Morgan Stanley sees SpaceX value growing to more than $50 billion

Elon Musk, CEO for SpaceX, speaks during the International Astronautical Congress in Guadalajara, Mexico, on Sept. 27, 2016.

Susana Gonzalez | Bloomberg | Getty Images

Elon Musk, CEO for SpaceX, speaks during the International Astronautical Congress in Guadalajara, Mexico, on Sept. 27, 2016.

Elon Musk is making rocket launches mundane and that could be worth tens of billions of dollars.

SpaceX could become a $50 billion juggernaut through its launch of a satellite broadband network, a team of Morgan Stanley analysts wrote in a report Thursday.

The private space company on Wednesday launched its 15th rocket this year, and the second this week. More importantly, the Falcon 9 rocket launch was the third time SpaceX reused the first stage booster, and with each of these so-called “flight-proven” launches, it should be easier to attract new customers.

Morgan Stanley says SpaceX developing reusable rockets is “an elevator to low Earth orbit.”

“When Elisha Otis demonstrated the safety elevator in 1854, the public may have struggled to comprehend the impact on architecture and city design. Roughly 20 years later, every multistory building in New York, Boston, and Chicago was constructed around a central elevator shaft,” Morgan Stanley said. “It all comes down to SpaceX.”

Reducing the cost to launch a satellite to about $60 million, from the $200 million that United Launch Alliance charged through most of the last decade, was a monumental breakthrough. SpaceX is trying to reduce its cost to $5 million per mission, and Morgan Stanley says the launch business “generates limited operating income.”

The cash cow, to Morgan Stanley, is the SpaceX plan to launch a satellite broadband network in two years and send humans to Mars in seven.

“The goal of the satellite internet business is to generate enough cash to be able to go to Mars” the research firm said, adding that it believes Musk is serious about his goal of planetary expansion.

SpaceX has denied that it is preparing an initial public offering, but Morgan Stanley says the prospect should not be counted out. Upcoming projects will require significant amounts of money. “It seems reasonable to us to consider whether the company could look to access capital in the public markets,” the analysts said.

With “substantial room to increase the investment in space,” Morgan Stanley says that “public investors will start to pay more attention to space when or if SpaceX decides to IPO.”

Tesla’s Growing Moat – Tesla Motors (NASDAQ:TSLA)

While everyone and their cat are focused on when Tesla will manufacture the 497th unit of a product that will likely sell in the millions, I keep my eye on the long ball.

Investment Thesis

One of Tesla’s (TSLA) several durable competitive advantages revolves around its vast and growing Supercharger network. Not a single traditional automaker even has plans to offer half of what Tesla offers today.

Why are Superchargers Important?

Superchargers allow an individual to have the piece of mind that an electric car can be used for both short and long trips, which makes a ubiquitous network of fast chargers critical.

That’s it.

The argument is as simple as that, but its implications are extensive. It means that an electric vehicle does not have to be a luxury purchase as a beach house is. With Superchargers, an electric vehicle can be someone’s primary car, or the only car. Without Superchargers, the consumer has to think about what they will drive for long trips; and having to own another car for long trips, just throws off the math.

In other words, without a ubiquitous network of fast-charging stations, demand for a manufacturer’s electric vehicles is limited.

Aha!

Maybe this is what the traditional automakers mean when they claim that consumers do not yet want electric vehicles.

But then, how do they explain the nearly half of a million people that paid cash deposits for a product unfinished, unseen, untested, and 18 months in advance?!

Hmm.

Maybe by, “consumers do not yet want electric vehicles,” they mean, “consumers really want electric vehicles.” Then I would agree, because that’s exactly what the facts show. Not the manufactured facts; the actual facts!

Or maybe, since this is a bit of a chicken-or-egg problem, if traditional automakers build their own networks, then they could also enjoy a waitlist longer than… the number of tweets that certain Tesla bears spew, per hour.

Smh.

Solution?

What Tesla did is they basically manufactured the chicken, so the egg can come out. Tesla built it, and they came.

This isn’t rocket science.

At the time of the Model 3 Reveal Event on March 31, 2016, Tesla had 3,600 Superchargers worldwide. On that day, this is what Elon Musk promised:

By the end of next year, we will double the number of Superchargers.

That would have meant 7,200 Superchargers by December 31, 2017.

As of October 12, Tesla has nearly 7,100 Superchargers already installed, and the network is expanding almost daily. At the current rate, Tesla will achieve its goal two months in advance.

Tesla now plans to have 10,000+ and 18,000+ Superchargers by the end of this year and next, respectively. This sure is an ambitious goal, to say the least.

