Tesla becomes most valuable automaker in latest stock rally | Hacker News Reader

Tesla becomes most valuable automaker in latest stock rally

reuters.com

52 pointsmiked8542 comments

I don't understand the mentality people have when calling Tesla an automaker. Automakers today traditionally outsource a majority of their parts and are just glorified assemblers. Meanwhile tesla has much more vertical integration in their cars and owns much more of the stack, from the batteries (there are even rumors they'll go into mining to secure steady supply), to their software and self driving stack, to grid storage, etc.

I'm not sure exactly what I'm getting at here, but it reminds me of back in the day when people called amazon just a bookstore.

Amazon began selling more than books, Tesla is still only automobiles. I'm not sure the analogy holds up, unless Tesla started licensing out parts of their vertical integration (such as how Sony's image sensor business licenses and contracts to all kinds of non-Sony devices.)

Tesla also sells batteries and solar panels. And folks would argue that Tesla is more software focused than other car makers (and therefore should be able to command a larger margin).

>Amazon began selling more than books, Tesla is still only automobiles.

82% of Tesla revenues are from the automotive segment. https://ir.tesla.com/static-files/c1723af4-ffda-4881-ae12-b6...

I think you're twisting reality a tiny bit. Car brands have used all kinds of partnerships from car body design, to engines. Just last week I learned that DMC Delorean use a PRV engine. PRV standing for Peugeot Renault Volvo. 3 European brands, nothing American in it..

Same goes for airplanes, boeing and airbus uses parts from similar suppliers.

I don't see how this is a criticism given that Tesla is actually vertically integrated.

integration probably varies over time, is it fair to take it into account ?

And manufactured in North Ireland (while the headquarters was in Detroit, USA).

Most of Tesla's revenue comes from auto sales and their gross profit margin is about the same as other automakers. It seems they're making their money the same way Toyota does and the vertical integration doesn't translate into increased profits.

https://www.statista.com/statistics/314741/revenue-of-tesla-...

https://ycharts.com/companies/TSLA/gross_profit_margin

https://ycharts.com/companies/TM/gross_profit_margin

Tesla is making that margin with EV, nobody else is doing that. There is a reason nobody else produces EVs at those numbers. Specially not those with these battery seizes.

And Tesla has just gotten to the point where they get to those margins. The margins on the Model Y are already better then Model 3 and competitive with ICE cars of the same price.

It is because of their vertical integration that they managed to achieve that margin. There is reason why the were laughed at so much, nobody believed you could make good margins on EVs. This is quite literally what the CEO of Ford said over and over.

Tesla doesn't have 10s of billions or even 100s billions investment in legacy infrastructure that is raptly losing in value. And they don't need to redesign their whole fleet to EVs for many billions per vehicle.

That is the base for the case for their stock price. However that by itself would make them valuable, but not as valuable as Toyota.

Calling the market is a fool’s game, but that valuation makes no sense to me at all.

Remember this is supposed to be the expected value weighted across up and down scenarios. The down scenarios are clear, so in what crazy world are the up scenarios enough to average out to 210 billion?

It makes at least some sense if:

(1) Some percentage of existing auto makers are asleep at the switch and are going to lose in the long term as the EV revolution gathers momentum. Note that battery prices are still dropping. Also note that COVID temporarily crashed oil prices but in the long term may lead to an oil price spike since it's bankrupting and decommissioning a ton of "enhanced recovery" and harder-to-get oil operations. When oil demand recovers supply may not be there.

(2) Tesla will at least not fail, and therefore has a chance to pick up market share from auto companies that are left behind. If Tesla does more than just not fail and actually improves and grows, it could pick up quite a bit of market share.

Now add...

(3) Every central bank is spraying the markets with a fire hose, so if Tesla at least looks decent it may hold up against asset price inflation vs. less healthy looking auto companies.

Tesla themselves are telling that story:

1. The world largest utility for electricity (combining Powerwalls + Solar)

2. The most profitable transportation company (personal automobiles, semi-trucks, and autonomy)

The difference is that people are starting to believe them now and extrapolating in a future where there's fewer other investment alternatives with high potential gains.

The up scenario is basically the one where Tesla's cars are Apple's Macs. Apple used the success of the mac to get itself into a number of other industries to such an extent that people now fear it will abandon the mac because it makes such a small amount from it.

So what are Tesla's other business lines? Solar panel deployments (residential and industrial), battery deployments, electrical utility software providers, autonomous robotaxi services, residential HVAC. This is just things they've publicly said they're working on today. It would surprise me if they don't have an electric plane in the works by the end of this decade. Maybe industrial sabatier-process based carbon capture for jurisdictions with carbon taxes and Mars bases.

Basically, they have enough "bets" that you can believe, if you want to.

The comparison to Apple makes sense: I have spent the last decade and a half reading prognosticators announce that Apple's stock is overpriced, and so far all of them have been wildly wrong.

Eventually they'll almost certainly be right, since, historically speaking, no stock has gone up forever, but they've been impressively wrong so far.

This is in a market that is up during massive unemployment, an uncontrolled epidemic and major international downside risk.

If you're looking for valuations that make sense, the pawn shop is down the street.

What if they manage to make a profit in Q2 even though their main factory was shutdown for half the quarter?

Not all companies face the same risk in a recession (some might even speed up, while incumbents start to struggle). That's when investments in EV finally pay off.

The headline and article are misleading in my opinion, by focusing so closely on comparisons with automakers and calling Tesla an automaker. Yes, Tesla makes automobiles, but they dropped 'Motors' from their name a long time ago in indications that they are much more than cars.

