
The contrast between Tesla and the rest of the auto industry is terrifying - dbattaglia
http://www.businessinsider.com/tesla-terrifyingly-different-from-ford-gm-fca-2018-5
======
starchild_3001
Remember Amazon? Remember they were "just" an online bookseller? When the firm
is headed by a visionary, and it's located in the valley, 20B losses incurred
so far may prove to be a rounding error.

That said, most of the article still makes sense :) Facts are facts. Tesla
have built an amazing model S. They haven't figured out how to make luxury
cars at GM or Ford scale so far.

------
icc97
I keep thinking of Tesla as a battery manufacturer. I don't know enough to
know where Panasonic ends and Tesla begins. I know they share the gigafactory
and I've seen it a few times on HN that it's Panasonic that have the knowledge
and not Tesla, but it seems to me like a vast part of it is Tesla. I do wonder
why Panasonic didn't build the gigafactory themselves.

I think BMW are on their way to building they're own battery factory but I
don't know the scale.

But then it would seem that for anyone to be competing with Tesla they'd have
to be doing it on the same ridiculous scale. I'd imagine it's hard to keep
that kind of thing quiet at least if you're doing it in Europe.

I for one still hope the Model 3 succeeds. If it can do 500,000 miles on the
battery and nothing else blows up then it'll probably be the last car I ever
need to buy.

------
icc97
The main threat that Tesla has been so far is to German luxury cars. I find it
odd that they weren't mentioned.

~~~
Fins
But are they feeling threatened? On a luxury and quality scale there is
absolutely no comparison between even a fully loaded Model S and an entry-
level German car from a luxury brand. Tesla can do very well with people who
think they are "better for the planet" but they have ways to go before they
can compete with a proper car in Model S' price range. And it is not exactly a
given that Tesla can figure out how to make a car, on scale, with a better
build quality than a Yugo, before Daimler/BMW/VW can figure out how to build a
fully electric vehicle that can actually be sold at profit.

~~~
greglindahl
Well, you could always ask Porsche's CEO:

[http://www.thedrive.com/sheetmetal/16548/porsche-ceo-
admits-...](http://www.thedrive.com/sheetmetal/16548/porsche-ceo-admits-it-
lost-some-customers-to-tesla)

Obviously he thinks they can compete, but there's an acknowledgement that
Tesla has done something significant.

~~~
Fins
Not sure if that's how I would read it. They are seeing falling sales of
something that is often considered a "fake" Porsche (gasp, it has 4 doors!).
The article makes a much stronger case than the CEO that it is due to Tesla.

Panamera isn't Porsche's bread and butter in any case, unlike Model S for
Tesla.. When people start abandoning Carreras for Teslas, then it will be time
for them to worry. But I am not sure people buying Carreras and alike would
stand for Tesla's quality.

In any case it will end up with there being more electric cars from different
makes, which is probably a good thing. Maybe somebody will come up with a way
to make them usable to a general populace without too many compromises.

~~~
greglindahl
A lot of consumers think electric cars are already usable by the general
populace without too many compromises. I know you have strong opinions about
what you personally want in a car, but projecting them onto everyone else
doesn't make for interesting HN discussion.

~~~
Fins
That goes both ways. Electric cars work for many people. They do not for a
non-trivial number. Hell, _I_ want an electric car (not a Tesla, most likely,
I am too used to good ergonomics and nice interiors), but first buying a
rather expensive car, then having to hitch a ride to/from a charging station
every week seems to be suboptimal.

~~~
greglindahl
It's common that any thread on HN discussing electric cars has at least one
person complaining that the huge problem that hinders adoption is that they
personally can't charge one conveniently. Sure, it's a problem, but not a big
limitation on the overall market when the cars are at < 1% market share.

And if you don't want a Tesla, then you should check out the Bolt. Like all
long-range electric cars, the styling is going to be a notch down from what
the price suggests, because long-range batteries are still expensive.

~~~
Fins
True... electric, especially Tesla threads bring out a lot of... strange
opinions.

Could not it be that the lack of sufficiently quickly charging solutions and
charging infrastructure is not a major problem when the market is that
fraction of a percent. It would be interesting to see what needs to happen for
electric cars to break above that level.

Bolt is pretty nice (and at least Chevrolet has some clue about ergonomics of
a car) but still has the same practicality issue for us. We just ended up
getting a plug-in for my wife. It can get her to work and back on a charge,
and in the car pool lane, if we can find somewhere to charge it for less than
the cost of gas, _and_ if we can't, it's not a big deal. It can go almost 600
miles from full. Not to open another can of worms, but at half the price, it's
better equipped than a Tesla, too. Would be interesting to see what that 911
plug-in Porsche is promising looks like, although "too expensive for me" is to
be expected.

