Tesla races past $100B in market valuation
reuters.com
reuters.com
I can see some automakers matching them on hardware, but they have a huge lead in software. Traditional car manufacturers update software at a glacial pace and, aside from Mercedes' recent voice control system, I haven't seen anything come close.
Also, Musk is right: no one else has even come close to matching the 2012 Model S. Tesla's lead is starting to look unassailable (in the medium term).
Not to mention their foothold in China, which can only get stronger with the introduction of a Chinese-designed model.
[1] https://cleantechnica.com/2019/01/09/tesla-has-the-highest-c...
Here's what I mean: Apple has always been about bringing computing to the masses. What happens with one person and one computer is Transformational (was never done before, changes society), Platformable (random people build on top of your core product: raw computation, frameworks, etc.), and Valuable to the end user (I now can communicate high bitrate, FaceTime, and low bit rate, twitter, messages real-time, all the time).
Placing Tesla in that same bin doesn't necessarily check the boxes. Tesla's product is personal transportation, and when you look at the three categories above, Tesla is not in the Apple echelon. Tansformational: the Model T was the first and we now have a 5 day work week because of it. Platformable: you can't build directly on top of the driving experience, only entertainment purposes. Consolation: Robotaxi's could allow such platformable-like characteristics - however, the robotaxi platform is discounted as it is not mass platformable as having a Mac, learning Swift, then publishing to millions. Valuable: Tesla's value is in 'a faster horse'... except we call it a 'self-driving car'. Transportation time will not significantly decrease just because the car drives itself. Sure, a faster horse would have been really loved because it was faster (i.e. I no longer have the stress of driving), but when it comes down to it... the core value of transportation is A-B.
The iPhone level change to me is coming with Flying Taxis. The platform side is still out - but as far as transformational and valuable - I see no greater impact on the 2020's than these flying machines.
Self-driving cars mean you can get rid of on-street parking, freeing up a lot of travel lanes. They will speed up driving, since they have better reaction times and can communicate with each other to travel more closely. The time you do spend in a car can be more productive, effectively opening up whole new hours of your life. You can use them to move children around without having to drive them, opening up new educational opportunities. Ultimately tens of thousands of lives per year will be saved: humans are terrible drivers.
I don't really know what it will be like: transformational change is always unpredictable. Our entire physical infrastructure is built around driving, both in the cities and elsewhere, and changing the way we relate to our cars can radically alter the way we construct our lives. Maybe nothing will happen, but it's worth considering that this is a real technology that is getting very close and has enormous potential far beyond the "faster horse".
From a software and sophistication perspective, Autopilot is a more advanced system that improves over time. It uses Machine Learning and other advanced techniques to read the road and comprehend it in a way that Super Cruise does not. It does not have the operational limitations that Super Cruise does.
Functionally Super Cruise works well, it's debatable if it performs better. Most reviews I've read of the two systems, from 2 years ago, found them to be functionally comparable at the time. The primary difference is that it Super Cruise is more akin to a flip phone with fixed functionality that won't grow over time, AutoPilot is more like a smartphone that is updated overtime to expand it's capability.
How so?
Super Cruise requires that the car's forward collision avoidance, and adaptive cruise control technologies be enabled. It utilizes pre-scanned high precision LIDAR and GPS derived maps that limit where it can travel, and is 100% reliant on GPS to maintain it's lane.
It cannot change lanes or steer around navigate traffic. It won't function in exit lanes. It won't function in tunnels. It can't navigate exchanges. It doesn't work in adverse weather conditions where GPS is spotty.
The built-in safety technologies keep it from colliding with other vehicles, and the GPS/Maps keep it in it's lane. It functions like a slot car and can't deviate from it's slot. It's not a sophisticated AND that's not necessarily a bad thing.
> it gets updates at a dealership instead of over the air.
That might be true of the software but Super Cruise receives updated Map data at least quarterly via OTA updates from the On-Star system.
> both appear to use ML.
The most sophisticated part of the system is the camera that monitors the driver to determine if they're paying attention. I suppose that could be using ML but that's arguably the least important part of the system.
In comparison, Tesla's Autopilot is sophisticated. It can function without GPS. It can suggest lane changes by observing traffic. It can navigate interchanges and construction. It recognizes and classifies objects then reacts accordingly.
Does all of that sophistication in Tesla's system perform better? Eh... it's debatable. But it's definitely more sophisticated and is absolutely doing more advanced things than Super Cruise.
As far as I am aware, none of the Tesla, even in perfect form, are as well built as any of the state of the art luxury cars. Compared to Apple, despite all its criticism and flaws, still has some of the best built Smartphones, Laptops, Desktops and Tablet in the industry.
Not entirely sure about Software, If it is internal uses, I would argue the biggest competitor to the Software system isn't from car manufacturers, but from either Google or Apple's CarPlay.
For something like Autopilot? Other Cars manufacturers have had similar system that is on par with Tesla if not better.
So apart from Charging station, which so far no government nor its competitors has managed to built any decent alternative. Tesla doesn't seems anything Apple like, it doesn't have a moat around it.
Are you just regurgitating stuff you read/watched, or have you actually owned other "state of the art luxury cars." and a Model S or 3 for example. To do a fair and objective comparison?
Also, Tesla is more positioned and priced at the Premium segment. Sure a Model S is not as luxurious as a Mercedes S-Class for example. But it lags in driver assist and safety functions by a long shot.
I totally agree that Tesla’s software chops are light years ahead.
