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.
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.
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.
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!"
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.
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.
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.
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.
> 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".
> 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.
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.
> 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?
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.
Readit News
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?
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.
I think the evidence proves otherwise. It's the other automakers that have had no news.
1. They announced and are rapidly building a factory in China
2. They announced the Cybertruck, and are rapidly building a factory in Texas to build it.
3. They held "battery day" where they deep dived into how they're streamlining the production of cells to crack the $100/Kwh mark
4. Factory in China is now building over 20k vehicles/month.
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).
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.
1) If they win the self driving race that will be incredible value beyond just manufacturing cars.
2) Battery manufacturing in general is huge on its own.
3) The roof top combined with domestic battery side is potentially significant in replacing (full or part?) domestic power companies
4) Insurance - Musk said this could grow into 30-40% of their business
5) Super charger network gives them a first advantage to replace petrol stations to a degree.
6) Elon factor of what's next.
And dont get me wrong, I do feel its gone beyond reasonable value, but there is more than a car company there.
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.
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.
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.
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.
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.
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.
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.
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.
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.
[1] https://www.washingtonpost.com/technology/2020/10/21/tesla-s...
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.
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.
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https://www.investopedia.com/terms/m/marketcapitalization.as...
> doesn't take into account any other factors such as projections, profitability or debt
You seem to confuse a few things here.
Explain how Amazon could ever be worth more than zero for most of its existence, then?
Price of stock is largely dependent on people willing to buy it and sell it. When more people want to buy it, the stock price generally goes up.
Why do people want to buy more than sell? Generally, it's when they think the future price will be higher. Projections, sort of.
Similar to how Apple thinks of itself as a hardware company, but also created iOS/macOS to sell those hardware.
https://www.tesla.com/blog/master-plan-part-deux
In the coming years there will be so much competition in this space.
And then you have Elon snubbing California, one of the largest consumer markets in the space.
I'd short.
https://www.cnn.com/2020/12/04/investing/tesla-short-sellers...
And then you look at them as one of the few American brands absolutely killing it in China right now. Not as simple as it seems.
> I'd short.
Everyone who has done this so far as lost their shirt.
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.
¯\_(ツ)_/¯
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".
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.
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https://www.tesla.com/solarroof
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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.
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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.
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).
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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.
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.
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].
[0] https://www.statista.com/statistics/276506/change-in-us-car-...
[1] https://www.cfo.com/financial-performance/2020/11/gm-posts-4...
https://finance.yahoo.com/news/ford-motors-debt-overview-120...
Ford is at 142B net debt. So if you add the debt to the market cap, you get about 177B.
https://m.benzinga.com/article/16826282
GM is around 88B net debt. Add to market cap to get 148B.
Tesla is probably close to 0 net with the latest raise.
https://finance.yahoo.com/news/teslas-debt-overview-12061451...
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.
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.
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?
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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?
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
Is a very dangerous combination
Tesla car production (2020) about 600,000 (?)
So Tesla makes around 0.7% of the world's cars. Something is wrong here.
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.
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.
If that expectation holds, the current high price may be sustainable. If it becomes clear that it won’t, there will be a big sell-off
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.
2) Cars are just one thing in Tesla's portfolio. Both home and grid scale energy storage is another.
This is also true of other companies.
Honda also makes jets, watercraft, ATVs, aircraft, mountain bikes, lawn equipment, and solar cells.
Toyota also makes homes.