My Tesla Investment Thesis

[FrankSG]

Hi everyone, I'm a long time lurker here.

I've spent the last week writing a very thorough blog post about why I'm so excited about Tesla's future. I think any Tesla investor would enjoy reading it, so please check it out if you have a chance.

Due to it's length, I think it's better to link to it than to crosspost it:

My Tesla Investment Thesis: Why Tesla is the most exciting thing going on in the world today

 

[jeewee3000]

Nice write-up, but I do have one criticism.

Basically I find your bear cases to be way too optimistic, especially given the performance of the stock in the last five years. Back then I used to read similar bear/bull cases on here, with a stock price range between $400 - $gazillion by the end of 2019.

I still found your blog post to be a solid summary and in my thesis I'm treating your bear case as my bull case. Even then the stock is still worth holding.

 

[FrankSG]

I still found your blog post to be a solid summary and in my thesis I'm treating your bear case as my bull case. Even then the stock is still worth holding.

Thanks for reading, and thanks for your comment!

I do believe it's worth over 400$ today by most metrics, but fortunately enough the market isn't always rational (otherwise there would be no money to be made). Especially a stock as volatile as Tesla is going to be over/undervalued significantly at certain times, but that shouldn't matter much for people with a long term view.

 

[Rande]

@FrankSG
Thank you so much for sharing this. I, too, am a lurker and I created an account just to be able to express my thanks to you. The openness and spirit of sharing is what makes this forum great.

I was about to embark on writing a thesis of my own and there is significant similarity to what you've written. I would love to work with you to iterate on your thesis, perhaps as an editor if you're keen? I'll send you a DM.

 

[aagosh]

Excellent analysis and thanks for putting so much of effort in outlining almost every area about Tesla's business.
This piece of text is much more valuable than BS analysis done by Morgan Stanley, Goldman Sachs and others in the cohort.

 

[FrankSG]

Excellent analysis and thanks for putting so much of effort in outlining almost every area about Tesla's business.
This piece of text is much more valuable than BS analysis done by Morgan Stanley, Goldman Sachs and others in the cohort.

Thank you for the kind words! I'm happy to hear you enjoyed it.

 

[Silentk]

Thanks for taking the time to write all that and post here. Although I follow Tesla closely, to have it all clearly expressed as you have done is very valuable, to read and share with others. I hope you (and all of us!) get that multiple on investment in your bull case

 

[Opus BC fan]

Hi everyone, I'm a long time lurker here.

I've spent the last week writing a very thorough blog post about why I'm so excited about Tesla's future. I think any Tesla investor would enjoy reading it, so please check it out if you have a chance.

Due to it's length, I think it's better to link to it than to crosspost it:

My Tesla Investment Thesis: Why Tesla is the most exciting thing going on in the world today

Have you considered submitting this for wider publication?
This was a lot of work and is well done.

 

[FrankSG]

Have you considered submitting this for wider publication?
This was a lot of work and is well done.

Thanks Kevin!

I'd love for more people to read it, and for my post to help eradicate some of the misconceptions about Tesla floating around. Do you have any idea how I would go about that?

I also posted it in the Reddit Tesla investor community last Friday, and contacted the mods of the main Tesla sub on Reddit to ask if it is okay to post it there as well. I just got a message back and it seems like they're okay with it, so I'll post it there too, but besides that I'm not sure how I could give more people the chance to read it.

 

[aagosh]

Thanks Kevin!

I'd love for more people to read it, and for my post to help eradicate some of the misconceptions about Tesla floating around. Do you have any idea how I would go about that?

I also posted it in the Reddit Tesla investor community last Friday, and contacted the mods of the main Tesla sub on Reddit to ask if it is okay to post it there as well. I just got a message back and it seems like they're okay with it, so I'll post it there too, but besides that I'm not sure how I could give more people the chance to read it.

Please also post it on twitter and tag supporters like @GerberKawasaki @vincent13031925 @tesla_truth

 

[FrankSG]

Please also post it on twitter and tag supporters like @GerberKawasaki @vincent13031925 @tesla_truth

Done. Thanks for the tip!

