefit expiring in The Netherlands, but considering they announced the cheaper made-in-China Model 3 back in May, I expect there is a fair bit of pent up demand that will make up for a lot of this. The Q1 M3 delivery number may be too optimistic, but time will tell.
• ASPs and margins should take a slight hit in Q1'20, because Tesla will likely further reduce prices as the last part of the US tax credit expires.
• I have OPEX (especially SG&A) continuing to increase during this period, because of Giga 3 ramp and early preparations for the start of MY production. But these numbers could be too pessimistic.

Catalysts:

1. Fundamentals. Whereas I expect Tesla to under perform compared to Wall Street's expectations in Q4'19, I expect them to outperform Wall Street's expectations for Q1'20. Even Elon has said he expects profits to be tough in Q1, but it should be the quarter when Gigafactory 3 really starts to contribute meaningful amounts to the business. Maybe I'm completely off here, but even then fundamentals should improve slightly in the first half of 2020. Thanks to Gigafactory 3 revenue should increase, and EBIT will likely reach break even or slightly positive compared to negative right now. If EBIT is positive, and/or Tesla is able to achieve a non-gaap profit, this should positively affect the SP.
2. Machine that makes the machine. Elon has promised us the Battery Investor Day in the first half of 2020, which should tell us a lot about how they plan to manufacture more than a TWh of batteries. Furthermore, by the end of Q2'20 we will be able to see how quickly Tesla ramped up production at Gigafactory 3. If they're still not at 3k/week, that'll be a big disappointment, but if they achieved it in Q1'20, or early Q2'20, that'd be a major achievement.
3. Battery tech & supply breakthroughs. This is when the Battery Investor Day should happen. Even though everybody with a brain should've been able to see how amazing the Autonomy Investor Day was, the market did not react to it whatsoever. Time will tell if things are going to be different with the Battery Investor Day. For investors that pay attention, there should be lots of new and exciting information.
4. Autonomy progress. To me it seems quite likely that Tesla will be able to release a feature complete version of their FSD software during this period. Whether this will finally cause the market to attribute some value to Tesla's FSD technology remains to be seen, but it will definitely be an important milestone on the way to robotaxis.
5. Gigafactory 4. If it slipped, we might get the location announcement in early 2020. I'd also hope that on the Q4'19 or Q1'20 conference call, somebody asks Elon/Tesla to explain in more detail when they expect construction, as well as actual production to start. This information would be useful to investors, but it's unlikely to impact the SP in any significant way.
6. Macro-economics. I used to hold some Jun'20 280$ Call Options, that I bought in early June when the stock price was <200$. I bought those thinking they were basically free money, because Tesla would almost certainly go back to 300$+ within a year. However, the worsening macro-economic climate made me decide to sell these in late August for a tiny profit, because I thought they had become far more risky due to the increased possibility of a recession in this period. Noone can predict these things accurately, but H1'20 feels pretty scary in terms of macros right now. Even if Tesla's business isn't affected too much (although it could be), it's SP very likely will be.
7. Others. We might get some more news about Semi production. If there's no announcement of the start of Semi production by the end of this period, I'd expect it to definitely slip to 2021. Otherwise, I don't expect anything too material to happen.

H2'2020

Notes:

• MY production should start during this period. As you can see here, I have a very conservative production ramp up that for the first two quarters is practically the same as the initial M3 production ramp. This is in spite of the cars being extremely similar, being built on the same platform, and Tesla having had the opportunity to learn from past mistakes.
• I have M3 margins improving slightly over time, while MY margins start out as 0% initially because volumes will be too low to make any money.
• I have credits/car slightly decreasing over time, because there are some regulatory credits that are directly correlated to the amount of cars a company sells, but some that are not.
• I expect leasing revenue to slightly increase over time, especially now that the M3 is starting to be leased in large numbers. I have leasing margin at 50%, which is similar to what it has been in the past.
• I once again have OPEX increasing significantly, because I expect Tesla's overhead costs to grow when it grows as a company as a result of ramping MY.

