I have seen two arguments:

1. Tesla has heavily invested in robotics. They will be able to build cars much cheaper than their competitors.

2. Tesla has long-term lithium delivery contracts. They will be able to pay far less for their batteries while the prices for their competitors will massively increase

I have not verified those claims but that would make Tesla's valuation more reasonable.

There is also the self-driving car race. Whoever wins that will take almost all profits. With Twitter, Musk doesn't look too good in the software department right now. However, if you ignore Google, then Tesla still has a chance to win.

> 1. Tesla has heavily invested in robotics. They will be able to build cars much cheaper than their competitors.

Wasn't this proven wrong a bunch of times? Especially back with the Model 3 delivery issues and the "build in a tent" thing? There was an entire period where their delivery woes were blamed on them trying to automate stuff that wasn't worth it or couldn't really be made reliable.

And by the way, if you think Toyota isn't investing in robotics and hasn't been for decades, I have a bridge in Bucharest to sell you ;-)

> 2. Tesla has long-term lithium delivery contracts. They will be able to pay far less for their batteries while the prices for their competitors will massively increase

This would be interesting to read about, do you happen to have a link?

> There is also the self-driving car race. Whoever wins that will take almost all profits. With Twitter, Musk doesn't look too good in the software department right now. However, if you ignore Google, then Tesla still has a chance to win.

Let's discount self-driving cars for the next decade when evaluating any company, I'd say. The tech just isn't there yet.

Every car manufacturer invests heavily in robotics, take a look at Magna Steyer, Toyota, and a number of the new Chinese EVs coming out

It's not really about units sold though is it? I guess yes, usually it's a good approximation, but you could sell a single unit for $5bn and have a superior net profit.

Tesla's profit margin looks to be ~15%, whilst VW is at 3% - I'd love to know what it does to those numbers. Tesla's net income for Sept 2022 actually appears to be much higher than VW, if I am interpreting the numbers correctly.

Usually profit margins shrink as volume goes up. You can't sell that many cars into the premium segment simply because the segment doesn't support the volume.

VW sells a ton of cheap and small vehicles.

> VW sells a ton of cheap and small vehicles

Which inflates their unit numbers, exposes them to downturn risk, and doesn't really do much for their bottom line.

> Which inflates their unit numbers

No, they are real sales.

> exposes them to downturn risk

On the contrary, those models are the most successful ones during an economic downturn.

> and doesn't really do much for their bottom line

On the contrary, those models are the mainstay of their business.

Really, three out of three, why bother?

Real sales, yes, but this is why comparing sales by units doesn't mean very much relative to stock price.

Tesla has ~25% margins, VW has 3% margins. A recall, unsold stock or component shortages can quickly put VW in the red. This is what I mean by downturn risk, economic downturn is not the only potential problem manufacturing companies run into.

> Really, three out of three, why bother?

This level of communication isn't constructive.

Tesla has 25% margins because they are in a different segment. If Tesla sold a large number of very cheap cars they would not be able to command 25% margins. If you lop off the top portion of VW's sales and look at their margins they will be much higher than the margins on the smaller stuff. But in absolute numbers those figures certainly help and they also help to protect VWs income stream during slow years.

Their premium brands tend to be hit very hard during those years (Porsche, for instance).

> because they are in a different segment.

Yes, and this is exactly why comparing stock prices and expecting them to match units sold isn't useful.

Isn't net profit absolute though, i.e. directly comparable between the two organisations. Long tail of cheap vehicles probably does help VW stay resilient long term (perhaps in the current economic climate / recessions).

It seems targetting volume could be detrimental to net profits under current/recent market conditions. Selling fewer, supposedly more upmarket vehicles has allowed Tesla to out perform VW.

They're simply different companies. VW is fairly broad spectrum when it comes to cars, even a Mercedes 'A' class (or a Smart for that matter) is fairly expensive compared to an entry level VW (say, an 'Up').

