Tesla was one of the 5 largest companies in the world - something an auto manufacturer hasn't been in almost 50 years.
Tesla had BY FAR the highest P/E ratio for any company of that market cap (as a percentage of global wealth) in history.
Tesla's revenue growth is not much bigger than Alphabet's or Apple's - and these are companies with orders of magnitude more revenue and profit.
For the last 50-ish years - outside of a few small companies (Ferrari, etc) - auto manufacturing has been a pretty terrible business.
Tesla people keep trying to say that Tesla is really an infrastructure play or an Internet company or a services companies or even a space company - but... currently it's not. And even if it became any of those things - even at it's current growth rate - its P/E to growth rate is still unbelievably high.
I don't really care if GM and Ford and Rivian are now overvalued - and compared to them Tesla is undervalued. Auto manufacturing is not suddenly going to become the most profitable business in the world. People aren't going to suddenly start paying more for cars than housing. People aren't going to suddenly own 30 cars a piece. Tesla is never going to grow enough to be worth it's current market cap. But the market can stay irrational longer than you can stay solvent - and I wouldn't take a bet that Tesla crashes if my life depended on it.
[1] https://companiesmarketcap.com/automakers/largest-automakers...
Their Powerwall is quickly becoming the leading home energy storage solution. It will be interesting to see if they can also deliver on solar roof, beat NVidia with project Dojo, beat Waymo with self-driving, and beat Panasonic with battery manufacturing.
I'm not that big of a Tesla bull, but you have to remember that stocks trade on forward expectations. The trillion $+ market cap companies basically have saturated their primary markets. Microsoft is not likely to find another billion desktop PCs onto which to sell a US-priced Windows/Office suite anytime soon. By contrast, if you buy the Tesla story, they are really just getting started.
> Auto manufacturing is not suddenly going to become the most profitable business in the world.
I tend to agree with this. However, it's worth noting that Tesla's margin profile is significantly different than all legacy automakers. Their gross margin is ~30%, which is within striking distance of AMD's. And Tesla is still sub-scale for the auto industry. EVs are a different beast than traditional ICE vehicles, so margins will initially be better on EVs for all EV manufacturers.
Please explain. This runs counter to the common understanding that unless a manufacturer scales up their battery production significantly, their profit margins on EVs are lower due to the high cost of the batteries. The California compliance EVs were sold at a per-unit loss. Tesla shook this up by targeting and marketing to the luxury market, where they could charge a premium.
Many smaller scale non-luxury manufacturers have pretty lackluster EV offerings (looking at you, Subaru).
> The California compliance EVs were sold at a per-unit loss.
Those cars were never intended to be a real line of business. My measure of when a legacy automaker decides to make a "real" EV is when they attach their existing brand equity to an EV. The Chevy Bolt fails this test, as do the BMW EVs. I think this distinction is important because automakers have the capability to sell vehicles that they do not intend to be part of their strategy or scale to meet demand. The California compliance EVs also obviously fail this test.
The Ford F-150 Lightning is a real EV, as is the Mustang Mach-E and the Volvo XC40. I don't believe Subaru has even announced a real EV yet, as the Solterra does not count. We will know Subaru is serious when they deliver an Impreza EV; until then, I consider all their EV offerings as compliance vehicles.
I agree with all of this, but how can we be so sure that is the reason for:
> Their gross margin is 50% higher than Toyota's
vs Toyota being an older and larger company with far more overhead due to an older and larger workforce.
> Those cars were never intended to be a real line of business. My measure of when a legacy automaker decides to make a "real" EV
Agreed, and I think deciding to make a real EV comes down to investing in battery production at this point. Subaru in particular is really losing the crown in its key markets like CA and CO to the new AWD EVs entering the market.
> vs Toyota being an older and larger company with far more overhead due to an older and larger workforce.
Gross margin is net sales minus the cost of goods sold, hence doesn't include workforce cost.
I don't think that's right. From https://www.investopedia.com/terms/g/grossmargin.asp
"The Formula for Gross Margin Is
Gross Margin=Net Sales−COGS where:
Net Sales=Equivalent to revenue, or the total amount of money generated from sales for the period...
COGS=Cost of goods sold. The direct costs associated with producing goods. Includes both direct labor costs, and any costs of materials used in producing or manufacturing a company’s products."
It wouldn't surprise me if a lot of Tesla employees are compensated in large part via equity, therefore lowering their apparent labor costs. Also, they probably have lower health insurance costs for their relatively young workforce (they are more like a young tech company in this way).
Of course, battery prices will continue to decline, so in the long run, yes, EVs will be cheaper to buy, but I'm not convinced we are there quite yet. They are already far cheaper to operate, though.
Right now, where there's an electric and a gasoline powered version of a comparable model, the electric version seems to cost about US$10K more. See Ford F-150, Chevy Bolt, BMW iX.