~~~
greglindahl
It's worth noting that despite the significantly cheaper prices of plug-in
hybrids vs. battery-electric vehicles, plug-in hybrids aren't selling well:
[https://insideevs.com/monthly-plug-in-sales-
scorecard/](https://insideevs.com/monthly-plug-in-sales-scorecard/) in April
put battery vs plug-in hybrid sales approximately equal.

~~~
Fins
Aren't there just more PHEV than BEV models, so each individual model faces
more competition? If you start adding up PHEVs, they overtake Tesla pretty
quickly (and the rest of the BEVs look more like rounding errors anyway).

Then, of course, there is the market distortion of (US at least) tax credits
for electric vehicles. Once those disappear sales numbers might look different
yet again.

------
nickgrosvenor
It will be very interesting to see how it turns out for Tesla over the next
couple years. It could go either way.

------
perilunar
Yes, the contrast is terrifying. The big automakers are "raking it in" while
screwing the planet. And Tesla isn't.

~~~
exabrial
Depends what outlet you plug it into ;)

------
cepth
Matthew DeBord is Business Insider's resident Tesla bear. His background is as
a "car guy" automotive journalist, not as a financial analyst or financial
journalist. This lack of a finance background painfully shows in much of his
writing.

If you look at his author archive, he is literally publishing 4-5 Tesla
related stories a week, often with some kind of clickbait title. To avoid
running afoul of Graham's Hierarchy, let's consider his arguments.

\- Tesla's valuation -

Before diving in, I think most people can agree that based off any kind of
traditional financial analysis (DCF or comps), Tesla stock is overvalued. Musk
himself has said this at times([https://qz.com/1031702/all-the-times-elon-
musk-has-trash-tal...](https://qz.com/1031702/all-the-times-elon-musk-has-
trash-talked-teslas-tsla-stock-price-as-overvalued/)). Nasdaq estimates,
perhaps generously, that the stock trades at a 36.57 P/E of 2020 earnings, so
anyone buying into the stock today is paying for a decade or more of future
growth today.

Aswath Damodaran has called Tesla a "story stock", one whose valuation is
largely dependent on what scenario of future growth you believe in. He said in
August 2017 that the stock is worth anywhere from $82.66 to $316.46, with his
base case estimate of $151.85. You can see his assumptions mapped out here:
[http://aswathdamodaran.blogspot.com/2017/08/a-tesla-2017-upd...](http://aswathdamodaran.blogspot.com/2017/08/a-tesla-2017-update-
disruptive-force.html).

Now to look at some of DeBord's "comparisons" between Tesla and other
companies.

\- Tesla vs. GM -

> "What Tesla considers to be an ambitious production target at its single
> factory (ironically, once jointly operated by GM and Toyota, another global
> juggernaut) in California — 5,000 Model 3's per week — is a rounding error
> to GM. GM could have achieved and surpassed Tesla oh-so-obsessively
> monitored objectives in a few months at most."

DeBord seems to slight Tesla for only having a single factory, while also
claiming that its total production is insignificant compared to GM. At its
peak, the NUMMI plant produced 400k cars annually. Tesla delivered 101,312 S
and X vehicles in 2017. This was a 33% increase over 2016.
([https://auto.ndtv.com/news/tesla-posts-record-sales-
in-2017-...](https://auto.ndtv.com/news/tesla-posts-record-sales-
in-2017-1795693)). Tesla has produced 27k Model 3's in 2018, if we use the
data from the Bloomberg production tracker. For the roughly 30 weeks left in
the year, if we assume they maintain an average of 3k cars produced per week,
we're already looking at 117k Model 3's produced for the year. That would
represent a doubling of production at Fremont.

The apples to apples comparison would be the revenue derived from the Fremont
factory, and the operating margin on the vehicles sold. GM's gross margins are
~15%, and we've seen from the Models S and X that they can hit ~25% gross
margins. The bottom line seems to be that for a similarly sized factory, Tesla
will ultimately be able to generate much more revenue and profits because of
the nature of the cars that they sell. The measures investors care about are
ROIC and operating margins, not just the raw number of vehicles produced.

Note that in 36 years of operation, NUMMI produced ~8 million cars. Let's say
it was a flat 8 million, that's still only an average of 4444 cars per week
over the life of the plant. When considering that in the 2000's the plant was
making 350k+ cars annually (~7k weekly), simple math should tell us that the
plant had years where it was making many fewer cars than what Tesla is
producing now. The Model 3 rollout has been a debacle, but let's not pretend
that NUMMI was ramping up to 350k annual production in the first decade of its
life.

> "The third is speed. Everybody thinks Tesla is a fast-company Silicon Valley
> operation, but the carmaker is, in fact, agonizingly slow...GM, on the other
> hand, revealed and launched its Chevy Bolt long-range EV in about a year,
> start to finish. It's been on sale in the US since fall of 2016."

The Chevy Bolt sold 26,000 units globally last year. Tesla achieved this run
rate in October of last year. Let's not pretend these are manufacturing
challenges of equal scale.

\- Tesla vs. Ford -

> "And although it isn't priced anywhere near what Tesla charges from its
> Model S and Model X luxury vehicles, the F-150 throws off huge profit
> margins. The F-150 can witness sales dips, but for the most part, it's
> nearly an invulnerable product. Ford can always count on it, like an
> insurance policy."

