The stock price increased by 15x in 1.5 years on basically no major news. If you don't include profits from regulatory credits, they've lost over $700M so far this year. Government money is not scalable or sustainable, so this an important indicator of how their finances are doing.
The intuition is that Tesla cars are like iPhones. I think it's wrong. This is a low-margin business, where you increasingly compete with all of the goods and services people buy, like housing, education, healthcare. It's not a "buy a new phone for Christmas every 2 years" business.
People are on the phone all the time, so paying $200 more for an improved experience for several hours per day is justified. But paying $5k or $10k more for an improved experience for 1 or 2 hours per day? If you're rich, maybe. If not, why not move closer to your work instead, so you don't have to use the car? Why not take a longer vacation, or eat out every day, or retire earlier, or pay for your kid's college education?
Depends what you call news. We're pretty spoiled when it comes to Tesla news; there's been no shortage.
In the last year they've announced and built most of the Berlin factory. It seems on track to start producing next year. That's on the home turf of Volkswagen, Daimler, and BMW. Pretty big news. The same year also saw the announcement of the Texas factory where they are also executing rapidly. And that of course came on the back of the Chinese factory. The news for Tesla in the last few months has been of them executing extremely well. They're growing production and turning profits in a market where all their competitors are shrinking production and losing money. There's also been some minor news about them ramping up production of their in house designed batteries a few new models and model variants. The cyber truck announcement was only a year ago; so that counts as well and half a million reservations for such a thing is nothing to sneeze at. Then there was a minor thing called Corona which should have put the brakes on profits; except it didn't in Tesla's case.
Tesla's valuation is based on their historic ability to execute and their competitors apparent struggle to do so. Turning profits in the middle of two major lock downs is pretty hard evidence that they are doing something right. So, maybe it's not that irrational for investors to look at Tesla and see a strategy that while ballsy is apparently working and looking like it might be just the right strategy for the foreseeable future as well.
Your picking nits over government subsidies. Everybody else has that same advantage. In any case, without government subsidies, most of the Detroit based car manufacturers would have gone bust around the 2008 crisis already. I'd say 700M is peanuts compared to that probably; and they are still losing money. General Motors' losses alone this year exceed that.
The major news is that it was the only car maker that managed to grow significantly despite the pandemic and that they're still the technology leader despite many announcements from the competition.
Speaking to your last point, and I believe I agree with you, people will likely on average spend that same X% of their pay on a vehicle? I mean there are already vehicles covering every price and quality point. We know that people will happily spend all their income and essentially live paycheck to paycheck. Somebody driving a Honda Fit(a great value) either can't afford more car or doesn't want to pay for more car; there is already more car for more money available right this second.
You're overlooking an important consideration. Tesla is well aware of the regulatory credits it will likely receive and recognize before each quarter begins -- and therefore can make decisions about where to make capital expenditures as a results of the additional revenue. If they weren't receiving the ZEV credits, they have stated that their expenses would be different. The media overlook this simple point regularly.
1, 2 and 4 were expected and incorporated in the price, 3 was a nothingburger. A good valuation takes into account the risk that anything which is expected fails for some reason, so when the expected stuff happens, it should increase the valuation by removing the risk. But it's never a game changer that should increase the valuation by a factor of 15.
Weird, I thought #3 was by far the most exciting of the 4. It outlined the path to the tipping point where EVs with decent range are cheaper than low end ICE cars.
What you failed to mention is that in the preceding 4 years the stock price was flat despite Tesla growing revenues 50% a year and improving every other business metric.
What really happen was: for several years Tesla was executing very well but faced unprecedented amounts of FUD. That kept (many but not all) investors away.
But you can only fool people for so long.
Investors finally realized that none of the FUD of imminent bankruptcy etc. is happening and things flipped.
That was the reason for the 10x run up of the stock price within 1 year.
Not Tesla is fairly valued based on modest assumption about the future 5 years out and doing DCF (Discounted Cash Flow analysis).
Don’t they raise a MFT (metric falcon ton) of money, consistently?
I think the narrative flip really came down to — “oh they may always be on the verge of bankruptcy, but they can always raise from the public because the public loves Elon”
So really they will always have runway to get to those goals, timelines really don’t matter.
While this sounds good as an hypothesis - the ground reality is far from this, Tesla build quality is below average at best w QA being non-existent. Tesla Insurance is an unproven entity and horribly mismanaged. Eg: https://teslamotorsclub.com/tmc/threads/tesla-insurance-clai...
Many potential Tesla solar customers (that I know of) have ended up using other solutions as Tesla simply didn’t have stock availability - it’s a novelty product line.
Many “investors” do not know the ground reality and base their decisions on the Twitter feed of an individual.
> Many potential Tesla solar customers (that I know of) have ended up using other solutions as Tesla simply didn’t have stock availability - it’s a novelty product line.
I order a system from Tesla on Sept 30th, it was installed Nov 3rd, and I received permission to operate on Nov 23rd.
Other quotes I received were targeting installation Jan or Feb 2021.
It may have taken Tesla longer to bring the solar roof to market than originally planned but it’s been available since early this year. I’ve seen several Tesla roofs in person, and they seem to be a great choice if you need a new roof and can afford it.
I think you misunderstand what the market is. It isn't some reality driven by known data you have available. It's a popularity market that must judge the future as well as the now.
Unproven insurance model with a 40% potential.
Insane demand causing shortages in solar panels is a great company to give money to.
Remember the goal of investing in the market is to know where the market is going and to get there quickier. You are saying the market is wrong on valuation.. you can't really bet on that only market players reactions.
I actually assume Tesla's valuation has very little to do with any quaint notion of discounted value related to future cash flows.
There is just a ton of money looking for a place to invest, and Tesla is certainly telling a higher growth story than any of the existing car companies.
A lot of people feel like cash is a depreciating asset. Real Estate and High growth companies are the best hedge against that. There are certainly plenty of complaints you can make against Musk or TSLA, but you cannot stay that TSLA hasn't been growing and isn't on a path of growth.
Tesla has been growing revenues 50% on average for the past 10 years.
Most other car makers are roughly flat. This year ICE cars, globally, are in decline.
Tesla will grow 50% on average for at least next 5 years.
Also, there has been a ton of money looking for a place to invest for the past 20 years. And there are plenty companies that are investable. Just recently we had monster IPOs from DoorDash, AirBnb, Snowflake and others.
At the same time there are many more companies that one could invest in but doesn't so it's lazy to attribute "lost of money available" to outsized successes like Tesla or Snowflake.
fwiw even if tesla increases their revenue by 50% cagr, for the next 5 years, they will still have a -lot- less revenue than the large ice car vendors.
Tesla from Sept. 20, 2019 to Sept. 20, 2020 revenue is $28.17 B. Ford revenue in the same period was $130.9 B and GM was $115.8 B. 28.17 * 1.5^5 = 213.9. That doesn't even include the inevitable decrease in sales for F and GM if Tesla grows that much.
Considering the debt load of GM and Ford the valuation of Tesla is no where near the risk as both those two are both past the hundred billion mark. While both are far more established than Tesla they are also more at risk because of how much debt they carry.
If I understand this correctly, they'll be able to write their own checks because they will essentially...
1) Own self-driving and thus, most personal transportation
3) Own / replace a large segment of public utility / power companies
4) Own / replace a large segment of insurance
5) Own / replace transportation power network
Right now, it's silly to think of Tesla as some kind of mega-monopoly across industries. So we invest in them betting on them becoming that. Is that what we want?
My counter-argument is that one of the bigger markets for automobiles, the U.S., is designed around personal choice, personal autonomy, etc. Many people just want a working car to give them freedom, and will buy whatever popular, trusted brand is available. The rest want one of the smaller brands, something that seems different from the mainstream (even if it's really barely skin deep). That has kept quite a few big players in the automotive marketplace, and despite consolidation over time, there's still variety, which buyers want. This argument really only addresses them as a car maker, though... and not at all for their spread across industry lines.
Something will stop them. They're not expanding into a vacuum: they're expanding into well-established markets full of billion dollar companies run by people just as driven and talented as they are - not to mention other forces like governments, supply and demand etc. Look at someone who eats 5,000 calories a day and gains 3 lbs a week. "My god, in 10 years they'll weigh 10,000 lbs!"