That needs to stop.
Disagree. F-150 Lightning XLT is ~$5k more than the ICE equivalent, which means it costs less after the tax credit. (I'm not sure the baseline model is the same as the baseline ICE F-150.)
The Bolt and iX are essentially compliance/concept vehicles that don't have ICE editions, so you can't say they cost more than their comparable models. Once those two get real EV strategies, we will be able to make direct comparisons between e.g. the Chevy Tahoe and the Chevy Tahoe EV.
There may be some premium, but arguably some of that is the manufacturers targeting a consumer price net of tax subsidy ($7,500+).
Which is why Microsoft pivoted to additional revenue streams years ago. XBox, Azure, GitHub, SQL Server, LinkedIn, the Surface line, and more.
It is also noteworthy that MS is getting good growth in Windows license revenues too as they have opened up a subscription model, lot piracy in the consumer/SMB markets have reduced especially in developing economies. They are not getting billion new users, but a lot of newly paying users with consistent recurring subscription revenue stream they are now generating .
Great insight, except that you are just repeating the start of the whole discussion, literally from the first line of this thread:
> I want to point out that companies are valued based on their future and projected growth, not how much they are worth today.
Microsoft is already heavily diversified. Big difference.
None of the big 5 tech companies are close to tapping out. Any or all of them could be worth another $1T in a couple years and it wouldn’t be that crazy.
Narrative-wise the comparison looks like this: Apple gets >50% of its direct sales from the iPhone, and likely a meaningful percentage of its wearables and services revenue is levered to iPhone sales (AirPods and Fitness+ being examples). Probably 60%+ of Apple sales is tied to iPhone at this point. The mobile market is essentially saturated, so growth will taper there going forward. All the other products are nice, but they are a minority of revenue. To sustainably grow at 20%, Apple has to find a brand new category that is worth $40B, and they have to do that every year. (By way of comparison, that's about as big as Tesla. Apple needs to find a new Tesla worth of revenue every year.) So that's the narrative on Apple.
By comparison, the shift to EVs is at the very beginning of its ramp, with ~7% of global sales being EVs. So Tesla has many years to grow at very large rates (40%, 50%, etc.) before it arrives at saturation. They don't have to find any new categories (adding a truck doesn't count as a new category for narrative purposes), they can basically keep doing what they are doing and add SKUs in their existing line of business and grow along with the market, which is growing really fast. They don't have to find giant new categories every year, so in some ways the business problem in front of them is more straightforward. That's the Tesla narrative.
Tesla has a great narrative for the future, and that helps drive the stock price.
You missed the GP's point - even if they take 100% of the car market, it's not like the car market is growing exponentially. So this car market growth is "already priced in" and it's TAM is the combination of all of their car companies (even assuming they were to get 100% market share which is unrealistic), which Tesla is already valued at higher than all of those companies combined.
The narrative is that Tesla becomes a "battery company" (which is basically just their JV with Panasonic anyway). But they haven't proven anything in that market yet. So the point is this -> Microsoft may not just be a PC computing company anymore (selling Windows OS) but it already has proven cloud revenue for example, so you can speculate that those revenues will grow by X% with its own TAM.
You do make a good point that Tesla has multiple narratives working in its favor. At one point, it was the self-driving company. When necessary, it can push the solar roofs angle. It has a couple of narratives it can use to goose the stock.
Huh? Again, you're missing the point - there is total addressable market of vehicles that all of the major automakers currently capture and have forward looking valuations based on future expectations. It doesn't matter whether that vehicle uses diesel, gasoline, electric, nuclear, hydrogen, whatever...
> Under this view, Tesla is not competing against BMW any more than the iPhone was competing against the Nokia feature phones.
Literally no. People aren't going to magically buy more vehicles because they run using a battery. A car gets you from point A to point B. A smartphone and dumbphone both make a call from point a to point B, but one also has an internet connect computer which opens thousands of new opportunities of communication (video, images, spreadsheets, word processing, etc.). Also iPhones cost substantially more than Nokias for a reason. This is a bad analogy.
There is a total amount of money every year the population is willing to pay for for transportation. Let's say that number is $1T (idk what is for sure, just using that as an example). Tesla is fighting to gain that market share of $1T - its zero sum (sans overall increases in demand for vehicles every year).
The only way this changes is if Tesla reaches level 5 autonomous navigation which is (1) not even built in the cars today and (2) Tesla still has Level 3~4 that is not fully productive. So this is like saying "yup but their dumbphone can access the internet...but only when they are in this one building in NYC...think of the future!"
There are around 290M cars on the road in the US, of which 1.3M are electric. Over the next 20 years, the majority of those 290M will get replaced by an electric vehicle. One of the major drivers of this will be cost: it will just be significantly cheaper from a TCO perspective to drive electric.
