I wish I could find it, but Warren Buffet had a great quote about new technologies. He said, roughly, that even when everyone knows a new technology is the future, it's still impossible to predict what company will win, and therefore which stock to invest in. He gave many examples: airplanes, radio, television, cars, computers.
I'm not so sure those things follow. There is a tremendous amount of baggage/inertia in existing car companies, no where was that more apparent than seeing GM convulse when it was bought out by the US government. Could I beat Usain Bolt in the 100 yd dash? Hell No! If you tied his shoelaces together? Damn straight I could!
Tesla has no other cars, no other obligations, no other legacies, no other technical debt to pull backwards on it. One of the most interesting things I read was a car analyst comparing Tesla to Fisker. Fisker built an electric car with the best batteries they could find. Tesla didn't build an electric car until they had built batteries that met the requirements of an electric vehicle.
The difference there is profound. Prior to Tesla there were no batteries in the world that could be bought which would let you build a Model S. Car companies weren't telling battery makers how to make batteries, and battery makers weren't telling car makers how to make cars. But Tesla sat down as a company and designed an electric car from whole cloth, from the AC induction motors to the battery chemistry. That is an insanely stupid thing to do, it has huge risk. But they pulled it off.
From a thinking perspective, Tesla should be bigger than GM and Fiat combined. Compare the Volt or the EV-1 (which is unfair since technology has advanced so far since then) to the original Tesla Roadster. One company is thinking, one company is designing. I think thinking wins in this case.
I also think maintaining a distinctly 1990s view re: incumbent car companies is potentially strategically disastrous. After the near-collapse of the US car industry, saved by the grace of the government, we've seen a dramatic and near-miraculous turnaround.
Ford went from making cars nobody wanted and burning money at a prodigious rate, to profitable and actually building cars that sell well. It is a common refrain to portray the automotive industry as constantly tripping over their own incompetence and baggage, but the reality is that after their near-death experience they've proven their ability to fight, survive, and even prosper.
Tesla may be on top, and they may be the most visionary of the companies on the playing field, but there are many, many perfectly competent competitors yet, who are far more experienced in factors that Tesla has yet to contend with - i.e., the economics of economy cars.
[1] http://patft.uspto.gov/netacgi/nph-Parser?Sect1=PTO2&Sect2=H...
>That is an insanely stupid thing to do, it has huge risk.
Do you think huge risk is always insanely stupid?
Depends on the risk. Looking at the history of Tesla the huge risk was that it would bankrupt Elon. For pretty much everyone else it was a non-event (they would lose their jobs, some creditors wouldn't get paid). So if I were Elon's financial advisor and he was saying "I want to retire in 10 years." I'm going to suggest that putting your entire net worth at risk over maybe being able to build a car, is not a good idea. I'm happy to watch him do it, and hope for the best.
Perhaps 'stupid' carries too much of a pejorative tone here, how about 'ill advised' ? or 'very unlikely to pay off' ? That distinguishes it from 'stupid' which means 'likely to take out innocent bystanders' such as say creating a financial instrument out of CDOs. Also stupid but the risk there is wider.
The question is if Tesla's $30K EV is going to be better than Ford's $30K EV, or Nissan's $30 EV, or Toyota's $30K EV, etc etc.
We've seen Nissan make some very promising inroads into the EV market, and we know that all of the other major automakers are planning to enter it in a huge way. The question, again, is not whether or not Tesla is capable of shipping a $30K EV, it's whether or not they can beat everyone else at it.
We also know that the low and mid-end car market is much more economically driven than feature or style-driven. Tesla will be forced to compete on the economics of their vehicle way more than they've had to until now.
> "yet Tesla is leading the way - they will be the name everyone knows when it comes to electric"
I highly doubt this. Outside of tech and Valley circles most people don't know Tesla. Some have heard the name in passing, but most haven't. The recognizability of GM, Toyota, Ford, etc, is still several orders of magnitude beyond Tesla. I think it's unwise to look at the people directly around us (aka the tech elite) and extrapolate that to the mainstream.
As long as Ford, GM, et al move quickly into the EV market, they can out-brand Tesla.
> "and they will be far ahead of the game"
How so? They've mastered some things that won't really be applicable to the low end market. The big, gorgeous touchscreen UI? Almost certainly not making it into a middle-class vehicle. The supercharger stations? The economics of offering unlimited free energy for a car in that price range is sketchy at best.
So when it comes down to it it's all about the battery and the motors - and it doesn't appear that Tesla has any intrinsic advantage on that front over anyone else. They're not competing against incompetents, they're competing against companies whose bread and butter is motors - gasoline, electric, or otherwise. Tesla's technological lead is not so wide that a sufficiently organized, and sufficiently well-funded competitor can't catch up. And there are a lot of sufficiently organized, and sufficiently well-funded competitors very keen on toppling Tesla.
