The next 5 years are critical for the existing players and many will shrink dramatically or go bankrupt. People already know this and that is why there is a bill in Congress that is a stealth bailout of the domestic auto industry with a $7500 tax credit on cars that have just $750 worth of batteries in them.
They have huge amounts of debt because they run huge financing departments and therefore also have a huge number of assets on the balance sheet.
>Their gross margin on cars is the highest in the industry.
They have a completely different sales model, so it's apples to oranges. Most OEMs wholesale cars to dealers, of course those margins will be smaller.
>Tesla has been hitting their goal of growing at 50% per year for a decade and plans to continue until they are making 20 million cars a year in 2030.
Base rate fallacy, extrapolated into infinity, sure.
>The next 5 years are critical for the existing players and many will shrink dramatically or go bankrupt.
Some will disappear or merge, of course. But the next 5 years is also crucial for Tesla, since they are still a rounding error in global market share.
Well yes, but they've been successful with this sales model, and sell cars all the same, so that makes them more valuable in comparison.
There's also a lot of super weird dealer kickbacks behind the scenes that can make gross margin misleading for traditional autos, probably in Tesla's favor.
> They have a completely different sales model, so it's apples to oranges. Most OEMs wholesale cars to dealers, of course those margins will be smaller.
This is the crux of the innovator dilemma - that their dealer sales model was a moat to prevent new entrants, and it could be their lodestone as well, preventing them from actually being able to compete with Tesla (since shifting from that will likely prove to be difficult/impossible).
Doesn't hurt Tesla that dealers are notoriously unpopular with customers.
You know that this whole game is about profits, right? If "of course" TSLA's margins are higher, "of course" their market cap will be higher.
And yes, investors are aware that this is a function of market segment. It's also a function of vertical integration, manufacturing prowess, unions, and retirees.
> debt because they run huge financing departments
Debt isn't the right metric to focus on, but the fundamental point is that if legacy auto perfectly executes a pivot, they get to keep their cash flows, while if TSLA keeps up the status quo, they expand their cash flows.
There will be a lot of stranded assets and failures to pivot in the legacy auto sector. Investors know it and the market caps got carpet bombed to reflect it. TSLA's didn't.
> Base rate fallacy, extrapolated into infinity
> Tesla, since they are still a rounding error
Do you not see the connection? Not only can we extrapolate, we can extrapolate far more precisely than usual because we already know the size and shape of the market they are expanding into. Usually these models take the form "TSLA grows 50% yoy until they top out at 1/3 of non-China auto sales" or something, and these are the models that back the current valuations. Optimistic? Sure, but not nearly as optimistic as "base rate fallacy, extrapolated to infinity." Lol.
You only need to extrapolate Tesla's existing revenue and growth out for five years to make them the biggest automaker in history, though.
Clearly, yes, it's going to stop somewhere. But a first principles argument like yours is running out of room. It made sense a few years back when they were still popular-but-tiny. At this point, the median expectation pretty much has to be that Tesla will be the dominant vehicle manufacturer globally for the next decade or three.
I’m in the market for an electric SUV right now. The Kia EV6 and Hyundai Ioniq 5 both seem legitimately better than the Model Y, and they are substantially less expensive.
The Model Y AWD Long Range is $68,000. The Ioniq 5 SEL is $52,000. Tesla has historically never had to compete on price, but those days are ending. Either Tesla will lower their prices and their margins, or they will suffer lower sales. Competing on price is the future Tesla desperately wanted to avoid, but Tesla has not been able to scale fast enough to avoid it.
Good luck to Tesla shareholders. It’s a car company that the market is valuing as if it were a high growth tech startup.
But for now they are competing quite well against the Ioniq 5. Dealerships are now taking reservations for 2025 models of the Ioniq 5. Many people would rather pay an extra $16,000 than wait over 2 years.
I don't think Tesla is overvalued. Some (but not all) of the traditional manufacturers are undervalued. Which ones, though, that's the hard question.
Hard to take this seriously when Tesla has raised their prices multiple times over the past 18 months. Their margins aren't increasing, just their prices.
When you start looking at assets, it gets more interesting. Tesla's assets are ~$68B. Ford's $257B.
You can't just magically produce more cars. You need more people, more batteries, more factories and other significant capital expenditure.
My point is that "growth" is used as an excuse for Tesla's valuation but any look at comparative numbers should show you it's way out of whack compared to any auto maker. And as the F150 shows, Tesla's dominance of the EV market isn't as sticky as it would need to be to justify that valuation.