Electric is such a shift that traditional car purchasing forces like brand loyalty are disrupted, and there will be a land rush to claim new market share. Electric also presents heretofore prohibited avenues for vertical integration: Tesla wants to sell you the car, the home battery and the solar panels to go with it. Standard Oil was broken up for similar types of vertical integration.
Electric will also present opportunities for ongoing service revenue (value-added services such as in-car infotainment) that automakers have tried for years to break into (unsuccessfully)
If you’re the early leader with a promising track record, as Tesla is, a 1T valuation is not surprising.
Or gas will need to get a lot more expensive, which is what governments are planning to do.
Let's optimistically assume that Tesla will sell 100M of new cars in the US in the next 20 years at the average price of 50K per car and profitability 10%.
100M x $50K * 10% = 500 billion which is already less than Tesla's current 1 trillion valuation.
2. What if Tesla gets $1-2k ARR along with each sale for charging or other services?
And thank God for that! It's bad enough that automakers are trying to put third-party repair shops out of business.
I wouldn't trust Musk to take the Thanksgiving turkey out of the oven on time.
Tesla's mission statement has nothing to do with cars: "Tesla's mission is to accelerate the world's transition to sustainable energy". Transport just happens to be a very large segment that needs to be transformed to use sustainable energy so that's what they're focusing on.
Tesla has just become an energy supplier in Texas. That's another market that's been stagnant forever and is going to see a huge shakeup when tech such as virtual power plant become widespread. Tesla is already running some of the largest energy storage for the grid in the world.
Then there is AI. What other automotive manufacturer do you know that has 1000s of people working on AI, makes their own chips and has training data from millions of cars on the road? AI isn't just to make your car autonomous. There is the Robotaxi potential which in itself is an entire market. AI doesn't stop there: once Semi is out with autonomous driving, that will cut the cost of transporting goods by a large chunk - no more paying drivers and way less cost on fuel. That's another market entirely and will large fleet companies rushing to save cost by purchasing trucks from Tesla.
In case you missed it (which I believe you have), there is autonomy in general manufacturing which Tesla is planning to target. That's yet another completely different market with a huge potential.
Did you hear about the car insurance? Ye, that's another one which Tesla is targetting.
I'm pretty sure there is a bunch of things I forgot.
Tesla is not a car manufacturer. It's a behemoth in the making which will overtake Apple, Google, Meta, Fossil fuel and some more combined, times 10.
Also, when we switched from horses and carriages to automobiles, I’m sure being an auto manufacturer at that time was probably insanely profitable. Maybe not the most valuable kind of company in the world at the time (or maybe it was), but definitely up there. We’re now in another transition from ICE to electric vehicles. There’s going to be another period where EV manufacturing becomes extremely valuable as demand for EVs surges over the next couple decades. After that, as the EV market matures and the competitive landscape evens out, profits will come down again.
Current manufactures make almost no margin on cars and make decent margin on supply of parts.
Tesla own that whole chain end to end. As they scale up and build up a huge fleet of cars that need service that is not covered this will become a hugely profitable business.
Other car companies are buying batteries and that is almost 1/3 of the cars price. Tesla will make their own batteries. Most other car companies will buy their driving assistant tech, Tesla has it in-house.
Solar and utility storage are small markets now, but they will continue to grow and no other car manufactures has anything in that range.
Maybe Tesla will not be worth what they are now, but they deserve to be way higher then GM/Ford and so on.
Right now they are projected to sell more than 1M cars in 12 months.
I am very skeptical that battery costs are going to drop that much that Tesla can make cars for say 15-20k and retail at 25-30k to make the 10k profit you propose.
Battery chemistry is rapidly evolving of course with lesser conflict resources / better performance etc, but raw material costs for basic ingredients are fairly expensive, that puts a hard floor under which it would be hard for Tesla to go below.
1. Significantly reduced energy costs
2. Significantly reduced maintenance, not even oil changes
3. Significantly longer car life, because of having barely any moving parts.
Most of the car parts that go bad in the 100K-300K mile range don't even exist in a Tesla.
Tesla is production limited, not demand limited in its sales. Just the model 3, model y and cybertruck will get them to 4M per annum - no problem.
Tesla can definitely sell more vehicles OR increase margin - but it will be substantially more challenging to do both at the same time over a short horizon (10 years).
https://www.teslarati.com/tesla-record-q1-2021-gross-margin-...
So after converting from Musk time to human time, this means it'll take 5 years?
Hardly, Tesla has proven that they were right betting on electric being the future. SuperCruise by most accounts is ahead of "FSD" in real-world driving. GM has pivoted in less than 5 years to what it took Tesla 18 years to build.