While we’re on the subject: Everyone needs to take a step back, take a deep breath, take the chill pill, and understand that Elon Musk & Team always shoot for the moon, and sometimes hit, but sometimes miss, but they always land among stars.

No. They land on Mars.

No. They travel to another universe through a black hole, which has never been attempted, then come back in one piece, before their competitors even get out of bed. On the wrong side, if I may add.

Speaking of Competitors… Where Are They?

I’m not aware of even one traditional automaker with its own network of fast-charging stations, even if we define “network” loosely, as five.

Who knows when competitors will offer a compelling all-electric car, build a multi-billion dollar battery manufacturing facility, offer solar energy options so that their customers’ electricity bills don’t double, and in the meantime, rebuild an island so people don’t suffer.

Competitors Have A Plan!

BMW (OTCPK:BMWYY), Daimler’s Mercedes (OTCPK:DDAIF), Ford (F), and Volkswagen’s (OTCPK:VLKAF) Audi (OTCPK:AUDVF) and Porsche announced in November of 2016 that they created a joint-venture with the goal of building 400 stations, at least initially, starting in 2017.

The group reportedly also said that by 2020, “customers should have access to thousands of high-powered charging points.” In July of 2017, or eight months after the initial announcement, Porsche installed the first charger in Berlin. We also learned in last month that Porsche is bringing its ultra-fast charger to Atlanta, but we don’t know how many or what the expansion plans are going forward.

Then there is Volkswagen’s Dieselgate settlement, named Electrify America, which plans to invest $2 billion over the next 10 years, so by 2027. You can read more about where this endeavor stood as of July here, but in summary, it has not yet progressed much with less than 100 chargers, which are slower than Tesla’s Superchargers.

So How Will Competitors Compete?

That’s a great question, to which the answer is not yet clear. There are, however, three theories swirling around:

  1. Some say that competitors are not really interested in entering the electric vehicle space, that they simply are putting out press releases and pushing out just enough electrified vehicles to meet mandates – aka “compliance” cars.
  2. A second theory says competitors will work out a deal with Tesla to use its Superchargers. That may be possible, as Tesla seems open to that option if other automakers share the capital cost, but the lack of an agreement in the last three years has me wondering.
  3. A third theory says competitors will one day expand on their nascent networks of fast chargers.
  4. Finally, a fourth theory says that fast-chargers licensed and offered by individuals and small businesses can proliferate, providing Tesla’s competitors with an opportunity to expand their electrified fleets without having to invest the billions of dollars of capital expenditures that Tesla has been investing in the last several years.

I have not yet seen enough evidence to believe that traditional automakers have ambitions beyond manufacturing just “compliance” cars. Once Tesla’s competitors break ground on a mass-scale battery manufacturing facility, like Tesla’s Gigafactory, then I will consider theories #2 or #3 as possible.

The fourth theory is also unlikely to materialize in a large enough scale, because the technology behind charging a battery is a lot more complicated than filling out a gasoline tank, and compatibility among manufacturers is very difficult to achieve. This is why many online guides (here, here, and here) exist to walk non-Tesla electric vehicle owners through various charging levels and connector types. Yuck! Because of the ubiquity of Tesla’s Superchargers, Tesla customers, even today, do not need to worry about this problem.

Bottom Line

Ladies and gentlemen. LET’S GET READY TO RUMMMBBLLLEE!!!

Introducing first. From the red corner. Weighing more than 10,000 Superchargers. They hail from Palo Alto. And were rated by many, as the Winner, the best pound for best electric fighter of the last decade. With hundreds of thousands of deliveries, 30 of them coming by the way of knockout, and undefeated. It is, the defending luxury sedan champion, the roaring luxury SUV champion, and the future MASS-MARKET CHAMPION OF THE WORLD!!!

And from the blue corner… I don’t know.

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Disclosure: I am/we are long TSLA.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

Tesla’s Growing Warranty Liability – Tesla Motors (NASDAQ:TSLA)

For some time now I have been accumulating articles on companies using Tesla (TSLA) vehicles in commercial operations from rentals to limo services to scheduled transport services operating as links between major cities.

These commercial operations around the globe not only are taking advantage of Tesla’s unlimited mileage warranties, they are taking advantage of free Supercharging as well in many areas. Tesla is introducing Superchargers to city interiors to boost sales to non-homeowners without access to home charging. We should expect to see an increasing number of commercial operators taking advantage of the free power for inner-city services such as taxis as some are now doing in the cases you are about to read.

Finland

We will start our global tour in Finland where taxi driver Ari Nyyssönen broke through 400,000 kilometers (about 250,000 miles) in August 2017 with his Model S85 Tesla sedan. In an interview, he discussed his biggest concerns and how the warranty has covered the largest repairs to date.