Cybertruck anyone?
The big three domestic manufacturers largely shed their pension liabilities to the UAW when they last went (or nearly went in the case of Ford) bankrupt in 2008.
People already see some value in Teslas self-driving technology. And that value will continue to go up for a long time.
The most expensive iPhone kept getting more expensive but for almost it's entire history there has been a <$450 iPhone despite inflation and the overall rising average purchase price of a smartphone.
Apple doesn't compete in the ultra-budget space but pretty much from the get-go Apple has been competing on price and value with older models, the 5c, the SE line, the XR, etc.
For reference, iPhone 1 released at $715 2022 dollars compared to the $400 SE available now.
https://www.gsmarena.com/charts_show_the_evolution_of_iphone...
You are aware that real self driving(L5) is not possible without some AI breakthroughs, right? All the promises you see from Elon are just pure BS. Your tesla has issues seeing a big truck straight in front of the driver lane so you can forget the "Hey, go get me a pizza" command.
I can't really see many reasons to buy a Tesla except its propulsion technology (i.e. big batteries). I doubt that's enough to compare it with the iPhone which was really more about software than hardware. Tesla software/user experience is not significantly better than a dumb car with carplay or just an ipad fixed on board. The only way for Tesla to win more market share is for the competition to ignore/defy the wanna be EV consumers.
That's only part of it. It also includes the prestige and social cache. Once upon a time, apple was the same. Me, i don't care, but all the fancy ppl around me, the multi generational wealthy and boomers, can't get enough Teslas. That desire for luxury may wax like apple... or the coming recession may sponch it.
I'd say it's much worse. Putting all the controls including a/c on the tablet is an extremely bad idea.
This is not an argument against Tesla. It's an argument cautioning against comparing Tesla to Apple. Heck, it's an argument cautioning comparing any company today or in the history of companies to Apple.
Tesla's margins shrunk quite a bit last earnings report, so I agree. Selling high-end cars in a niche market is easier than selling 20 million cars annually (which no one has ever done before).
There's just over 30m seconds in a year, that's a car every second and a half. That seems like it would take a lot of assembly lines to pull off ignoring other constraints.
On the other hand, at 184.8″ for a model 3, that's like a stream of them bumper to bumper leaving a single assembly line at 6.65 Mph for the entire year. Viewed in that light, maybe it doesn't take that many assembly lines to reach a speed at which this would be achievable, ignoring other very important constraints. (Or maybe I made a mistake in my math.)
If every one of those cars has $10k of profit (way too high, but for arguments sake), that’s $650bn of profit per year.
When a single company with less than 1% share of sales has a market cap higher than the entire theoretical annual profits of an industry, that implies an insane amount of speculation (about things like Robo taxis and insurance, etc)
As it currently stands the $7500 limit is only for the first 200,000 cars. Tesla benefited a lot from it and exhausted its limit back in 2018.
https://www.reuters.com/article/us-tesla-tax-credit/tesla-hi...
> It also allows for up to a $4,000 credit on used EV's.
I can't wait for the eventual headline about how dealerships would sell cars to themselves so they could resell them and pocket an extra $4k.
I have no doubt that story will happen and come out, I'm just wondering whether it will be during or after it's common, and how widespread the abuse will be, given that even if there are provisions to prevent that, some enterprising fraudsters will find a way.
The outrage will come, but dealerships will have bled every dollar they can before anything is done. And the same people voting for the bill will come out next year campaigning against such corruption and stupidity by the government.
Is there anything in the bill that excludes Tesla from access to those credits?
Federal tax credit for EVs will remain at $7,500
Tax credit cap for automakers after they hit 200,000 EVs sold is eliminated, making GM, Tesla and Toyota once again eligible
The language in the bill indicates that the tax credit would be implemented at the point of sale instead of on taxes at the end of the fiscal year
In order to get the full credit, the EV must be assembled in North America, the majority of battery components need to come from North America, and contain a certain percentage of minerals from countries with free trade agreements with the US
Includes a new federal tax credit of $4,000 for used EVs
Includes zero-emission vans, SUVs, and trucks with MSRPs up to $80,000
Electric sedans priced up to $55,000 MSRP also qualify
The full electric vehicle tax credit will be available to individuals reporting adjusted gross incomes of $150,000 or less, or $300,000 for joint filers
Even if it grows to the point that it destroys all other automakers and become a monopoly, it's still too high. You can only sell so many cars.