5 years from now we can have a conversation about whether GM/Ford/Stellantis can compete or not. Saying that Tesla has some unsurmountable lead when the big 3 have literally just started releasing their first round of EVs is silly. Having test driven a Mach-E and a Model-Y, I would wager the non-tesla fanboy will choose the Mach-E every time. Nicer interior, similar enough performance, and a manufacturer that has a history of actually having parts to fix cars when something breaks. The horror stories of cars sitting for months waiting on basic parts from Tesla is enough to make me think twice about ever owning one.
Not to say that other car makers are perfect. Competition is always good for the consumer.
Wow, I didn't know Tesla didn't support CarPlay. That + Android Auto seems like table stakes in a 2021 luxury (or even mid-range) sedan.
I have used all three, and much prefer the tesla UI.
BTW: That trip planner is showing me some serious money savings on fuel... Ah, that's because they assume that charging costs $0/kWh and fuel costs $4/l ($15 per gallon).
Source? SuperCruise is geofenced to highways, so it can't even drive in areas that FSD can so I'm not sure this is the right comparison.
The core of the point is generally that Tesla AP is deployed as a hands-on solution, requiring regular steering wheel input (just twisting the wheel a bit), where GM ships this in cars with cameras pointed at the driver (Tesla has them too now, though the wheel nags still exist) that take the entire monitoring load. That makes it "hands free", and therefore better. This is often combined with a conflation of "hands free" with SAE L3 Autonomy (which isn't correct) to try to emphasize the point, skipping the fact that the hands-free areas are limited just just a few hand-vetted highways. All Tesla would need to do to compete with that feature would be to implement the same geofencing, basically. But that's not where they're aiming.
I mean, in the real world, AP is pretty amazing and SC is mostly vaporware. My car took me 429 miles last Thursday and the only input required beyond wheel nags was some editorial differences I had with it about proper lane selection (and even then, I was only right about 60% of the time).
Second, legacy OEMs have been releasing their "first EV" for 5 years now. The Bolt beat the Model 3 to market and was hailed (as all these were) as Tesla Killer. Sounds funny today, but people took it seriously in 2017. After that it was supposed to be the eTron, the new Leaf, the EQC, Taycan, ID3 etc etc. Ford is physically incapable of making more than 50k MachE-s this year, meanwhile Tesla makes 220K 3+Y per quarter.
No, I don't mean autopilot, I mean FSD vs. SuperCruise on the highway.
>Second, legacy OEMs have been releasing their "first EV" for 5 years now. The Bolt beat the Model 3 to market and was hailed (as all these were) as Tesla Killer. Sounds funny today, but people took it seriously in 2017. After that it was supposed to be the eTron, the new Leaf, the EQC, Taycan, ID3 etc etc. Ford is physically incapable of making more than 50k MachE-s this year, meanwhile Tesla makes 220K 3+Y per quarter.
I don't follow your point. Tesla started 18 years ago, the major automakers started 5 years ago and are already producing comparable vehicles. Your argument is: they haven't switched the entirety of their production from ICE to Electric and that's somehow going to mean they won't be able to eventually surpass Tesla?
I have faith that GM or Ford can ramp up production of EVs far, far faster than Tesla can figure out quality control and how to build an interior that's something other than spartan.
When is the last time GM did something like just remove automatic passenger seat adjustment from a car without telling anyone? That's just busch league.
Even if GM or Ford hit their own targets (and historically they haven't) they are not close to overtaking Tesla.
And Tesla quality is actually fine. In terms of recalls and major issues Tesla had very few. In terms of fit and finish maybe there is a difference to your BMW, but compared to GM/Ford vehicles at the price the difference is not that big.
In terms of battery and drive train Tesla has performed way better then the others. Ford had massive issues with their PHEV for example. GM just recalled every Bolt and stopped production. The list goes on.
Tesla has managed to scale 50% almost every year for a decade, what exactly could they do to prove this to you other then doing it? They have 2 new factory that are opened shortly, do you believe somehow they managed to get the China factory producing at 500k run rate but other factories they wont be able to do it?
> That's just busch league.
Go look threw the history of GM recalls if you want to see real busch league kind of stuff.
“If you have not already purchased FSD capability and your vehicle has FSD computer 3.0 or above, you can subscribe to FSD capability from the Tesla app or your Tesla Account.”
https://www.tesla.com/support/full-self-driving-subscription...
Second is FSD, which is the list of features here: https://www.tesla.com/support/autopilot#usingautopilot
Effectively, that second FSD gives you a grab bag of features like "lane change" and "summon", but doesn't give you what people think of with FSD (navigate on city streets).
You can still pay $10k to get FSD, but you only get the second thing by default. The first thing, what people think of as FSD, FSD beta, is limited to a small pool of beta testers.
I would not call that widely available. The FSD that is comparable to super cruise is still in a beta, and it's just awful naming of things which lets that page you link say that anyone can buy FSD.
Ford sells and delivers about 900,000 F-150s a year.