People said the same thing about Apple, and watched while it eventually decimated Nokia, Blackberry etc. Both Tesla and Apple have that premium brand reputation, and older brands are perceived as legacy. Doesn't mean that the car brands will fall to a similar fate, but they have an uphill battle to fight and need to pull a rabbit out of their hats.
> they have an uphill battle to fight and need to pull a rabbit out of their hats
The Renault Zoe is the best selling electric car in Europe in 2020.
It's not like car manufacturers are standing still. They'll be pumping out electric cars year after year. When there's so much choice of EV, what's the reason to choose a Tesla? Europe is choosing the Zoe ahead of all other models right now.
Not all major car makers will fall into the "legacy/old and busted" category - I think the ones with a long-time reputation for quality/dependability will be able to make a strong splash in the EV market once they've got a comparable product.
For example, if Honda or Toyota makes any of their mainline models with the simplified/basic interior but just with a well-made EV drivetrain compatible with the Tesla charger network, I'm probably buying instantly.
If you look at Norway where EV's account for close to 50% of new car sales you'll find that Tesla is not outselling anyone. Most sold EV this year was the Audi e-tron, followed by VW e-golf. Tesla M3 on 5th place. Tesla has the best range, but it's not that far ahead of the competition and it is generally more expensive than the competition.
Source? AFAIK EV's are exempt from all tax. If there is a 10% tariff, then it must be the same for all other manufacturers as well. Anyway, my point was that in a mature EV market Tesla is not the only player.
Yeah, I'm totally wrong. I had assumed the EU tariffs were shared by other nations in the EEA, but it's not true from what I can see. Importing an EU vehicle and US vehicle are the same (except for shipping costs).
Although EU nations, until GF Berlin, aren't quite apples to apples in that regard. But my understanding is that they did final assembly of the S and X in Europe to avoid the tariff, it's only the 3 that suffers.
They're pretty basic in terms of finish and equipment, but premium in terms of price.
The most sold cars in Europe are models that start around 15~20k€. The cheapest Tesla starts at 51k€; that's about 3 times the price. Even if you only look at electric cars, the best selling one is the Zoe which starts at about half the price of the cheapest Tesla.
As far as I understand Nokia was doing fine and was even ready to launch its own smartphone OS before it got subverted by a Microsoft manager that brought Windows Mobile and killed any chance it had to compete.
> Both Tesla and Apple have that premium brand reputation, and older brands are perceived as legacy.
In other words: overpriced crap vs. tried and tested.
That's a bit of a generous assessment. They had an OS that was launched on one premium phone, well behind iOS, Android and Windows phone. A company like Nokia would struggle to turn their Symbian dumb phone market share into something that could win against Android.
> They had an OS that was launched on one premium phone, well behind iOS, Android and Windows phone.
Nokia had Maemo since 2005 and tried to move to MeeGo in 2010. IOS was 2007, Android happened 2008 and Microsoft had almost no success with Windows Mobile, only launching Windows Phone near the end of 2010. Weird definition of well behind.
I have invested (read: gambled!) on and off in Tesla. The Elon factor concerns me as a long term investment. Do people think the company will continue to grow at the rate they are if something happens to him? Worries me to put so much faith in one guy, despite his insane accomplishments.
I don't think Elon will stick around long term at Tesla.
The goal for Tesla is to accelerate transition to electric vehicles. Once that is completed Elon will move on to another project similarly to when he transitioned from X.com/Paypal to something else.
You mean that's the mission the want to sell. I mean, can you tell me of even one company that states their mission is 'increase the share value'? Or even something close to that?
I think the hyperloop is even more ludicrous given the technological problems involved in vacuum tubes. But I think Elon realises that which is why all he did is write a memo on it rather than create a company around it.
Yeah, I was referring to the hyperloop and the boring company as separate things.
I feel like the Boring company is what he settled on once it was made clear to him how monumentally stupid hundreds or thousands of miles of near vacuum tube would be in practice. Even if you could actually build a working prototype, it's hyper fragile and will just never be economically viable compared to other solutions.
The first mover advantage is real, but I can’t quite understand why it is thought to be a check-mate.
Ford had an oh-my-God enormous first mover advantage with the production line. Japanese car companies started literally from nowhere, in an economy shattered by war. VW was literally kickstarted quite late into the game.
I don’t think it is right to assume that, even if Tesla makes the first affordable, good range electric cars, then the rest of the market can just fold. Especially since electric cars are simpler than ICEs so surely it’s easier to catch up.
I don't see how #1 is possible. Tesla is on record as having driven driven a total of 12.2 autonomous miles, vs 1.45 million for Waymo[1]. If they were actually serious about building a self driving car in the near future they would be taking steps now to get regulatory approval, and to the best of my knowledge they have not. Meanwhile Waymo has taxis on the road without human drivers and Cruise has a pilot program.
The only pro Tesla argument that I hear is that they are gathering more data. This is entirely fallacious because there are no meaningful milestones for data gathered, and it's not true. Google has orders of magnitude more of driving data from Android, Maps, and Waze.
Tesla has been shipping cars with integrated self-driving hardware for years. Every car is transmitting data back to Tesla. They have been turning on additional self-driving features every few months for years.
Tesla is doing a limited beta of full self driving now which will be widely expanded in just a few months. I don’t understand how anybody but Tesla is poised to have self driving cars in the near future.
Meanwhile Tesla has taken no steps to get approval from regulators (feel free to prove me wrong). Until they start to do so, their self driving program is pure vaporware.
Also, to date they have shipped no features that they are legally allowed to call "self driving" or "autonomous".
Waymo has self driving cars with a tiny amount of paying customers in a tiny are losing 10s of millions of dollars every year.
Tesla on the other-hand is MAKING money with self driving technology already.
What something is called doesn't really matter, I bet on the company that has 100ks to millions of cars with advanced self-driving computers and hardware on the road in daily use over a company that has a couple 100 cars in Arizona any day.
The complexity of self driving is in the complexity of the road network in the real world. The only way to solve it is to have millions of cars learning all the complexity and finding the corner cases.
The real money in self driving is not offering ride-share in small geo-locked areas.
Tesla does not have any self-driving cars on the road today:
"Yes. Autopilot is a hands-on driver assistance system that is intended to be used only with a fully attentive driver. It does not turn a Tesla into a self-driving car nor does it make a car autonomous."
They are making money with a technology that is neither self driving nor autonomous. It's driver-assist, which places it in the same category as navigation or cruise control.
If you compare Tesla to the other companies working on self driving, the only meaningful milestone where Tesla leads is the number of fatalities. The reason why Cruise and Waymo have not been as aggressive as Tesla in rolling out features to the general public is caution.
When it comes to gauging self-driving progress the most meaningful metric to look at is progress towards regulatory approval in more markets. It doesn't matter how _capable_ they are, if they can't demonstrate to regulators that they're able to safely operate then they won't be in the market. Tesla needs to step up and start making progress towards legally operating actual self-driving vehicles.
The point is that Tesla is making money, with the people they have heir to do the work and have a path towards self-driving that is not inherently money losing.
Saying that having a single car that is approved for self driving in a single geographic are is far more advanced then millions of cars that can drive with incredibly advanced driver assists literally all over the world is just an incredibly terrible way to measure progress towards the eventual full solution.
Its simply not a way of measuring progress that I is reasonable.
> aggressive as Tesla in rolling out features to the general public is caution
Its because they have a technology platform that simply can't be sold commercially as they are specialized vehicles. Plus these are not system that have been developed to work with a driver, its simply a totally different process of development.
- Waymo seems to be ahead in some targeted ring fenced areas given active service.
- Tesla seems to be more ready for nationwide rollout due to already collecting nationwide driver data + cars.
The question is which one is more likely to result in a broad scale market first, or other significant market revenue generating position.
It seems likely Tesla could roll out taxis to a ringfenced area in Phoenix (or similar ideal area) relatively easily. While Waymo is a long way from offering a nationwide service compared to Tesla. This in my mind puts Tesla ahead but there probably a bunch of other factors known and unknown too.
Tesla 'self-driving' (even 'full self driving') is a rebranded driver assist (although an advanced one). Not only is Tesla behind the others, they're basically in completely different worlds. No-one I've talked to in the self-driving car industry considers their approach to have merit if you're looking for an actually autonomous car. This is an excellent example of how marketing can decieve.
You are right, we all assume Tesla is much more than a car company. BUT - to justify its current value, Tesla must monopolize all the sectors you have mentioned.