When the EU settled on Combo 2, Tesla started shipping Model 3s with it as well as updating Superchargers.
The US market is a very different environment than Europe and still hasn't adopted a common standard. The 2020 Nissan Leaf ships with J1772 and CHAdeMO options which are incompatible with the CCS Combo 1 other automakers are shipping. That means a charging station needs to have at least 2 different connectors, 3 if it wants to offer the fastest possible charging because while J1772 chargers are compatible with CCS equipped cars, CCS Chargers are not backward compatible with J1772 vehicles.
Tesla owners are not locked into Superchargers and are able to charge at other chargers via adapters. All Teslas in the US come with a J1772 adapter, and you can purchase a CHAdeMO adapter.
Superchargers are also generally located along highways to facilitate long road trips, something most other EVs are incapable of even if the infrastructure existed.
Tesla sold more EVs in the US in 2019 than all other auto manufacturers combined. The next two best selling EVs (Leaf and Bolt) don't even share a common connector. Building out a charging network that's compatible with other EVs would only serve to benefit their competition. As it stands the Supercharger is a nonbinding value add for any Tesla owner.
It looks like the company as a whole averages a ~40% gross margin [1]. Tesla's appears to be closer to ~15%, with many highly negative quarters [2].
Of course, net income to revenue is probably more important to look at in this case. Apple's is consistently above ~20%. Tesla's has mostly been negative, and the highest it's ever been is around ~2%.
Tesla would need to sell roughly 10 times as many cars at the same margin to meet Toyota/Volkswagen/GM valuations. If Tesla were based on it's current financials, it would be valued at $5-$10Bn. It wouldn't be valued at $100Bn now if people thought it could be reasonably valued at $100Bn in the future. People must think it could reasonably be valued at $1T in 10 years.
For that to be true, Tesla would need to be selling 200% of cars on the planet. A lot of people think car sales have peaked. It's possible in 10 years there will be less cars sold. It's highly improbable there will be twice as many cars sold, and that all of them will belong to Tesla.
A 30% COGS is a benchmark for most hardware products and how much you can invest in software depends on how expensive your product is and how many you sell. Since Apple sells a lot at a premium price point, they've got a lot more room in their budget for software R&D. Capital equipment like cars, machinery, power plants, etc are a whole different beast however.
OTOH, if they were able to get margins back to 25%, these valuations would start to look a lot less crazy.
If you are not handy, it requires hiring an electrician to make the change (~$100-500)
This is the only thing that remotely justifies their current valuation.
If you expect them to crush it in China + monetize their install base via creating an app platform for 3rd party apps + get to self-driving.
People forget that EVs are going to likely be on the road a lot longer than ICEVs, due to lower wear-and-tear. Past battery capacity degradation, there isn't much to break.
People always say this, but I'm a bit skeptical. I own a 13 year-old Toyota with 200k+ miles on it, and the things that break are more like suspension parts, wheel bearings, etc. I think drivetrains are pretty reliable at this point.
The vast majority of people take a picture with the standard camera app and never look at the pictures again. You don’t need a non-native app for that.
This is kinda sorta true, if you ignore non-performance factors, but also no one actually needs what Model S provides. In the classic setup for disruption Tesla isn't the disruptor, it's the established "high quality use" getting disrupted. It is not very unreasonable to expect the growing "good enough" products in China to claim much of the world's car market.
A lot of other competitors will make android devices that are similar and eventually get a large market share, but the iPhone still dominates the higher end with better margins.
It is also slower and perceived as less attractive. Due to poor marketing, I suspect most perceive it to be much slower, rather than just somewhat slower.
It sells really poorly. Most of these other competitors are going to run into the same fate for years.
I considered the Bolt to replace my Honda Fit. I was on my second (first leased, second purchased) Chevy Spark EV. I'm committed to electric driving and I like small hatchbacks and have had a great experience with the Spark EV. The looks didn't bother me and I didn't want to spend a lot on a car either. I'm basically the perfect Bolt customer.
And yet, I every time I drive past a Bolt in my Model 3, I glad that I didn't make that mistake.
They also ran those absurd car commercials for the last decade or so about "real people, not actors" which were spoofed so well on YouTube that I think they actually damaged their brand.
But if we assume that, the question for investors is "will it dominate the high end with better margins like iPhone does, or will it dominate the high end with better margins like Porsche does?" Only one of those outcomes justifies a $100B valuation.
Model S will always be a tiny market. How close are competitors to Model 3?
What happens when Tesla employees burn out on Tesla corp and go working for competitors?
I worked at Kodak at a critical point, and watched (from inside) the dynamics of why the photography juggernaut was utterly unable to pivot from "chemical consumables" to "computing capital" as primary products. A major barrier was the absolute dependency on third parties for distribution (drugstores being primary retail sales, leveraging the "buy film, return film, get prints" model for their own sales); Kodak could not perform the pivot without alienating those necessary to fund the pivot ("don't go digital, or we'll stop selling your products"). Result: small agile digital camera companies outmaneuvered the juggernaut.
Similar with EVs. Major ICE companies can't pivot to EVs in time, because third parties involved in ICE cash flow will cut off vital funding before the pivot completes. Tesla even offered Supercharger Network access to major ICE manufacturers, who said no - meaning the latter are still beholden to the gasoline infrastructure, there being no viable rapid-charge network in place where Tesla has already completed majority coverage. (I'm not sure quite how the economics will play out, but they will.)