I let AP with Auto lane change run with confirmationless on during a busy time at night going around I-495 and it handled it flawlessly.
Supercruise literally doesn't even have the features required to do that. This wasn't some beta, this is the thing that's been shipping for a few years now.
Supercruise has one little trick of letting you be handsfree, but that is its only advantage.
I’d be curious why or why not it would play out the same way.
Of the 3 EVs that I drive, only the Tesla I would take outside the city. Even if the others had a much bigger range (they don't) I would not be comfortable outside of the Tesla supercharging network because I've encountered many difficulties with ChargePoint, evGO, etc: stations not working, backed up, slow charging, high cost, etc.
The ecosystem is its charging network because it's very reliable and eliminates range anxiety.
What dept is that DIRECTOR of a company in charge of and how did they actually perform.... etc...
This should be the premise to literally take every single oil executive to task.
---
I have a close family friend who is effectively an oil tycoon for shell oil. one of the worst companies on the planet.
They shared over dinner at a really nice restauarant in Silicon Valley, pics of them hunting 'big game' in africa and the typical pics of 'here is the kill i had while on 'safari' in africa'
yeah if you work in big oil, go fuck yourself.
Also, I think you're underestimating Tesla's competition by focusing on GM. Ford is a much larger threat to Tesla than GM, and already has an EV that's roughly comparable in price/performance to the Model Y. The Mustang Mach-E should be evaluated by any prospective EV buyer, and the F-150 Lightning has the potential to leave the Cybertruck stillborn.
Rivian has none of the advantages of Tesla (name recognition, Supercharger network) nor none of the advantages of the traditional ICE manufacturers (volume, fit and finish, dealer network). Other than Amazon's backing, Rivian is one of the last companies I'd consider for buying an EV.
Their new CEO came in and realized the insanity and they are now copying what Tesla did in 2014.
GM at least copied what Tesla did in 2014 in 2019 and they now have their own factory being finished right now.
You can't just make a bunch of cars and say 'this low volume car proves X/Y'. These cars need supply chains.
Ford own battery factories (with a partner) will not produce cells for multiple years and until then they have to buy very limited open supply that is heavily contested.
In comparison Tesla is building its own cells literally in the same building as the Cybertruck. They are vertically integrating into cathode and anode production as well.
> F-150 Lightning has the potential to leave the Cybertruck stillborn
Delusional. Look at their own projections for F-150 Lighting sales. Both Ford and Tesla will sell every truck they can produce, that is not really questionable.
There is LITERALLY 0 chance Ford can produce enough to cover demand.
Tesla will be in a position to produce far more Cybertrucks, they literally have battery production in the same building and they have been working on battery supply chain for a decade. They are by far the largest consumer of lithium batteries on the planet.
Cybertruck will outsell F-150 for a long time.
Tesla, on the other hand, have zero experience building rugged vehicles and their teething troubles will be immense. Ford, meanwhile, have been building rugged vehicles for decades. I would argue Rivian's position is similar to Tesla's in that they don't have the level of know-how that Ford do.
Despite all the justifications, i cannot see how Tesla's model will scale beyond developed markets.
Many small startups have produced low volume of cars that are competitive.
The truck itself is really not that magically complex as you assume. And Tesla has lots of experience with the most important parts like batteries and motors. Far more then Ford.
What people here underestimate is actually the supply chain, specially of batteries while overestimating how difficult it is to make any individual truck.
Tesla are also vertically integrated - they are geared to catch more revenue than just the car sales. They're in a prime position to take the running costs - fuel cost (superchargers), insurance (software edge) and eventually repairs and finance.
Traditional companies have that too - VW have insurance, Volvo have finance and all dealers have repairs. However Tesla have a serious information edge in all of those areas, they look like a real next generation company there.
That's a forward looking statement. To make it even more interesting is that CPI just clocked in at the highest rate in 30 years. That's not to say that battery prices will correlate 1:1 with CPI, but accelerating CPI does not bode well for any supplies getting cheaper in the future.
They are young and blinded by the optimism which the cult leader...ehm the CEO feeds them.
If they studied history they'd know that even Microsoft, AKA the undefeated company in IT/SaaS (US Govt. defeated them but that's another story) had to surrender to the S-curve phenomenon.
Most of the really big scope vision that Microsoft outlined in the 80s and 90s actually became true in the 2000s.
The problem was that people were really in love with Microsoft's stock and everybody and their brother was betting that the vision would happen exactly as planned.
The best case scenario at that point was that the stock would stay flat . And flat it stayed, and those who bought at the peak of the bubble blamed Ballmer.
I can't imagine how would they react when the same happens to Tesla and the insults which would fly in Musk direction given that he has a history of not delivering , exxagerating and also his company is not exactly in IT/SaaS.
He is now in Ballmer's position, but Steve delivered on what was promised in the 80s and 90s , nevertheless he was insulted and belittled.