The valuation seems to be taking into account that Tesla is not only about cars, but also artificial intelligence, which would allow it to expand to other markets(taxis, maybe even military).
Jury is still out.
And if they make a hundred trillion cars and sell each for 50$, they will be even richer. But both of these assumptions are absurd, so why discuss them?
There is no market for selling 20M $50k cars every year, especially of the same make.
Also, Tesla is far behind other players on self-driving, and they are losing talent, not attracting.
I don't think this part is true. I haven't heard of company pensions being a thing outside of US. I doubt VW, Toyota or Daimler have any pension liabilities at all, barring their US subsidiaries.
Is the f150 lightning not profitable for Ford? I looked just now and can't find any information (maybe have to wait until next fiscal year?). Their costs for that line are lower than most other automakers because they share so many parts and design elements with the ICE f150.
At this point, battery manufacturing is EV manufacturing. Battery costs are such a large percentage of overall costs that the entire margin of a vehicle can evaporate at the whims of a supplier.
I think we need to wait and see how SKBlueOval does before we can really judge Ford's EV performance.
In other words, the government actually saves money every time someone buys an electric vehicle.
Oil companies get massive subsidies. And Tesla's survival is dependent on green subsidies.
There's an easy (and I'd daresay, correct) solution there. Not subsidizing oil and reducing green subsidies. Unfortunately, it's not politically palatable.
The revenue Tesla gets from credit is very small compared to the revenue of cars and gets smaller and less significant with every single quarter.
I mean in theory. In practice:
- You have to use a very specialised definition of "we". Specifically, it's what people think, weighted by how much money they control. So wealthy people have an outsized say in market cap. Controllers of hedge funds, pension funds, etc an even more outsized say.
- People's pricing can be based on how they expect other people to price the stock in the future rather than how much they think it is truly worth based on the fundamentals of the business. If someone's price is based on this, then it is no longer a reflection of how much they think it's worth.
1) I'm confident that in the long term, company X will grow in value. I invest $1000 and will wait however long it will take, 10 or more years. I risk these $1000 only, but can earn multiple of it.
2) I'm confident that in the long term, company Y will decrease in value. I can short it with $1000, however either I risk much more than $1000 or I can't set the timeframe (because of forced liquidation). I also can't earn more than $1000. In the long term, I'm also exposed to inflation. Effectively, it's possible to short only in a short timescale, which is super risky.
The two betting options are very asymmetric, which IMHO favors overvaluation of certain hyped stocks, since there's no reasonable (not extremely risky) way to bet against them.
the market can stay crazy lobger than you can stay solvent.
You losses in shorting are unlimited. Every i vestor from Warren Buffet to my dog strongly advises against shorting
Buy puts.
> Every i vestor from Warren Buffet to my dog strongly advises against shorting
If you are not sophisticated enough to take a short position, you are probably not sophisticated enough to buy a specific equity. This is true of essentially everyone who does not invest professionally, including myself.
When you discover the second variable, you might also discover that Tesla’s ‘Equity Market Cap’ makes a lot more sense vis a vis the other top auto manufacturers based on the scale of that other variable in the valuation equation for those other companies.
The house analogy is a helpful one. Let's say I buy a million dollar house but I only have $100K of equity in it so far. My market cap is $100K and my debt is $900K. I'd argue that the house is still worth a million dollars.
This is important here since Tesla has much less debt vs. the rest of the auto industry.
Your house analogy and the way you explained it does not make sense to me. Since market cap is what the market is saying a company is worth, it isn’t right to equate that to the “$100k of equity” in your example house. It’s more correct to equate it to the $1 million value the house has.
Right now GM has an enterprise value of $130B. That means it's expected to spit out $130B of cash over its lifetime (discounted to a present day value). But the market cap is only $50B. Meaning $80B of that future cash will go to GM's lenders.
It of course feels super counter-intuitive to add debt (which feels like it should be a negative) to the valuation. But I always felt the house analogy gives an intuitive everyday example.
We can all offer our armchair theories about Tesla's actual worth, but until traders start to move en masse, that is what it is worth right now.
I think you are asking a different question: will Tesla be more profitable than the other 10 manufacturers in the long run? Because right now they are not. Personally. I don't think they will ever scale to a commodity car as long as Elon is at the helm. I don't think he has the attention span to make a mass produced car, his ego likes doing something novel and he likes luxury. To make profit like the top 10, Tesla has to become a commoner car. I don't think he can pull off an iPhone move, Tesla may always just be a Mac.
