Going by its P/E, its still overpriced compared to every other car manufacture, but its getting back down to a rational level. Its only 6x Ford and GM and about 4x Toyota.
I always used to laugh when people would bring up battery tech and solar when talking about TSLA's absurd valuation, but I think it's starting to become more relevant as it approaches a more realistic market cap. It's still too high though.
I listened into the Twitter Space with Elon and some of his more bullish investors. There were three main pints that had them making Tesla more than a common car company.
1. Solar and Battery Tech
2. Entry into commercial trucking.
3. Bringing on their own Lithium refineries (IIRC the main thing constricting Lithium production isn’t extracting it’s Refining) that being said Elon said they were planning on bringing on their own refinery capacity in 2 years when the current lead time was generally 7.
Yeah, if it was 2x or 3x Ford, I'd consider it a stronger buy. I think the real test will not be its P/E, but how the other big car companies debut their EV and driver-assist (or driverless) tech. It just feels like Tesla is still the market leader in that tech. If someone else beats them at that game, it would not be good for their stock price.
But, conversely, if they stay on top, maybe that high valuation will stick around.
Their solar is shrinking/stagnating for years and it’s not a high margin business for a start - competition is brutal. It’s utility at the core - they always operate on razor thin margins.
For batteries, they still mostly just buy from suppliers.
Keep in mind that their PE is driven by heavily gutted R&D spending and inflated car prices. It’s not sustainable in the same way as their stock price wasn’t.
Could be another dotcom era Cisco, which still hasn’t regained it’s peak [1]. Cisco had the biggest market cap in the world for a while. Tesla could be an even worse investment if it ends up being just an overvalued car company. It also has the biggest ‘bus factor’ of any company in SP500 ie. if Musk quits/falls ill the price will likely dive severely.
> if Musk quits/falls ill the price will likely dive severely.
I could see this going either way. They won't come up with a wild world-changing idea without him, and you might lose some fanboy investors and employees, but a competent manager with auto industry experience would kill/spin off power wall and solar projects, scale back self-driving promises, and fix reliability issues. It'd be a better car company, but a worse dream company.
Maybe I missed it, but what I don’t see mentioned in the comments is the biggest change from four years ago: light at the end of the tunnel.
Four years ago Tesla was in the throes of model 3 production and had the potential of huge demand once they got going.
Where are things now? Other automakers have responded with alternatives. Good ones too, you can buy a Hyundai for a similar price and according to consumer reports, better reliability.
What’s on the horizon for Tesla? Trucks and Semis but those aren’t as mass market as model 3, and self driving cars have shown themselves to be… less than feasible.
The next step should be an affordable car (colloquially dubbed model 2). Also TM3 can go much lower with the price. Tesla has the highest margins of all automakers by far.
I didn't read the article, but please bear in mind that poor reputation of the primary luxury goods brand ambassador does not, usually, help the brand.
I find myself confused about the purpose of stock markets. How can we arrange our society around a system that is so massively irrational? A few years ago Tesla was worth as much as the rest of the car industry put together. Even if you believed Tesla was going to become a perfect monopoly, its valuation still would not have been justified. Now people are acting like the sky is falling when this pipsqueak manufacturer is still (supposedly) worth twice as much as Toyota.
The most spectacular failure I know of is the case of Twitter. We knew the value of the stock to the penny starting in April of last year, but for months it traded at over a 25% discount. Why do we pretend this system of price discovery works when it can't even discover a price that has been printed in newspapers?
Vouched for the comment. Not sure why it was flagged.
The rationality of the stock market reminds me of the Winston Churchhill quote: "Democracy is the worst form of government, except for all the others." The market is irrational, but it's based on the best information we have. Admittedly, that information is limited and sucks. Heck, it sucks even if you actually work at a company in question! Even the people there can't be sure what the stock price will do.
> We knew the value of the stock to the penny starting in April of last year, but for months it traded at over a 25% discount. Why do we pretend this system of price discovery works when it can't even discover a price that has been printed in newspapers?
The answer is clear: the market wasn't confident the sale would go through, for good reason. Musk even tried to back out until he was forced to go through with it. If I recall correctly, things started getting much closer to the sale price once it became clear it was more likely to go through.
Tesla isn't only a car company. They also have a lot of technology related to clean energy, along with the self driving technology they are creating.