Nobody takes this into account. They just claim: "Tesla has this and that potential", "this and that market could be huge". Okay, this should give the stock price a significant boost, but not 10x.
It's a bit like crypto speculation.
Market capitalization is based purely on the value of the stock itself and doesn't take into account any other factors such as projections, profitability or debt. It's an odd way to value a company in my opinion and just leads to inevitable debacles like WeWork.
I don't think Tesla is a car company, they are a sustainable energy company. That was their plan all along, as I understand their Secret Plan Part Deux.
This is the same BS that Uber said about themselves. Only in the last few months have you found themselves dismantling everything except ridesharing and food delivery.
And also admitting the margin on those items is not great and they're not much more than a taxi company with a fancy app and the admitted blessing of being able to outsource fleet management to their drivers.
To be fair, all of the Enron shorts lost their shirts until they didn't. I'm not saying that TSLA is an Enron, but using performance thus far as an indicator of likely performance into the future is a famously poor idea.
TSLA has famously bad QA issues, etc etc I don't need to go on. Few (including some of those who are holding TSLA stock right now) would say that there is meaningful justification for the current valuation.
The impression that other car manufacturers make right now is that they're playing catch-up while Tesla has been getting the electric part of the car right for years (while having issues with the rest of the car, as expected).
There's a good chance that "old" manufacturers with decades-old processes will have a harder time adjusting to an electric world than the hard time Tesla will have figuring out the rest.
Also, Tesla isn't just a car company, they're also a energy storage company. Which I suspect is a massive market too.
> I just don't see much more innovation outside battery tech happening.
This is where I feel the self driving part will come in.
1) First to market and length of lag for other manufactures there.
Imagine there 2 car companies with working self-driving 10+ years before others can catch-up. That will shift the market for domestic and commercial.
2) Self-driving safety stats - this is going to become huge when there are self driving choices.
If one company can say 'we are half as likely to have an accident' type marketing, this is going to become a new and significant factor in vehicle purchase, more so than safety rating are today (I believe anyway) as we are taking out the 'Im in control of my experience' factor.
3) Self driving will flow to other innovation. Cars will no-longer need to be 4 seats facing forward. Huge opportunity to re-think transport once you dont need a driver seat.
> There is a herculean effort by every car manufacturer in the world to compete for Tesla's electric car market share.
Can you link to some sources, please?
The only one that actually seems like it might be going into Volume production is the VW ID.3. There are plenty of articles from 2019 talking about how they'll be building TONS in 2020... but there are no articles in 2020 talking about how many they've built.
No other auto maker has any EV on the books they plan to actually mass produce, they're all just "limited volume".
Are there really no articles, or do HN news crowd simply don't read them? Doesn't fit the "Musk is taking us to Mars" narrative present on this site these past 5 years.
Volkswagen’s ID.3 Leapfrogs Tesla, Renault In October European EV Sales Charts
The Renault Zoe, Nissan Leaf, and BMW i3 have been in heavy production for years for example. And in many countries (especially Europe) they outsold Tesla.
> 3) The roof top combined with domestic battery side is potentially significant in replacing (full or part?) domestic power companies
A model s has a footprint of about 4m^2. In ideal conditions that would net you maybe 800W during daylight hours... 6.4kWh over the day. That would give you around 30 miles of driving range. Solar on personal vehicles will never be anything more than a gimmick.
Something most underreport right now is the way we buy stocks fundamentally changed.
The money flow used to be pension fund - > some middle men - > financial assets.
Now it is consumer on an app - > financial asset.
While I do not think `app traders` account for a huge chunk of investments, I still think more people are now shopping for stocks as consumers and not as traditional investors. People are picking stocks like they were goods. And they seldom move the markets.
Tesla as a brand is loved. The love for that brand transpires to the stock
You add to that the poor yield on nation bonds, the volatility, the multiple billions pulling out of the dollar, the value of city center real estate crumbling with WFH... there is a lot of money in the market right now. It's time to build.
Is this true on a $ weighted basis? Makes total sense as % of total traders over a X period long session. Presumably Blackrock and Vanguard have longer hold times, therefore at the margin the price movement is driven more by infrequent traders. However, are day traders really "the market" now? Haven't kept up.
Tesla designs chips, builds software, sells solar panels and home batteries, operates a global charging network, sells insurance, etc in addition to just manufacturing cars. It also sells and services its own cars, as opposed to the franchised dealership model under which most other OEMs operate.
Therefore to make a fair comparison you'd have to add in the rest of the global automotive supply chain, not just the OEMs. Add in the valuations of all the dealers and retailers on Earth (some of which are publicly traded), add in Nvidia and other chip makers' automotive businesses, add in the market cap of Waymo, Cruise, Zoox and all those major hardware and software players that plan to compete with Tesla's Autopilot / FSD software. Add in the market cap of all the charging networks in China. In an apples to apples comparison Tesla's market cap would be less than one third of the global market.
Yeah, only the inference chips are in production in the car.
They have a chip team in Austin which is lead by Pete Bannon, formerly of PA Semi (which Apple acquired to build their A series chips, and now their M series chips). The chips they designed are fabricated by Samsung in Austin.
The "FSD Computer" that they have in their cars now has an Intel Atom board to run the user interface, and then dual arm SoCs to run the Autopilot stack. Each arm SoC has a special ASIC to hardware accelerate certain common neural net inference functions (I.e. dot products and other matrix math).
You're misunderstanding what market cap is and trying to equate it with sales and other real-world metrics. The market cap is simply the number of TSLA shares times the price per share. Full stop. Tesla manufactures, sells, and maintains vastly fewer cars than even any single one of their competitors, nevermind all of them put together. None of that matters or has anything to do with market cap.
No, he’s saying judging Tesla’s market cap based on car manufacturers is like measuring Apple relative to other watch manufacturers. Ford doesn’t do direct to consumer sales, own a charging network or even gas’s station etc. Yep, they happen to build cars but if that’s the kind of analysis you’re doing the market will eat you alive.
I don’t think it justifies their current market cap, but plenty of companies looked over priced 10 years ago yet ended up being great investments. Hell, I remember thinking Bitcoin was pricy at 30$, watching it crash etc.
We have to assume this is partly the reason for the parabolic increase in TSLA stock price don't we? Thinking out loud here, correct me if I'm wrong anywhere..
According to your second source, there was $14.5B worth of shorted shares on 1/14/2020 and the closing price for $TSLA on that day was $107.58.
According to the source below [1], as of 11/15/2020 there was $27.19B worth of short shares. Closing price 11/16 was $408.09
Shares shorted 1/14/2020: 14.5B / 107.58 = 134.78 Million Shares
Shares shorted 11/16/2020: 27.19B / 408.09 = 66.62 Million Shares
According to TSLA July 2020 10Q they had 186M shares outstanding [2] so while not the most accurate when comparing a 9 month change in Shorted shares, we can estimate in the neighborhood of 1/3rd the shares on the market were covered by short sellers.
FWIW, Ford is actually drawing a line in the sand, and all EVs will be available to order directly from them online.
It will be interesting to see whether they can maintain this stance as EVs transition from a small uninteresting slice of the pie (for dealerships) to the entire product line over the next few decades.
I strongly suspect Ford took a hard look at what Tesla is doing and sees the way the wind is blowing. It wouldn't have been a popular move.
What's your point? Market cap is a forward looking measure of perceived future revenues and profitability, for which their current situation and the overall markets they're in are very relevant (not to mention very much relevantly for TSLA, expectations of how well they can execute).
Everyone is looking at these sort of headlines and being surprised at how high Tesla's valuation is, but I find it equally interesting as a sign of how low all the other automakers' valuations are. In that light, one hypothesis is that other automakers have pretty convincingly demonstrated that they are not able to sell significant numbers of cars at large profit margins, dooming them to perpetually hover slightly above or below breakeven depending on whether the economy is growing or in recession. Tesla hasn't proven they can do this, but they are unique among automakers in at least _not_ proving they _can't_, leaving open the potential of growing into an Apple-like position of commanding the majority of the profit in their industry, even if only a minority of sales.
Ford's success with the F-150 line might be an exception here, but the pickup truck market will always be much smaller than the rest of the automobile market.
I assume you may be talking globally. In the U.S.[0] trucks are about a fifth of sales, crossovers are two fifths, and SUVs are just under a fifth. Cars like the Model 3 and Nissan Leaf fall into the "midsized car" category which is about a tenth of sales.