Tesla outperforms VW because they are riding a wave and have been very successful in maintaining their lead in BEVs. That won't last and then the likes of VW and possibly Toyota if they ever get with the times are going to eat Tesla's lunch, especially if the chief twat is going to be distracted by his new toys.

VW also owns some strictly cheaper brands like Skoda.

So then BMW and Mercedes:

BMW - Market cap: $58.47 billion - Q3 units sold: 587,795

Daimler - Market cap: $85.59 billion - Q3 units sold: 517,800

The bigger the margins, the more room there is to be undercut from competitors. This is a fundamental property of the free market. When* it works, margins reduce.

*I say 'when' here because too many counter-examples non-functioning markets to list.

Tesla fanboys claim Tesla is a vertically integrated company competing in different markets, hence having a huge TAM and higher chance for growth.

Still!

There is something to this. If you include big chunks of Bosch, Siemens and all their other component providers in the VW market cap you would definitely get a more fair comparison to Tesla.

You can't just look at mcap but forget to factor in debt. vwgroup $402.96B

Sure, and Tesla at $33.74B.

But VWs debt is mostly due to them operating as a bank that sells loans to their customers to buy their cars. So it's more nuanced than just folding the into the calculation. Most other car manufactures don't do that directly.

Point is that in broad strokes it doesn't add up.

So Tesla's enterprise value is $426.5 billion and VW's is $473.9 billion?

Regarding the "operating as a bank", are we talking about net debt? I'd guess that if VW loaned money to customers those loans would be assets, right? They wouldn't get the cash from the customer, but they'd get something that looks about as good for their balance sheet hopefully?

right, but they get the financing for those loans from other banks or from the bond market. they can't just make cars from thin air after all :)

The Enterprise Value calculations subtract cash from debt to determine the net debt level. Most think you should also subtract customer receivables as well. In VW's case that is about $150B. So VW's true enterprise value is closer to $300B in my opinion.

Wouldn't Price to Book (P/B) sort this out?

Yes, VW does have about $200B in current assets and about $85B in financial services receivables, but that still leaves them with a massive chunk of "real debt" larger than their market cap.

Unfortunately the standard ratios only subtract cash from debt when doing this calculation so this calculation is one you have to do manually if you want to fairly compare car companies.

It never made sense. Its a hype train that will collide with reality one day.

Tesla made more money than VW selling 10 times less cars in September 2022.

Tesla sells luxury vehicles (by world standards) and there are only so many people who can afford them.

Either Tesla stops growing at this rate, or they will have to "stoop" to cars costing $15k, in which case their profit margins will drop like a rock.

So why doesn't VW just sell premium cars if it would make them more money?

Because there is a lot of money to be made selling lots of a cheaper product if you can produce it profitably. Besides that dealers are typically willing to sell such smaller vehicles at or near their own purchase price counting on the recurring income for service and fleet sales of such vehicles tend to be quite profitable because there is only one signature but a very large amount of money involved.

Mercedes is a nice example of a premium brand, they make more money per car and a bit more money in total on lower volume. VW (or rather, the VAG group) is simply a different kind of company. But their profits are nothing to sneeze at.

> VW (or rather, the VAG group) is simply a different kind of company.

Exactly. Which is why comparing unit sales and expecting that to correlate to stock price is not logical.

Because it would make them more money per car but not overall. And they aren't competitive in that segment with the assets they have. They would have to design different models, scale down production etc, a pivot of the company.

A better comparison is Mercedes or BMW, they're in a similar market segment and not selling 10x more cars at 1/5th the price live VW is. Still their market caps are lower than Tesla and their profits are in the same region (depends on which quarter you look at which one is ahead).

BMW and Mercedes aren't showing any real YoY growth. They have some token electric offerings, but don't seem particularly committed.

This is HN, the difference in value between a growth company and an incumbent should be at the front of our minds at all time.

You haven't been paying attention to Mercedes' EVs, especially. Quick, how many models do they have?