The bull case isn't "Tesla becomes a monopoly in automobiles." The bull case is "Tesla becomes a car monopoly, monopolizes self driving, creates a great semi truck, has solar panels on half of the buildings in the US, and supplies battery technology to every clean energy producer globally."
Now, does that justify the valuation? Probably not. But it certainly raises the ceiling on Tesla's valuation. I don't think it's an apples to apples comparison between Tesla and other auto manufacturers.
The discount on Twitter stock is related to the likelihood of a deal closing, compared to the market's perceived value of Twitter stock were the deal to fall through. If you think there is a less than 100% chance of the deal closing, the only sensible thing to do would be to price that in.
Yeah the bull case would be something close to considering TSLA to be AMZN in 2006 or so launching AWS and taking advantage of first-mover advantage in the cloud space--only with clean energy and FSD.
If you believed that was a likely outcome then the insane valuations would seem not so insane, which is why it got bet up to those levels.
Because there was the specter of a protracted legal battle to close the Twitter acquisition and that risk (of both time and result) was priced into a 25% discount on the acquisition price. That’s why the stock bumped to 50 on the acquisition news and fell off as the deal became imperiled.
> The most spectacular failure I know of is the case of Twitter. We knew the value of the stock to the penny starting in April of last year, but for months it traded at over a 25% discount. Why do we pretend this system of price discovery works when it can't even discover a price that has been printed in newspapers?
The only point of buying Twitter stock is to sell it again later. If you know it'll sell months later at a specific price, then buying months earlier means tying up capital for a limited upside. Other investments have unlimited upsides, or at least pay dividends.
> > I find myself confused about the purpose of stock markets. How can we arrange our society around a system that is so massively irrational?
Is there any rationality in giving one man (POTUS) more power than all the other 320M citizens combined? Arguably more power than ALL the other humans combined.
What about Hollywood and the acting business? If you picked a random theatre actor would it really underperform Daniel Day Lewis so bad to warrant Lewis paycheck?
Power's Law governs each and every system, on top of that you have stuff such as virality and survivorship bias which are unique to human systems and further amplify Power's Law effects.
That's how you end up with people like POTUS and the Forbes 400, that's also how you end up with stuff like the valuation of Tesla
>Is there any rationality in giving one man (POTUS) more power than all the other 320M citizens combined? Arguably more power than ALL the other humans combined.
The argument here would be that running a country requires fast decisions. Putting that in the hands of millions wouldn't allow us to respond fast enough. The rational decision here is to choose a representative of the people, allowing that person to make decisions quickly and more efficiently than the entire population.
Its berfectly rational to trade speed for accuracy depending on the situation.
>What about Hollywood and the acting business? If you picked a random theatre actor would it really underperform Daniel Day Lewis so bad to warrant Lewis paycheck?
People have limited time. They don't choose movies based on a close analysis of the quality of a given movie; that would be an irrational use of effort on something that you'll only spend 2 hours watching. Instead, the rational thing to do is to use other proxies for "quality" or "enjoyment value."
One of those is to see which actors are in the movie. If you like a particular actor and know that there is a baseline level of quality, you are much more likely to choose that movie. This is a large part of the value that Daniel Day Lewis provides, justifying his paycheck.
Markets are irrational in the short term for sure, but very good allocators of capital long term.
re: Twitter
Price is just the last transaction to clear and the buyers can make that transaction for a million reasons, some of them betting that intrinsically the price doesn't reflect their value of the company. Seems fine to me. Wrong in the short term now looking back, but a million other things may have happened differently (TikTok could have been banned, Musk could have taken over differently, Macro trends could have reversed...etc)
> A few years ago Tesla was worth as much as the rest of the car industry put together. Even if you believed Tesla was going to become a perfect monopoly, its valuation still would not have been justified.
The bet is on Tesla doing more than regular cars. How much does the calculus change when people think it will eat the taxi/rideshare market, the solar market, the backup battery market, the charger market, and potentially robotics?
Tesla’s valuation is entirely based on investing in that vision. That’s why it’s notable that it’s precipitously collapsing. People are losing faith and it might just become a regular old car company.
> We knew the value of the stock to the penny starting in April of last year, but for months it traded at over a 25% discount
No you didn’t. You knew the closing price of an offer that the buyer was trying to back out of.