So watching the Model Y is probably a better indicator for the long-term growth of Tesla, and there's plenty of competition.
Just as a data point... GM's 15% profit margin[1].
And low interest rates (part of government stimulus).
It feels like a bubble to me too, but on the other hand, the failure of traditional car manufacturers to deliver electric cars leaves the possibility open that Tesla will be the next Toyota/GM.
Tesla might just be the next MySpace or Friendster. They're coming in, figuring out how to get the technology to work, paying for the infrastructure (or getting others to pay), and setting it up so that Toyota can come in and scoop up the market.
I think Tesla is in for a difficult future. They seem to not understand that the people that buy Camry are not the same that buy Mercedes. Playing the same brand to the luxury crowd and the cost-conscious crowd has never, to my knowledge, worked. People will probably point to Apple, but Apple isn't luxury. It's premium. You really have to compare Rolex or Patek to Apple Watch to see where the rubber meets the road. The Model 3 is about $10k over the price point they need to be, and rolling that out just about damn near killed Elon from reports I've read. As they target the cheaper market, their margins drop and then they risk losing the Mercedes crowd entirely. So there go their fat margins. I'd imagine their warranty costs also increase and will squeeze them as well.
I can't imagine Panasonic, LG, etc. sitting around while Tesla whips them around on the battery tech front, either. Tesla is like a toddler trying to be a conglomerate. Elon is stretched so thin he's going to have a mental breakdown.
I wouldn't count out Toyota just holding for the right market forces. Go car shopping today and you quickly realize Toyota has some of the most sophisticated technology on the road already.
Their entire product line is available in hybrids with a low speed EV mode. Most of their competitors don't seem to be offering hybrids of larger vehicles like SUVs. But if you need a third row seat car that gets 50% better gas mileage than anything else in it's class... Toyota can sell you one.
I suspect the only reason they aren't selling full EVs is that the number of people willing to shell out for them is still so small.
Source? In August 2020, the Porsche Taycan was Porsche's #1 -selling vehicle in Europe... outselling their 911 and all their SUVs. It would seem, rather, that supply is the current constraint for well performing EVs.
Porsche. Aka, the same people who can afford a Tesla. If you think Porsche and Tesla are examples of car manufacturers with regular customer demand, you are very, very privileged.
The Taycan has an MSRP of $103,000-185,000. Toyota sells cars to normal people, who are looking to spend between $15,000 and $30,000.
> And low interest rates (part of government stimulus).
What do low interest rates have to do with this?
All stocks are up somewhat due to low interest rates -- why should Tesla's stock be an outlier unless something else explains its rise over the past year?
I'd like to see some numbers on this, but I don't think most Tesla buyers finance their cars. I bet most pay cash. So low interest rates don't really explain their sales numbers either.
So, how do you think low interest rates help Tesla?
Because it is very difficult to get returns in traditional ways when interest is near zero, so money floods the stock market. If you are chasing appreciation, you aren’t going to bet on GM, or even Toyota, you are going for Tesla, Airbnb, or whatever is else is institutionally favored.
On the contrary, most major brands have announced new electric and/or plug-in hybrid cars coming out in the next 5 years. That includes all of the major German brands, along with Ford and GM. The Big 3 Japanese brands (Toyota, Honda, and Nissan) already have some and are planning to build more. Altogether, those brands account for most of the global auto market.
> So 2025 is when major brands are serious about electric cars? Doesn't that seem late?
Why would that be late? It might be too early!
There is not a good infrastructure for electric car charging. Right now it is a luxury for homeowners and people who rent high-end apartments.
Even in California, where I see electric cars literally every time I drive somewhere, the infrastructure is easily overwhelmed -- last year there were long lines outside of Tesla Supercharger stations on Thanksgiving and Christmas, and that was just for Tesla owners! Imagine how bad it will get when electric cars become available at prices that most people can afford!
Considering those challenges, it's really very encouraging that mass-market automakers are willing to take the risk - especially since the government has not been willing to take the complementary risk of building charging stations on public streets to the extent that would be necessary for apartment-dwellers to be able to realistically consider owning electric cars.
Not sure about the risk. Like you said, we'd have to massively redo infrastructure on a huge level to see any penetration beyond luxury alternative use. If we'd start to also see increased carbon taxes or various efforts to reduce climate change, both vehicle and infrastructure might become even more expensive and more of a luxury.
Plus, it seems as a culture we are just wasting the productivity gains from increased technology and automation and dumping the value into money games; eventually i expect electric cars will be moot because there won't be enough jobs or job creation to sustain enough of a middle class to afford them.
Plug in hybrids do not count. Only 50 miles or so of electric range or underpowered and polluting motor...no thanks. They are the worst of both worlds and a way for manufacturers to milk their supply chains. Can't say I blame them for trying.
Also the EV offerings in the US outside of Tesla are frankly pathetic. Overpriced, inefficient, and hard to obtain.
exactly! their electric drive train is fantastic but their build quality is subpar for a $35K+ vehicle. all the other portions of their business like autonomous driving and solar are negligible relative to their car business. the only explanation is that there is a ton of capital and people have no clue where to put it so they are investing like wallstreetbets.
last time I checked no car in the world other than Tesla's gets better with time - software updates adding new capabilities, supercharger network expansion.
How can it get better with time if Tesla's QA is so bad that cars regularly get delivered with misaligned panels, serious faults and faulty electronics?
If their hardware QA is bad, what makes you think their software QA won't fail and one day drive you into a barricade it thinks is a highway exit?
Would you get in an airplane that had daily software updates? It has more capabilities right?
It's interesting to see that most comments look at Tesla based on their fundamentals, some kind of analysis of their currents financials vs. expected future financials. This is sound, if you are hoping to get 12% returns, but I think stock market today is more about expected returns measured in 100x multipliers.
Money is cheap, so it makes all the sense to buy risky assets. What has the best chance at growth, Tesla or BWM, Airbnb or Hilton ...and so on. Tesla could be overvalued by 100x, and be still undervalued because its expected growth is still much higher than that of your other alternatives.
At the end of the day, Tesla futuristic, exciting, and keeps innovating. Every one else is just playing catch up. What is more likely, old school car companies learn to innovate, or Tesla learns to produce cars with less defects and for less? They seem like equally likely, but one is a much harder problem than the other as it is rooted in the very origins and goals of the company.
it is interesting to see all the justifications people are giving for Tesla's completely irrational valuation
Solar Roof/Solar Energy -> Solar City was going bankrupt and had to be bought by Tesla to save Musk's cousins (Rive) and his ownership stake in Solar City
Electric Cars -> Check out what is happening on Europe. People keep saying Tesla is doing very well in China, without understanding that Tesla has a very small share of China and BYD is the largest EV maker in China
Battery Storage -> So something that is a very small share of Tesla revenues will magically one day become a massive business?
It's one thing to say - It will add $50 billion to the company
Completely different thing to say it will add half a trillion
Self Driving and Robotaxis - This has been the dream for the last 5 years
Tesla said 1 million robotaxis by end of Dec 2020
Where are they?
The combination of messianic leader who claims he is doing it only to save the planet and the human race
combined with Fed printing money like its going out of fashion and investors desperate for returns
By this logic, every startup should have practically zero value until it's brain dead obvious they've cornered the market. Clearly past projections about the future prove this strategy to be ill advised purely on this standard.
I agree Tesla is overvalued, but try looking at it this way. There are cars, and electric cars. They are separate, and you shouldn't mix the numbers. Care are obsolete, and will be gone in the future. Maybe soon depending on the global fear level around climate change.
Cars are the horse and buggy market. Electric Vehicles are the entirety of the future car market. If you have 0% of the horse and buggy/car market today, but have over 50% of the electric car market, you are very well positioned for the future.
I'm exaggerating. The horse and buggy analogy is flawed (VW, BMW, GM, Ford, Toyota, Honda, etc are all real electric car competitors). But just looking at Tesla vs the petroleum car market is also flawed. The reality is in the middle, with Tesla well positioned to be a top electric car manufacturer, but not to dominate the market.
Tesla is making big investments in building factories, both for cars and batteries. Those numbers should increase significantly over next 5 years.
They have more vertical integration, less reliance on suppliers.
They own their 'dealership', charging network and are also getting into auto insurance.
Also, residential solar and energy storage. Oh yeah and they are getting into mining as well to ensure they can keep up the battery production.
