That would be a massive hit at skeptics as Q3 is almost around the corner (I wasn't even expecting it to happen this year), but even being a fanboy myself I still doubt such bold statement.
1) Their losses are growing, not shrinking. From March 2017 to now, they lost $330M, $336M, $619M, $675M, and $785M. Maybe they hit a tipping point and there is an abrupt change, but it seems like the more natural trajectory would be for losses to become smaller and then turn into profits.
2) Tesla has said they'd be profitable before. https://www.reuters.com/article/us-tesla-results/tesla-expec...
Tesla is a really cool company, but it's hard to see a future where they justify their share price. Let's say that Tesla becomes the next Toyota 15 years from now. Toyota is only worth $213B. So, the kinda max value for Tesla is around 4x their current price. So, under really rosy conditions, Tesla appreciates at 12% per year over the next 15 years. That's not bad, but the likelihood that Tesla is the next Toyota is very small.
Let's say that Tesla is incredibly successful and becomes the next Volkswagen, Daimler, or BMW (the #2, 3, and 4 auto makers by market cap). They'd be a $106B, $85B, or $73B company. That doesn't leave much for price appreciation over their current $51B market cap.
Maybe Tesla can make a company that's way more profitable per vehicle and sell so many vehicles. But that's a bit of a moon-shot.
It seems more likely that Tesla will become a company like Subaru ($26B), Mazda ($8B), Nissan ($43B), Ford ($44B), Hyundai Motor ($40B), Fiat Chrysler ($34B), Renault ($32B), PSA Peugeot Citroën ($22B), Suzuki Motor ($26B), GM ($51B), or Honda ($60B). Those are all very successful auto companies. If Tesla becomes the next Mazda 15 years from now, that will be incredibly bad for investors. Basically, if Tesla doesn't become the next Toyota, it seems hard to believe Tesla won't underperform the market by a lot.
It's possible that Tesla will become the next Toyota, but unlikely. Comparing Tesla's market cap with that of most auto manufacturers makes you realize that investing in Tesla isn't just betting that Tesla will become a great volume car company like Mazda. They have to become the car company.
When investing, it's also important to note that money later is less valuable than money now and account for risk. Tesla is being priced like it's making $6B/year today and it's future is certain.
Beyond that, is the automotive industry long for this world? People are re-urbanizing and city traffic is only getting worse. Self-driving vehicles will mean that being driven unlimited places might fall to $50-100/mo which is significantly less than the $400+/mo of car payments, insurance, gas, parking, maintenance, etc. Why should I spend $631/mo for a $35,000 car plus insurance, gas, parking, maintenance when I can just get driven around for a fraction of that cost? Today, Uber's help is more limited since the human driver costs a lot of money per mile. If that future comes to pass, there will be a lot fewer cars manufactured and bought which limits Tesla's value.
If an autonomous car is serving 25 people a day, that's a lot fewer vehicles that need to be bought. World vehicle production is around 90M/year and Toyota and Volkswagen are 10M of that each. If the demand for vehicles falls to 4% of its current demand, that's only 3.6M vehicles per year. Even if Tesla makes 100% of those vehicles, they don't come close to being the next Toyota or Volkswagen. Even if an autonomous vehicle only serves 10 people a day, that cuts the vehicle market down to 9M. Even if an autonomous vehicle can only serve 4 people a day, that cuts the market to 22.5M. The future market for vehicles might be pretty small compared to the current one and so even if Tesla hits a Toyota or Volkswagen-like 10% of the market, it might not be a large market.
And self-driving services are likely to have stiff price competition. Unlike an Uber competitor that has the network effects of having drivers already signed up, it's relatively cheap to blanket a city with self-driving vehicles. $20,000/mo isn't a huge run rate to to buy 50 vehicles at $400/mo and that will let you place a vehicle within a short distance of everyone in a city like San Francisco (47 square miles). You could position them so that they're usually less than half a mile away to pick you up. $20,000/mo isn't a huge run rate to get your service started and you can buy more vehicles as you get riders. So, even if you think that Tesla might be that self-driving network and will make profits that way, I think it's more likely that the space will have a lot of competition that will push margins down. Waymo and GM/Cruze are well on their way. Nissan and Toyota are expecting to enter the game in a few years. Uber wants to be in this space.
It just seems like Tesla is more likely to become Mazda than Toyota and that the auto industry might be facing a large market-shrinking threat in self-driving cars. As such, it's hard (for me) to look at Tesla's market value and see the potential for a lot of appreciation over the long term. They're already worth more than most successful auto makers.
Yes, new car consumption will likely decline in the USA and Europe, but in the coming decades, more folks in China and India (and elsewhere) will enter the middle class and start demanding car services. In addition, as the cost of car services falls (due to self-driving), the quantity demanded will increase.