I'm an admirer of the F-150's aluminum construction, which was an engineering
achievement. But, DeBord seems to forget that the early years of the vehicle
were plagued by challenges like convincing customers to trust a new unproven
technology, and operational considerations like supplying enough bodyshops
with the equipment and parts to repair aluminum bodies.
([https://jalopnik.com/how-a-2015-ford-f-150-aluminum-
repair-c...](https://jalopnik.com/how-a-2015-ford-f-150-aluminum-repair-
cost-17-000-and-1719664610) and [https://jalopnik.com/why-the-
aluminum-2015-ford-f-150-is-hav...](https://jalopnik.com/why-the-
aluminum-2015-ford-f-150-is-having-a-disappoint-1718520125)).

The F-150 actually has had production stopped because of a fire at a plant
that produces the aluminum parts ([http://www.chicagotribune.com/business/ct-
ford-suspends-f-15...](http://www.chicagotribune.com/business/ct-ford-
suspends-f-150-production-20180510-story.html)). So, no, it's not an
"insurance policy". Delays and supply chain failures affect even the largest
of automakers.

The margins of the vehicles also seems to hover around 20%
([https://www.nytimes.com/2018/03/01/business/ford-f150-alumin...](https://www.nytimes.com/2018/03/01/business/ford-f150-aluminum-
trucks.html)).

> "Tesla, by contrast, has probably topped out in its luxury segment and now
> has to pull off a potentially impossible stunt: sell hundreds of thousands
> of electric sedans to a market that has shown limited interest in EVs
> (they're only 1% of the global market) and that ... doesn't want sedans. The
> four-door is dying. FCA has given up on them in the US, and Ford is heading
> in that direction. GM will likely make the shift in the next year. Ferrari
> doesn't sell them."

Two problems here. One, if we believe that Tesla is able to take market share
away from existing sedan makers, it doesn't really matter if the industry
shrinks by 1-2% per year. Two, the attractiveness of SUVs versus smaller cars
fluctuates with oil prices. Remember the last time automakers switched to
producing mostly SUVs and pickup trucks in the early 2000's? A financial
crisis and high gas prices flipped that trend. It's difficult to see how in
the long term, oil prices are ever going to trend downwards as opposed to
upwards.

\- Tesla vs. FCA -

> Since taking over Chrysler after a government bailout and bankruptcy,
> Marchionne has focused on making the Jeep brand a profit-minting beast and
> maintained the RAM pickup brand's number-three-market position behind Ford
> and Chevy/GMC. This has generated the cash flow that he needs to pay down
> FCA's debt and to bolster the carmaker's cash balances. It's actually not
> that complicated. He inherited a ruined balance sheet, but one that was
> getting a fresh start. And he has done what's needed to transform it into a
> fortress. Over the past two years, FCA shares have outperformed Tesla shares
> by 200%. So which was the better "growth" investment? (And that
> outperformance took place, shockingly, even after FCA spun off Ferrari,
> which represented a huge chunk of value in the company.)

It's not all that complicated...if you decide to transition your business to
making many more SUVs and trucks, and fewer sedans. As I noted in the Ford
comparison, if oil prices increase and you find your models out of favor with
consumers, it's not such a perfect turnaround anymore. Let's also note that
FCA has given estimates that 2018 automotive margins will be 8%, versus 7.1%
last year. It's unclear how even massive sales growth will deliver compelling
growth in operating profits, and this is reflected in a stock that commands a
5-6x P/E ratio.

\- Tesla vs. Ferrari -

> Tesla, unfortunately, isn't modeling itself on Ferrari, which would actually
> be logical. Instead, it's aiming to become GM or Toyota, producing cars at a
> gigantic scale. Tesla's core business — luxury vehicles — shares Ferrari's
> sexiness and preoccupation with performance. It's larger, of course —
> Ferrari sells less than 10,000 cars per year — but Teslas are also far less
> expensive. An entry-level Tesla luxury vehicle is under $100,000, while the
> cheapest Ferrari is $200,000.

So Tesla last year Tesla already sold 10x the vehicles of Ferrari, and is on
pace to increase that to 20x by this year. DeBord thinks Tesla should model
itself on a company whose stock trades at 41.92 P/E today, and 30.05 P/E of
estimated 2020 earnings. I'm not sure how it's logical to compare the two
companies when Tesla is set to bring in orders of magnitude more revenue in
the future.

Keep in mind DeBord also thinks that Tesla doesn't make enough cars. So which
is it, they need to get big faster, or they need to get/stay small?

\- Who DeBord doesn't compare to -

It's pretty interesting to look at who DeBord doesn't compare Tesla to. Little
companies such as Daimler, Volkswagen, Honda, and Toyota. Each company has
faced significant headwinds, and has had topsy turvy financial and stock
performance over the last couple years.

TL;DR I really wish Matthew DeBord would put some effort into addressing some
of the more glaring contradictions in his own arguments before he publishes
his 5 Tesla-branded clickbait articles a week.

~~~
nickgrosvenor
Now, this is the type of comment I look to find when I click on the comments
section, a point by point breakdown of the article with an alternative point
of view.