How many of those 92 million cars are EV? Tesla isn't really in competition with ICE car production - the next ten years is all about EV production and legacy car makers are off the back.
Even if Tesla does everything great there will be irrational exuberance and selloff: to compensate for the high growth of the company, the volatility has to be much higher for than a traditional car company.
Tesla has like 28% of the global BEV market and has been growing that % every year. They have been doing that essentially with 1 car program and another 1 that is half ramped.
There are gigantic segments, like trucks in the US, they they don't even have an offering in yet.
Tesla also controlled a huge amount of the global battery supply and threw its own production will control even more.
This transition will take another 10 years, what matters is not now, but what the situation will be in 2030.
Hi guys - long time lurker, very seldom do I post or comment, but thought that HN might be interested in this.
Although TSLA's market cap is down a bit from when I wrote the article, it still makes up something like 30% of the global automaker market, despite only publicly listing 10 years ago!
Is it overvalued or in a bubble? I'll leave that for you to decide.
Investors want to "buy the future" and seem to have placed an enormous premium on companies that are disruptive to the status quo. It's hard to say whether it's a bubble or not, because value is always part perception. I will say that the current period feels more disruptive than any I have lived through in the past (dot com 1.0, 2008-2009). And it feels like the disruption can happen faster now; like nobody is safe, and any older Fortune 1000 company can be rendered obsolete within a decade by a new startup.
Ahh yes the future where we've already priced in the destruction of our planet due to global warming but somehow the valuations keep increasing. But I am ranting again... as for Tesla...
It's all this frothy fed money and Elon, the guy steering the damned ship, doesn't even think the value is warranted. He's been saying for a year that the company literally cannot live up to the hype and the price will need to correct. I think investors are going to lose out big and Elon is going to look like the bad guy. After all, he kept irresponsibly using the Reality Distortion Field Generator which Jobs, peace be upon him, left him in his estate.
In the year 2017, Musk claimed that by 2019, the world would have cars that can drive itself while the passenger sleeps. He just didn't mention it would drive you into a highway divider head-on at 80mph.
"frothy fed money" doesn't explain anything because it doesn't seem to flow to companies that are other than Tesla.
And you're mis-representing what Musk says or thinks. He tweeted, once, "the stock price is too high". That's it. It could have been a joke. It certainly doesn't imply that he doesn't think the value is unwarranted.
What Elon actually said, if you would listen to him and not just over react to tweets as you seem to do, you would know that what he said was 'Tesla currently doesn't justify that stock price, you have to believe in its future execution' and he also added 'I believe we will get there and eventually the stock will be higher then it is now'.
And its also funny that people relentlessly shit on Elon for the few predictions he has gotten wrong, and ignore all the correct predictions. Funny how that works when you constantly prove everybody wrong but nobody remembers all those idiots who were wrong. Elon himself says he is giving median outcome predictions, half of his predictions are assumed by him to be wrong.
Also funny how one accident of a system that save countless lives is used to shit on him, but giving him credit for the countless lives that the system saved are ignored.
It was not a system designed to drive by itself, it was a lane assist tool. If the person falls asleep, any such lane assists would eventually lead to an accidents. Road network are dangerous.
And to simply ignore that the same system has saved a lot of people is just ignorant way to preserve your worldview.
And the existing companies companies do very little about their competition. I didn't invest in Amazon earlier as I thought the retailers would invest in trying to compete.
The problem most retailers face is that competing with Amazon requires substantial, multi-year capex into their supply chains.
The more forward thinking realized that the catch-up bill was only going to get more expensive, as Amazon continued growing and optimizing.
The less forward thinking... well, there's Sears.
As consumers, we rarely see "how" free 2-day shipping, same day delivery, BOPIS, etc. But suffice it to say, it's very expensive to retool legacy supply chains optimized for brick and mortar inventory delivery.
Kudos to Walmart, Target, and Home Depot for seeing what was coming.
One way to outdo amazon in your niche is a better user experience. It’s not to hard seeing how bad amazons ux is. You need to attract people who value trust over pure price.
Well that's market segmentation. Some people want it to come quick. Others care about other things. I doubt 100% of people place 100% priority on delivery speed.
In particular, I personally don't use Amazon much. Granted not in the US so maybe the site is different etc. But to me they are like an 'ebay' in terms of my trust in what they deliver, when sometimes I want a 'department store'. Now not everyone is like me but I suspect enough people are that Amazon isn't going to take over all shopping.
Keeping my eye on secondaries becoming available for cloud kitchens. Travis seems to have nailed where the industry sill rebound. Small owners will lose their entire business in this pandemic and then get started again leasing a space and relying on delivery apps to serve customers.
Same here. I think most of the logistical overhead of a traditional small restaurant will be commoditized and abstracted away by cloud kitchen providers, a marketing/rewards layer, and delivery companies. The barriers to entry will come down, but competition will increase and margins may decrease. We'll be left with fewer "restauranteurs" and more chefs who can sit in the cockpit and simply plan and execute on menus. Since physical location is no longer a moat and menus are easily replicated, they will have to compete and win on brand. It will be interesting to see the margins on delivery-only versus indoor dining once the pandemic is behind us.
it's a bet that tesla will convert their marketshare into real production numbers. The bet is based on assumption that entire market will shift to electric cars in 5-10 years. To give you understanding the current numbers. In 2020 tesla will deliver ~19% of what BMW delivers. BMW probably is the most direct traditional competitor. Luxury sport segment. 25% of audi and 5% of what toyota delivers.
To keep this valuation assumption in place, tesla can lose a lot of market share and only "keep" 20%-30%.
In this case it will outsold any other car brand and will outperform it's valuation.
They could remain their share higher. In this case they are undervalued.
They obviously can loose competition to traditional players, but also to emerging Chinese brands. Musk himself consider them a bigger competitor.
The market itself can shirk a lot, due to robotization, in this case you don't have to own a car in most of the cases. In this case the entire market will be changed dramatically and current valuation doesn't make any sense.
More and more countries, especially in Europe, are setting a deadline of 2030 for sale of new ICE cars. So the assumption sounds correct.
On the other hand Tesla market share of EV cars in Germany in 2020 is barely 12% (in terms of unit, certainly higher in EUR) [1]. I expect numbers to be worse in countries that favor smaller cars (France, for instance).
Most European auto makers are barely starting to release EV cars, and Tesla is already close to single digit market shares. They are here to stay, but like other US brands I don't think they have such a bright future outside of the US.
Aside from self-driving and software, electric cars are described as simpler devices than internal combustion engine (ICE) powered machines. Lower maintenance and all that. As simpler devices, building them should be something competitors are able to do.
Battery technology is also, of course, critical to get the right balance of price, range, charging speed, production numbers, etc.
So given global regulations putting pressure on industry conversion from ICE to electric powertrains, there is zero doubt that investments will be made by big players and they will have to stop playing games and putting out weird-looking vehicles they do not really intend to sell. This will have an impact on Tesla's presumed dominance of electric cars, but how much of an impact is hotly contested!
Because of EU regulation all car makers have dropped all their plug in cars into Europe. Yes that dropped Tesla market share in Europe, but it also means that many cars wont even be sold in the US.
Many of those cars in Europe are also plug-in hybrid, a pass over solution that also has to be replaced. Even more of them are small city cars with short range.
The same stories btw were going around about China. Tesla is losing market share in China and so on. And then Tesla opened a factory there, and guess what happened.
The same thing will be with Europe, once Tesla has a huge factory there, their market share will grow again.
That Tesla has even 12% (again with plug-in hybrids) share in Europe with a factory in California, compared to all the German and French companies who are producing locally is actually impressive.
Tesla globally has 28% of the pure BEV market, and that what matter the most.
12% is for BEV only (BEVs are in bold in the link I copied, the other ones are PHEV). Including PHEV, Tesla market share is even lower (~6% for 2020, probably lower as this is based only on the top 20).
The best selling BEV in Germany in October is the Renault Zoe, with a range of 300 to 390km (190 to 240mi). Second is the Volkswagen ID.3, with a range of 330 to 550km (205 to 340mi). These are compact cars, but perfectly sized for the European market, with decent range. Until recently the Model 3 had only 250km of range I believe.
I don't think Tesla is going after this market, to be fair. And I'm not sure they should. But they can certainly make a dent in BMW/Mercedes market shares. Which is already pretty incredible, frankly, as American cars have historically not been very competitive in Europe.
Unless, of course, that self-driving technology matures...