So I don't think the future market will be as small as you've projected. It might even increase.
Keep in mind how broad Tesla's vehicle goals are.
- World's fastest hypercar (by a VERY long margin) (new Roadster)
- Heavy duty transport trucks (Semi)
- luxury sedans (Model S)
- affordable smaller sedans (Model 3)
- luxury SUVs (Model X)
- affordable smaller SUVs (Model Y)
- possible pickup truck
If they do well on most of those, I think they really do have the chance to become the next Toyota, maybe even bigger.
- World's fastest hypercar (by a VERY long margin) (Bugatti Veyron)
- Heavy duty transport trucks (MAN/Scania)
- luxury sedans (Audi/Porsche)
- affordable smaller sedans (Golf/Passat/Skoda/Seat...)
- luxury SUVs (Porsche Cayenne/Audi Q7)
- affordable smaller SUVs (T-Roc/Skoda/Seat)
- possible pickup truck (Amarok)
One issue which I never see addressed is the established automaker liabilities (pensions & debt?)?
Is it possible that once you take these into consideration the TSLA is (slightly) less unrealistic ?
There is one future that I can imagine, in which Tesla is a wildly profitable buy today.
If the company is using the car business to bootstrap itself into a space manufacturing company. I honestly think that this is the only reasonable explanation for some of the weird decisions that Tesla is making on the production line - trying to get to full automation, for example.
Nokia was a $90b phone company in 2007. The best-case scenario for a new phone company could in 2007 be expressed as a topping out at Nokia's size (Toyota in your example), but it'd be a moonshot. It'd more likely be an Ericson or Motorola, whose phone divisions weren't half as big as Nokia's. So the best case scenario is $90b, and more likely to be around $30b. And that would've made sense, until you figure Apple drove a market cap approaching $900b, mostly on the basis of its phones, all within 10 years of 2007.
So there's something to be said about the possibility that Tesla doesn't just supplant Toyota to become the car company, but also redefining cars and the size of its market, just like with smartphones. I see some people making that bet. That having been said, I personally think the chance of that happening approaches zero. The points you make are very apt. Self-driving cars means we can increase utility rates of cars (which sit still for 90% of the day) from 10% to say 90%, and that will completely destroy sales volume.
Tesla is unlikely to take that margin or share of profit from the market.
I feel the bet on Tesla is Elon Musk. And I recognise there is a cult following but consider, how many people in the world have a better chance of opening a new multi-billion dollar category within their company from scratch? If you are going to be on someone, he's not a bad choice.
Now suppose that every hour of the rest of the day, there's only 10 people making a trip of 30 minutes. That means there's only 10% of the traffic volume compared to rushhour on the road. But you're seeing 22 hours of two groups of 10 people making a trip every hour. That's 440 trips.
Now suppose that the two groups of people, rush and non-rush, all used their own cars. You'd have 100 cars for the rushhour group and 440 cars in the non-rushhour group. You get to 540 cars needed.
Now suppose the two groups shared vehicles. You just need 100 cars still to make the same amount of trips.
Under these (made up) assumptions, you can reduce the amount of cars needed by 5x.
Then there's the notion that you can get dynamic pricing, e.g. look at Uber, but for semi-public transport. This incentivises people and companies to distribute their travel in a better manner, which also allows a system where producers of congestion pay for it. Thereby you can distribute load better, increase utilization, decrease the number of vehicles needed even further.
But indeed, you're unable to get to 100% utilization because demand fluctuates during the day. But even increasing it from 10% to 20%, or 30%, would introduce massive changes to the market size.
The skeptics should be saying, "what a coincidence that they project to achieve profitability _just_ before they go bankrupt."
He operates close to the edge intentionally. It's a risky strategy that could easily blow up in his face, but it has also paid off very well in the past.
If they somehow had a bunch of extra cash in the bank right now, you'd find Musk simultaneously pushing hard on, say, Model Y right now, too.
If you have resources, you should spend them. If you're flush with cash, you're losing.
Tesla needs to get very large if it's going to compete with GM, Ford, BMW, Mercedes, Toyota, etc. long term in EVs. They need a certain minimum scale to survive as a meaningful volume independent auto maker.
Though dilution has already been happening anyway. Just look at a graph of shares outstanding.
OTOH, GAAP because generally requires R&D to be expensed in the period incurred, Tesla may really be saying that R&D expenditures are expected to drop to near $0 in Q3 (R&D being their biggest non-operating expense). That should worry investors if that's really what's happening.
This is essentially saying "we don't expect to go insolvent". But no company would announce that they expect to go insolvent, so the statement is mostly meaningless.
Musk did just that. Which given this exact situation may come back to haunt him.
Doesn't Q3 happen every year?