I think I'd generally agree with that sentiment, there's certainly a fair amount of people who are buying into the zero emissions dream that Elon is selling and purchasing their vehicles (at least in part) to bring that dream closer to reality. I can't imagine many Ford customers buying into the "Ford future" but I see it with Tesla.
The Nissan Leaf came out and was way ahead of everyone but nobody bought it because they couldn't find it. The dealers would hide the car in the back and avoid showing it to you. There was no incentive for them to get you in a Nissan Leaf because they would make profits, negligible ones, on the sale but the place they make their money is maintenance and that would deplete their profits.
The issue with this is the dealerships aren't owned by the organization so the incentives aren't aligned. If GM/Ford/Toyota create the best EV the dealer won't have any incentive to sell them until unless they make up significant profits, which means they would have to make up 5-7 years of maintenance profits on the initial sale. In essence they will just sell their land and move on and have to take a loss. The smart dealers sold their stake in the dealerships and now the suckers are holding onto the last bit hoping to get out.
The dealerships we have now Ford/GM/Chrysler/Toyota/Volkswagen/Nissan are all going to disappear, that's why their valuation is justified. The only competitors are going to be the new car companies because they will adopt the same model Tesla has where they own their own dealerships. It's why the current Auto companies and dealers are lobbying to not allow Tesla to own their own dealership.
The general form of your argument is correct, however existing automobile companies aren't all wedded to their dealer networks. Volvo (which is now owned by Geely in China) took their Polestar performance brand and launched an entire automobile brand a few years ago.
They now have a Polestar 1 performance hybrid coupe, and are taking orders for their Polestar 2 small sedan that will compete with the Tesla Model 3.
And when I say, "taking orders," I mean over the web. You cannot buy or lease a Polestar automobile in a Volvo dealership.
I think Tesla has a lot of technical advantages that throw up barriers to competition from existing manufacturers, and there is no doubt that from a management perspective, these companies are their own worse enemy.
But the dealer network thing I think is a much weaker moat than it appears at first glance. I think it's a lot easier for an existing company to sell cars direct--possibly under a new marque--than it may seem.
There are problems of institutional inertia and lobbying and so on to overcome, but for some manufacturers, like Volvo, selling cars without a dealership just happened, without fanfare.
Are they a "new car company?" I don't think it matters that the cars they sell online are called "Polestar," and the ones in their dealership are called "Volvo."
How does this not sound like "working around the dealership model that is engrained in traditional auto manufacturers"? It also brings up the point - how will their existing dealer network react when they get replaced by web sales (like some Office episode)?
Telsa has none of that baggage.
They haven't staged a mass protest, I am unaware of any lawsuits. I do not believe that Volvo dealers here in Canada are lobbying for it to be illegal for the Polestar vehicle to be sold in Canada.
I can't saw what goes on south of the 49th parallel, but what I can say is that from what I have observed, if Volvo has dealership baggage, that baggage is lightweight and compliant.
Which is my point. There may be baggage, but it might not be the encumbrance that we have speculated about. That may be uneven: Perhaps the "Big Three" have an albatross and an anvil around their necks, while (relatively) smaller brands can be more nimble.
Recall that the comment I replied to said that other companies can't catch them. I doubt Volvo will catch Tesla, but Geely certainly could, and clearly not all companies are following Nissan and BMW's example: Volvo did not launch Polestar in their existing dealerships.
p.s. That being said, Volvo just announced the XC40 P8, which is a "pure electric" model, so they are having it both ways: You can buy an electric car from Polestar, over the internet, or buy an electric Volvo from a dealer.
Is that a superior strategy? I doubt it, but it is a way to harvest revenue from "legacy customers" that want to do business with a dealership they can touch and feel.
Will Volvo "beat Tesla?" I doubt it. They might not be able to, and for that matter, I doubt Geely even want to try. They have a portfolio of brands, and each one has its place in their strategy.
All I'm saying is that I don't think the dealer network is the thing that will ensure Tesla's victory. At the moment, I think it's their supercharger network, their technology around range, and their brand cachet.
More like they simply want to remain the parasitic middleman. In practice, no one needs dealerships to begin with these days. They fight through corruption, because they are already obsolete.
In contrast, Tesla's low-maintenance high-mileage design means Tesla need not worry much about parts & repair at all, and focus on simply selling new cars. People will get rid of cars not so much because of repair issues, but because they're bored of it after 1-2 decades.
[0] - I'm now suffering from inability to find a replacement computer for my SUV. Car is mostly fine, but extreme limited availability of even used components means it has been in the shop for over a month, and may have to be sold for parts for want of one.
The stock is mostly about anticipation about the future. Tesla has hit all of its stated goals from 2009. Elon's other venture, SpaceX has also hit most of its stated goals or is on track to hit them.
These are world-changing goals, not your normal everyday corporate goals. Elon has proven he can hit them. The goals set out for the next 10 years are also incredible goals, which should set the company up to be a trillion dollar market cap if the goals are reached.
The issue with that is that GP is arguing that this stock's investors continue to behave irrationally. There is no reason to believe they are going to suddenly behave rationally. Thus, a short position is inadvisable. If you are a value investor, the right thing to do is to just not invest in it.
To quote John Maynard Keynes, “The market can stay irrational longer than you can stay solvent"
Can we stop pretending that any part of the market behaves rationnally?
Investors buy a stock because they think there will be someone else to buy it from them at a higher price later, that's it, they don't look further.
Everyone was already complaining about this when $TSLA was at 50$ a share...
