Thanks for the message. As you point out, “Bloomstran doesn’t understand $TSLA growth math or basic investment theory.” If you don’t mind, given my deficiencies, could you add some color to your 2025 projections? The non-believers and I would be most grateful. Some questions...1/ https://twitter.com/garyblack00/status/1345336495616520192

You have EV adoption rising from 3% to 20% in five years, a 6x increase (46% CAGR) and Tesla market share at 25%. 2019 global new vehicle sales totaled ~95m units and will be way lower this year. Let's call 2020 a throwaway for the industry, and hats off to $TSLA for growing. 2/

From the 2019 base, if we assume 4% market growth then new global units in 2025 would be 115m and at your expected 20% share Tesla would sell 29 million vehicles. Is this your assumption? Sounds aggressive given Tesla’s 500k unit run rate for 2020 and 1/2% market share. 3/

Now, US new vehicle prices are $38k but significantly lower worldwide, let’s say $30k per vehicle sold globally. The average Tesla looks to range from high $30k’s for the Model 3 to $55k for the Model 3 Performance to $125k for the Model X Performance fully loaded. 4/

What do you expect for an average selling price for Tesla in 2025? I’d presume that as market share expands ASP’s will have to fall to affordable. I’m trying to get to a revenue number. 5/

Perhaps the governments of the world will be giving $2k per person, $8k per family of 4 in annual perpetuity, surely making new cars more affordable! If Tesla sells 29m units in 2025 @ $34.5k per unit, that gets sales to $1 trillion, a CAGR of ~102% for five years. Reasonable? 6/

Moving on, you have a 2025 EPS target of $24/share. On how many shares shall we apply your expected per share figure? Shares outstanding at 9/30 totaled 948m, up from 905m at yearend 2019. An additional $5B in shares were sold recently to the public in “at-the-market” sales. 7/

The sales were done with no roadshow, risk disclosure or prospectus, unless Goldman’s report upgrading the shares from neutral to buy & a new price target of $780, up from $455, issued days before the announced sale and Goldman’s retention as selling agent, as a “prospectus." 8/

If the shares were sold at an average of ~$600/share, the share count would now be 8.3m shares higher, so call the total 956m. You have a price target of $1,200 for the shares, so let’s not forget to include in the count any option and RSU shares issued but not yet exercised. 9/

Recall, @elonmusk was granted 20m option shares (now 100m thanks to the split) in 2018 by @larryellison and Elon’s associates on the board. Fully diluted shares total 1.113B right now, and if the stock keeps rising we can assume all options will be exercised and outstanding. 10/

So, how many shares should we apply to your $24 EPS target? If we assume zero further dilution (realistic?), then using the 1.113B fully diluted shares including the recent $5b sale, we get to $26.7B in net income. 11/

On an even $1 trillion in revenues that’s a 26.7% profit margin, just a bit higher than the auto industry average of 3% and approaching $MSFT’s 30%. 12/

One last missing piece of information, which I haven’t seen mentioned by the Tesla bulls or in your message to me is how much capital will be required to grow sales from 500k units to 29m over the next 5 years? 13/

Dunno if measuring return on capital was a thing when you led Aegon, Calamos, Goldman Sachs AM or Janus, but it’s critical to my view of investing. A company can have all of the profit in the world but if ROC<cost of capital, then it’s a lousy business, regardless of growth. 14/

It looks like over the history of $TSLA the company has raised $26.5B in equity capital (including the recent $5B) and $16.5B in debt and preferred equity, so a total of $43B. Tesla has a cumulative loss of $5.7B, so it hasn’t produced a positive return on capital. 15/

For its last 4 quarters GAAP profits totaled $556B, which yields a 2.5% return on capital (equity net of retained losses plus debt minus cash, all adjusted for the recent $5B sale). I fully understand companies can surely lose money or earn little profit as they scale. 16/

With the recent sale of $5B Tesla now has ~$20B in cash. Is this sufficient to finance its growth over the next 5 years as the company grows units by 102% per year? As @elonmusk would characterize it, “funding secured.” 17/

Since I don’t lean on brevity and given my lack of understanding of basic investment theory, let’s summarize the missing data points necessary to get the stock to your target of $1,200 per share, 50 times your 2025 EPS target of $24 per share. 18/

Needed: 1) Tesla unit sales in 2025? 2) Average selling price per unit? 3) Any non-auto related sales – insurance, robotaxi, insurance, energy sales? 4) Shares outstanding? 5) Total capital: Additional paid in capital, debt, preferred equity, cash? 19/

At your 50x $24 EPS $1,200 price target, $TSLA returns 11.2% pa from Thursday’s $705.67 close. I happen to think shares in $BRK, my largest holding, are likely to compound at roughly that rate, assuming a 10% ROE and a terminal price at 1.3x book value, up from ~1.2x today. 20/

Perhaps my Berkshire at the current bid comes with less downside risk? I’m interested to see your additional figures. A $TSLA $BRK horserace over the next five years will be fun to watch. Perhaps you can sway me into the Tesla cult and bull camp, if they’d have me…21/21 END

Damn. Gary is right. I do have a math deficiency. In /12, $26.7B profit is a 2.67% margin, not 26.7%. I’d worked up a 2nd case with sales growing to $100B, a 28% CAGR, still impressive, but dropped it to use Gary’s market share assumption. Written in haste so likely more errors..

The other way to interpret Gary's market share expectation is 25% of the EV market only, not total auto. On 115m global units that's 23m EV's and 5.75m for Tesla, annual unit growth of 63%. His profit of $26.7B if average units sell at $50k per is a 9.3% margin on $287B in sales.