What people don't understand about Tesla

[remouherek]

I believe that Tesla is one of the most misunderstood (and most exciting) tech companies right now.

Here's my summary of the things I believe are most misunderstood, from almost 3 years of following the company.

Summary:

1. It’s all about batteries, and Tesla has a multi-year head start.

2. Gigantic ambition: They did what they said they would do in their public master plan from 2006. They won’t stop until *all* cars are electric.

3. Healthy gross margins: The common belief is that Tesla is losing money on each car they sell. This is wrong. Their automotive gross margin is ~20%. Exactly the same as Volkswagen’s.

4. Software and in-app purchases: Tesla is not just a manufacturer. It’s also a software company. This is where the future superior margins will come from.

5. Investing as fast as possible: Tesla is not cash-constrained. On the contrary, they invest as fast as they possibly can. Also, Tesla generated $1.1 billion in free cash flow in 2019.

6. Exceptional customer satisfaction: Each Tesla customer is an ambassador. I’ve both driven a Model S and Model 3 from friends. They love to spread the experience. The Tesla fleet is growing exponentially, and so are its ambassadors.

7. Direct to consumer: Tesla has no dealership structure, removing a middleman and major source of complexity. The Innovator’s Dilemma with it’s inherent path-dependency is making it impossible for the others to do the same.

8. Startup DNA: Tesla fundamentally has startup and Silicon Valley DNA. They move fast. They iterate fast. They have tight feedback loops. Compare that to mature and bureaucratic companies, with mercenary managers. Who will innovate faster?

9. High degree of vertical integration: Out of necessity, they had to “vertically integrate, or die”. Now reap the rewards: much less complexity, much faster feedback loops, more innovation.

10. Ride sharing: Tesla will not just make money from cars and software, but also make money from each mile that is driven on its ride sharing network. Spoiler alert: they will launch ride sharing before full self driving.

11. Solar and energy business: Tesla is not only a car, software and tech company. They are have a major solar and energy business. For many customers, adding solar and Powerwalls will be a no-brainer.

12. Level 5 leadership: Yes, Elon Musk is quirky and eccentric. But more importantly, he is a Level 5 leader. Caring more about the mission than himself.

Conclusion:

I don’t see a reason why Tesla shouldn’t have a chance of becoming a $1 trillion market cap company, possibly multi-trillion, within the next 10 to 15 years. (Or, they could still go bust, of course. Because they will keep betting the company.)

Tesla remains the “most shorted US stock“. I get it. Most new car companies fail. So on average, short sellers probably make money. But it‘s wrong here. Morally wrong. Founders like Elon are super rare. Instead of wanting them to fail, we should cheer them on.

This is just an excerpt/summary. If you are interested in my full-write up, you can find it under my homepage link in my profile. My intention is not to spam, but to contribute to Tesla's mission and help fight the FUD, so I decided to share this with the community here (but without posting the link, of course). I've spent many hours putting this analysis together, so I hope that you will find it useful.

Greetings from Switzerland,
Remo

 

[ewoodrick]

While I don't disagree with most of your write-up,

1) It it is all about the batteries then why does the Taycan have half the range with a bigger battery?

 

[remouherek]

I'd say:

- Because Porsche didn't invest in cell chemistry research as Tesla does.
- Because Porsche is buying commodity cells from external suppliers, instead of making their own.
- Because Porsche doesn't have as much experience with battery packs, battery cooling systems etc.

Did I forget anything?

Here's the section from my full write-up (see attached screenshot).

 

[traxila]

Don

I believe that Tesla is one of the most misunderstood (and most exciting) tech companies right now.

Here's my summary of the things I believe are most misunderstood, from almost 3 years of following the company.

Summary:

1. It’s all about batteries, and Tesla has a multi-year head start.

2. Gigantic ambition: They did what they said they would do in their public master plan from 2006. They won’t stop until *all* cars are electric.

3. Healthy gross margins: The common belief is that Tesla is losing money on each car they sell. This is wrong. Their automotive gross margin is ~20%. Exactly the same as Volkswagen’s.

4. Software and in-app purchases: Tesla is not just a manufacturer. It’s also a software company. This is where the future superior margins will come from.

5. Investing as fast as possible: Tesla is not cash-constrained. On the contrary, they invest as fast as they possibly can. Also, Tesla generated $1.1 billion in free cash flow in 2019.

6. Exceptional customer satisfaction: Each Tesla customer is an ambassador. I’ve both driven a Model S and Model 3 from friends. They love to spread the experience. The Tesla fleet is growing exponentially, and so are its ambassadors.

7. Direct to consumer: Tesla has no dealership structure, removing a middleman and major source of complexity. The Innovator’s Dilemma with it’s inherent path-dependency is making it impossible for the others to do the same.

8. Startup DNA: Tesla fundamentally has startup and Silicon Valley DNA. They move fast. They iterate fast. They have tight feedback loops. Compare that to mature and bureaucratic companies, with mercenary managers. Who will innovate faster?

9. High degree of vertical integration: Out of necessity, they had to “vertically integrate, or die”. Now reap the rewards: much less complexity, much faster feedback loops, more innovation.

10. Ride sharing: Tesla will not just make money from cars and software, but also make money from each mile that is driven on its ride sharing network. Spoiler alert: they will launch ride sharing before full self driving.

