Tesla Q4 2020 Earnings
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There's one paragraph on FSD, basically an empty statement of "we're iterating". That sounds realistic.
Back in April 2019 (Autonomy Day), Musk predicted that they will have a million robotaxis on the road in 2020.
Solar deployments up 18% to 205MW, which is totally negligible. Total new solar in 2020 globally was projected to be around 140GW.
It is comfortably enjoying life in the land of exuberant speculation.
Is Apple at 40x P/E (which is a very simple and over-used metric) still fundamentally sound? Amazon? I think the rule of thumb was always 12x. Ok so what company is that? Intel?
I think what we're seeing is the result of excess capital. Items like accredited investor definitions lock people out of the VC space so if you can't buy a house because they are too expensive or sold before they hit market... what else are you going to do with your money? Some return looks a lot better than no return...
Granted, Tesla does have an extremely high valuation but, well, who cares? I think that's the general sentiment. It's a speculative investment.
* Disclaimer I own a small amount of Apple and Tesla shares and have a positive outlook on the future of both companies. Use your own judgement when investing or considering things you read on the Internet
I wouldn't consider Tesla to have any of those characteristics.
And don't get me started about what people said about Amazon's profitability and fiscal stability 10-15 years ago. Amazon's PE ratio was around 4000 whereas Tesla's is 1500.
My speculation, and that's all it is, speculation, is that for the most part people invest in companies that they want to see succeed and by investing in it, they become a kind of participant in the future growth and success of the company. It's mostly a place for people to park their money in a venture that they want to see flourish. There is no magic formula you plug into an Excel spreadsheet and get out a perfect stock price, there is no metric that can reliably be used to press a button to invest. You see a company working in an area you are interested in and that has a chance to succeed in, you have a positive feeling about the company, its products, its people, then you invest.
Good luck finding a stable, fiscally responsible and reliable company that ticks off all the fundamental indicators, a CEO who is a rock who never offends anyone or anything, and has a stock that does more than barely beat the rate of inflation and maybe pays out a measly 1-2% dividend.
The reality is that if the degree to which you value a stock is based on its PE ratio and other naïve but nice sounding metrics, then to be blunt you're no more sophisticated an investor than the people blowing their money on GME.
But I enjoyed reading your comment that the comment above and think it’s good to have a healthy discussion about the topic. It’s awesome!
You mean like every single, successful startup ?
Almost all of whom are run by CEOs who act professionally, are careful about their public statements and don't have the net worth to keep paying out SEC fines.
Or, the stock market is in a huge, 1929-style bubble and that's why the P/E numbers don't make sense. People don't want to even consider that though, because of what it'd do to their investments. Considering how many people have the money in the markets nowadays, this collective magical thinking can go on for some time. At some point though the value of the stock becomes detached from the actual company and its profits, and the stock becomes just a fiat token that people trade, like crypto.
BTW one scenario that can play out in the upcoming years is that the inflation finally catches up with the money printing, which increases the nominal profits of companies (as the dolar value of every product they sell increases), and the P/E numbers will again normalize. No idea how likely that is though.
Also, if you believe in efficient markets (and lets admit this is a hard week to do that) then you know that companies are valued based on future profits, not future revenues. Google and Ford had very similar revenue in say, 2019. But there enterprise values were completely different because of gross margins and profits.
If you were evaluating a bank that had $1tn in deposits and issued $800bn of home loans and had $200bn in cash, the $800bn figure of debt minus cash just doesn't mean that much, and people don't typically calculate EV for banks.
So say Tesla buys that bank - does their EV double to ~$2tn?
IMO, the only meaningful way to compare EVs is to unwind the financial divisions valuing them like financial companies, then compare what's left.
It's not all rosy, though, because even after unwinding financial services from these companies they've still got a lot of debt. And EVs do pose a risk that the value of the leased ICEs cars will plummet. If it happens very rapidly, that could well be an existential threat.
Market cap is $0, EV is $800B. So is the company worth $0 or $800B? *Both answers are right*. You have to specify worth to who before getting an answer. To the economy it has almost a trillion dollar impact, to an investor it's worthless.
VW has 133 billion euros of receivables for its leases. If we talk about Tesla's worth in comparison to VW by comparing EV, we're essentially discarding that line item - worth double the market cap of GM.
And as I said above, if Tesla buys this $0 market cap $800bn EV bank, why should it change the relative value of the car companies to each other? Using your method, it does.
To put it another way, when Tesla took on $500m in debt to offer Model 3 leases - did the business really change in any material way? If they financed $10bn 3/Y leases this year - would the value of the company bump up by 1% compared to if they used a leasing partner?