To an extent, it’s the worst system except for all the others; most people don’t think it’s a particularly good system, but, well, what’s your alternative?
RE the Twitter thing, you’re benefiting from hindsight a bit there. Musk almost immediately started trying to get out of the deal, and it was far from clear that he’d actually be forced to complete. It was quite reasonable that there’d be some price uncertainty.
> Nearly a third of used Teslas for sale in August were 2022 models up for resale, a sign that original buyers were aiming to flip, analysts said. That compares with about 5% of other brands on the used market, research firm Edmunds said.
I guess this doesn't impact overall demand, but does push up prices. And feeds the frenzy.
Funny enough I think it's actually undervalued now. Tesla has bought up all the mining rights for the minerals required to ramp up battery production and will likely be the only EV manufacturer that's not supply constrained for the next decade.
I'm still not bought in yet, probably a lot more room for it to crater.
I don't really believe this narrative. Mineral rights are so easily effected by geopolitics the "rights" they have brought could easily be worthless in two years time.
I'm also unconvinced that we should be 100% in on only lithium for BEVs, it's important to have multiple technologies.
Just look as traditional ICE cars, we have Petrol and Diesel. I see Lithium as the Petrol of BEVs, what's the Diesel going to be?
Might be actually, I didn't actually look at the DCF. Just eyeballing their PE and their growth didn't make it attractive enough to me. I feel like it should be abundantly clear.
Same. but not for the reason of mining rights. They definitely have long term contracts for their own production secured but are a long ways from cornering that market.
I think the energy side of their business is about to grow tremendously and they'll reduce profit margin and continue growing crazy fast on the auto side.
Readit News
1. Solar and Battery Tech 2. Entry into commercial trucking. 3. Bringing on their own Lithium refineries (IIRC the main thing constricting Lithium production isn’t extracting it’s Refining) that being said Elon said they were planning on bringing on their own refinery capacity in 2 years when the current lead time was generally 7.
Personally not buying any of those.
But, conversely, if they stay on top, maybe that high valuation will stick around.
For batteries, they still mostly just buy from suppliers.
[1] https://finance.yahoo.com/news/heres-much-investing-1-000-12...
I could see this going either way. They won't come up with a wild world-changing idea without him, and you might lose some fanboy investors and employees, but a competent manager with auto industry experience would kill/spin off power wall and solar projects, scale back self-driving promises, and fix reliability issues. It'd be a better car company, but a worse dream company.
Four years ago Tesla was in the throes of model 3 production and had the potential of huge demand once they got going.
Where are things now? Other automakers have responded with alternatives. Good ones too, you can buy a Hyundai for a similar price and according to consumer reports, better reliability.
What’s on the horizon for Tesla? Trucks and Semis but those aren’t as mass market as model 3, and self driving cars have shown themselves to be… less than feasible.
What an absurd statement. Tesla's is ~30%, which is high but not too far off from the ~20% of Toyota and the Germans (VW, Audi, BMW, Mercedes).
But that's ignoring Porsche with ~85%.
I keep seeing this repeated, but I've yet to find a car that can compete in price and range, let alone price, range and features.
The most spectacular failure I know of is the case of Twitter. We knew the value of the stock to the penny starting in April of last year, but for months it traded at over a 25% discount. Why do we pretend this system of price discovery works when it can't even discover a price that has been printed in newspapers?
The rationality of the stock market reminds me of the Winston Churchhill quote: "Democracy is the worst form of government, except for all the others." The market is irrational, but it's based on the best information we have. Admittedly, that information is limited and sucks. Heck, it sucks even if you actually work at a company in question! Even the people there can't be sure what the stock price will do.
> We knew the value of the stock to the penny starting in April of last year, but for months it traded at over a 25% discount. Why do we pretend this system of price discovery works when it can't even discover a price that has been printed in newspapers?
The answer is clear: the market wasn't confident the sale would go through, for good reason. Musk even tried to back out until he was forced to go through with it. If I recall correctly, things started getting much closer to the sale price once it became clear it was more likely to go through.
Deleted Comment
The bull case isn't "Tesla becomes a monopoly in automobiles." The bull case is "Tesla becomes a car monopoly, monopolizes self driving, creates a great semi truck, has solar panels on half of the buildings in the US, and supplies battery technology to every clean energy producer globally."