They don't know how many outstanding shares there are, what the market cap is relative to others, or even care about profit ratio is. They just think it's going up.
I would argue otherwise, his movement in the recent past showing.
First off, one would have to assume he suddenly swore of luxury after seven mansions. Perhaps. He does say a lot of dumb stuff when he's stoned that he ends up trying to hide later on (e.g., submarine scandal).
Second, he doesn't seem to spend too much time in his tiny house:
https://www.msn.com/en-us/lifestyle/home-and-garden/elon-mus...
Third, where does he keep all those tuxedos he keeps showing up wearing at exclusive events for billionaires?
Fourth, he's got like 10 kids and multiple wives. And he keeps getting women pregnant. That's literally a luxury.
Maybe we have different definitions. Sure, he owns a cheap house this year that he seems to not live in, but cavorting with other billionaires and treating women like breeding stock and throwing cash at offspring so you don't have to bother raising them doesn't really strike me as living a lean life.
* Yes, something is worth what someone is willing to pay. But we know Mr market is temperamental and irrational, so really what I'm saying is, in the long term / low pass filtered version, do we really think Tesla is worth more than the next 10.
* Re anecdotes in which market cap is correct - this doesn't prove anything. E.g. a random number would be correct some of the time also.
Furthermore AMD's revenue is about a quarter of Intel's, given that AMD market share has been growing the past few years and they appear to be capable to continue growing it's not unreasonable to bet that in the next say 5 years they are going to have better returns than Intel.
how do you know when a competitor with a high market is failing? when its market cap... er, goes down. i.e. market cap is the best measure we have of a company's future prospects. What you are seeing over and over is that the future is unpredictable.
So yes, Tesla is actually worth whatever the market cap is.
I've also heard the argument that Tesla's network of chargers brings more value, but...there will also be more competitors in that space in the near future (and today).
So, it seems shortsighted to believe that "market cap" is going to remain as high as it is today.
There are many EV that came out that most people don't know much about since they were not produced in large numbers.
And we should also consider that the battery space is running into material shortages and Tesla had the longest to prepare for that and are the largest buyer of battery materials/batteries on the plant.
Other companies might want to sell more EV, but they will literally not be able to.
There is no true value set by Buddha, Buffet, Robinhood, or ML.
I have no horse in the game (no Tesla nor any other automotive stocks) but we’ve definitely seen companies being massively overvalued in the past and then face fierce correction - AOL was once worth $222 billion and later (not even that much later) sold for less than 1% of that.
First, my understanding is that Tesla has a night and day lead in battery sourcing.
Second, Tesla doesn’t have the legacy costs that the others do.
Also, at this point, Tesla is still selling cars faster than they can build them. Even if demand weakens, they may still be at max output.
They have a factory where Panasonic employees come in and make batteries for them (a little glib, but not that far off), but aside from that they really don't have some secret sauce that we know about. They are putting CATL batteries in their cars just like everyone else and they don't have any mining or refining operational unlike BYD. Their battery research and production is massively behind schedule and the future of the Model 3, Y, and Cybertruck all depend on volume 4680 production which is behind at Panasonic as well.
Ford has the supply for 400,000 EVs lined up between now and 2024 and Volkswagen has the supply to outproduce Tesla in 2024. BYD is already producing more PHEV/BEV than Tesla, and if there is a solid-state breakthrough it won't be happening at Tesla.
First of, Tesla is buying massively from Panasonic, LG and CATL. They are also doing their own batteries in addition to that. The production of that is behind schedule, but not that far, and I can believe how little credit Tesla is getting for literally turning into a battery company over just a few years. Their batteries are gone give them a huge advantage in margin.
> depend on volume 4680 production which is behind at Panasonic as well
Tesla 4680 have nothing to do with Panasonic. Panasonic is also gone make 4680 format cells for Tesla, but those are totally different and have nothing to do with the cells currently shipping from Texas.
> Ford has the supply for 400,000 EVs lined up
Tesla makes that many in less then 6 month. And there is a large difference between signing a supply agreement and actually getting it. The lithium industry had scaling problems and pretty much all expert suggest a shortage is coming.
For Ford to get all those materials, it requires a huge number of supply expedition projects to go correctly and that is not at all guaranteed.
For until a few years ago didn't even believe that had to worry about batteries or battery materials at all. And since then they have done a 180 and try to tell everybody how EV focused and smart they are, when in-fact they are behind the curve.
