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.
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.