Having logged over 400,000 kilometers of taxi service in his 2014 Model S with 85 kWh battery pack, Nyyssönen had the vehicle’s motor replaced and battery pack serviced under warranty. “They are the biggest worries,” Nyyssönen said, “but they are not very bad because the most important defects have been repaired according to the guarantee.”

Ari is predicting his car should easily go 1,000,000 kilometers. No doubt in large part to the eight-year, unlimited mileage warranty on his S85 that will not expire until 2022.

Netherlands

In October 2014 the Schiphol Airport, Amsterdam’s largest, took additional measures to reduce its carbon footprint by launching a three-company all-electric taxi service using 167 Tesla Model S sedans.

(source: gas2.org)

One of the companies, Taxi Electric, had been promoting and expected to use the newest Nissan Leaf (OTCPK:NSANY) but discovered that the Model S was a better choice. I have no doubt the unlimited mileage warranty and large national EV incentives played a major role in the Model S decision. Even today the Nissan Leaf only has five-year/60,000 mile drivetrain and eight-year/100,000 mile battery warranties. For high mileage operations, the eight-year/unlimited mileage Tesla warranty for both the drive train and battery pack could potentially save tens of thousands of dollars in repairs on each unit in just electric motor or battery pack replacements. Since the Model S was only two years old at that time, the warranty would be a serious deal maker for any operator analyzing the unknown long-term battery performance and costs. The Tesla warranty limits that exposure. The eight-year term gives any operator plenty of time to fully recover the entire cost of the car several times over.

Canada

Montreal Tesla owners already are complaining about having to share Superchargers with the local taxi service which operates 24/7. Located in downtown Montreal the flow of taxis using the Superchargers is constant.

(source: teslamotorsclub.com)

The complaints seem to be more about the reduction in the charging rate than about taxis taking up spaces and causing long wait times.

(source: teslamotorsclub.com)

Once again Tesla’s current policies (free supercharging) are impacting Tesla’s bottom line and these costs will only increase over time. If projected sales of Model 3’s are focused in larger cities without home charging, demand for more Supercharger stalls will grow in the same places commercial operations will naturally grow as well. Tesla’s 2017 Supercharger goals are looking tough to meet having just reached 7,000 stalls with 1,000 locations. Tesla had committed to 10,000 stalls by year end. It seems they may be trying to meet that goal by just building more stalls in fewer new locations.

After reading about the taxi drivers putting Tesla’s into service in Europe, Christian Roy of Quebec City replaced his aging 300,000-plus mile Subaru Legacy with a new Model S 85. In 30 months from February 2014 to August 2016, Roy logged his first 100,000 miles spending only for tires, brakes, and other normal wear and tear items. The article (here) about his exploits is titled in part “Why Every Taxi Driver Should Consider Going Electric.” Investors need to hope they do not all choose Tesla vehicles.

United States

A two-year old startup in California named Tesloop offers transit/ridesharing services between key Southern California cites a-la commuter plane style, where each passenger buys one or more seats (not counting the “pilot”). They operate on set schedules between San Diego, Los Angeles and surrounding areas, and Palm Springs. Expansion into Santa Barbara and even into Texas and south Florida is in the plans.

They are focusing on markets where Supercharging is readily available. Launched in 2015, they will be profitable within a year thanks to virtually free fueling and to the eight-year, unlimited mileage warranty. Their highest mileage Model S just passed 300,000 miles. Tires have been their biggest expense to date. The long-distance nature of their driving limits wear on things like brakes and other normal wear and tear items. Cars driving the Los Angeles to Palm Springs route are racking up 17,000 miles per month using Tesla-provided electricity.

Summary

Tesla cannot change the warranty and supercharging abilities for existing cars. Even so, that means over 200,000 Teslas are on the road today that could find themselves in commercial operations. Used two-year old Teslas offer even greater profit potential since six years is about the average lifespan of a taxicab in NYC. But with the potential for free fueling via lifetime Supercharging, the 300,000-mile range of an NYC cab could be doubled or tripled by longer range driving like the Tesloop operation in Culver City.

Tesla only has warranty reserves of about $2,000 per vehicle. That could prove hugely inadequate for any vehicle operated for commercial purposes or driven upwards of 50,000 miles per year on average.

There is little Tesla can do for now. With the very hyped message that Tesla is about reducing greenhouse gases and creating a cleaner environment, putting any sort of limitation on commercial operations could appear disingenuous to the public since Tesla has clearly not been about making a profit for 14 years now.