Every time this discussion happens, people trot out the quote about markets staying irrational longer than you staying solvent. This quote is only ever relevant if you're leveraged, or if you're at risk of someone else forcing you to exit your short position. If you're an individual investor with a 20 year time horizon, shorting a stock with less than 5% of your portfolio, you don't have to worry about either. You absolutely can stay solvent longer than the market can stay irrational.
The real reason people don't go shorting TSLA nearly as much as you would think, is because Tesla's future isn't nearly close to a foregone conclusion. It's a lot more fun to make bold predictions with absolute confidence when you don't have anything to lose.
Do you understand how shorting works? If you had shorted $10k of TSLA stock in May you would have lost $23k by now (it's not just a paper loss, you have to post collateral to avoid liquidation). And you also have to pay to borrow the stock you're shorting, so even if you don't face a margin call time goes against you.
Edit: By the way, if you had opened in May a short position in TSLA that represented 5% of your portfolio it would be 15% of your portfolio now. That's another problem of shorts: as they move against you they get bigger and at some point you may want to worry.
I'm not sure how you got your conclusion out of what I said.
Apparently, non-Tesla EVs are having trouble selling for precisely that reason. Dealers expect to sell the cars with only modest profit, but make revenue on maintenance. EVs require less maintenance, and so the dealers don't feature them.
That's yet another reason Tesla vehicles are good value, and if they can capture a major piece of the $4 trillion yearly car market[1], that makes a $100B valuation seem quite reasonable -- even without a dime of service revenue.
[1] https://www.ibisworld.com/global/market-research-reports/glo...
I think it is insane that Tesla is worth so much. But shorting stocks is not part of the asset allocation that meets my long term goals and needs. I can certainly believe something without wanting to bet on it.
That's a fraction of what a regular ICE car brings in. Unless you include a battery swap an EV is unlikely to be able to command the same maintenance costs over its lifetime. That's actually one of the big pro-EV arguments, isn't it?
And having exclusivity on service revenue doesn't necessarily have to work in their favor if the network of garages is not extensive enough. People also want convenience and if you're locked in to a service network that can't deliver it you may only do it until the next purchase. There's only so much exclusivity you can impose until the market starts to reject you locking them in or you cross a legal boundary (think "right to repair" type discussions).
I think the valuation is based on the expectation that the trend continues, Tesla will stay market leader for EVs. If that's the case and they maintain or expand their lead as the market grows than the current valuation might even be too small. If not it will probably stabilize somewhere lower, just like any other car manufacturer not at the top today.
Tesla has done better than expected with the Model 3 despite overpromising a lot and missing a lot of targets. Actually just last year Elon said he was leasing model 3's now to buy them back for a fleet of robotaxis that will start this year (LOL). But he has the hype and people's attention. It is just hard to time when that cycle will collapse.
https://www.reuters.com/article/us-volkswagen-idUSTRE49R3I92...
have they published pre-orders numbers ? I thought it was pretty much a PR stunt without any real product line behind.
There are over 250,000 pre-orders, but for just $100. Many of those are aspirational and won't actually turn into orders, but it demonstrates that a lot of people are interested enough to put money on the line, and many more people are interested but not willing to reserve a spot in line. Since it will take quite some time for them to produce 250,000 Cybertrucks, the pre-orders suffice to suggest that they can sell pretty much all they can produce for the first few years at least.
Out of the 6434 stock mentions in the last 24 hours ~10% of that is about TSLA and that's up 45% since yesterday.
Heres a bubble graph of the most mentioned equities over the last 7 days (as of yesterday) on /r/wallstreetbets. ignore F and C, still working on the filter :)
https://preview.redd.it/22mrpbh3g5c41.png?width=985&format=p...
Ps - we're doing our Show HN right now, feel free to come by and say hi :) https://news.ycombinator.com/item?id=22109610
Observed short interest over total outstanding seems like the kind of thing an algorithm could target, as it makes the stock more sensitive to moves, no?
Tesla is a battle of narratives and WSB are the specs looking to start or jump on a stock meme.
~10% of the chatter around TSLA in last 24 hours has the word "short" in it :)
It’s the story we have mostly seen before. Software adds a new dimension to existing solutions and decimates the competitors, because they can’t compete in that dimension.
Maybe other companies couldn't even roll out that feature to their chargers in a week. But they could duplicate the effect with, say, one employee and a spreadsheet.
From my perspective, Tesla has now gained long-term credibility, so we may well be on the cusp of seeing much broader adoption by a mass of non-early adopters, i.e., people like me, who evaluate buying a Tesla the same way we would evaluate buying any other car brand. We judge the purchase on "boring" criteria like long-term quality, everyday reliability, real-world practicality, service delivery, overall reputation, interior features, exterior design, resale value, etc.
The stock market appears to be pricing this kind of broader-mass-adoption scenario.
The Tesla Reddit forums is also filled with many owners who share the same sentiment.
Imagine if every petrol pump was tied to specific makes of cars?
Any current vendor lock-in of charging is surely at risk at being legislated away, by insisting that EV charging is done through a standard port like refueling petrol/diesel vehicles.
If governments were serious about electric vehicles as a way of improving air quality they would legislate that already.
"Tesla is aware of these problems. CEO Elon Musk first floated the idea of sharing its Supercharger network in 2015, but with only a few hundred Superchargers operating at the time, the proposals did not gain any momentum."