Frank Peelen on Twitter

 

[TheTalkingMule]

IMO this analysis makes the common error of not understanding the Energy side of Tesla and where the world is headed. We KNOW renewables will be taking over a decade from now, Tesla won't have a significant chunk of that $2T+ RE market in 2025? How?

Installing solar panels is essentially like delivering televisions. Manufacturing solar panels is essentially like manufacturing televisions. Neither is all that likely to create any significant margins for Tesla on their own, but that's not what the world will be like in very short order. Somewhere around 2022-25 Tesla will become the one-stop shop for residential energy and transportation needs. Plenty of others will manufacture high quality EVs, or install panels, and/or install battery storage, and/or provide energy aggregation and microgrid services. But it's unlikely others will be able to do all of it any time soon.

Just around the time net metering starts going away en masse in the US as grids overload at peak, Tesla will be manufacturing/installing Powerwalls at 1/2 the cost basis they are right now. By 2023 they'll be able to install solar at $2/W and Powerwalls at $4k a pop with industry best margins. They'll be vertically integrated on ALL fronts so no one will be able to touch them on cost, let alone quality.

Add to this the ability to bundle all your energy needs with the top of the line EV at a reasonable price.....why would you source from anyone else in 2023? You gonna get your solar at $1.92/W from the guy down the street with a random LG battery pack priced on par with powerwall? You gonna buy a BMW EV with admittedly a nicer interior, but limited range, crap self-driving, higher pricetag, and no supercharger network? No, you'll quite obviously get all that stuff from Tesla and monitor/tweak it all from one app.

Put it this way....you'll get high efficiency solar for your house, a Powerwall for your basement, and a Model Y for your young family, all for a loan payment of about $599/month over 10 years. That's 100% solar for your home with battery backup for outages and the best car you could want, all for less than you pay now for electricity and a Camry. Zero post-production carbon footprint and you save money.

 

[FrankSG]

IMO this analysis makes the common error of not understanding the Energy side of Tesla and where the world is headed. We KNOW renewables will be taking over a decade from now, Tesla won't have a significant chunk of that $2T+ RE market in 2025? How?

Installing solar panels is essentially like delivering televisions. Manufacturing solar panels is essentially like manufacturing televisions. Neither is all that likely to create any significant margins for Tesla on their own, but that's not what the world will be like in very short order. Somewhere around 2022-25 Tesla will become the one-stop shop for residential energy and transportation needs. Plenty of others will manufacture high quality EVs, or install panels, and/or install battery storage, and/or provide energy aggregation and microgrid services. But it's unlikely others will be able to do all of it any time soon.

Just around the time net metering starts going away en masse in the US as grids overload at peak, Tesla will be manufacturing/installing Powerwalls at 1/2 the cost basis they are right now. By 2023 they'll be able to install solar at $2/W and Powerwalls at $4k a pop with industry best margins. They'll be vertically integrated on ALL fronts so no one will be able to touch them on cost, let alone quality.

Add to this the ability to bundle all your energy needs with the top of the line EV at a reasonable price.....why would you source from anyone else in 2023? You gonna get your solar at $1.92/W from the guy down the street with a random LG battery pack priced on par with powerwall? You gonna buy a BMW EV with admittedly a nicer interior, but limited range, crap self-driving, higher pricetag, and no supercharger network? No, you'll quite obviously get all that stuff from Tesla and monitor/tweak it all from one app.

Put it this way....you'll get high efficiency solar for your house, a Powerwall for your basement, and a Model Y for your young family, all for a loan payment of about $599/month over 10 years. That's 100% solar for your home with battery backup for outages and the best car you could want, all for less than you pay now for electricity and a Camry. Zero post-production carbon footprint and you save money.

I definitely agree with you on the potential of Tesla Energy, but for energy storage I'm just concerned about battery supply at the moment. Even if there's only a 20% chance of autonomy by 2030, I want them to use their batteries to produce as many cars as they can sell, because those batteries will pay off way more when they're part of a robotaxi service. When they can make more batteries than they can sell as part of their cars, then I'll be very happy to see them use those to scale their energy storage business.