The flip side of this coin is the shorter warranty term (120,000 miles) of the Model 3 will make these cars unattractive to ride sharing or other services when compared with new or used Model S sedans. The small price difference of $10,000 to $20,000 between a loaded Model 3 and a Model S 75D is inconsequential when we are talking about a car’s earning potential of $10-$15,000 per month. For any commercial operator the three biggest costs are fuel, drivers pay, and maintenance. For self-employed operators, you take out the driver pay. With Tesla currently offering virtually free fueling and maintenance, choosing a Tesla product is truly a no-brainer option. But the long-term costs to Tesla could prove catastrophic.

Disclosure: I am/we are short TSLA VIA PUT OPTIONS.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Apple Check out Collection 3 Fitness, Physical exercise Charm Growing

Apple’s smartwatch hasn’t exactly blown away the levels of competition in the marketplace for wearable smart gadgets, but its attraction is escalating for some unique end users. And it may perhaps get even far more practical for them soon after Apple’s envisioned unveiling of its latest watch design, the Collection 3, on Tuesday.

The unique Apple Check out, which the firm announced a few several years ago, was not exactly a dud, but it never ever turned the breakout hit that quite a few had predicted. More basic physical fitness trackers from the likes of Fitbit and Jawbone sold much better. So previous calendar year, in its next Check out, the Collection 2, Apple doubled down on work out and sporting activities functions. With GPS and monitoring of far more forms of work out routines, product sales jumped, with Tim Cook bragging about a 50% raise in the course of his firm’s quarterly earnings contact previous thirty day period.

Now the watch is about to get even far more practical for physical fitness fiends and athletes. Which is simply because the extensively rumored major new attribute Apple is including is mobile connectivity. With its own mobile relationship, most of the watch’s functions will operate even when their homeowners are not carrying their iPhones.

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Which is not all that pleasing to most people, who nonetheless carry their phone with them just about almost everywhere they go, primarily if the mobile relationship will come with the trade off of decrease battery life. But runners, bikers, and other physical fitness aficionados are far more interested in going phone-cost-free, analysts stated. House owners will nonetheless likely need an Iphone to established up the watch, incorporate new apps, and for some other capabilities.

“Working with a phone, primarily an high-priced and fragile a person, is always a soreness position,” suggests Neil Shah, associate at Counterpoint Study, who also notes that display screen sizes are obtaining bigger on quite a few new telephones, producing them even far more unwieldy. Providing the watch its own mobile relationship addresses “a major soreness position Apple can fix,” Shah suggests.

The recently-freed Apple Check out may perhaps also be an pleasing combination with other Apple goods, like the firm’s wireless headphones and streaming new music support. “This standalone Apple Check out additionally Apple Tunes additionally Airpods would be a killer combo for Apple loyalists,” Shah suggests.

The mobile relationship offers Apple Check out a phase up on the just-announced Fitbit (in good shape) smartwatch, called Ionic, as well. Coming from the opposite close of the marketplace as Apple, Fitbit is hoping to incorporate smartwatch functions, like apps and mobile payments, to its line of far more basic trackers. The Ionic has GPS but are unable to stream new music specifically from the Net. It nonetheless demands a close by smartphone or Computer to load new music. On the other hand, the Ionic’s battery lasts for 4 days or far more and the product has a sophisticated sleep monitoring application that Apple presently lacks.

Apple is also envisioned to selling price its new watch with mobile connectivity at a premium—probably far more than $450, in accordance to analysts, in contrast to the latest Apple Check out Collection 2, which begins at $369 (the more mature Collection 1 is nonetheless on sale starting at $269). The new Ionic will promote for just $300. And wireless carriers normally charge one more $5 or $10 a thirty day period for smartwatch mobile support.

Most new watches from rivals also deficiency mobile connectivity. Fashion models like DKNY, Armani, and Michael Kors produced new luxury smartwatches working Google’s (googl) Android Wear program this calendar year. But the emphasis is on eye-catching design and style and vogue more than connectivity.

And mobile connectivity on your own will only make the new Apple watch marginally far more eye-catching, suggests Jan Dawson, chief analyst at Jackdaw Study. Apple will also incorporate the “common” pace and energy enhancements and it’s possible some new types of sensors, Dawson suggests. Maybe far more substantially, Apple also likely will present previous year’s styles at cut-price charges, which could assist extend the firm’s (aapl) marketplace share further.

“I also be expecting the charges on previous year’s styles to drop and thus improve the addressable marketplace some far more, all of which must assist continue to keep product sales ticking more than properly,” Dawson suggests. “I really do not foresee large growth in product sales, but we could undoubtedly see the current first rate growth keep on.”