"Tesla’s chief technology officer JB Straubel has strongly suggested that plans are now underway. He said to Electrek: ‘For things like Supercharger, we are actively talking to other carmakers and we are trying to figure out a structure to work with them.’"
From: https://autovistagroup.com/news-and-insights/tesla-points-op...
But instead of doing that, other manufacturers designed much inferior alternatives that are a UI/Customer experience nightmare to use.
Tesla Supercharger:
1. You pull up.
2. get out of the car.
3. Plug-in the cable and charge.
It's that simple and intuitive. You get billed from your Tesla account. Because the transaction is tied to your VIN.
Other EV/High Speed charging:
1. You pull up.
2. Get out of the car.
3. Figure out how to use the menu.
4. Grab your wallet to either pay via card or RFID.
5. Pay and cross your finger it works.
5. Finally you can charge.
At least in the EU I'm 99% sure that the EU will mandate (if it hasn't already) a standard charging interface. Don't know about the US, it's a bit like the Wild West in this regard...
Isn't that an _exceptionally_ dangerous vector?
OR
Make every car on a particular road at a particular time, hit full speed and hit a particular target.
Cars are like crap missiles so making them potentially exploitable is a bit risky.
Tesla also offer pretty good bounties every year on PWN2OWN:
https://www.zdnet.com/article/tesla-car-hacked-at-pwn2own-co...
https://www.thezdi.com/blog/2020/1/8/pwn2own-returns-to-vanc...
The potential impact of an exploited zero day in this context has the potential to be immense and that's the risk that troubles me.
If evs are truly the future then homes and apartments will have charging.
1) Via their customers, they have access to a massive trove of of nuanced, real-world driving data needed to train their models. No other competitor has that much data.
2) They're willing to ship. They're willing to put features in front of customers, even before they are fully baked. They will learn so much more quickly approaching the problem this way.
The only things that could stop them are legislation or a flurry of lawsuits if they get too reckless with releases.
But it won't be the tech issues - Tesla is full-throttle and solving edge cases at a rapid pace.
For VWAGY, the ratio is about 1: $240B of sales and $260B EV. For Tesla, the ratio is about 4.5: $24B of sales and $108B EV.
4.5 is not a massive number for this ratio. It indicates the market expects growth, but not hit-it-out-of-the-park growth.
1 is a relatively small number; the market is expecting Volkswagen to shrink slightly.
a) hype. stock market actually like a beauty contest[0] where what matters is other's perceptions. it's a secondary market. a lot of investors, both sophisticated and not, think tesla is beautiful.
b) expectations of future technology. Cruise just announced a self-driving taxi initiative. If you think tesla has as-good or better tech, you might now think they have access to that finally manifesting market. Better unit economics than for human car sales.
c) track record of meeting/beating expectations. By now tesla has outlived the shorts. Beyond shedding off many of the shorts that were exerting downward pressure on price, elon musk's mantra of "innovation as his competitive moat" has outlived the doubters among traditional investors. Large public equity investors originally were very skeptical of that fuzzy idea of a moat, especially considering stunts like when Elon released a lot of the electric driving patents for free (!). But a decade later, nothing else on the market has come close to Tesla's product despite several also-ran attempts.
It may also help to know that SpaceX is doing well, and Elon has shown willingness to personally bail out his companies during moments of trouble. This decreases downside risk.
[0] keynes' famous essay https://en.wikipedia.org/wiki/Keynesian_beauty_contest
I expect them to fall short of that model in auto sales, but I expect mobility services and stationary storage to make up the difference.
Either way there’s plenty of headroom in that equation for more conservative models that still yield a $100B valuation. E.g. 2000 * .08 * .1 = $16B annual profit which is reasonable for $100B mkt cap.
Nissan's leaf is a solid car but with the recent departure of Ghosn the future is in doubt. Many of the American auto makers are still focused on squeezing as much as they can from SUVs and don't inspire confidence that they will be able to produce a quality vehicle to threaten Tesla's potential customer base.
The limited (read luxury) SKUs, word of mouth, and differentiated software give Tesla a distinct advantage over traditional autos. In the past it was viable to worry about execution but with the new gigafactory and China expansion underway , coupled with recent sales figures it's difficult to bet against them.
But you're completely ignoring their solar panel and battery production business. Those two things on their own will make them a powerhouse in the upcoming renewable energy industry. Solar panels on residential homes with batteries for storage/backup + utility level solar fields with utility level battery arrays = a massive business on its own.
People make the mistake of comparing them to GM or Ford, when in reality they're the equivalent of General Motors + General Electric.
The real question is why is VWAGY valued so poorly? A $100B market cap for a company with $240B in annual sales means the market is quite pessimistic about VW.
A $100B market cap for a fast-growing company with ~$0 profit is definitely not "on the cheap side".
But I agree that a $100B market cap for a company with ~$13B in profit is quite pessimistic. VW's future is cloudy.
Tesla may or may not be another Amazon, but revenue is the best heuristic we have for any company investing so much into growth. It's not a great heuristic, but it's the best we have.
- Manufacturing scale is enormous, with vast supply chains and deeply ingrained middlemen & unions locking in prices.
- Sales is via local monopolies(-ish) which dictate what models & variants of a few brands are available & manufactured.
- Power comes from an infrastructure of commodity stations which are not controlled by vehicle manufacturers.
Most EVs are a modification of this: made by the same few brands, defined & sold by the same few dealers, powered by a mundane infrastructure of independent power suppliers.
Tesla has transcended this model:
- Manufacturing is extremely concentrated & efficient, built ground-up in-house.
