Comment by pbourke | Hacker News Reader

Comment by pbourke | Hacker News Reader

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> People aren't going to suddenly start paying more for cars than housing. People aren't going to suddenly own 30 cars a piece. Tesla is never going to grow enough to be worth it's current market cap.

There are around 290M cars on the road in the US, of which 1.3M are electric. Over the next 20 years, the majority of those 290M will get replaced by an electric vehicle. One of the major drivers of this will be cost: it will just be significantly cheaper from a TCO perspective to drive electric.

Electric is such a shift that traditional car purchasing forces like brand loyalty are disrupted, and there will be a land rush to claim new market share. Electric also presents heretofore prohibited avenues for vertical integration: Tesla wants to sell you the car, the home battery and the solar panels to go with it. Standard Oil was broken up for similar types of vertical integration.

Electric will also present opportunities for ongoing service revenue (value-added services such as in-car infotainment) that automakers have tried for years to break into (unsuccessfully)

If you’re the early leader with a promising track record, as Tesla is, a 1T valuation is not surprising.

Currently the cheapest new ICE cost 15-20k and the cheapest new long-range EV cost 30-35k (and a Tesla costs over 40k). If people are going to switch to EVs for lower TCO, the EVs will need to get a lot cheaper. I have no doubt this will occur eventually. And when they get a lot cheaper, how is Tesla going to earn a fat margin? I feel the “lower TCO” story is not that bullish for Tesla given the enormous profits that are required to justify Tesla’s current valuation.

> If people are going to switch to EVs for lower TCO, the EVs will need to get a lot cheaper.

Or gas will need to get a lot more expensive, which is what governments are planning to do.

The Average price paid for a new car in the US is ... $35k-$40k. Almost no one in the US buys $15K Mitsubishi Mirages and more reasonable cars that start at $20K are rarely actually sold bare bones for that much.

How about the average price for a new EV?

>Over the next 20 years, the majority of those 290M will get replaced by an electric vehicle.

Let's optimistically assume that Tesla will sell 100M of new cars in the US in the next 20 years at the average price of 50K per car and profitability 10%.

100M x $50K * 10% = 500 billion which is already less than Tesla's current 1 trillion valuation.

1. There are other countries

2. What if Tesla gets $1-2k ARR along with each sale for charging or other services?

That’s $25B profit per year excluding any other profit. That can actually justify a 1T market cap.

It's 2.5% ROI, on par with inflation and well below the market. It's hard to reasonably justify it. Unless you bet on a stock with an extremely high P/E to get a much higher P/E.

> Electric will also present opportunities for ongoing service revenue (value-added services such as in-car infotainment) that automakers have tried for years to break into (unsuccessfully)

And thank God for that! It's bad enough that automakers are trying to put third-party repair shops out of business.

>If you’re the early leader with a promising track record

I wouldn't trust Musk to take the Thanksgiving turkey out of the oven on time.

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