Catalysts:

1. Fundamentals. If the Gigafactory 3 ramp up is particularly slow, or the MY ramp up particularly fast, Tesla could see its fundamentals improve during this period, but more likely than not I expect them to stagnate somewhat in between ramp ups. EBIT and profits could even worsen a little bit, if there is a lot of spending to ramp up MY production. They could also be more capital efficient than my model though, which could lead to some strong profits in the second half of 2020. Although I wouldn't bet on it myself, I could see Tesla's SP breaking through the 400$ barrier during this period thanks to a successful Giga 3 ramp.
2. Machine that makes the machine. If MY production does indeed start mid 2020, we should gain a lot of insights during this period into what Tesla has learned from the Model 3. Will they beat the production numbers that the M3 set in its first two quarters of 222, and 1.542? Will they reach a production rate of 5k MY per week within six months, like they originally aimed for with the M3? This time next year will definitely be an exciting time for Tesla, as we closely follow the MY production ramp.
3. Battery tech & supply breakthroughs. This will be a year and a half after Tesla acquired Maxwell, and more than two years after they validated Maxwell's technology and made their first bid to acquire the company. As of right now it's hard to be sure about exact timelines, but it seems possible that Maxwell's technology could start making its way into actual products by the end of this period.
4. Autonomy progress. Elon's prediction for when Tesla will have 1 million robotaxis on the road will most likely go by without coming true. But there's an ever increasing chance of significant autonomy progress happening by this time, and an ever increasing chance that the market will start to wake up to the fact that Tesla is leading this space.
5. Gigafactory 4. Optimistically construction could start, but I'm at least expecting concrete plans to emerge by this time, and a general timeline for when construction and production of Gigafactory 4 will start.
6. Macro-economics. At this time this feels like the second most scary period in terms of macro-economics of all five periods. Various people are making statements along the lines of there being a 50-60% chance of a recession by 2020. If not for macro-economics, I'd be pretty confident Tesla would trade around, or even reach new all-time highs around this time. After all, Gigafactory 3 should have fully ramped, and MY production should be underway, but macro-economic concerns are holding me back from buying any Jan'21 Call Options. They might still be profitable, but there's a decent amount of risk involved in these in my opinion.
7. Others. According to Elon's recent tweet, thanks to Roadster development a 'Plaid powertrain' should make its way into a new and improved MS and MX. This could boost MS and MX sales, but these programs have mostly served their purpose, and aren't hugely important to Tesla's future success. Nice to keep an eye on, but not mission critical.

H1'2021

Notes:

• I'm predicting the MY ramp to be one quarter faster than the M3 ramp. Tesla delivered 56.065 M3s in its 5th quarter of production. I'm forecasting Tesla to deliver 50.000 MYs in its 4th quarter of production. Considering how similar these vehicles are, and that Tesla should have learned from past mistakes, this seems very reasonable to me.
• M3 margins continue to improve slightly, and MY should start to bring in money during this period too.
• I'm sure my Tesla Energy projections are much more conservative than what Tesla is aiming for internally, but when it comes to their Energy division I have to see it before I believe it.
• I once again have OPEX and especially SG&A increasing significantly, because the organisation will grow as they ramp MY. But I could very well see SG&A peaking at 900M, or 1B instead of 1.2B.

Catalysts:

1. Fundamentals. In all likelihood we should see MY being delivered in significant numbers by the end of this period, which will boost Tesla's fundamentals enormously in terms of revenue, EBIT, and bottom line profits. Tesla has had 4 profitable quarters in its history. The first came right after the MS ramp in Q1'13. The second was right after the MX ramp in Q3'16. The third and fourth were right after the M3 ramp in Q3'18 and Q4'18. I expect history to repeat itself, and see Tesla having a similarly strong quarter after the MY ramp. I think this will most likely happen in Q2'21, but it could happen as early as Q4'20, or as late as Q3'21 or Q4'21. Stock price will almost certainly react strongly to this quarter, but more on that in the final parts of this blog.
2. Machine that makes the machine. We should have a lot of information by the end of this period about how successfully Tesla ramped the MY. If they've done no better than the M3, that would be disappointing, and it'd be a bad sign for their competency in manufacturing. On the other hand, if they've ramped MY significantly faster and more efficiently than the M3, I will be adjusting my models and estimates for where Tesla will be at in 2030.
3. Battery tech & supply breakthroughs. The chance of Maxwell technology being implemented in Tesla vehicles in some form by this point is likely in my opinion. The chance that Tesla will have started to, or is about to start manufacturing its own battery cells also seems very likely to me. Most of the advantages stemming from this will likely not significantly impact Tesla until later into the 2020s, but range improvements or cost reductions might trickle through to Tesla's vehicles by this time.
4. Autonomy progress. Looking at how NoA has improved over the past year, and thinking about how it might improve over the next ~2 years is incredibly exciting. It seems very plausible that around this time Teslas will start to rival human drivers in terms of safety on highways. If this happens, I expect Tesla to start releasing miles per disengagement statistics for at least highways, and at this point I would be shocked if the market doesn't at least attribute some value to Tesla's FSD tech. It's hard to make exact predictions for the future, but I definitely can't wait to see how this pans out.
5. Gigafactory 4. I think it's very likely that construction will start by this time. Optimistically it may be nearing completion, and start of actual production could be approaching. As of right now, the market has been surprisingly passive when it comes to Gigafactory 3's progress. You'd imagine that construction completing in such a record time, and being on the cusp of starting production would boost Tesla's SP at least somewhat. This has not happened yet, but if Gigafactory 3 is a success, and helps Tesla sell a large number of M3s in China with the help of price reductions, maybe in H1'21 the anticipation of Gigafactory 4 could actually move the stock.
6. Macro-economics. It's very hard to predict what the macro-economic environment will look like almost two years from now. We could be in the end phases of a global recession/slowdown, or already recovering from it. We could be right in the middle of it. Or maybe the recession fears were ungrounded, and the economy is stronger than ever. It's hard to say.
7. Others. With the MY production (hopefully) right on track, we should have a lot more clarity around this time about Tesla's Semi and Pick-up Truck programs. It seems quite likely that at least one of these will go into production around the end of 2021, or start of 2022. And because the Semi was unveiled all the way back in 2017, and because of the Pick-up Truck's importance, we should have a decent idea of the production plans for both of them.

H2'2021

Notes:

• My model has MY production going to ~7k per week initially by the end of 2021. Considering the popularity of CUVs, and that Elon has said he expects MY to sell more than MS, MX, and M3 combined, this seems conservative. If they also start to build production lines at Giga 3, they might be able to produce a higher number by this time.
• There could be some MY cannibalisation affecting M3 sales, but I've left that out for simplicity's sake. Considering the above point that MY numbers could be slightly conservative, this sort of evens things out. And it's kind of hard to predict exact production numbers in a single quarter two years from now anyway.
• Model Y ASPs should be high, and its margin should be strong during this period, because Tesla is likely to start by selling the most expensive variants, and introduce cheaper variants later, just like they have done with their other vehicles.
• I predict service revenue increasing drastically over the next two years, because Tesla's fleet will also increase a lot. I've kept their service margins (-25%) the same, although I'm hopeful that they can beat this and start to reduce their losses.

Catalysts:

1. Fundamentals. Compared to today, fundamentals should be much stronger. Revenues could more than double from 6.3B$ to 14.5B$. Gross profit could triple from 0.9B$ to 2.7B$, and Tesla's operating leverage might finally start to show and lead to a strong 1B$ EBIT. Such a large strengthening of Tesla's fundamentals should destroy a lot of bear narratives, and make the SP reach new all time highs.
2. Machine that makes the machine. We should have all the information we need by this point, to update our images of Tesla's manufacturing prowess, or lack thereof. If Tesla has proven it has learned from the MX and M3 ramps' mistakes, and applied this to crush the Giga 3 and MY ramps, by the end of 2021 Tesla could have effectively secured a spot as one of the largest car manufacturers in 2030.
3. Battery tech & supply breakthroughs. I think it's very likely that two years from now there will have been battery breakthroughs. The only question to me is what shape they'll have taken. Will the S+X now have a max range of just over 400 miles, and will Tesla have slightly better margins on M3 thanks to cost reductions? Or will it have started to produce its own much improved battery cells, allowing them to sell a base Model 3 with over 300 miles of range for less than a base model costs today? Time will tell.
4. Autonomy progress. Although I think it's still optimistic to expect a FSD car by the end of 2021, it'll be 18 months after Elon has predicted that Teslas will surpass a human in terms of safety. So it's not impossible that Tesla will have developed or will be very close to having developed software that can drive a car safer than a human. I do hope that Tesla will be publishing some form of miles per disengagement statistics at this point, to help the public track Tesla's progress on this front.
5. Gigafactory 4. Optimistically some M3s and MYs could start to roll off the line in Europe, but if you ask me, more likely than not the factory will be in advanced stages of construction.
6. Macro-economics. I can't even accurately predict the macro-economic environment in early 2021, so for late 2021 I'm not even going to try. I feel like a lot of the uncertainty currently going on in the market is not nearly as likely to affect Tesla or the global economy in late 2021 as it is in 2020 and early 2021, but shit can happen.
7. Others. It seems possible that one of Tesla's two trucks could go into production around this time, but it's hard to predict this. More interestingly, I think that if Tesla Energy is still as small of a part of Tesla's business as it is today, that it will stay relatively small for the better part of the 2020s. I'd be happy to be proven wrong though by an energy division generating more than a billion $ in gross profits per year.