- Sales is online to-your-door. The few showrooms are just that: show rooms, letting you experience a couple premium builds. (I expect one benefit of self-driving is your by-credit-card purchase will literally deliver itself; ~$0 delivery cost.)
- [Inter-]national "supercharger" network assures you can go anywhere; owned by Tesla, it is optimized for the vehicle and cuts out independent business' cut of profits.
This is huge.
Apple succeeded in large part because it's a one-stop-shop for personal information tools; the entire ecosystem is owned & optimized by one business, keeping TCO relatively low yet profits for that business high & sustained. Not beholden to anyone else, Apple can perfect a few devices for a total 24/7 user experience.
Tesla is following similar: I can tap a couple buttons on my phone and a car will appear a couple days later, having extreme longevity & desirability, powered mostly at home and nationally by cheap & optimized chargers - with no third-party overhead & complications. That vs the EV I last had, involving needless extra costs & confusion from a dealer, unable to fast-charge, and otherwise (while nice) failed to go above-and-beyond.
Eagerly awaiting Cybertruck.
HOWEVER, other manufacturers build for repairs: there are high-cost repair services provided at every dealership. Yes you can get a car fixed, but that's because it's built to need fixing often & terminally.
*: in the EU:
> Easy and clear access to information on vehicle repair and maintenance (RMI) is key to guaranteeing free competition on the vehicle aftermarket. Manufacturers must ensure that independent operators have easy, restriction-free, and standardised access to information on the repair and maintenance of vehicles. Discrimination with respect to authorised dealers and repair workshops is not allowed.
Source: https://ec.europa.eu/growth/sectors/automotive/technical-har...
These traders tend to conduct the opposite of the value strategy, often buying all-time highs for no other reason than it hit an all time high.
They are more than just an "auto manufacturer".
It might be that if anyone beats Tesla, it'd be some of the tech giants. Like Apple.
There are rumors going around that they will start deliveries next month. Which is probably one the reasons for the stock rally.
We had dotcom, we had subprime mortgage, next we have the VC bubble.
Tesla has had 5 profitable quarters in 10 years. Uber loses billions of dollars a quarter. Chalk it up to R&D or whatever you want, but this is only sustainable because of this giant bull run.
When the money starts to dry up, these companies are going to implode.
Instead, the government will give emergency cash injections so all the investors don't loose much. Instead all holders of US currency and taxpayers will pay for it via more government debt and inflation.
FTFY.
Why?
It's what the stock market has become. It used to be a way for companies to raise cash to grow and pay dividends, and for investors to amass generational wealth at generational speeds. Now it is just a war of algorithms and differential equations to get rich as fast as possible.
Some reasons:
1. Option trading (really came into its own in the late 80's/90's)
2. Electronic trading (anyone with a brokerage account and $1,000 can play)
3. Algorithm trading (trades happening at the microsecond scale)
4. Insane speculation (Look at the historical graph of the DJIA and you will see in the last 40 years things have gone batshit insane)
5. Black-Scholes equation (the equation that governs the insanity)
For trading firms with servers in the NYSE building that are making trillions of trades a day at microsecond speeds, it is a statistical gambling model fought by algorithms (check out RadioLab's special on this) with no reason. For the rest of us, we're left with index funds that hope the average trends upwards.
Tesla definitely has a monopoly on "entertaining CEO" and people don't really know how to value that.
Also, as a car company they are well positioned to take a lot of the market when evs take over and are only worth half of the market leader but executing better on evs.
If you believe we're shifting to evs, battery storage and integrated solar roofs, and automated transport, they could easily grow as large as Apple or Amazon say in the next decade (10x from current price).
Now that's a risky bet but it's certainly possible.
Tesla is innovative, and they deserve praise.
That said: finance is prone to bubbles and animal spirits. At one point investors will understand that old producers like FCA or Ford sell better, produce more and innovate in a prudent way. Tesla bubble will pop, and their valuation will get more realistic.
So to be worth $100B, they have to earn that amount in future money eventually.
Not within the next few years.
https://en.wikipedia.org/wiki/Present_value
If we assume a 3% inflation rate, 2030s earnings need to be discounted by 34%. 2040s earnings by 56%. And 2040s earnings by 71%.
As you can see, even 2040 earnings still have a substantial impact on today's value.
If I borrow $100B and promise to return it in 50 years time, you likely would want $200B back, even if you were 100% sure I would pay it back.
Battery plants, storage, charging stations, solar roofs, AND personal transportation.
Aristocrats are humans and get the environment thing is real. They’re talking about Tesla in a way we can’t see.
We live in a managed society from an information perspective. Think about security in IT? The entire premise is no one has all the details at any one time.
Do you really believe they’re discussing just car sales with what he’s been building?
>than Volkswagen
those dinosaurs are still not getting it. They continue to stay car companies instead of becoming tech companies. Paradigm shift must be very well familiar to tech people here at HN.
Sales of durable new vehicles does not fit the definition of "annual recurring revenue" by any stretch of the imagination. ARR is valued highly because it implies steady revenue from each customer. Less the churn rate, it makes for a super steady long tail of cash flows. Once you've made a sale, you can count on that sale again the next year, and success of new sales builds on that existing base of recurring sales. These kinds of revenues tend to be more resistant to recessions, changes in preferences, etc., versus churning through new customers every year.
Car companies are the exact opposite. Sell a car? Great, you have to sell another car to someone else next year just to tread water. Your customers don't buy new cars every year. Maybe in five to ten years they'll come back to you.