A lot of mistakes in your analytics.
Tesla increasing their global share not losing. ATM it's ~26% global ( oct 2020)
If you cut segments where it's not represented yet. e.g. cheap Zoe etc. it will be even higher and totally dominates luxury and performance ev market.
In 2022 tesla will deliver 25k car, and you can compare Zoe sales and Tesla sales.
Zoe sales also driven by car sharing, everybody knows that. It's more a public transport segment.
Range of model 3 is 350 miles. But you also confusing WLTP and EPA. EPA is more conservative. sometimes up to 50%.
Tesla will at least double their sales in EU in 2021 due to delivering cheaper, locally Berlin produced, with local service model 3 and Model Y.
So far Model 3 is the best selling EV by volume despite been a very expensive car, In some market $50-80k. And even with this price it easily oversold nisan leaf, zoe etc...
WV probably will be the biggest competitor in EU, but don't compare their first pre-order delivery sales with delivery of the car that is 2-3 years on the market :)
In my opinion the biggest challenges for tesla are
1. an ability to quickly enter local markets. They still not represented in many markets. E.g. LatAm is almost 0. You can't buy tesla in brazil... at all.
2. Deliver wider range of models and more often refresh it. Yes, tesla is still not on par with production abilities of traditional auto makers. Model S and X are very old cars even they update a lot inside. Model 3 is getting old as well. Those are great cars, but if you spent $80k+ on model s and you see on the road same 5 y.o. car that is not that shiny , you have same feeling, that your car maybe is not that cool and bright. But every new model production is a huge problem for tesla. Maybe model Y was simple, but the rest.... They learned how to scale production. Now they have to learn how to scale scaling.
To explain #2. I want EV I considered Model Y. For me it's still a small SUV. Due to the fact there is 0 other brands in this segment with decent mile range, performance, and software, Model Y was no brainer for me. If there will be another brand, even not that great but it will be bigger , but not CYBERTRUCK big, I'll chose another brand for my next car, simply due to size, despite been a loyal tesla owner.
Being first is great if you are building a social network. But why would it matter when buying a car? Sure, Tesla showed that it was possible (and Nissan with the Leaf), but being affordable matters more than being first.
In any case, infrastructure matters even more for EVs. I was in the market for an EV car in Japan, and ended up buying an ICE car, with the intent to switch in 5~10 years when the infrastructure catches up. I live in a brand new building and it's not even equipped for EVs! Crazy.
The only EV owners I know have houses. I hope things will change thanks to the new Suga administration that seems somewhat more forward thinking than the Abe one in these matters... We will see.
All of your points just seem to support Tesla. It's not that Tesla was first, it's that they are seriously ahead, and it takes a lot to catch up, and by the time others do, their market share will have been cannibalized.
- Tesla battery production is overtaking the rest of the world combined. For electric cars you need batteries, and Tesla has them. Everyone else is at a minimum years behind in this regard.
- Tesla's prices keep going down, while some of the most competitive electric cars being released besides Teslas (Porsche Taycan for instance) are more than the price point TSLA was at 10 years ago.
- Tesla has the most extensive charging infrastructure of anyone, period.
Tesla might have one of the largest single charging network, but by default in the US they only support their own proprietary chargers. I see far more non-Tesla chargers around in my area. They're different brands, but they all use the same standardized plug.
Just go to any site showing chargers in your area. Turn on just the Tesla and Supercharger plugs. Then turn on just the J1772 and CCS plugs. See which one looks to be the bigger network.
Those J1772 stations are useless unless you've got hours to kill. They charge at under 20mph--usually 18mph, but sometimes 12mph. And, in my experience, fully half of them are broken at any given time. The supercharger network compares favorably against the CCS network.
Yes, but you can plug your Tesla into non-Tesla chargers if you buy an adapter. Doesn't work the other way around (and for many of those 3rd party networks they have the Tesla connector anyway AFAIK).
True, Teslas these days come with a J1772 to Tesla AC adapter. IIRC they're not compatible with CCS but CCS chargers are more rare than J1772 at the moment. However I often see only J1772 plugs or only Tesla plugs around me. It's rare for places to have both options.
Tesla was forced to make CCS compatible versions in Germany IIRC, so they could adopt the industry standard globally but instead choose to continue pushing vendor lock-in instead of open standards.
Either way that doesn't change the fact Tesla might be the single biggest network of chargers out there, but they're not the most common chargers out there. The majority of chargers out there will not work on a Tesla without an adapter.
If having the largest network of charging systems was really a long term play of theirs, you'd think they'd move to actually supporting the plugs which will probably be on ultimately the majority of cars on the road and take money from everyone instead of only customers of their cars. I question the long term importance of their charging network as more and more J1772/CCS cars get on the market and more J1772/CCS continue coming online. Imagine of Ford and Exxon had some exclusive pump and port agreement where Exxon stations could only sell gas to Ford cars but Ford gave adapters to allow Ford owners to fill anywhere, albeit with a bit more work. Sounds pretty dumb, right?
You seem to be attributing to an attempt at vendor lock-in what can be more easily attributed to the fact that these other "standards" were not common at all when Tesla started building their supercharger network, and once you have inertia it can be hard to stop.
It's like people complaining that Apple doesn't use USB-C in their phones, forgetting that when Apple made the switch to Lightning, USB-C didn't exist.
CCS started production in 2013, it was a written standard a little before that. They've had roughly 7 years to work on adopting the standard plug and are only just starting to make upgrade kits to use CCS plugs with pass through adapters. They're still not able to use all of the power of the CCS connectors though. In the US they still don't have a single charger with a CCS connector on it.
I realize USB-C didn't exist when they made Lightning. It still doesn't make sense why they have not migrated to USB-C either, other than continued vendor lock-in/control over the accessory market. With practically all MacBooks and many iPads being on USB-C, it makes less and less sense to have Lightning and USB-C at the same time. There's a standard out there they've halfway adopted, but they choose to not commit to it. All of their portable devices could charge off USB-C, and sell small USB-C to Lightning tips for the brief transition.
I agree, Tesla is in somewhat the same situation. They could start producing CCS compatible cars in the US, they could retrofit ends on their chargers with J1772/CCS plugs, but instead they continue to build proprietary stations and proprietary cars.
You're right both companies are in the same boat and do a similar thing in relation to connector standards. This doesn't make these actions good though.
CCS didn’t even exist, except on paper, until after Tesla deployed enough public Superchargers to drive between Tahoe, the Bay Area and LA. Seriously: the first public CCS charger outside a lab was almost a year later and only half the power.
It wasn’t until VW started thinking about the Taycan and eTron that anyone actually deployed CCS chargers with more than about 50 kW in California (while Tesla customers were enjoying 120-150 kW). And most of the of public DCFC before about 2017-2018 in the US were actually Chademo, not CCS (which is why there is a Chademo adapter for Teslas).
Up until a few years ago, people were saying that Tesla should adopt Chademo because it was a common standard and offered more power than CCS (at the time) and there were more public chargers. Today, there are still more cars on the road in North America that can use Chademo than CCS. CCS is not commonly used in either China or Japan.
> Tesla's prices keep going down, while some of the most competitive electric cars being released besides Teslas (Porsche Taycan for instance) are more than the price point TSLA was at 10 years ago.
The best-selling electric car in many European countries is the Renault Zoe now, and it sells for about half the price of the cheapest Tesla.
Another mini dot-com bubble in the making. Anybody remember when Cisco became the most valuable company in the world? I don't, and I am pretty sure a lot of young investors in their 20s and 30s don't. This phenomenon is nothing new. Issac Newton, after losing 3 million dollars (in today's valuations)- "I Can Calculate the Motions of the Planets, but I Cannot Calculate the Madness of Men".
I am not so sure Tesla is overvalued. Oil prices are not going to be this low forever, and I expect a massive increase in demand for electric vehicles once gas goes above $4/gallon again.
Plus, millennials seem to greatly prefer the Tesla buying experience over traditional dealerships.
GM, Ford, Honda, Toyota, etc. are competing with a commodity product in a commodity market. There's no big difference between a Toyota Yaris, a Honda Fit, a Kia Rio, a Ford Fiesta, and similar cars from every other brand.
They're all within a few hundred bucks of $15k. They all cost do the same thing, cost the same to produce, and I imagine the margins are razor-thin. If any of the brand could lower prices by $500, they'd own the market.
Tesla sells a unique product, with unique technologies.