He didn't say market cap, he said "valued" and you need to consider debt financing in making a fair comparison of market value.
- Tesla increased their revenue in a year where Toyota and VW saw a significant decline in their revenue.
- Tesla can produce 1M electric cars at the end of this year.
- Ford, BMW, MBZ, GM, and Fiat are not going to produce any meaningful number of electric cars this year.
- Japanese car manufacturers are completely missing (They have great hybrid models, but not pure BEVs).
- The only serious competition is the Chinese manufacturers, VW and Hyundai / Kia. VW will have to deal with the cannibalization of their own business by BEVs. Same with Hyundai / Kia.
- Tesla is taking business not only from auto manufacturers, but also from dealerships, gas stations, and insurance (this is a very small part, but it will increase).
- Most of the Tesla killers failed to make a significant dent. I don't expect 2021 to be the year of the Tesla killer, although there is a slight possibility that ID.3 and ID.4 will sell enough to endanger Tesla.
Great point. Tesla revenue will grow substantially, VW et al will maintain sales, except for the portion of their sales lost to Tesla. Also, it's a major capital investment for VW that they otherwise wouldn't have to make.
This is one of several reasons why it's not meaningful to compare their stock prices.
Yes, the trim quality is excellent, doesnt change the fact its "EV for the old people made to feel like petrol car". Its a Nokia https://en.wikipedia.org/wiki/Nokia_N82 industry leading finish quality, outdated specs.
As far for the navigation system again no issues, a 1000km from where the car was manufactured could be anywhere in Europe form rural Portugal to Bratislava that has no baring on the quality of the vehicle itself.
You do know that the best selling EV in Europe isn't a Tesla ? https://i.redd.it/m6z20txyyvd61.jpg
Also Porsche Taycan is better in almost every single way than a Tesla: 800V architecture, driving dynamics, interior/exterior design, polish etc. Likewise the VW ID 3/4 is very much on par with a Model 3.
Please. They're not even close to dying.
> and they need to come up with a car that is competitive to the Tesla electric offerings to compete
And they are doing exactly that. VW alone already has $86bn spending committed to its EV lineup.
You associate the existing manufacturers with a Blackberry/RIM situation, but that is simply not the case.
This is more of an Apple/Android type of situation. Apple triggered this paradigm shift, and dozens of others (Samsung, Motorola, etc.) followed suit almost immediately.
Sure, it's going to take existing car manufacturers a few years to catch up. Just as it will take Tesla a few years to ramp up production to competitive numbers.
Other car manufacturers cannot replicate Tesla's success because their customers are different and generic EVs are not a good value preposition for most of these customers.
As I see it, there are just "car customers." And they are a diverse population, from those who need maximum reliability and economy to those for whom their vehicle is an extension of their need for attention. But as diverse as they are, they form a single set, known in marketing parlance as the "total addressable market."
When you write, "The people who buy Teslas are Tesla fanbois ..." it reminds me when people would say "The people who buy a computer for their home are nerds ..." I expect that both of these statements were solidly true at one point, and then became less and less true over time as the diversity of people who felt the product in question was the right choice increased.
So what I see in Tesla's results, and their history, is that they created a niche product that many people didn't understand the need for. But over time, as more and more have been shipped, more people can see the benefit.
For example, here is a real anecdote. As an anecdote it means nothing of course, but for me it felt significant. My neighbor just bought a model 3. They had been in the camp that these things were a fad, a toy, a ridiculous idea, and "what about the range, and who wants to wait an hour to fill up?" kind of things. But another neighbor has one as well and has had it for a couple of years now. And we all talk and that neighbor was chuckling that they didn't even know the price of gas anymore since they hadn't been to a gas station in over a year! In those discussions, the range of the model 3 was such that they charge at home, and even on very "busy" days never have to plan to stop at a charging station. That is because in "real life" they never drive more than 200 miles in a day, and they never cannot fully recharge over night. Once the lightbulb went on about the reality of this, my other neighbor got their own Model 3.
It was, for me, seeing one of the general pool of customers switch over from "only gas is okay" to "this could work for me." And that was instructive.
Given the volume ramp reported by Tesla, I would not be surprised if this "conversion" experience were happening at an accelerating pace.
Energy generation and storage has a gross profit of -$30M. But "they're not just a car company".
Edit: Why the downvotes? Is it because this is a skeptical view that goes against the crowd?
That is a fundamentally unsound premise.
They expect to grow at 50% CAGR which means 1000% in about 6 years. Which in and of itself would be an insane growth trajectory to achieve at this scale.
But at the end of those same 6 years you would reasonably need to model some significant efficiency improvements.