That's why ARR is worth so much more, and why a durable goods maker does not get a high valuation because of their ARR. They're different business models.
In short, one can't justify Tesla's revenue valuation multiple based on multiples of ARR subscription companies.
Also, 10x sales is out of line for big tech companies. Most are more like 5-7x. True, a little higher than Tesla's 4x, but their economics are very dissimilar. Apple, which is typically trotted out as a "manufacturer", actually offloads all the lower margin manufacturing to other companies, and their margins show it.
People been investing in Tesla for many years now and barely were ever disappointed unless you were shorting the stock in which case when expiry date came (futures) many were taking second mortages to clear their calls. There is too much money on the market for enough people needing to exit Tesla stock and enter something else that would possibly give them better gains over next 5-10 years, so they hold long term, making less stock moving on the floor and giving it longer stretch.
Quite impossible to "fat-finger" it.
EDIT: Maybe it's a discrepancy about what a "confirmation" is? If the author of the twitter thread is correct, the "confirmation" is just a large button on the screen that doesn't require password re-entry, which is not much of a confirmation. He proposes that it's easy to accidentally spend the money if you go to the "upgrades" screen, then put the phone in your pocket without locking it.
To be honest I think this valuation is too low. Elon continues to eat the competition's lunch on a daily basis with new ideas and approaches to just about every industry he touches. The competition will be left in the dust once he straps some rockets on his new model Ts.
All the incumbents are slow, fat, and happy with a lot of inertia and management layers from decades of success. They became too fat and too comfortable. They all look old fashioned by comparison to what Musk is producing.
EDIT: Top comment is disparaging Musk's success here. I think in all honesty there are a lot of people who are envious of Musk so they will always have something negative to say when he or his companies are in the news.
Slower (acceleration), more expensive, less range, worse software, no Autopilot, no supercharger stations. Who wants that?
The efficiency is so bad in the Taycan it' laughable. With similar battery sizes, the Model S gets 100 miles more range. Porsche is many years behind Tesla in understanding electric drivetrain efficiency.
For the fast version (Turbo S), the Taycan is $80k more expensive than the Model S Performance.
I suppose the Taycan has nicer materials inside.
That's not really Tesla's market, though. Tesla began there because it was a way to get large profits from a small number of vehicles. Porsche wants to stay in that market, but Tesla wants to sell larger numbers of mid-range cars at more modest profits -- partly because that's where the money is, and partly because Musk has bigger plans for electric infrastructure. They'll also continue to play in the performance range, because they can and because it makes good marketing -- even their low end models produce insane torque.
[1] https://www.cnet.com/roadshow/news/porsche-taycan-turbo-4s-t...
I don't think anyone realizes just how significant it is to have Silicon Valley know how in this industry where the visionary is an engineer and not a traditional CEO salesman.
It defies common sense that people question this so much. It's so obvious that Musk is disrupting all of these industries at once and breaking new ground daily.
I think, judging by the downvotes of my above comment that people are jealous or envious of Musk and they will always have a negative reaction to his success.
Narratives without numbers are just as valid for $100B valuation as they are for $500B or $1 Trillion.
Has any Tesla investor done the investor math justifying the price compared against SP500 Index Fund for 6% total return for example.
Even if Tesla's revenue and profit margin equal Toyota 10 years from now, I can't see it being worth $100B today. Permanently higher product margins and no viable competition?
Forecasting single stocks 5-10 years out is notoriously difficult though, so the range of opinions is not surprising.
Come on, no one does this for any stock. No stock has a value exactly in-line with math would tell you. Stocks like Amazon have been completely overvalued (as compared to what math tells you) for close to 20 years. If you haven't yet learned that stock markets are based more around hype and emotions than math, don't invest.
The Uber market cap is explained by a bet on worldwide autonomous taxis, though I think Tesla is better placed to take that market, again it anticipates future success.
[1] https://www.tesla.com/support/connectivity
[2] https://electrek.co/2019/12/18/tesla-acceleration-boost-upgr...
It's tough though: most people don't care about car based internet when their phone already has it.
It doesn't feel like anyone has yet found a recurring revenue stream for vehicles that has met any actual demand.
The Tesla connectivity is really part of the whole car experience and I would probably be willing to pay quite a bit more, I was surprised by how reasonable the price was.
At least Tesla is a real thing.
Also, get your facts straight. Citysearch and Zip2 are not the same company.
* The Tesla I rode in is the Model 3. My current car is a Subaru Outback.
An all EV van would be great but this is closest you can come today.
Disclaimer: I don't drive myself and I was trained to close the doors on grandpas Skoda so I might be doing it too assertively
You don't need to go to special BMW gas stations.
In the same way we don't allow movie studios to own movie theaters anymore, we oughtn't allow car companies to own electrical charging stations.
I also want a proper SUV/truck - the Model X/Y don't cut it, and don't get me started on the cybertruck...
It's been a very quick ramp up to 90% self-driving capability, but the last 10% is going to take a lot longer than people realize.
- The sloped sides of the bed make it impractical for loading stuff in/out.
- Have to go to the most expensive tri-motor option to get the most range. Towing capacity on dual-motor is also lower than I would like.
- Won't ever see production in its current form anyway because certain features aren't legal/probably never will be. Crumple zones exist for a reason - it's not a good idea to send everyone out there on public roads in a tank with a regular driver license.
