You could absolutely be correct. You seem very bullish on the energy business, and I just think it is very unlikely it will make any money. I see zero sales as of right now. And I see existing players with massive economies of scale making razor thin margins. And thus I value such business at zero. If Tesla starts demonstrating actual sales/profits from such business, I will revise my analysis. In my humble opinion however, I think it is very difficult to believe a brand new company with no experience manufacturing batteries will suddenly displace existing manufacturers and create a massive new market. I have also not seen any analysis showing that battery storage is far more economical at utility scale than existing solutions when peak power is needed. But yeah, if I'm wrong I could lose money.
Regarding Amazon, you're right that some people who short Tesla might also make similar arguments to short Amazon. I thought about it and ran the numbers, and I actually would not short Amazon at this level. Amazon trades at a high Price-to-Earnings ratio because it has little earnings. However, Amazon trades at a very LOW ratio of Enterprise Value-to-Revenue. Basically Amazon breaks even because they reinvest everything in the business. I suspect they could aggressively cut overhead and ramp up profits. Tesla, on the other hand, trades at an Enterprise-Value-to-Revenue ratio of 7.5x which is sky high compared to F and GM. Yes, it's true their revenue is growing 50% annually, which suggests they deserve a higher multiple. Tesla also loses a lot of money using normal accounting and not their subjective accounting. And as Tesla has grown, their losses grow faster -- possibly because they are "investing" but possibly because their sales/overhead spending is just way too high relative to revenue. I just think it is far more likely than not that Tesla fails to ever make meaningful profits that justify anything near the current stock price.
With the Amazon analogy I was comparing Amazon in the late 90s to where Tesla is today. The arguments against Amazon were similar then to your arguments against Tesla today.
Tesla was started to be a top down disruptor and it will succeed or fail based on achieving that goal. Standard market analysis doesn't work well on disruptors. In another thread I went through the 20 reasons start ups fail and why I think they apply or don't apply to Tesla.
http://www.teslamotorsclub.com/showthread.php/59636-Why-I-Think-Tesla-is-Unlikely-to-Fail
Disruptors can be killed by outside forces, Tesla almost bit the dust in late 2008, but a major factor that makes or breaks these types of companies are key personnel and their capabilities. Apple saw great success in the early years under Steve Jobs, then the board forced him out and brought in the former CEO of Pepsi and the company floundered for a decade until they got Steve Jobs back. Microsoft was one of the most dominant companies in the computer business under Bill Gates, but they have been in decline since Gates stepped down.
Nobody would have thought Apple would become one of the worlds biggest companies in 1980s when their only product was the Apple II. Jobs was a master at knowing what people would want before they knew they wanted it and he guided projects to those ends. He created many things that became dominant or at least very influential players in their market niches. Jobs was also one of the best industrial designers of the last 50 years. Apple became a cutting edge company in creating the form of their products.
Microsoft was mostly unknown when they made the deal with IBM and Gates inserted a seemingly innocuous clause in the contract that opened the door for for massive growth. That clause was the work of Gates himself. But the phenomenal growth of Microsoft wasn't just due to that, Gates has the ability to understand everything going on in his company down to the deepest level. There are stories of developers presenting projects to Gates and getting pointed questions about deep details nobody else had seen. Gates is also a master business leader, which is why Microsoft became such a dominant company by the early 1990s. His grandfather founded one of the most powerful law firms in Washington State with many big business clients and his father was a partner there. He picked up his business acumen from his father and grandfather growing up. A lot of the early computer companies were run by people with more vision than business skill and Microsoft with a savvy businessman at the helm who also understood what he was doing.
Elon Musk has proven to be kind of a mix of Jobs and Gates. He has Jobs talent for foreseeing what people will want and Gates' ability to understand things down the the core. Musk has fired people who said something was not possible, then did their job to prove it could be done. Musk is also a fairly good businessman, though not as ruthless a competitor as Gates.
Tesla may still fail, but I think Tesla has more going for it than you think and analysts frequently make the mistake of underestimating dynamic leaders. The fact is that most CEOs are average leaders who only got to their position by playing the corporate backstabbing game better than anyone else. Studies have shown there are several times more psychopaths in corporate board rooms than in the general population. Overall most companies are very poorly run and even though the analysts don't realize it, they take that into account in their estimates.
On the other hand, there are some companies run by extremely talented people who are the right person in the right place at the right time. Those companies are going to vastly outperform the analysts expectations because the analysis doesn't do a good job of taking into account the exceptional talent of their leaders. These are things that are difficult to quantify and are fairly rate qualities.
There are people who have been hailed as visionary leaders of companies that turned out to be poor in the end, or something happened outside of their control. Kenny Lay and Jeff Skilling (Enron) were thought to be a visionary leaders, but really were just crooks running a complicated Ponzi scheme. (I was suspicious of Enron long before the fall, they weren't really producing anything of value.) Netscape came and went as a company, despite producing the best of the early web browsers. They were out competed by a bigger fish who entered the market aggressively.