My bet on TSLA Jan'22 Call Options

When I made these financial models a couple of months ago, it didn't take me long to realise that Tesla is on track for a blowout quarter if it can do two things in the next two years:

1. Continue to ramp M3 production to 10k / week with the help of Gigafactory 3.
2. Successfully complete MY ramp to an initial capacity of 5-7k / week.

The first one doesn't seem too difficult. They already sold about 6k M3 per week in Q3'19, and received nearly 7k M3 orders per week. So unless some people at Tesla have royally screwed up in overestimating being able to produce and sell 3k base M3s per week in China, I don't see how Tesla is not able to achieve this in the next year.

The second point should also be relatively easy compared to many of Tesla's past accomplishments. Tesla made the mistake of making the crossover version of the Model S (the Model X) far too complicated, but it sounds like they have learned from this mistake, because the Model Y will share 76% of its parts with the M3. Elon also said in a conference call that even though he initially didn't want to, his colleagues had convinced him to build the MY on the same platform as the M3. All of this in combination with the fact that Tesla has had the chance to learn from past new vehicle launches, leads me to believe that the MY should be the smoothest production ramp of a new vehicle in Tesla's history. And therefore I find it extremely (single digit %) unlikely that they won't achieve a MY production rate of at least 5-7k per week by the end of 2021, most likely much earlier.

Looking at the financial model from the previous section this means that at some point in 2021 (most likely Q1, Q2, or Q3), Tesla will have a quarter that puts them on a yearly run rate of close to 60B$ in revenue, and 3-4B$ in EBIT. For the rest of this section, let's take the numbers from Q3'21 in the model, which means a MY production rate of 6k/week. Let's look at what valuation that would give Tesla at various stock prices, and compare that to the rest of the automotive industry and a few other companies:

Valuations sorted by revenue multiple:

Tesla data calculated, other data taken from Yahoo Finance.

Valuations sorted by EBIT multiple:

Tesla data calculated, other data taken from Yahoo Finance.

The revenues and EBIT are TTM (trailing twelve months) for all companies except for Tesla. I don't think TTM is accurate for Tesla considering the rate at which it's growing, so I've multiplied the most recent month's revenue and EBIT by four. I guess this is slightly unfair to Alphabet, Amazon, etc. But it's in the favor of some car companies like Nissan that are shrinking.

If you look at Tesla in 2021 at the same SP as it has currently (230$), it would mean that its revenue multiple will be about the same as Toyota's, and its EBIT multiple about the same as Nissan's. Considering Toyota is stagnant, and Nissan is shrinking, whereas Tesla is growing at over 50% YoY, I think we can safely rule out Tesla's SP staying the same in this scenario.

If you look at Tesla in 2021 at a new all-time high of 400$, you'll see that the revenue multiple of 1.36 would be lower than the 1.5-2.5 it's been trading at since M3 reached volume production. Although Tesla's revenue multiple has come down over time, as long as we're not in the middle of a recession, I still think the market would assign a higher revenue multiple to Tesla at this time. Tesla is currently at 1.7 with losses, and a pretty negative sentiment due to a lackluster 2019. So I suspect a SP of 400$ in this scenario would be low from a revenue multiple standpoint.