They're solar roofing, too. They're energy storage through batteries, too. They've recently expanded their product lines much past what 'other automakers' are doing. So I don't think it makes much sense to look at TSLA valuation and compared to 'other automakers'.

'Other automakers' are not run by Elon, either. Without injecting an opinion about Elon, he clearly does have a track record of finding new LOB in his startups that are not what the industry expects. I would by this point assume that is also priced in.

If you calculate the expected value from the new market entrances and assume there will be more in the future, and also assume TSLA will become a major player in 2-3 global industries, the valuation may even start to feel low again.

Disclaimer, I bought TSLA at $32 but sold at $150 and been out since. Oh well.

Wondering why you didn’t but TSLA again! I have bought and sold TSLA shares multiple times each time making a decent earning.

The optimistic scenario is that Tesla is so far ahead of the curve in self driving capabilities that they become toyota sized in terms of cars sold, while mainaining the low gross margins on software sold. Tesla is largely a software play, which is why it is given a software multiple (10x revenue) vs an automaker, which is given a much lower multiple (.75x revenue)

Not only this but Tesla is making the future of legacy auto makers look even worse. Consider that, even now, Tesla cars are engineered for 1m miles of operation and batteries with 2m km and 16 years of life are about to come on stream. The implications is that very soon cars will last for over 1m miles and therefore many fewer cars will be sold per year. Indeed the biggest part of the business may become refurbishing the interiors of ten year old cars.

Tesla right now is on the cusp of selling cars with these specs while the legacy guys are on the cusp of matching the eight year old Model S. Legacy car makers have a huge challenge in front of them crossing the chasm to the new automotive reality and not many are going to make it.

The batteries, manufactured by Panasonic, are engineered for 1m miles.

The cars themselves have difficulty lasting 2 or 3 years without requiring serious maintenance, assuming you are lucky enough to receive one in good working order when you pick it up.

The legacy automakers are other close to catching up to Tesla, and this COVID downtown plays into their hands day better than it does Tesla. It's a lot easier to survive a downtown when your serve the entire market instead of just the luxury market.

> The cars themselves have difficulty lasting 2 or 3 years without requiring serious maintenance

Do you have a reference for this? Most of what I've seen from owners comments and CR, not to mention the 400k mile Tesla X, suggests the opposite.

Even Elon Musk agrees with you: https://twitter.com/elonmusk/status/1256239815256797184

And he's said it more than once.

The Federal Reserve’s unprecedented market distortions have created an asset bubble. Look at NKLA. Tesla is the gambler’s favorite stock.

Generally market bubbles come to an end when you run out of fools, but in this case the supply of fools seems just limitless. What’s the story here? Where are they coming from? Is it massive leverage? Is it free money from the fed? What accounts for the endless supply of idiots? I really do want to know who is buying at these prices and where they are getting the cash to do so.

The valuation makes sense. In the coming years the auto market is going to be moving rapidly to ev's and away from ice's. Demand for ev's is going to outrun supply, in part due to battery shortages.

Tesla is expanding rapidly and is going to be in a better position than any other car maker to take advantage of the situation, though lately VW has also getting very serious about ev's.

Nikola is now bigger than Ford, Fiat/Chrysler, Hyundai, Suzuki, Nissan, and Subaru

Interesting. Didn't realize this was the case:

https://markets.businessinsider.com/news/stocks/nikola-stock...

Thats absolutely nuts, considering they yet to sell any cars, or book ANY revenue.

People bashed Tesla for years because they weren't profitable... But at least they had revenue.

At today's NKLA valuation, Tesla was selling 20K cars a year. And Tesla had already proven the BEV are far better than FCV in every aspect (well explained by VW: https://www.volkswagen-newsroom.com/en/stories/battery-or-fu...)

who's buying which rumor ? battery day ?

Impressive given that it has never made a profit!

PS: https://www.theguardian.com/technology/2020/jul/01/tesla-bec...

Sir, you're in the church of Elon, and you know blasphemy is not allowed.

HN is divided on that figure. You might be running into the notice-dislike bias: https://hn.algolia.com/?dateRange=all&page=0&prefix=true&que....

FTA:

> After several years of losses, Tesla has delivered three straight profitable quarters since the third quarter of 2019 and surprised investors with solid first-quarter deliveries despite the virus outbreak.

I think three quarters is probably still too short to declare profitability overall, especially considering there were $1.1bn in total losses the previous two quarters before that (compared to a cumulative $264m in profit the past three). There are just too many games you can play by shifting losses between quarters, and Tesla definitely engages in them (as does every other public company).

You could play the game in reverse, dump the sale of things like ZEV credits in their $702m loss quarter, and end up with 5 consecutive quarters of losses.

However there are rumblings of a potential Q2 2020 profit, which would be four consecutive quarters and in my (bearish for HN) mind take the "Tesla has never been profitable" criticism off the table once and for all.

Is it? This was true if Amazon for well over a decade, and look at them now.

If you can meaningfully reinvest into your business rather than show a profit (and pay taxes on it), then you're in a good position. Tesla has the growth that merits doing this, which is why their share price is so high.

Tesla's operating margin (16 years after operation) 0.3%, Amazon's operating margin in 2010 (roughly after 16 years of operation) 4.4%

The least you can do is read their filing before you comment and spread misinformation.

Tesla has had several profitable quarters, but I don't believe they've ever had a full year GAAP profit.

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