If Tesla has 5% of the market, but 10x the margins of its competitors, which doesn't seem an unlikely outcome:
1) Its profits will be roughly 1/3 of the total profits of the whole market
2) It will be much more stable. Razor-thin margins mean companies go bankrupt with even minor instability. If Ford's costs rise by 5%, it's dead. If Tesla's costs go up 5%, it's a almost a rounding error.
I think the key question is whether Tesla can execute, but right now, things look promising, although far from certain.
That’s not really how it is though, these are very different companies with very different products. For example, Ford makes its money on trucks. An F-150 has very healthy profit margins. It’s believed that Ford’s truck business is in fact worth more than Ford as a whole [1]. The Fiesta hasn’t been sold in the US since 2019.
Tesla has about 26% of the world's EV market share so their products aren't that unique. Making an EV isn't that hard - it's in fact a simpler product than an ICE vehicle.
Making an EV is easy. I can buy a Power Wheels EV for $400.
Making a good EV is hard. The set of technologies required is still unknown -- bear with me for a little bit.
In the early days of the PC; anyone competent could make a perfectly competitive computer in their own garage in a few months, buying chips, etching PCBs, and coding up a basic operating system. Wozniak did that, as did a few others. It seemed like it'd be simple forever, but it wasn't. Today, the tech tree to make something like a MacBook is long, wide, and extensive. There's a massive engineering team for the mechanical design alone, let alone the OS or the CPU. I can still make a computer, but it won't be competitive.
Same thing happened with airplanes; shortly after the Wright Brothers, all sorts of amateurs made basic planes on their farms. It's still possible to do that, but you won't be competitive with an Airbus jetliner.
Early radios were a few vacuum tubes. Compare that to making a modern cell phone.
Part of the reason ICE vehicles are complex are the same process. The first mass-produced ICE vehicle, the Benz Patent-Motorwagen, was pretty simple. It cost under $5000 in today's dollars ($150 at the time), and looked like a glorified tricycle with an engine.
If you throw engineers at tech, it goes up in sophistication. People figure out how to do things better. Anyone can make an EV. I'm confident, though, that we'll see the same progression as we did in every other fields. If Tesla has enough of a head start making things cheaper and better -- and they seem to -- it's unlikely the established players will be able to compete.
The question isn't about current margin; the question is about long-term margin.
Running at a loss to build out market share, technology, branding and economies-of-scale is a standard startup strategy. Tesla is still in that stage.
The key question is whether things like the Gigafactory provide Tesla with unique economics and competitive advantage. If they do, Tesla will be able to have lower costs or more expensive products than GM. If not, it's overvalued.
Yes they will. I'd bet that the price of oil is not going to go above $80 or so in the next twenty years.
Two major reasons, and a bunch of minor ones.
1: massive quantities of non-OPEC oil are available in shale and tar sands. Right now these are only barely profitable, but if the price of oil increases production there will increase, stabilizing prices.
2: renewable energy is now just barely cheaper than other forms of energy, but they're projected to drop dramatically over the next years, radically transforming the energy market.
Some uses of hydrocarbon cannot be easily replaced by renewable electricity but most can. When a cheaper substitute is available, demand and price drop.
The only way the consumer price of oil is going to go up over the next few years is if governments come their senses and put in place a carbon tax or equivalent. (And that's reason #3 -- the environmental movement will demand that the world use fewer hydrocarbons, forcing less demand, forcing prices before the carbon tax to go down.)
> Some uses of hydrocarbon cannot be easily replaced by renewable electricity but most can. When a cheaper substitute is available, demand and price drop.
Assuming they can maintain that level of supply as demand drops. Some the economies of scale they operate with will be lost as demand slows and then the logistics that requires large and ongoing investment may slow considerably, although much of the latter is probably outside the 20 year horizon.
It could play out very differently on the consumer side though. If electric vehicles became 50% (or some arbitrary significant percentage) of the market then a lot of local gas stations will close, the ones that remain may have to start charging higher prices (again losing the logistics and scale advantages of today). There may be some tipping point where the whole retail side of the industry finds itself in a death spiral where gas stations are charging more and in less locations, making oil powered cars less convenient and driving more people to electric vehicles.
Do you actually think gas stations make most profit off of gas? (The Shell down the street from me takes a cut of the drug deals in its parking lot but hardly the usual case...)
Regardless of what they actually make profit on, people stop there for the gas. Take the gas away and the same people to go to any store or mall and make the same purchases cheaper, or not at all.
You really can't. Even then you're going to have to endure all the after-market sales pitches: financing, floor mats, weatherproofing, etc. The last non-Tesla car I bought took me hours to complete after finalizing the price. Infuriating. If anything, the buying superior buying experience is being underestimated.
> Oil prices are not going to be this low forever, and I expect a massive increase in demand for electric vehicles once gas goes above $4/gallon again.
This really has nothing to do with it. An optioned out Model X costs as much as a house. The type of person who can afford that couldn't care less if gasoline were $10/gallon. It's a status symbol, on top of just being a great car. It wont be until they are competing in the sub $30k market that an EV purchase will ever be driven by economics.
I suspect this adds to the hype. People comparing them to auto-manufacturers seem to willfully omit that Tesla is also a global auto sales dealership network, a global power storage company (grid power storage), a solar cell installer, sales and manufacturer, a battery manufacturer, and a global transportation power charging network (replacing gas stations).
I’ve yet to read a comparison of Tesla to the sum of all those different markets.
I am beginning to believe it might be worth that simply because other auto makers seem to be dragging their feet and getting into lousy deals (Nikola and GM being the most notable).
If retail, grocery, hotels, restaurants, and other traditional industries are any indication, an inability to innovate is deeply entrenched to the point that even knowing that Amazon or Airbnb or DoorDash was coming to eat them, they did/do squat.
I think you are drastically misunderstanding the Nikola/GM deal. It is absolutely no lose for GM. If somehow Nikola takes off then they are supplying them with batteries and some other expertise they have. If it doesn't then the monetary investment, at GM's scale, was nominal. (Basically, if GM makes a mistake on a new car model)
I think the market is drastically underestimating how seriously the entrenched automakers are taking electric. They are coming from behind for sure, but I think one of the things you see consistently with Tesla is they are still very much trying to figure out the manufacturing and logistics pieces of building cars (rolling out new lines, scaling them, etc). The existing automakers know how to do all that. Are they going to make mistakes? Sure, but in 5 years you will see dozens of electric models spread through out them, and that will hurt Tesla.
>Tesla is they are still very much trying to figure out the manufacturing and logistics pieces of building cars (rolling out new lines, scaling them, etc). The existing automakers know how to do all that
I have to disagree to some extent with that. I think by now Tesla has figured out the logistics of assembling cars at least as well as other manufacturers, but they still nees to build more lines however.
However Tesla is not stopping there and is continuously improving its logistics past the industry standard, it's not catching up anymore, it's pulling out. For example a lot of effort right now is invested into streamlining battery making and integration, this is something no other OEM is really doing right now. Tesla is willing to take on battery production and even potentially mining, allowing them to fine-tune and optimize the process end to end as much as possible, while traditional OEM rely on suppliers for everything and any improvement needs to be negotiated and takes forever.
Tesla last battery day had an extremely interesting presentation about battery making and logistics that illustrates just how deep the stack they are willing to go for the sake of optimization.
It’s (imho) because the market believes Tesla will continue to capture an ever increasing amount of auto sales market share, cannibalizing legacy automakers (while also enjoying higher margins from zero marginal cost products such as Autopilot and also selling energy storage products [which are supply constrained and they can’t build fast enough, both at residential and utility scale]).
Other car makers also make a lot more than just cars. More so than Tesla, probably.
Most of them include banks, for example. They usually started out financing their customers' car purchases but in many instances have expanded beyond that.
Honda jet ski’s for example are profitable, but don’t have significant growth potential which minimizes the impact on Market Cap. Tesla’s charging network by comparison has constant EV sales pushing up demand.
Tesla building parts that most companies outsource isn’t that profitable on it’s own, but it’s likely to scale with increasing EV sales and future repairs.
Etc etc. If you want to do in depth analysis it takes a lot more time than simple direct comparisons suggest.
Where's the "moat" is in electric charging networks, though? I view it just as a way to make their EVs usable/saleable until the world catches up, not as a long term leg of the business. It seems really unlikely that the industry won't standardize on something interoperable/non-proprietary.