Looking at EBIT multiples, I think it's even clearer that Tesla's SP would shoot north of 400$ in this scenario. After all, 400$ would give Tesla an EBIT multiple of 25, which is only twice that of Nissan and Ford who are both shrinking, compared to Tesla's YoY growth of >50%.

A SP of 600$ would give Tesla a revenue multiple of 2.0, and an EBIT multiple of ~36. I personally think Tesla stock @ 600$ is a steal today let alone in 2021, but if the market still considers Tesla purely as a car company, and values it purely based off of these fundamentals (Revenue, EBIT, Growth rate), I think 600$ would be a reasonably fair valuation for Tesla in this scenario.

Tesla @ 800$ in 2021 would give it a revenue multiple of 2.73, which isn't too far off from what the market valued Tesla at after Q3'18 when it booked a hugely profitable quarter off of its successful M3 ramp. It's also not that farfetched if you compare this valuation to Alphabet, Amazon, and Uber's valuations. However, my feeling says that this 800$ is not that realistic, because the market has lowered its valuation of Tesla over time, and it just doesn't seem to want to assign an accurate value to it. If however, a big short squeeze happens, the market finally wakes up to the fact that Tesla is not your ordinary car company, or if Tesla makes significant autonomy progress causing the market to assign a value to it, then 800$+ or even 1000$+ seems possible.

Jan'22 Call Options

So far we've learned that:

1. Tesla will very likely manage to produce and sell 130k M3 and 75k MY per quarter by early or mid 2021.
2. This would lead Tesla to have an incredible quarter with a yearly run rate of ~55B$ in revenue, and ~3B$ in EBIT.
3. A fair valuation for Tesla at this point would lead to a stock price of at least 400$+, likely around 600$, with a small chance of it going even higher.

That sounds like a bet on Tesla's SP being much higher after all this comes to pass would be very profitable. Fortunately enough for me, there exists a thing called Call Options to take advantage of this opportunity.

Brief explanation of Call Options:

Call options can be bought on the public markets for a certain amount of money, and give the buyer the right to buy 100 shares of a stock at a predetermined price. Say that Stock A is currently 10$, and you believe it will be 20$ a year from now. You could buy the 10 shares for 100$, and sell them in one year for a profit of 100$. Or you could buy a Call Option for 100$, which will give you the option to buy 100 shares at 10$ one year from now. If the stock does indeed go to 20$, you can buy 100 shares @ 10$ thanks to your Call Option contract, and immediately sell these 100 shares for 20$ for a total profit of 1000$. 10x as much as you would've made if you had just bought stock. However, if the stock stays at 10$ or drops in value, you will lose the 100$ that you paid for the contract.

In the case of TSLA, there are a number of Call Options for sale that expire in January of 2022, with strike prices (price at which you are allowed to buy the stock in Jan'22) ranging from 10$ to 400$. The following tables compare a handful of these Call Options to each other, and to straight up buying and holding TSLA stock, in four different scenarios where TSLA's valuation in Jan'22 is: 400$, 500$, 600$, and 800$.

TSLA Jan'22 SP of 400$:

TSLA Jan'22 SP of 500$:

TSLA Jan'22 SP of 600$:

TSLA Jan'22 SP of 800$:

Few notes:

• The costs of the option contracts are approximate, and will no doubt have changed by the time I publish this blog. The Jan'22 400$ Calls for example, were 20.41 (2,041$) when I started creating this table 30 minutes ago, and are currently trading at 22.00 (2,200$).
• The profits/losses are calculated based on a 1,000$ investment, even though all of these contracts are more expensive than that ranging from ~2,000$ to ~8,000$.
• I just noticed I forgot to update the "Target Price: 400$" field in the 2nd, 3rd, and 4th table, but you'll have to forgive me for that mistake. The field next to it that is used in the calculations is correct.

These tables clearly show that the 400$ Call Options are the most profitable as long as the SP reaches at least 500$. Furthermore, some back of the napkin math shows that the $400 Call Options outperform the stock if the SP reaches at least ~440$. At a SP of 440$, the 400$ Call Option would double its money, whereas the stock would need a SP of 460$ to double its money. At 460$ the 400$ Call Option will have tripled its money.

