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Comment by Amezarak | Hacker News Reader

Yeah, the stock market is one of those things I've convinced myself there isn't much point in trying to understand. I believe I could pick out different facts and construct narratives, but they would probably all be wrong. Legions of extremely smart people believe they understand the stock market and get it wrong all the time. What are my chances?

Tesla is one of those things that cemented it for me. Tesla's market valuation - at least in my eyes - was insane. People would tell me "it's about where Tesla COULD go", but Tesla would literally have to have sold something like as many cars as the five biggest manufacturers combined, and they have very little actual moat. Why was Tesla's stock so high? Because it was. Why is it lower now? Because it is. If you can figure out the real reason why, you can probably predict where it's going next, in which case, congratulations on your future wealth.

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but Tesla would literally have to have sold something like as many cars as the five biggest manufacturers combined

Just to give some nuance to the high evaluation of Tesla - Tesla does produce around 10 times as many _electric_ cars as, what I think are their two biggest rivals globally, Hyundai Motor Group (KIA+Hyundai) and Volkswagen Group does. Tesla has also consistently been outpacing both in how much their production capacity of electric vehicles grows year-over-year.

I think the evaluation dip of Tesla is very much related to:

1. Current state of general economy.

2. Investors realizing how absolutely bonkers its CEO is and his total lack of empathy for others than himself and his own ego.

3. Elon selling a lot of stock to finance his Twitter shitstorm.

At the same time, not living in a place where every other car is a Tesla (as seems to be the case when I visited San Diego recently) to the extent that I see electric cars they are VW and Kia. Teslas are very rare to see.

We don’t have the same charging infra as other places so electric cars aren’t common at all; we just got our first charger at our first grocery store. But as that came, some people thought they’d want an electric car, and they didn’t turn to Tesla. If this trend continues and is representative of what’s happening elsewhere, that’s bad for Tesla.

But as that came, some people thought they’d want an electric car, and they didn’t turn to Tesla.

This seems mostly like anecdotal.

Note that all three big players (Hyundai, VW and Tesla) sells all cars they are currently producing, and have people in line for future cars (disclaimer: We ordered an Ioniq 5 2023 as soon as orders opened up early 2022, haven't gotten it yet). The difference is Telsa sells 10x as many cars that they produce at a lower cost (same price, smaller battery). As an example, while traditionally being cheaper - nowadays an Ioniq 5 is about as expensive as a Model Y (at least in Sweden where I live) due to Hyundai not being able to keep up with the demand. They simply can't produce the same number of cars Telsa can.

Telsa are able to sell more cars at a higher price point. They can do so due to their bigger production, superior software, charging network and efficiency of the drivetrain. Given that demand would decrease for EVs in general, Telsa has a way bigger margin to decrease prices than VW or Hyundai. Their product is just better - full stop. This comes from someone who thinks Elon is an absolute idiot, has ordered a non-Tesla EV and absolutely hates the driver experience in the Model Y/3 (no buttons/switches, no instruments in front).

I think neglecting what Tesla has accomplished so far and that the position they are in reflects on their market value is just lack of knowledge into how many EVs Tesla produces compared to anyone else.

I am perfectly willing to believe it’s possible that Tesla will be the dominant auto manufacturer someday. I doubt it, but I could believe it. But Tesla’s market cap of 1.2 trillion was that of a company that would have a near-monopoly in the entire auto industry worldwide.

I don’t see how Tesla’s EV market share justified Tesla’s market cap. I just went back and looked and Tesla’s market cap was higher than every single auto manufacturer combined. Could anyone really justify that based on expectations of future performance? Even now it’s about the same as the top four or five combined. I struggle to see how that’s not a crazy overvaluation. But I am not going to put any money on it. Even if I’m right, the market can stay irrational longer than I can stay solvent.

You are comparing market cap to auto makers that all have a pretty bleak future - unless it's one of those with strong presence in the EV space.

Remember that no new ICE cars will be allowed to be sold within the European Union starting 2035.

Is there some reason to believe auto makers will be totally unable to shift to EV? Particularly when most of them already have EVs? I also checked the stats, and it doesn't seem like the market cap of other auto makers have dropped because of Tesla. They're all over the map but generally trending positive, going back 12 years, which as far back as this site lets me go.

I agree they aren't selling a lot of EVs...but I also think a lot of that is just that EV demand is just not that high outside of certain bubbles, and certainly not at the current price point. Teslas, even Model 3s, are priced as luxury cars (I can't afford one myself), and have cachet among a certain set. Most EVs are worse off, in that they don't have the Tesla glamour. But there's no reason I can imagine that situation is permanent.

When/if demand changes due to regulation or economics or evolving tech, it's going to be a very different environment. This is particularly true as batteries become commodities. I don't want to handwave away the engineering, but electric motors are not revolutionary technology.

Even if we assume Tesla comes out on top, it seems crazy to believe Tesla is going to come out on top so hard that it sells 95% of all new vehicles globally.

NB: I think the auto industry future is very bleak for other reasons: we could make a great, reliable electric vehicle, but instead we're packing them full of shoddy electronics and software that will have unpredictable and difficult-to-troubleshoot failure modes (as is already the trend in ICE cars, where electronics are a bigger and bigger problem.) They will end up having to be serviced by manufacturers only and we'll probably all be cursed with subscription plans. Life will me much harder for those less well off.

    Is there some reason to believe auto makers will be totally unable to shift to EV?

Well no, but so far every legacy carmaker switching to EVs has seen a lot of issues in scaling up their production capacity. I myself thought that VW would destroy Tesla in this regard, but they havn't.

Note that I'm not saying that Teslas evaluation isn't too high in its current state - what I'm saying is that it's not _unreasonable_ that it is a lot higher than any legacy carmaker. And higher than a few of them together isn't unreasonable either since they make 5x the amount of EVs as Hyundai and VW makes together. This is while scaling production at a faster pace than those two as well - so the gap is widening rather than the other way around.

Well, as the saying goes: great doubts, great wisdom; small doubts, small wisdom. (That's supposed to be a compliment, BTW). There's a great deal of uncertainty in investing, but that doesn't mean it's not something worthwhile. You have to remember that you will get a lot wrong. That's the nature of the game. The trick is to get it more right than wrong. Early success is not much of a predictor either. In fact, it often breeds overconfidence.

Try to avoid hype stocks. It's easy to get burned. Recommended reading is "Intelligent Investor" by Ben Graham. Warren Buffett calls it the best book on investing ever written, so you can't go far wrong. It's importance is in emphasising valuation rather than narratives.

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