For Tesla to have a justified valuation of 1T you'd need it to be ubiquitous, literally not being able to turn your head without seeing a Tesla logo, as it happens with the legacy trillion dollar companies (the FAAMGs/MAAMGs/MAMAAs)
* Overcome their poor reputation for both interior & exterior quality. If the luxury car price starts coming with luxury car fit & finish they will widen their market
* Overcome people's concerns about electric car range, by expanding charging networks, increasing charging speeds, or making cars with greater range.
It's that the global market for vehicles in the $30,000+ range is not rapidly expanding. It's never going to be rapidly expand. Tesla is taking market share from other auto makers to do what they're doing right now. They have to kill a BMW to become a BMW.
There's nothing particularly special about being an EV maker vs an ICE maker, when it comes to margins or total addressable market, such that they should be valued so differently. Tesla isn't going to magically produce $80 billion in operating income on $200 billion in sales, that margin doesn't exist in the EV market.
Tesla also isn't going to own the global auto market, which is what their present valuation suggests (it suggests they need to end up as equivalent to four Toyotas). If they're lucky they end up the size of one Toyota, that's just about the best case scenario. ~$30 billion in profit, if everything goes extraordinarily well for the next two decades.
Why should anyone pay 30-40 times for future earnings that are so far away? Obviously it's nothing more than speculation on the part of some investors, betting that TSLA will just go higher yet, it has little to do with being rational about the long-term. The future best-case outcome is already very far over-priced into Tesla's stock.
Why? They are vertically integrating the manufacturing including batteries exactly because they are going higher volume lower price.
> Tesla is not apple, they’re not good at making and maintaining products at low cost in massive volume
They have been doing a great job scaling and driving margin for the last couple years and that trend looks to continue, not stopping.
Model Y will likely be the most sold car in the world within 2 years and it will have industry leading margins. Next generation manufacturing in Texan and Berlin will significantly improve margin over current generation.
> and they don’t really seem to be getting better at it
This is just flat out false.
To hit their volume targets, either they'll need to cut prices again in the near future, or the price of all other cars in the market need to rise in lockstep.
The backlog gets cleared by these new factories which can try to take up the excess demand.
What competitor is overtaking them? My understanding is that you can get any electric car you want, except a Tesla. That means people aren't buying the competitors vehicles. The competitors don't have demand, Tesla does. https://insideevs.com/news/530606/us-ford-mache-sales-august...
The company this story is about, Rivian, only started deliveries in the past few weeks and has delivered a negligible amount so far (a few hundred). They obviously intend to scale quickly, and they are hardly Tesla's only relatively new competition. It'll probably take a few years to see how the market shakes out.
The way I see it people are buying the competitors vehicles but those competitors are better at manufacturing as well as each having a smaller chunk of the market and therefore can meet demand. Tesla can’t meet demand in part because they are not as good at manufacturing as they need to be.
If tesla was worth their valuation they would need to dominate the EV market with 80+% marketshare, because that way when the EV market grows they will dominate the overall car market. But they’re not that large of a chunk of the EV market and they can’t ramp up volume or drive down prices fast enough to be on a trajectory to own EV. When all is said and done they will be a single digit player in the total car market, mostly catering to the luxury segment, and they will not realize enough revenue to get the profits that the stock price assumes.
Which is not to say the stock will fall any time soon. As long as people believe Tesla can do it, it will stay high.
The Model 3 was a significantly higher volume and lower cost car than the Model S that came before it.
Eventually they hit a wall in terms of the cost of the raw materials and labor to build the battery and drive train, but I'm not convinced they are there yet.
Also, TSLA could very well find a Tim Cook to Elon Musk's Steve Jobs: someone familiar with logistics to take over the vision and mass produce it.
Their market cap was less than $5 billion. There were less than 100 million shares outstanding. Buying some shares was a big risk - it was either going to 0 or going to the moon. But when you bought shares, you weren't super diluted. It seemed like a reasonable bet for a small amount of my portfolio.
At >$100B market cap, I am having a hard time making that same value judgement on Rivian. Their factory has a capacity of 150,000 vehicles; they say it can be increased to 200,000 and in less than 10 years they can be running at 1 million vehicles per year. If they make it, they will be a very valuable company!!! Is it worth taking that bet, right now? Wouldn't I be better off waiting for more confirmation?
They have a huge backlog on every vehicle and they have huge new factories including integrated comming online very soon.
They have further invested vertically integrating not just batteries but cathode and anode manufacturing as well.
What exactly is Musk doing wrong in terms of scaling and logistics?
1. Elon Musk
2. TSLA apes (people who use the term "Daddy Musk" on /r/wallstreebets)
3. CNBC, MSNBC, and other financial media outlets
Do we see more public, established investment firms parroting this? Not AFAIK.