I don’t think there is a moat, but simply riding the wave of an expanding market that’s going to get vastly larger is a great place to be. It’s not guaranteed to be particularly profitable, but worst case they can still just sell it off.
It's because the market sees Tesla as having more growth potential inside and outside the auto industry than incumbent, largely steady-state automakers.
It also has, I would bet without having actually done the comparison, much more stock market volatility than the overall industry, because assessment of Tesla's likely future state fluctuates a lot more than assessment of the likely future state of the incumbent major automakers.
Most of the big automakers make far more than just cars. GM has a defense division. Honda makes a business jet. Hyundai builds ships. Detroit Diesel was owned by GM, then Daimler, and now Rolls-Royce.
1. Their market share there is many orders of magnitude lower than in auto sector.
2. Their investments in research there are basically 0, compared to big players.
3. Even if they would magically capture large market there, it’s a business that operates on razor thin profits (expect for scams like Enron), that doesn’t drive high valuations.
Back in April during the early pandemic dip, I bought some shares in Tesla and watched them skyrocket. Sold a good chunk of the shares and watched them double again. I owned Tesla previously at around $200/ share and regrettably sold those shares.
Tesla is tough to value, but I hang onto my shares for a few reasons.
#1 I've profited enough that I've been able to cash out my original stake. Right now any investment in Tesla is house money.
#2 Tesla is in a fairly unique position to gain from a lot of strong trends right now. Electric cars are just part of it. Tesla has their hands in a lot of the technology required for green power. Energy storage, solar, Tesla has their hands in it all. We're at the beginning of the curve on almost all of these technologies and Tesla has a pretty strong competitive advantage.
#3 Elon Musk. I'm not a fan of many of the things he says and does, but he seems to have a talent for coming out on top and being ahead of the technology curve. I would honestly prefer owning SpaceX to Tesla, but since Tesla is the only Musk company which is public, I'm content with a piece of it.
#4 Cars. The idea that VW/ GM/ Ford would leap frog Tesla once they started competing hasn't happened. Almost all the Tesla competitors either have far lower ranges, higher prices, or sometimes both.
I have no idea if Tesla is worth 1/3 of what the rest of the auto industry is worth. But a giant chunk of auto industry infrastructure is going to be obsolete within the next 30 years even as Tesla is perched to continue growing so perhaps this isn't too odd.
The simple reason Tesla are valued so high is because they have plans for and are executing on MASSIVE growth. They're building factories around the world as fast as they possibly can to massively scale up how many cars they can produce each year.
Toyota produce the same number of cars they did 10 years ago, and their stock price is the same as it was 10 years ago. Yes, Toyota make an insane number of vehicles and make profit doing so, but chances are they'll be doing basically the same thing 10 years from now.
The article says Tesla's Revenue grew 28x in 10 years from 100M to 28B. The market is hoping/predicting/betting that will be the same in the next ten to roughly equal VW and Toyota at 280B by 2030. The ten years after that might see similar growth too..
That's how I've been looking at it too. Yes, Tesla is overvalued right now but we don't know yet what their actual potential is since they can't keep up with demand. It's likely the valuation is completely unrealistic in the long term. Other EV manufacturers are also seeing pretty fantastic stock growth as well.
Also it helps they're the only auto manufacturer building EVs at scale, and more and more jurisdictions around the world are passing laws to ban the sales of ICE vehicles from 2030 onward.
Tesla has lost market share in Europe and North America. To give a company $600B market cap and up 5x while it is losing market cap is pretty astounding to me.
I invested because I think their vision and execution will lead to them selling a ton of products and services.
Their vision is much bigger than the auto industry. It is to accelerate the world’s transition to sustainable energy.
I like their execution so far with the model 3, model y, and their focus on making a ton of batteries efficiently.
They seem to be one of the most innovative companies in the world: superchargers, solar roofs, power walls, energy storage, electric cars, self driving cars, etc... and their innovation seems to be based on inventing on principle as coined by Bret Victor.
The environment may be in flux with the financial markets frothy and governments are devaluing money, but I sure like this company’s prospects. I assign them many multiples over GM, Ford, etc... In the last 10 years, Tesla has started selling energy storage, power walls, solar roofs, etc..
. What have Ford and GM done in the same timeframe? Project out relative innovation rates over the next 5-10 years.
If you have any idea what you're doing in terms of investing in any faint sense of traditionally formal rigor, you'd not touch Tesla with a tent pole no matter what you "believe" it's growth potential is. It's orders of magnitude away from any sensible by the books calculation on what Tesla's valuation should be.
Just concede that you invested because you felt like it. It's probably okay, you very well might end up making a ton, and honestly who's to say the traditional methods are correct or are even applicable in 2020? But let's not kid ourselves trying to justify Tesla's value using traditional metrics.
Tesla is a meme stock. All that traditional investment crap doesn’t apply. There is literally no point in trying to reason about where the price should be. It’s like trying to evaluate what a fair price for Bitcoin is.
Strawman argument. I never tried to justify the value using traditional metrics. Then you go and knock down your own traditional metrics argument.
And you try to tell me to concede. Do you not have any other way to evaluate stocks than traditional metrics?
You had no idea at what price point I invested. I mostly invested in the 200s and 300s pre-split. It split 5/1. It is over 600 today. Does a 60b valuation of Tesla sound like a deal?
When all you have is a hammer, everything that isn’t a nail must be bad.
What people don't seem to understand is that the market for EV is fundamentally limited by batteries. We know about how many batteries will be produced in the next 5-10 years.
The EV market will grow as fast as the battery market can support it, and Tesla is by far the largest current buyer of batteries and they will continue to expand that. While at the same time also attempting to be one of the biggest battery companies in the world.
The Tesla 'pilot plant' they have in California, is targeted to be the 15 biggest battery factory in the world by end of next year. Its the same size as the plant VW and Northvolt have planned in Germany by 2026.
Tesla will in start building multiple huge battery factories next year, in Berlin and in Austin, Giga Nevada (biggest battery factory in the world, with Panasonic cooperation) will continue to grow and they will also continue to be one of the biggest costumers for LG and CATL.
We are quickly at the point where the raw material inputs will have a seriously hard time keeping up. Massive amounts of new nickel, lithium, cobalt and battery grade graphite need to be minded and refined. Nickel is the best investment, as there is basically no way around massively increasing nickel in the next 10 years.
This is before we even consider grid batteries. Li-Ion grid batteries, even when not able to be a backup for the cities are seriously useful for basically every grid operator in the world. While other storage mechanism exists, li-ion batteries are arguable the best in the market and will be for a long time.
Tesla is already a serious contender in that market (largest market share by far) both in terms of home and grid batteries. They already have all the software and electronics required, and already are in contact with utilities around the world.
People are very fast to claim 'bubble bubble bubble' but I would push people to seriously consider the market dynamics at play and how the transition EV and renewable energy will play out in the next 15 years. Tesla if you like them or not, is well positioned, in terms of EV, Grid Batteries and Solar installation, all of these will grow globally and exponentially over the next 10-15 years.
Market cap arguments lost me a lot of money. I wonder if there's just some flaw with this line of reasoning or I'm just unlucky and the market is too bubbly/irrational right now.
For example another weird stock is Snowflake, which is currently at 100B but they themselves claim their total addressable market size is only 70B. Ditto for airbnb and doordash.
To me market cap is as meaningful as GDP - it doesn't represent real value, just whatever the market is willing to pay for an infinitesimal amount of shares, but extrapolated to the whole stock.
10 or so years ago I was pretty bearish on Facebook and Apple, I was proved wrong.As I said in another thread, this is the big question for the next 10 years in the automotive industry.Will TSLA justify its market cap?
IMO car market is too strategic and well recognised so, so I doubt tesla will be very popular in EU for example. Their only way is premium market (ala Apple), probably same in China, so what's left is US and battery IP (which China will borrow)
The intuition is that Tesla cars are like iPhones. I think it's wrong. This is a low-margin business, where you increasingly compete with all of the goods and services people buy, like housing, education, healthcare. It's not a "buy a new phone for Christmas every 2 years" business.
People are on the phone all the time, so paying $200 more for an improved experience for several hours per day is justified. But paying $5k or $10k more for an improved experience for 1 or 2 hours per day? If you're rich, maybe. If not, why not move closer to your work instead, so you don't have to use the car? Why not take a longer vacation, or eat out every day, or retire earlier, or pay for your kid's college education?