> "The profit on the Tesla is massive relative to current vehicle sales."
Well, yeah, they sell luxury vehicles at high margins. This is precisely my point - these margins are going to disappear as soon as Tesla enters the low end.
> "I'm pretty sure the cost of making a car these days $5,000 or less to produce a car"
I've worked in automotives. Excuse the slight rudeness, but you are insanely out to lunch. $5K to produce a car?! You realize this is the same bullshit we complain about constantly right? "Oh yeah, it'll just take you 5 minutes to write that code right?"
Manufacturing is expensive, it's time we put the bullshit "costs almost nothing anyways hurrrrr" myth to rest. Margins on cars are low, even in plants that do not use unionized labor (they do exist). The gap between union labor vs. not, especially when the car is being built in the West, is much, much smaller than you're imagining.
There is no way Tesla, or anyone else for that matter, is building a car for under $5K. Maybe if they got into the golf cart business.
World's cheapest car @ $2,500 - http://www.youtube.com/watch?v=kxWq9bKRmc0
Great photography by the way! :)
But Musk doesn't want to be high-end. He wants to change the world, get us to all buy electric cars. That means more affordable cars, which is the direction he's going. He only started high-end because that was the best place to start. Of course, there are many challenges before he's done.
(Goodness, why is this being downvoted?)
The question isn't whether or not Tesla will make a play for the low/mid-end market, it's whether or not they can win it.
The consumer car market is very different from the luxury car market. It's a world where it's not enough to execute well, but also do it with razor thin margins. Tesla has proven their ability to concoct grand ideas and bring them to life when money is no object - it remains to be seen if they can do it to the tune of $20-30K, or even lower.
Tackling the high end first was absolutely the correct strategy, but now the market is heating up. Are we so confident that Musk can lay waste to every single major automaker out there that people think they will be worth the entirety of Fiat, or half of GM?
I was questioning your analogy with Apple. I'm sure they could win the low-end; but they don't want to.
Addressing the question of whether Musk can win it... well, firstly it is uncertain (and he might get hit by the proverbial bus), so we have to factor that in. But, some first mover factors in his favour: he's further along the engineering learning curve than anyone else; and further along winning market headspace; and further along getting every little business thing right to make it all happen. That is, he has a high probability of succeeding.
Secondly, I think Toyota or General Electric are better comparisons than with GM (whose cap reflects its terrible shape), which are 5 times bigger. (see the figures in my other comment: https://news.ycombinator.com/item?id=6567057) That is, the potential prize is larger than given in the article.
Whether Tesla is over-priced or not I couldn't say - except that the market overreacts to both good news and bad news, so it's probably best to wait for a dramatic stuff up that doesn't actually affect its real business prospects, and buy the depressed stock.
Is Tesla worth more than Fiat, is it worth half of GM? In its current state, with its current sales, of course not.
But with its potential state, its reinvention of automobiles, is it?
That part is very, very hard to say. In a world where Tesla was the only real electric car player, sure, we know electric is the way forward. But their competitors aren't incompetent, and they aren't sitting still. We are seeing full-EV cars come out of every major car manufacturer, and they're improving rapidly.
We also know that the high end of the electric car market is just a test environment, the real battle will be fought in the "regular car" market. Not the Roadster, not the Model S, and not the new SUV. Tesla may have beaten everyone to the punch and built incredible luxury automobiles, but can it beat the incumbents when pricing pressure is very real, and very heavy?
I believe in electric cars, but I am very skeptical that Tesla will beat GM, Ford, Chrysler, Nissan, Toyota, Honda, Volkswagen, and Hyundai in the low/mid-end.
I'm also skeptical that they can maintain their current lead when luxury automakers like BMW and Daimler want a slice of the pie.
Tesla surely has done a lot to dispel the negative connotations of electric cars, but where they go from here is anyone's guess. There is way too much uncertainty to IMO justify such an insane valuation.
Think about it this way: Apple was first to market with the iPhone, a device that dispelled many perceptions about smartphones being stupid, clunky, and only for businesspeople. It was beautiful, and it was a wild departure from anything seen up until that point - and most importantly, it was incredibly well executed. For a little while it looked like the iPhone was going to swallow the world.
And then Android showed up and completely ate the low and mid-end markets. Apple isn't dead by any means, and perceptually they are still the top dog in town, but anyone who bet on Apple assuming majority market share is now, well, wrong.
In Apple's case, the competitor sort of came out of nowhere - Android I don't think was a serious contender on anyone's radar initially. In Tesla's case, they are going up against very experienced, very wealthy, and very serious competitors - competitors who have in recent years demonstrated their ability to adapt to market conditions and turn themselves around. Anyone who still sees the big automakers are stodgy and unable to change should go look at what the Ford Motor Co has done recently.