I was investing during the Dot-Com boom. Same thing was happening. Some will try to argue that the dot-com boom was based on vaporware and Tesla makes cars. Well, to that I say, every company was overhyped during that boom, from IBM to Lucent to Intel to Pets.com. Just because TSLA sales are strong doesn't mean the stock isn't overhyped even looking ahead 5-10 years.
lol
However, in the history of modern corporate America going back a century, how many times has an upstart dominated a multi-decade established industry?
Give up?
Exactly once: Amazon disrupted publishing.
So TSLA could very well dominate the car industry in 5 years, but history is has much better odds. If you disagree, please provide some examples, I'd like to learn.
EDIT: WalMart has higher e-commerce revenues than Amazon according to this by almost 30%:
https://www.nasdaq.com/articles/amazon-vs.-walmart%3A-which-...
But again, help me out with some facts if I'm so wrong.
What? Here's a quote from the same article:
> Our global eCommerce sales are on track to reach $75 billion by the end of the year.
This has to be the annual sales figure right? Amazon surpassed this number several years ago.
That doesn't make sense. Without checking the link I'm sure you're looking at total commerce revenue, not only e-commerce.
I think a good example to look at is how the hybrid market has shifted since the Prius. Toyota blew everyone out of the water for years, but sales have plummeted in recent years as competition has caught up. Rivian has even less of cushion since the electric F-150 is due to hit dealerships next year.
Traditional auto manufacturers need to bring the buying process to this century, but that would sour their existing sales pipeline. I believe this conondrum is called ”local optimum”
The coast-to-coast test drive of a fully self-driving Tesla is four years late and counting.
When true self-driving is approved by regulators, it will mean that you will be able to summon your Tesla from pretty much anywhere. Once it picks you up, you will be able to sleep, read or do anything else enroute to your destination. You will also be able to add your car to the Tesla shared fleet just by tapping a button on the Tesla phone app and have it generate income for you while you're at work or on vacation, significantly offsetting and at times potentially exceeding the monthly loan or lease cost. This dramatically lowers the true cost of ownership to the point where almost anyone could own a Tesla. Since most cars are only in use by their owner for 5% to 10% of the day, the fundamental economic utility of a true self-driving car is likely to be several times that of a car which is not.
Base AP is really good on its own anyway.
Um, you are admitting that you can be scammed. If you don't understand loans, yes, you can be scammed. Don't admit that.
The last new car I bought: I walked into the lot, said I want that one, and took the lowest interest loan for 48 months. I didn't want a 72 month loan. I didn't want an extended warranty. I was done with the sales person in 15 minutes, and done with the finance department in 45 minutes.
It's all in how you manage the situation. If you waffle and flake and can't decide, or don't understand loans or pointless "extras", then you're toast.
The whole point is that buying a Tesla doesn’t involve this pointless, anti-consumer, borderline lying, slimey process. People shouldn’t have to worry about being scammed when making one of the largest purchases in their life. The traditional dealership model is terrible for your average consumer. Why on earth are you defending that?
Were you that desperate for a car immediately?
I'm not defending slimy car salespeople, but I'm not siding with your wishy-washy behavior.
This is such a weird hill to die on.
TSLA absolutely deserves credit for making this happen, but like the namesake Nikolai Tesla did the hard work and Edison swooped in a took all the credit.
What an odd thing to say. They are at around 1 million cars/year versus Ford's 6 million/year, GM's 6-8 million/year, and Chrysler's 2 million/year.
So Tesla is in the same ballpark of volume as the US big 3 already.
Unless you mean the top 3 worldwide auto manufacturers Toyota, VW, and Hyundai, which aren't /that/ much higher in volume (10.4mio, 10.4mio, and 7.2mio respectively).
That's the difference between making $100,000 a year or $720,000 a year (or $1,040,000 a year).
Yeah, that's a big difference.
If you look at their timeline for EV scaling, its laughable.
And sooner or later the ICE market will collapse and expose the terrible economics on their EVs.
Turns out mass manufacturing ICE engines doesn't actually magically make you good at batteries.
Tesla growth will have them overtake companies like BMW and Geely within 2 years. 1-2 years after that they will overtake Ford and friends. By then GM might have lost another million of so in sales as well.
By 2025 Tesla will be one of the bigger car makers on the market and will be 100% electric with their own batteries, while most current EV makers will not even be at 40% electric sales.
You are totally misguided on how easy it is to make batteries and EV a commodity. And you assuming that other manufactures can magically do it better then Tesla despite a huge amount of evidence that they simply can't.
> will be 100% electric with their own batteries
And their own mines. From my casual reading, only the Chinese manufacturers will have comparable integration, economies of scale, efficiencies.
Even so, I think you are still understating Tesla's many competitive advantages.