Tesla has predicted their battery costs, for example, will be reduced by 50% in that time frame.
There will also be significant efficiencies achieved elsewhere in the manufacturing line beyond just their tech roadmap for structural batteries, but certainly I would assume not quite a full halving of the cost to produce the entire car.
They've been cost-cutting very aggressively so I assume there are few low-hanging or middle-hanging fruits left.
The big picture is that their business is currently not profitable without government money, which doesn't scale linearly with revenue. Sure, I guess they will slowly improve their margins in the future. But my point is that it's unlikely that their car manufacturing business will become a massive cash cow as the market seems to think.
Batteries becoming cheaper won't directly translate to margins because of competition.
There are a few things you are not considering. Service for example is a huge negative right now, while every other car company is making money with service. Because most Tesla vehicles are new most vehicles are under warranty. This will continue to be a negative but importantly, if Tesla would stop growing, this would turn into positive pretty soon.
The CEO package was large because of the large growth in stock price, that alone is almost as much all all the credits. This will not be this high quarter-quarter and only has to be paid if the company continues to hit milestones.
Importantly however, their automotive margin is still very good, and is looking to improve further next year, its industry leading margin. At the same time they show 40% growth every year and positive cashflow. Automotive is a business of scale and Tesla is still relatively small.
They have been building 3 massive new factories this year, covering Europe, Eastern US and expatiation in China. This is operating leverage, things you pay now that will payoff later. Those factories will not only expand production but also CAPX efficiency.
This Q4 solar and storage were also a negative margin (somewhat surprisingly) but showed massive growth too, in this area to I expect margin to jump back up after this Q4. Tesla global leader in storage and will likely continue to grow that, and with their aggressive strategy they will also likely be market leader in solar.
Additionally, Tesla has multiple new products that will allow them to continue growing not just next year but the year after that. There is huge demand for the Tesla Semi. There is huge demand for the Cybertruck. Model Y has not even started being delivered in China/Europe.
I think if you do the calculation and you believe that gross margin is staying as is or growing, the profit Tesla will get quite large, even as they continue to grow. Very few companies can have high growth and very good profitability, and I believe it is likely Tesla will achieve this in the next year.
Just look at 2019 margin, to 2020 margin, -0.3% to 6.3%. That is in a pandemic year.
Now, the current stock price is high, and even what I just said, might not justify the stock price. To defend the current stock price, you need to believe in the FSD story, at least partially. If you do not believe that story, Tesla is over-valued.
I for one believed Tesla was very under-valued early this year and bought based on the assumption of growth and margin. I since covered most of my position but still have a lot of stock. I do think Tesla has the best FSD story so I'm holding the stock for upside.
I hope this at least gives you perspective on the way somebody would hold Tesla. I think the focus on credits, is mostly distraction. I have never in my analysis cared about credits, in fact I always use margin without credits.
Fully redesigned Model S interior pics in the PDF!
Most car companies would have refreshed the exterior design at least a couple of times in the same 10 year timeframe to avoid it looking stale and dated.
The exterior here is in fact refreshed. Chrome delete, different front end, different lights and other details.
If you see the car on the road, the outside doesn't look dated at all in my opinion.
Solar collapsed quite a bit after Solarcity and introducing the Solar roof was difficult. However it seem like now they should increase growth, they are adding their own teams and they are working with 3rd company installers. Overall 2020 doesn't look good but Q3 and Q4 look like a return to solid growth
Storage is problematic area because it requires the same manufacturing as battery packs. So Tesla always had a fight for storage and it was of secondary importance. In the long run however it could be a huge market. Doubling the mount deployed from last Q is really great.
Both Berlin and Texas are moving along very well and Model Y in China coming online only now, promises continued growth for next year. The refresh Model S should again help to drive profitability as well.
I'll have to look at the numbers in more detail.
Oh look, another person making the claim capex comes off top line income.
My point is that the relevant thing seems to be unit economics. They seem to make a profit on most models, and the ones that aren't profitable at the point of sale, seem to have the price of the credits factored in. What value would anyone get from looking at profitability ex-credits?
The automotive world is competitive, as seen by Tesla fighting for share as we speak. They need to make money sooner than later. Building cars is expensive, you can't scrape by. They should be crushing it right now, with little competition.
These financials don't look good to me, all I'm saying. YMMV.
They're also going to optimise their pricing around the existence of credits. The pricing that maximises the equation margin*volume will differ with and without credits.
Ideally we do away with the credits and get straight to the point by taxing carbon directly.
https://electrek.co/2020/05/28/tesla-elon-musk-first-tranche...
Does it even make it to production?