For energy generation I also agree with you on the potential, and I have fair bit of confidence in Tesla's engineering teams being able to pull it all off, but as an investor I'm a bit more cautious for now. I see it as something that can make Tesla even more successful, but their success still depends on their automotive business.

 

[DrKenneth]

That was long!

I think the robotaxi network model is honestly a bit silly. Some questions/comments:

• Are you assuming that a Tesla car would only be allowed on the Tesla network and not any other? If you do then I would assume that plan will be illegal due to it being anti-competitive. Kind of like if Microsoft would not allow Windows users to go to Google and only use Bing instead.
• If you don't, then I think the Tesla cut is still waaaay to high due to competition. Just the "network" or in other words the app that directs customer requests to cars and the payments from customers to owners is not that challenging or value-adding and therefore cannot command very high margins.
  
• The only cost I see is direct vehicle costs. What about marketing, campaings, customer service, transaction costs, legal and liability issues with owners, customers and governments and other administration cost? If you assumed a customer service issue every 2,000 miles (I feel like that is pretty optimistic) that would still result in 1,000,000 customer services issues in the first year.
  
• Consumers will value speed, convenience and price. If you assume the Tesla Network to only have Teslas then most likely there won't be enough on the road for it to be convenient or fast relative to brand agnostic alternatives. Consumers being price sensitive will on the other hand squeeze margins. See Uber and Lyft.

I don't see a scenario where Telsa is that dominant. Your bear scenarios in general are massive bull scenarios.

 

[TheTalkingMule]

I definitely agree with you on the potential of Tesla Energy, but for energy storage I'm just concerned about battery supply at the moment. Even if there's only a 20% chance of autonomy by 2030, I want them to use their batteries to produce as many cars as they can sell, because those batteries will pay off way more when they're part of a robotaxi service. When they can make more batteries than they can sell as part of their cars, then I'll be very happy to see them use those to scale their energy storage business.

The same concerns existed for solar in 2008-2011 as Germany really ramped up their transition to renewables and the rest of the world was catching on. Will there be enough silicon? Etc... Then one day we were swimming in a glut of panels and we stayed there, likely for good.

Batteries will be everywhere, someone is going to need to be the efficient middleman managing services.

 

[FrankSG]

That was long!

I think the robotaxi network model is honestly a bit silly. Some questions/comments:

• Are you assuming that a Tesla car would only be allowed on the Tesla network and not any other? If you do then I would assume that plan will be illegal due to it being anti-competitive. Kind of like if Microsoft would not allow Windows users to go to Google and only use Bing instead.
• If you don't, then I think the Tesla cut is still waaaay to high due to competition. Just the "network" or in other words the app that directs customer requests to cars and the payments from customers to owners is not that challenging or value-adding and therefore cannot command very high margins.
  
• The only cost I see is direct vehicle costs. What about marketing, campaings, customer service, transaction costs, legal and liability issues with owners, customers and governments and other administration cost? If you assumed a customer service issue every 2,000 miles (I feel like that is pretty optimistic) that would still result in 1,000,000 customer services issues in the first year.
  
• Consumers will value speed, convenience and price. If you assume the Tesla Network to only have Teslas then most likely there won't be enough on the road for it to be convenient or fast relative to brand agnostic alternatives. Consumers being price sensitive will on the other hand squeeze margins. See Uber and Lyft.

I don't see a scenario where Telsa is that dominant. Your bear scenarios in general are massive bull scenarios.

Thanks for sharing your thoughts!