The biggest one, IMHO, is Tesla insurance. As Warren Buffet has shown with Geico, this is among the lowest cost capital available. Meaning Tesla will have even better financials than their competitors.
It's such an obvious idea. It still baffles me why GM chose loans over insurance, GMAC, all those years ago.
But I agree, they have lots other potential income streams.
I visit a gas station about once a week for maybe five minutes, that’s another “I guess that would be nice”, but it doesn’t bother me and I would probably visit the convenience store part anyway, so it’s not worth any kind of electric car premium and I’m not sure about the downsides - what if I forget to charge at home overnight, getting a charger at home, what do I do when there’s a hurricane and no power for weeks, etc.
Also, this is not limited to electric cars, but I have one car with a bunch of controls moved to the touchscreen and I’m never doing it again.
Even when I do hear about Teslas (I do not see very many here), people seem much more excited about the "it drives itself!" (invariably all have been majorly oversold on the capabilites of autopilot) and almost never mention the EV part. I do think automatic cruise control and lanekeeping are nice features particularly on very long drives, but those two in particular are widely available now.
If I ever (can afford to) buy an electric car, this is actually the strongest selling point for me. It's enough of a reservoir to keep my most important electronics powered up for weeks.
And of course, where I might be able to get in the car or my old beater truck, drive 50 miles, and come back with 50 gallons of gas, generator running for my family all the while, I guess recharging the battery would be...a much more troublesome venture. If gas stations have trouble with capacity during those times, then the length of the charging time is going to have a massive disparate impact on the lines on charging stations. It's going to be nightmarish. And I also have to think about husbanding my car charge so there's enough to leave and get recharged...
I think the "car as backup generator" is a fantastic idea for those unpredictable short blackouts that happen once in a blue moon, just not for hurricanes. I probably would buy an electric car before I bought an automatic whole-home generator.
In my area smog and air quality from exhaust is not a concern. I don't worry myself with climate change because it is not only inevitable, but an inevitable part of living on earth. We can try to shift and reduce our impacts, but we cannot eliminate them, and at any rate it's much too late for the CO2-caused climate change concerns. My buying one more ICE car does not matter. It doesn't affect my consumption behavior or that of most other people.
By year 8, they'd be selling 2 cars per person on the planet - so any extrapolating that this growth rate can continue for even 4 years - must think we've reached the singularity and will soon be living in an alien world.
For context, by year 19, they'd be selling ~39M cars per person...
This seems to assume that the pandemic economic situation is permanent.
I think also it doesn't really explain Ford vs Tesla.
Telsa is not making money from vehicles yet from what I recall. Rivian will be a long way away from making money on tax credits.
Are you a time traveler from 2015?
Tesla is having industry leading margins. They are currently at almost 30% automotive margin.
[1] https://www.cnbc.com/2020/07/23/teslas-sale-of-environmental...
This is something which should be expanded upon:
Yes, people are behaving like that across the board, it is becoming a popularity contest...what matters is which company has the potential to achieve the biggest size, the biggest scope, the biggest footprint and nothing else.
It's fueling valuations.
BUT size, scope and footprint find their financial expression in REVENUES, not PROFITS.
So if you are trading be mindful that people are falling in love with revenues and not even considering cost of goods sold or profits, but historically the profit metric is undefeated.
We might as well be in a new paradigm, but all things considered it doesn't feel that bad to miss out on money because you missed a paradigm shift happening in the brains of millions of people who are not yourself.
Much has been made about Tesla being worth more than all other automakers combined, but let's look at the growth.
Tesla Q3 Revenue: 13.76B, Year over year growth: 56%
Tesla Q3 Net Income: 1.6B, Year over year growth: 388%
GM Q3 Revenue: 26.78B, Year over year growth: -24%
GM Q3 Net Income: 2.42B, Year over year growth: -40%
Tesla is growing like bonkers, wildly more profitable, and has a much brighter future than GM given these trajectories. It's almost like either GM is severely overvalued at 90B market cap or Tesla is undervalued at 1T.
Tesla has also proven that traditional automakers really struggle to keep up with the electric car race - from software to supply chain. Rivian, like Tesla, is built top to bottom to play in this market, with the added backing of Amazon and products tailor made for enterprise scale needs that companies like Amazon need.
Of course Rivian is a risky investment today - their stock is priced for perfection. We saw what happened last quarter when stocks priced for perfection fall short (take a look at Snapchat). But plenty of these arguments "Rivian is only selling 1000 cars!" also applied to Tesla about 10 years ago.
A business is valued based on its future prospects. Growth companies are risky.
Edit to add Ford numbers:
Ford Q3 Revenue: 35.68B , Year over year growth: -4%
Ford Q3 Net income: 1.8B, Year over year growth: -23%
Also want to point out - all automakers are operating in the same pandemic - Ford, GM, and Tesla are all dealing with supply chain issues and chip shortages.