[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?