Now, does that justify the valuation? Probably not. But it certainly raises the ceiling on Tesla's valuation. I don't think it's an apples to apples comparison between Tesla and other auto manufacturers.
The discount on Twitter stock is related to the likelihood of a deal closing, compared to the market's perceived value of Twitter stock were the deal to fall through. If you think there is a less than 100% chance of the deal closing, the only sensible thing to do would be to price that in.
If you believed that was a likely outcome then the insane valuations would seem not so insane, which is why it got bet up to those levels.
The only point of buying Twitter stock is to sell it again later. If you know it'll sell months later at a specific price, then buying months earlier means tying up capital for a limited upside. Other investments have unlimited upsides, or at least pay dividends.
Is there any rationality in giving one man (POTUS) more power than all the other 320M citizens combined? Arguably more power than ALL the other humans combined.
What about Hollywood and the acting business? If you picked a random theatre actor would it really underperform Daniel Day Lewis so bad to warrant Lewis paycheck?
Power's Law governs each and every system, on top of that you have stuff such as virality and survivorship bias which are unique to human systems and further amplify Power's Law effects.
That's how you end up with people like POTUS and the Forbes 400, that's also how you end up with stuff like the valuation of Tesla
The argument here would be that running a country requires fast decisions. Putting that in the hands of millions wouldn't allow us to respond fast enough. The rational decision here is to choose a representative of the people, allowing that person to make decisions quickly and more efficiently than the entire population.
Its berfectly rational to trade speed for accuracy depending on the situation.
>What about Hollywood and the acting business? If you picked a random theatre actor would it really underperform Daniel Day Lewis so bad to warrant Lewis paycheck?
People have limited time. They don't choose movies based on a close analysis of the quality of a given movie; that would be an irrational use of effort on something that you'll only spend 2 hours watching. Instead, the rational thing to do is to use other proxies for "quality" or "enjoyment value."
One of those is to see which actors are in the movie. If you like a particular actor and know that there is a baseline level of quality, you are much more likely to choose that movie. This is a large part of the value that Daniel Day Lewis provides, justifying his paycheck.
re: Twitter Price is just the last transaction to clear and the buyers can make that transaction for a million reasons, some of them betting that intrinsically the price doesn't reflect their value of the company. Seems fine to me. Wrong in the short term now looking back, but a million other things may have happened differently (TikTok could have been banned, Musk could have taken over differently, Macro trends could have reversed...etc)
The bet is on Tesla doing more than regular cars. How much does the calculus change when people think it will eat the taxi/rideshare market, the solar market, the backup battery market, the charger market, and potentially robotics?
Tesla’s valuation is entirely based on investing in that vision. That’s why it’s notable that it’s precipitously collapsing. People are losing faith and it might just become a regular old car company.
> We knew the value of the stock to the penny starting in April of last year, but for months it traded at over a 25% discount
No you didn’t. You knew the closing price of an offer that the buyer was trying to back out of.
RE the Twitter thing, you’re benefiting from hindsight a bit there. Musk almost immediately started trying to get out of the deal, and it was far from clear that he’d actually be forced to complete. It was quite reasonable that there’d be some price uncertainty.
Dead Comment
$TSLA down 70%. Elon: "unfavorable market conditions"
Tesla, is growing, has leading margin, made 3 billion $ last quarter.
Totally comparable.
Wait for Lucid’s Model 3
https://www.reuters.com/business/autos-transportation/tesla-...
> Nearly a third of used Teslas for sale in August were 2022 models up for resale, a sign that original buyers were aiming to flip, analysts said. That compares with about 5% of other brands on the used market, research firm Edmunds said.
I guess this doesn't impact overall demand, but does push up prices. And feeds the frenzy.
I'm still not bought in yet, probably a lot more room for it to crater.
I'm also unconvinced that we should be 100% in on only lithium for BEVs, it's important to have multiple technologies.
Just look as traditional ICE cars, we have Petrol and Diesel. I see Lithium as the Petrol of BEVs, what's the Diesel going to be?
Ok, since it didn't make the news, I'm completely on the dark here... but are you talking about the supply of lithium?
If so, I have some news to you about one of the most common metals on Earth's surface.
I think the energy side of their business is about to grow tremendously and they'll reduce profit margin and continue growing crazy fast on the auto side.
Source?
AMZN P/E: 75
MCD P/E: 34