In my opinion, the share price will cut in half from where it is now. Will be a bumpy ride as always, but it will get there fairly soon, and possibly half again within another year
That’s based on the car business only
There are robot considerations, energy, batteries etc but there is no real trend to put a value on these so there is room for upward momentum should something amazing come out of that. Whether you want to put money on it is a different matter. Its called investing when you buy shares but in reality, its not to dissimilar to gambling, if those particular items are part of your investment thesis. Nobody on the bear side or bull side can say with any certainty how those things will pan out so its simply a matter of opinion. Nothing more, nothing less. If you have a level of confidence in those things, then maybe you want to put some cash into it. Its not for me but I do understand the attraction
But back to the car business. Growth is pretty much done in the main markets now, with the option to increase growth at the expense of margins, by price cuts. I should add at this point that back in Feb, I created a thread about the SR MY coming to UK and people thought I was out of my mind predicting that. I also predicted that in the space of a year, we would see a MY at less than £50k and true enough, Tesla sold brand new MY’s this month on their inventory page at less than £50k. There are more price cuts to come by the way, I’m quite confident in that
I say this partly due to my day job as someone who forecasts a lot, as well as an understanding of market saturation points and things like that.
Let me give you an example. I invent a pill that you take just once in your life, and it means you will never ever get cancer. If I can make and sell this pill for £1, my market saturation will be many billions of people. However, if I can make and sell this pill for £1,000,000, I hit market saturation point much faster. I can’t sell billions of these pills at £1m. Its an extreme example of market saturation but it should be pretty obvious the point I’m illustrating.
Its for this very reason that back in Feb I predicted the MY SR would hit the UK and also I predicted the 1st price drop. There will be more, and its due to market saturation points. There is convergence in the different elements of saturation points when it comes to cars, and indeed, Tesla. Price is an obvious one. It doesn’t matter how good a car is, if someone can’t afford it, they won’t buy it. Just like the £1m pill that will save you from cancer. The other example, if someone wants a city car for their needs and is really uncomfortable trying to park a big car, it doesn’t matter how good the car is, they won’t buy it if it doesn’t fit their key wants.
So what you do, is you look at annual sales in each segment, then align that segment with different price bands, then look at who competes here and at what volume, and you then get a picture of how much penetration you can get into said market. That’s your market saturation point. There are over a dozen segments and within each segment, you have further segmentation via price bands. Even the SUV segment, its fractured heavily with large/medium/small SUV’s, plus the utility aspect, farm use/recreation/trailering etc.
When you understand this, then you can understand why VW and Toyota have scores of different models. They have almost full market penetration and they need so many different models as that’s what the customer demands. You can try and get a Passat driver into a VW Polo all you want, but the customer won’t have it, so VW have no choice but to build so many different types of vehicle.
Tesla has 4 vehicles, and just 2 at high volume. Cybertruck? Elon forecast 250k of those per year but no line of sight. If it ever does arrive, its not a huge volume seller regardless.
In summary, Tesla has hit market saturation point as of now and I can see a reversal of demand if prices remain as is. They will need to take a hit on margin to stimulate volume. Like I mentioned, I forecast the MY SR as well as the price cut here in the UK as it was clear to me this would happen. People need to consider that everyone who really wanted a MY has now got one, so the 2022 sales that we’ve seen across Europe won’t continue now that that demand has been met. Of course, people will buy more of them in 2023, that is certain but it’s really important to understand the uplift in volume in 2022 is driven hugely by a new model, as well as getting M3 owners into MY’s. That’s not sustainable volume.
Tesla have growth opportunities in other markets but you should note that the key markets of US/China/Europe have already been tapped. If you want to touch every zip code/post code on Earth, that’s gonna cost quite a lot of money. Economies of scale meant USA, Europe, China were the obvious markets to target but when you start entering smaller markets, each unit of sales is more costly due to smaller scale, which results in margin erosion.
So that’s where Tesla is right now. Take a profit hit to grow sales via pricing, enter smaller markets which again, impacts margin. The options aren’t very wonderful for a Tesla shareholder right now as no matter what, you either take a growth hit or you take a margin hit. All those 2025/2030 forecasts you see from the Tesla fans on twitter etc are build on sand I’m afraid. Even the highly respected Gary Black has it wrong. His 2025 forecast has Tesla absolutely miles past the market saturation point. The equivalent of me forecasting lawnmower sales to people that live in a flat. Its just not going to happen. You can get a little bit of movement across markets, but key fundamentals, like getting the Passat driver into a Polo – that’s just not going to happen in significant numbers.
If you’ve made it this far, you’ve done well. I wouldn’t dream of buying Tesla shares but I can see the attraction. I just don’t have the risk appetite. For those that do though, I wish you well, but please do so with an open mind and consider what I’ve suggested in this post. Like I mentioned, I forecast for a living and my 2022 UK forecast of the MY SR and price cuts turned out to be pretty accurate, despite people thinking my statements were absurd at the time.
‘But Tesla sell every car they can make!’ Turns out that’s not true. Market saturation points have forced Teslas hand, and will continue to do so.
