Arguing Tesla's biggest potential is to get the size of Toyota is where got people pissed.
I mean, I didn’t argue that. But even if I did, why should people get pissed? Toyota is a $200B company. That’s 4x growth, which is great. And if even if someone argues that Tesla’s valuation should be no more than GM’s or Volkswagen’s, why should people get pissed? Why would it make you angry if people disagree with your investment thesis? Shouldn’t you welcome disagreement, since it helps sharpen your thinking?
I actually agree with you that before further evidence we should not take full self driving capabilities into account when evaluating the company. Although even as a convenient feature it has lots of value.
I’m invested in Tesla primarily because of self-driving (even though I can’t say with certainty it will arrive; no one knows the future) so my view is kind of the opposite.
Lately, I’ve been thinking about Benedict Evans’ argument that an EV company isn’t any more intrinsically disruptive or valuable than an ICE vehicle company. Without autonomy, what makes Tesla deserve a tech company P/E ratio or P/S ratio (or other valuation multiple)?
The infotainment system is nice, but Apple CarPlay and Android Auto can do the trick in other cars. Tesla is competing against Apple and Google in infotainment software. In newer cars that have big juicy new touchscreens, using CarPlay is like using an iPad. It’s great. Even Fiat Chrysler’s Uconnect is pretty good. A car’s infotainment system also just matters a lot less than a phone’s OS because in a car you’re just driving and using the infotainment for a limited set of apps: maps/nav, podcasts, music, radio, heat/AC, backup camera, etc. Pretty good is good enough.
There is a difference between **a)** Tesla is a wonderful new car brand with great software, great design, a great ADAS, and a lead in electrification that can have sustainable success and **b)** Tesla is a should be valued like a software company with an OS duopoly or cloud triopoly.
(b) is only true if Tesla launches the Tesla Network. (a) increasingly feels to me like the best scenario if Tesla doesn’t launch the Tesla Network. Software companies with duopolies/triopolies have such high valuation multiples because 1) making software doesn’t use up much capital and producing a unit of software costs none, and 2) their market share and thick margins are relatively safe because of their duopoly/tripoly status, thanks in large part to network effects.
I’m not sure about this. I could be wrong. But I think if you subtract autonomy from the equation, it’s hard to argue why Tesla should be valued like a software company. Without autonomy, cars don’t have network effects or duopolies/triopolies/software-like market share consolidation. Car factories use up a ton of capital, and a car (unlike a unit of software) costs a lot to produce.
Maybe Tesla will have outsized market share of the global car market. Okay, but why? What’s to stop incumbents like GM, Volkswagen, Toyota, et al. and upstarts like Lucid, Faraday, BYD, NIO, Dyson, and possibly Apple from **eventually** catching up on batteries and electric drivetrains? Being first doesn’t make you a winner. Palm was making smartphones before Apple. Even if you gain outsized market share in car sales, there’s no reason that will stay entrenched.
I read about a study that found, surprisingly, most of the time there is no such thing as a first mover advantage. First mover advantages tend to be in winter-takes-all or winner-takes-most markets like OS software or social networks or ride-hailing. In manufacturing / consumer goods, there isn’t really a mechanism to support them.
Some argue that ICE automakers will go bankrupt and Tesla will take their sales. Okay, but bankruptcies have happened before. I can see the U.S., Germany, and Japan bailing out their automakers. China is supporting its electric automakers. Governments will bankroll these competitors even if private investors won’t. It’s also possible that private investors will turn over a new leaf and fund electrification / tolerate a temporary transition phase of losses and negative free cash flow. Changing investors’ mind is kind of the point of Tesla, isn’t it?
I think the idea that Tesla will just bankrupt all the other companies and take over the global auto market overlooks a) how willing governments are to bail these companies out and b) the trillions in capital sloshing around looking for new opportunities — the bigger and more attractive the EV opportunity for Tesla turns out to be, the more investors will want a slice of that pie.
This isn’t to say that Tesla can’t achieve 1.5x or 2x or 4x growth. That would still be a great outcome. But 20x, or 30x... or 340x... that is harder to plausibly model.