Edit: I'll skip the suspense, they have 10 models, more than Tesla. And several more are on the way.

> They have some token electric offerings, but don't seem particularly committed.

The Mercedes EQS achieves greater range than any Tesla in real world highway range tests:

https://insideevs.com/reviews/443791/ev-range-test-results/

So your claim is that can't Tesla can't match Mercedes' token EV offering? Why isn't Tesla showing more commitment?

Tesla doesn't match the BMW iX either. Or the Lucid Air. Or the Hummer EV:

https://insideevs.com/reviews/612030/hummer-ev-range-test/

It's like Tesla's not even trying.

That growth is only interesting for two types of companies. One software companies or similar industries where marginal costs are nearly zero, so rapid growth promises huge future profits. And two, companies that could form a monopoly out of that growth to be hugely profitable.

Tesla is neither of those things. So it's not a good long term investment, only a good short term one if the hype continues long enough and you can sell to someone else before profit realities kick in. The tricky thing is that you don't know when that will happen, could be 15 years from now, could be next month.

Considering VW owns Audi, Bentley, Porche, and Lamborghini they obviously do sell upmarket cars.

VW is Audi Porsche Bentley and Lamborghini. I dont know if this ownership is reflected in the stock price of the company listed as VW. Porsche EVs have a better battery performance as measured empirically than Tesla - but they make more modest claims and outperform them, in contrast to Tesla who are essentially lying about battery performance. They are much nicer cars. Porche dealers take care of you very well. Porsche makes very good margin on their cars.

I don't believe market cap to sales is a good ratio to look at when the margins are so different.

A forward P/E of 25 for a company growing 50% YoY is not unheard of.

Since you picked VW as reference, i had to look them up they have forward P/E 4.84 > trailing P/E 4.66 meaning they are shrinking (?)

While a 25 PE is not unheard of at all, they have been up on much higher levels (190+ IIRC) before this price fall.

There's also the supercharger network.

Tesla commands a premium because the cars make fart noises.

Tesla's solar division is an albatross, not an asset.

Absolutely, he bailed out his brother.

Musk is what we call a dummy. He could have bought GM for close to what he paid for twitter.

Bit OT but generally speaking if you care about company culture and want to build something great, acquiring mature companies is not the way to go. You end up with an alien culture you can’t integrate into your own. This is why Apple only buy companies they absolutely have to, and specifically early stage where the culture has not ossified yet.

So don’t buy GM - or Twitter…

It can be done with Twitter, the problem was that Elon got too emotional about it. Icahn was already looking forward to a proxy fight and just kicking out people without changing the product too much, but Elon buying his lots of shares was an easier way to make hundreds of millions in profit.

Only if he was willing to assume GM's $80B of long term debt. So he would have had to really pay almost 3X as much for GM as he paid for Twitter

Tesla no longer has a moat in China- a more important market for EV than America.

As for Volkswagen the translation is "car of the people" which Tesla is assuredly not.

Vw isn’t just cars. They’re are invested in things like Siemens’ energy to be the worlds biggest producer of synthetic fuel. Vw is the big boy and toyota is the big boy in asia. Tesla is valued the same as all the other car manufacturers put together.

Their market share price is speculation from fan boys that want a poorly manufactured usb mouse to drive in that you have no way of fixing yourself or even taking to a specialist.

If you want to make some money in the next year or so, open a short position on Tesla. Not financial advise, just 2 cents from a guy that worked in the motor industry for 15 years

The market can stay irrational for much longer than you are solvent.

Tesla is priced as a volatile growing tech company, for better or worse. They aren’t priced according to current performance, but predicted future performance.

VW is a known thing, they aren’t expected to get much bigger than they are today, they might even shrink a bit.

Tesla is more of a risky bet, which is why it’s stock price is so volatile.

> If you want to make some money in the next year or so, open a short position on Tesla. Not financial advise, just 2 cents from a guy that worked in the motor industry for 15 years

Short pressure is enormous. It's not cheap to open this position.