When I combine all this information, it seems clear to me that the TSLA Jan'22 400$ Call Options are an amazing bet. However, notice that I call them a 'bet' rather than an 'investment'. This is because there are some risks/downsides involved with buying Call Options, that an investor who buys and holds the stock does not have to worry about.

Risks

Investing a large sum of money into TSLA stock is a risk in and of itself. However, it is comparatively very low risk when you compare it to investing in TSLA Options, even when they look like an amazing bet in the case of the Jan'22 400$ Calls. Buying these options, if the SP does not reach at least ~440$ by Jan'22, one loses money compared to if one had bought the stock. If the SP does not reach at least 420$, one loses money. And if the SP does not reach at least 400$, one loses all their money.

Although I am very bullish on these options, as I've explained throughout this blog, I am only planning on buying a small amount compared to what I have invested in TSLA stock, which is a much safer place to put my money, because I think one or multiple of the following things could go wrong:

1. A recession or other negative macro-economical factors could slow Tesla down, and make it miss this target.
2. A recession or other negative macro-economical factors could be affecting global markets in Jan'22, and cause all stock markets to tumble, and Tesla's SP to not reach this target, in spite of Tesla achieving everything I've laid out in this blog.
3. The market could simply decide not to value TSLA accurately, causing Tesla's SP to not reach this target. I think the market is currently also significantly undervaluing Tesla after all.
4. Some other totally unforeseen thing could negatively impact Tesla and cause it to miss these targets. Perhaps there will be a 3rd world war involving China, or perhaps a terrorist attack completely destroys one of Tesla's factories.
5. Elon Musk could die, considerably affecting the market's confidence in Tesla's ability to execute, and negatively impacting its valuation.

Although, if the Jan'22 400$ Call Options don't pay off, I expect it to most likely be because of one of the first three points listed above, #4 and #5 are not impossible, nor are a number of other things that are not included in this list.

Bottom line is that buying and holding TSLA stock is an investment in the company, and means one owns a part of it, and can sell this in 5, 10, 15, or however many years one thinks it will take for it to appreciate in value. Buying and betting on TSLA Jan'22 Call Options is a bet that only pays off if TSLA stock reaches a certain value before the contract's expiration date, or if one sells the contract for a profit before then. And it risks losing the entire 'investment'.

Conclusion

Tesla has a few exciting years ahead of it. Regardless of whether you are an investor or simply a fan, it should be exciting to see Tesla get closer and closer to becoming a major car manufacturer. Personally I am most excited to see how fast autonomy is going to progress, but so far I've never seen an Elon Musk presentation that I didn't enjoy, so there is plenty to look forward to.

Once again, I want to state that none of this blog should be considered as investment advice. I'm not a financial advisor, just somebody who loves Tesla and invests in the company. Especially options are inherently risky, and I think they are not a good way to invest for the vast majority of people. I do have some experience in betting, but I have limited experience with options, so take my words with a grain of salt. I also want to say that options are EXTREMELY volatile, especially when they are off an underlying asset that is already EXTREMELY volatile such as Tesla. If Tesla has a very good or bad quarter and the stock moves by 10% in a day, a TSLA option could easily lose 25% or more of its value in a single day. It's basically EXTREME volatility squared...

With that being said, so far I've bought 'a few' TSLA Jan'22 $400 Call Options. Relatively speaking it's not a big 'bet' compared to the amount of TSLA stock I own, because the stock is just too good and safe an investment over the next 10-15 years in my eyes. It's also not that small of a 'bet' though, because I think it is a very profitable one given all the information I have available to me right now. If TSLA stock drops significantly in the next few months, or if we enter a recession in 2020, I will likely buy some more of these, but for that to happen they would have to become a lot cheaper. I'd have to be able to significantly lower my cost basis, and I doubt I will buy any more unless they're on sale for <1,700$ per contract.

This post didn't take me quite as much time to write as my Tesla Investment Thesis, but nonetheless I think I spent at least 30 something hours writing this, and creating various charts and tables. So if you enjoyed it, I'd love to hear from you! And if you have any feedback, please don't hesitate to reach out!