Many analysts have been predicting that Tesla is going to go the way of Netscape because there are a lot of much bigger companies out there who will out compete them. It's possible a major car company will get serious about challenging Tesla, but so far Tesla has the winning strategy. If you look at the car industry as a whole, Tesla is competing in a very crowded market, but looking at it another way, Tesla is one of the early smart phones in a world of flip phones. The two technologies use the same backbone (cellular network in the case of phones and roads in the case of cars), but there are some fundamental differences. The biggest phone companies when the iPhone came along were Motorola, Nokia, and Blackberry. All are either minor players or gone as independent companies now. The two biggest phone makers are computer makers: Samsung and Apple.
Shifting the car industry is much slower because there is a much slower turnover and a car is a far more expensive and a much more difficult technology to change than a phone. You can completely change a phone by redesigning one chip and maybe a few other parts and the rest is software, but cars require many more parts and huge factories to build.
If you look at the differences in technology between an internal combustion engine (ICE) and a battery powered electric vehicle (BEV), there are a lot of differences. ICE have the advantage of a much more concentrated energy source, gasoline has about 33 KWh of energy per gallon and the Tesla battery pack is about 1 KWh per gallon of space. But EVs can be far more energy efficient, better torque, much more compact motor, much simpler driver train, etc. With the Model S, Tesla did what Elon Musk always does with a new project, they stripped everything down to basic principles and started over. What they ended up with was a revolutionary car design. I'm an engineer, it really is a totally revolutionary design.
Articles are abundant about the Tesla killer this or the Tesla killer that. But all the potential Tesla killers have fatal flaws. Faraday Future has an interesting design concept, but so far they appear to be run by amateurs who are good at a few things, but aren't good at all the things necessary to make a competitor to Tesla. The Bolt will be the first long range BEV in an affordable price range, but their fatal flaw is the same ones plaguing all the would be major car company competitors to Tesla: lack of battery production capability and lack of a long range charging network.
The majors are all banking on somebody magically building a high capacity charging network to service their long range EVs and it isn't happening. There are high speed charging standards, but while stations that meet the plug specification are being built, there are very few that can provided the necessary current being built because to build a true high speed charger, you need to tap directly into the neighborhood power grid, often with your own transformer rather than depend on what can be gotten from the breaker box on an established business. Additionally these stations have spotty maintenance records with many stations out of service for months at a time.
Tesla foresaw this and built their own superchargers to support their cars. Tesla is willing to share their network with anyone who wants to pay their fair share, but the majors are not willing to play with Tesla and want to ghettoize their standard, so they have come up with their own standards and asked the free market to provide the chargers. This problem is going to become a glaring one once other brands of long range BEVs become available and customers complain about spending 2-4 hours charging while on a road trip.
Tesla also foresaw the coming battery shortage and took steps to prevent it because nobody in the free market was doing the necessary work to expand capacity for mass produced BEVs.
GM is only planning on building about 30,000 Bolts a year (according to information leaked from suppliers who have been told this by GM) and LG Chem only has enough extra capacity to build about 52,000 Bolts a year (and likely hurting other company's BEV efforts in the process). That's barely more than what Tesla produced last year. GM has the know how to build 500,000 Bolts if they wanted to, but 450,000 of them would be lawn ornaments due to lack of batteries. Not a good business strategy.
Tesla on the other hand is laying all the groundwork necessary to build 500,000 cars a year. I'm skeptical they will reach this goal by 2020, but I do think they will make 500,000 BEVs a year before anyone else does.
The two key elements to this new technology is battery production and long range charging. At the current evolution of the competition, Tesla will be very well established in the center of the market before anybody can solve these two problems.
The competition, or their suppliers will have to build their own Gigafactories (or equivalent) to compete. It takes about 5 years to bring that much capacity online from start of construction. Tesla is just about ready to start ramping production (with Panasonic's expertise BTW) and the competition hasn't even started thinking about it yet. It's like trying to win the Olympic marathon when one guy is already running the race and the potential competitors are still eating breakfast or in the shower.
On long range charging Tesla is also way ahead of the competition, though the competition is hiding it behind their press releases. CCS is the standard adopted by European and American car makers and Chadamo is the standard from Japan. Both look good on paper with fairly high theoretical maximum charge currents. But actual installations tell a different story. Chadamo has been around longer and has more installations, but very few are even close to the max charging capability because of limitations in the infrastructure in which they are installed.
If the competition comes out with BEVs that sell, that's not necessarily a bad thing, but no established company is going to be able to make BEVs in anything like small numbers until next decade. That gives Tesla plenty of time to entrench in the market and they are already well on their way to that.
To put the battery situation into perspective, there are about 100 million passenger and light truck vehicles built every year. It takes a Gigafactory equivalent to build 500,000 long range BEVs. For BEVs to just get to 10% market share will take building another 19 Gigafactories. Nobody is willing to lay out that kind of capital in such a short time. The majors have the credit to build one or two, but the cost of a Gigafactory is equivalent of the entire R&D or entire capital budget for an entire year for the biggest car companies. It's a major expense for a technology the top brass of these companies are still tepid about. The only way so many Gigafactories are going to get built in the next decade is if the majors get spooked in a very serious way about the coming of BEVs and governments step in to help build them.
I suspect what will happen is the majors are going to wait until it's too late and then some will be too weak to survive and the others will shrink the company retooling for the new technology and only survive by their fingernails. Companies like Toyota will likely survive because of their size. Other companies like Fiat-Chysler and Subaru might be out of the car business when the dust settles.