• Elon has said that it's in the contract that everybody signs that a FSD Tesla is only allowed to be used on the Tesla Network. The anti-competitive thought is very interesting. It'd be interesting to hear Tesla's thoughts on this during a conference call. A robotaxi service is much more complicated and intertwined with the car, software, insurance, charging, etc. than an internet website with an operating system though, so I think it's less likely to be considered illegal, but I'm not sure. Very interesting thought.
• I don't think the cut is too high, because it's a cut of profits. Like I explain in the post, it works out to 20-25% of total revenue, which is less than Uber is taking. I have been thinking that the margins in my post might be on the high side though, and that the $ / mile that they will charge might end up being less. You're right that the network doesn't add that much value, but it's all about the company that can get their cost / mile down the lowest. Uber / Lyft are charging 2-3$ per mile, and from what I hear they are not making much of a profit doing so. Tesla with their lead in battery tech and efficiency, are on track to have the lowest cost per mile for robotaxis, which will give them a lead even if there are going to be other robotaxi companies.
• I think most of those costs would fall under SG&A expenses. My SG&A could be too low, I'm not sure. Like I mention in my post, I have no idea how much SG&A expenses will come with Tesla Network, and kind of made a blind guess. You can download the spreadsheet (bottom of the post), adjust the SG&A upwards, and see what kind of results it will give.
• I mostly agree with this. That's why it's important for Tesla to keep ramping up production, to build a large global fleet of cars that can be turned into robotaxis with a single OTA update. I think in certain areas (Norway, Hong Kong, California) Tesla should have plenty of cars on the road by the time the software is ready. Regarding margins, I agree this might happen long term, but initially Tesla's margins will be amazing. Non-FSD cars can't even come close to matching a robotaxi in price, so initially there will be more demand than supply for cheap robotaxis, and margins will be high. Only after the number of robotaxis increases will margins drop, but so far Tesla is the only company who's building up a fleet of FSD capable cars.

Yeah, I'm definitely more optimistic about Tesla Network than you. We'll see how it works out over the next decade.

 

[FrankSG]

The same concerns existed for solar in 2008-2011 as Germany really ramped up their transition to renewables and the rest of the world was catching on. Will there be enough silicon? Etc... Then one day we were swimming in a glut of panels and we stayed there, likely for good.

Batteries will be everywhere, someone is going to need to be the efficient middleman managing services.

I hope you're right! I'm stoked for Tesla's Battery Investor Day later this year!

 

[Mars ☰mperor]

I can not emphasize enough on the value of talented people who are working and who WILL be working at Tesla.

Which would you prefer, if you are good enough pick an automotive company to work in?

I think Tesla is THE no-brainer.

More talents, more innovation, faster innovation.
This is one of the most important points for my bull thesis right now.

 

[FrankSG]

I can not emphasize enough on the value of talented people who are working and who WILL be working at Tesla.

Which would you prefer, if you are good enough pick an automotive company to work in?

I think Tesla is THE no-brainer.

More talents, more innovation, faster innovation.
This is one of the most important points for my bull thesis right now.

Yeah, I completely agree! Cool to see other people agree with me about how big of a deal this is.

 

[Kiwi_Guy]

Frank

This is an excellent post, many thanks for the huge research effort you have made here! Here are some thoughts after the first reading

• Your uber-bull case share price of $4223 @ 5 years out matches the 5 year price of $4000 in the ARKInvest super-bull model, so you are in pretty good company mate. They wisely don’t (publicly) extend their model out beyond 5 years, because the numbers just get super nutty from there, and the are already copping a massive amount of flack

• • I always smile when I see Cathie or Tasha calmly explaining their thesis to disbelieving CNBC, because I know that they are very comfortable with their predictions
• Do you follow Tony Seba? His latest RethinkX report on Transportation has some profound research and short/medium term predictions that back up your thinking but expand on the wider implications for the auto and fossil fuel industries and world economies. Well worth a read

The cars of the future will end parking tickets, traffic jams, and car loans for a short article
Get the Report — RethinkX the big report
The Driven Podcast: Tony Seba on why all new cars will be electric by 2025 | The Driven a really good interview​

• Tony Seba and RethinkX predict that TaaS (Transport as a Service) will be a real thing somewhere in 2021, and when it happens the bottom will drop out of the Fossil Fuel and ICE markets overnight.
• I think he needs to update his report to reflect the Telsa Autonomy Day and Tesla’s massive lead in FSD development
• I believe that the tipping point will be the moment the general public and Wall Street realise that Musk is not kidding, and that Tesla Network and robo taxis will really happen soon. This bombshell could happen after a very compelling large-scale demonstration etc by Tesla, could even be soon

• Wall Street will suddenly realise that Tesla has a near-infinite market and near-infinite revenue and profit potential because they are so far ahead, and that should be spectacular for longs
• The public will realise that ICE is dead, and hold off buying their new ICE car causing massive overnight disruption to the ICE industry