- Tesla also compares it to other 1/2 Ton pickups (F-150, Silverado 1500, etc) but it's almost certainly in the next class up, the 3/4 Ton F-250, 2500, etc based on its weight, size, and price. When you compare it to those vehicles the capabilities are much less impressive.
--
Don't take my complaints the wrong way. I do want a Tesla Truck. I just don't want this Tesla Truck. Give me one that has the style of the Rivian and I'm in. https://rivian.com/r1t/
So yeah, expect the name with 14%+ short interest to keep rallying in this market, for the near term.
One thing I do wonder about is how the roll-off of tax credits will affect their US sales.
And there’s not much credit left, so I doubt it matters much.
Short selling is used used as a hedge against downside risk of a long position. It's reasonable strategy for big investors who have huge stake on Tesla to short sell to manage the risk.
>A "short sell against the box" is also known as "shorting against the box." Sellers use this technique when they do not actually want to close out their position on a stock. The strategy is generally used by investors who believe the stock is due for a fall in price, but do not wish to sell because they believe the fall is temporary and the stock will rebound quickly.
Buying a put option would be how big investors manage downside risk, or possibly selling covered calls.
>A "short sell against the box" is also known as "shorting against the box." Sellers use this technique when they do not actually want to close out their position on a stock. The strategy is generally used by investors who believe the stock is due for a fall in price, but do not wish to sell because they believe the fall is temporary and the stock will rebound quickly.
Not accurate, assuming you're talking about the same stock. Shorting a stock is precisely equivalent to selling it, and your brokerage will always net them out. Perhaps you're thinking of OTM put options?
https://investorplace.com/2020/01/play-tesla-stock-short-squ...
It's that "opportunities to own the stock in the future part" that got me. People just want to own the stock. Tesla has gotten big enough so it is pretty unlikely to fail. Customers love the product, there are several "it is the future" features. People want to own a part of that. I don't think many people are selling because of that. Even if it is really expensive right now.
Wasn't that also true eight months ago? The stock was trading then at $180 rather than $590.
This isn't as unlikely as it seems: https://twitter.com/whyvert/status/1219288360096694273
Trucking revenue was $700B in 2017. There's a lot of room to grow.
https://www.goodcarbadcar.net/2019-u-s-auto-sales-figures-by...
https://www.consumerreports.org/car-reliability-owner-satisf...
> When the Model 3 first came out in 2017, Consumer Reports gave it an average predicted reliability score based on the survey results at the time about the Model S... The car maintained its average score for predicted reliability in October 2018... The new survey data shows that the car has dropped from average to below-average reliability.
> The Tesla Model S lost CR’s recommendation in October 2018 largely because of suspension problems.
> The Model X SUV has always had below-average reliability through its lifespan,
Ford started out making cars for the high end. No one wanted cars until they could win races. Then everybody wanted cars.
Tesla is a luxury brand for now. Will it be in a decade? I wouldn’t take that bet.
As someone who drives a model 3 on autopilot everyday I would say the stock is rather underpriced.
Those companies has literally NOTHING beyond software and early prototypes, but they still are valued at billions of dollars each. So, compared to them, what should be a valuation of a profitable company with large scale production, foothold in China, massive and ever growing real life datasets and so on and so on?
https://www.goodcarbadcar.net/2019-u-s-auto-sales-figures-by...
Even if we consider that a stock valuation indicates what we THINK a company might be worth in the far far future it doesn’t make sense.
Normally, I would stay away from throwing money at anything that is at an all time high (ATH) and would sell now or close to less than the ATH price at this point before it starts to dive with a wave of sellers.
If there's always an open charger at work, go for it, but I think people still overestimate how often they'll need to charge.
Before MoviePass collapsed into a burning pile of dog poop, there was a target price of $3000... Speculators love speculating.
Side note - I bought $1000 of movie pass at $0.02. I never expected it to increase in value (which it hasn't, I'm sure), but I thought it was fun to say that I owned 0.5% of the available shares of a company.
Tesla by a fair margin owns the market for electric cars. So anyone who thinks that electric cars are the future, should expect Tesla to do quite well. All big car companies are trying to keep up with Tesla in electric car tech and additionally, if the transition comes, are burdened with a lot of production facilities for ICE cars.
Tesla is also much more than just cars, they have their own charging infrastructure, battery manufacturing, might play a big role in cell manufacturing going forward and are getting important in the energy sector, which might overtake the car business one day.
Also, Tesla is growing exponentially. This gives a lot of growth fantasy, that they might get to the size of Amazon one day, which would mean a multiple of stock value compared today.
But most importantly, and that is the reason they have such a strong support amongst their current and potential customers: they keep innovating. A bit like Apple of the old, if they announce a new product, prepare to see something really new. While traditional car manufacturers keep iterating on their products, Tesla has completely new things, just think of the Cybertruck. Which other car annoucement got that much press coverage as the Cybertruck? Also, the Semi could get huge.
There are also some very technical factors driving the recent raise of the stock: there have been quite a few good, if not great news (Q4 sales numbers, Gigafactory 3 operating within 1 year of the building start, Gigafactory 4 planned). Then there is still a huge amount of stock shorted, so while it not might be a full short squeeze, the shorts need to cover the stocks they shorted. Finally, Tesla might join the S&P 500, which means, that a lot of institutions have to buy Tesla stock, which will drive it up further, at least short-time.
Watch for some adjustments when people take (legal or publicity) action over troublesome app and website design.
Graph: https://twitter.com/cedivad/status/1220032154912088064