> Volkswagen has the supply to outproduce Tesla in 2024
Not sure where you got this from, but its false.
> BYD is already producing more PHEV/BEV than Tesla
Nice that you snuck PHEV in-there. But yeah BYD is a great company, but their cars are mostly China only.
> if there is a solid-state breakthrough it won't be happening at Tesla.
Solid stage or rather what people actually mean by that, lithium anodes, is not inherently superior to silicon anodes. Andt Tesla has some of the most interesting research in that direction.
Also solid state will not really be relevant in the BEV space for many years to come.
i.e. competing with everyone else for the same pie
> I can believe how little credit Tesla is getting for literally turning into a battery company over just a few years. Their batteries are gone give them a huge advantage in margin.
Probably because they aren't a very good battery company yet. they haven't even started mining or refining their own lithium, and they have yet to volume produce their own chemistry.
> Tesla makes that many in less then 6 month. And there is a large difference between signing a supply agreement and actually getting it. The lithium industry had scaling problems and pretty much all expert suggest a shortage is coming.
Tesla will have the exact same problem given they have no mining or refining operations. Even if their volume production goes well they will be fighting over the same lithium as everyone else.
> For Ford to get all those materials, it requires a huge number of supply expedition projects to go correctly and that is not at all guaranteed.
My understanding is that those supplies are pretty much entirely from 3rd party suppliers and don't include their in-house battery production which is slated to start later. But hey, maybe they lied to investors about the supply and if so they will pay the price.
> Not sure where you got this from, but its false.
Bloomberg Intelligence, and the actual claim is that they will outproduce them, not just have the supply to: https://www.bloomberg.com/company/press/volkswagen-to-overta...
> Andt Tesla has some of the most interesting research in that direction.
I will believe it when I see anything from battery day 2020 materialize.
i.e. being a Top 2 most important costumer of every major battery company.
> they haven't even started mining or refining their own lithium
Almost no battery company does that.
> Bloomberg Intelligence
They apparently disagree with most other people who look at that space. I'm willing to bet 5000$ even odds with you if you on whether VW outsells Tesla in terms of BEV by 2024.
> I will believe it when I see anything from battery day 2020 materialize.
Many things are already in the 4680 cells and you seem to believe all those solid state companies who have never achieved anything.
The stock market is routinely “mistaken” and stocks get overhyped and then crash down later (or vice versa). It’s not some omniscient deity that’s never wrong (except in a very literal and impractical way of looking at it).
LOL, it's Tesla that is way behind in manufacturing. They had trouble hitting their production targets, and they still have quality problems. Toyota/Volkswagen etc will have zero trouble switching their production lines to electric cars, and when they do they will manufacture cheaper, faster, and better.
> old supply chains to wind down, new supply chains to wind up
Again, advantage at putting together supply chains is with traditional manufacturers, because of their experience.
EDIT: Tesla seems to have problems even hiring workers for their factory in Berlin, never heard of any German manufacturer having similar problem.
The latter reason means that even the market as a whole might not actually believe in the current market cap, in the long term.
I'm personally super skeptical of this market cap. I've been renting a Tesla Model 3 the last couple weeks. It's an awesome car that I would recommend to anyone. When you first drive it you can appreciate what a good job Tesla have done to make it feel like a car from the future. But at the end of the day it's a car. It's got lots of small flaws too, and the self-driving features have scared the shit out of me due to errors they made more than a few times already.
Based on this experience it seems completely implausible that Tesla will be able to keep up this "car from the future" experience for very long. How? They're not a leader in self driving, and even if they were, why would they remain so indefinitely? What other innovations would justify this image? People will get used to electric vehicles very quickly, that won't feel new anymore before long.
I honestly don't see that it's difficult for ICE manufacturers to compete in the EV space. We're seeing most ICE companies at least dipping their toes into the EV space, and in some cases they're going all in (Hyundai/Kia, VW, for example) and offering strong alternatives to Tesla.
If you talk about how cars are built, all auto manufactures seem to follow the same basic model to build cars, robotic welded bodies, a mix of manual and robotic paint and a moving assembly line to put the rest on - everyone does it the same way with some minor variations. Similarly Toyotas JIT supply system is used the world over by all auto manufacturers because it improves the balance sheet.
I hope they do figure it out...
Compare a state-of-the-art BMW plant to any Tesla plant. Modern auto OEMs have been full automation for a long time.