11. Solar and energy business: Tesla is not only a car, software and tech company. They are have a major solar and energy business. For many customers, adding solar and Powerwalls will be a no-brainer.

12. Level 5 leadership: Yes, Elon Musk is quirky and eccentric. But more importantly, he is a Level 5 leader. Caring more about the mission than himself.

Conclusion:

I don’t see a reason why Tesla shouldn’t have a chance of becoming a $1 trillion market cap company, possibly multi-trillion, within the next 10 to 15 years. (Or, they could still go bust, of course. Because they will keep betting the company.)

Tesla remains the “most shorted US stock“. I get it. Most new car companies fail. So on average, short sellers probably make money. But it‘s wrong here. Morally wrong. Founders like Elon are super rare. Instead of wanting them to fail, we should cheer them on.

This is just an excerpt/summary. If you are interested in my full-write up, you can find it under my homepage link in my profile. My intention is not to spam, but to contribute to Tesla's mission and help fight the FUD, so I decided to share this with the community here (but without posting the link, of course). I've spent many hours putting this analysis together, so I hope that you will find it useful.

Greetings from Switzerland,
Remo

Don’t see how you can call Tesla a new car company anymore. They are three years away from burying most of the industry. New car companies cannot do that.

Pretty sure 2019 is the last year you can refer to Tesla as being some sort of start up new company.

Also Musk has made it clear there is no reason to bet the company anymore. At this point slow and steady for Tesla will yield 2.5M cars annually in five years time, all the while ICE car demand is collapsing.

Amazing to watch and be a part of.

 

[Ostrichsak]

6. Exceptional customer satisfaction: Each Tesla customer is an ambassador. I’ve both driven a Model S and Model 3 from friends. They love to spread the experience. The Tesla fleet is growing exponentially, and so are its ambassadors.

ROFL

No.

Being able to commiserate with others who have the same crap customer service isn't the same as actual customer service. Tesla is giving itself a black eye with the complete and utter lack of support after the sale and it's chasing a lot of people off. Poor timing now that everyone else is getting into the EV game. Once there's something comparable from another manufacturer I'm gone and a lot of people I know feel the same.

 

[cucubits]

6. Exceptional customer satisfaction

I sort of took it seriously until I got to your number 6. Then I knew you were just being funny...

 

[remouherek]

Don’t see how you can call Tesla a new car company anymore. They are three years away from burying most of the industry. New car companies cannot do that.

Pretty sure 2019 is the last year you can refer to Tesla as being some sort of start up new company.

I fully agree. I never claimed them being a startup. What I'm saying is that they preserved their startup DNA, which is a huge advantage.

Also Musk has made it clear there is no reason to bet the company anymore. At this point slow and steady for Tesla will yield 2.5M cars annually in five years time, all the while ICE car demand is collapsing.

I would certainly hope that. But I don't believe the challenges are over. What if there is a major global recession, a new war or some other sort of black swan event? Also, in my opinion their ambition is just too big, and they will continue to take huge bets. You might argue that building FSD is betting the company. Because if they don't solve FSD (or if it should be outlawed, or something), the current lofty valuation (and possibly even part of the customer enthusiasm) will be hard to sustain...

 

[remouherek]

Being able to commiserate with others who have the same crap customer service isn't the same as actual customer service. Tesla is giving itself a black eye with the complete and utter lack of support after the sale and it's chasing a lot of people off. Poor timing now that everyone else is getting into the EV game. Once there's something comparable from another manufacturer I'm gone and a lot of people I know feel the same.

I hear you. Customer service is a huge pain point. I get it. And it will take time to resolve. (This is the downside of hyper-growth.)

Hard to deny the level of customer enthusiasm though (just look at the Tesla Twitter and YouTube community, for example).

 

[remouherek]

I sort of took it seriously until I got to your number 6. Then I knew you were just being funny...

Aren't you satisfied with your Tesla? (serious question) If not, why?

 

[cucubits]

Aren't you satisfied with your Tesla? (serious question) If not, why?

It's like the saying "never meet your heroes".

Before buying it, I was way more excited and sometimes even found myself daydreaming about driving it. Now the excitement levels keep dropping with every bad design choice I notice, every bad build quality part which went into it. It's not one thing. Maybe my expectations were too high because I never owned such an "expensive" car. My previous ICE was a 2016 Mazda 6 and the build and ride quality was way way better than the 2016 Model S I have now.

Apart from the instant acceleration and the idea of driving an EV and not paying for gas, there's really nothing that great about a Tesla.

 

[mikes_fsd]

Apart from the instant acceleration and the idea of driving an EV and not paying for gas, there's really nothing that great about a Tesla.

Please, get yourself another "great" car, life is too short to be suffering so much!

 

[huangm777]

The difference between Tesla and other automakers can be boiled down to: they’re a Silicon Valley software company, and run exactly like one. The hardware (car) is really a vehicle for the software, which is what we both love (constant updates and feature upgrades) and hate (bugginess, flaky AP/FSD and massive overpromises) about it. This would also explain why fit and finish seem to take a back seat sometimes. Elon was both an engineer and a software developer in his earlier companies. The two priorities often clash: with hardware you want to take your time and make sure you get the little details right. At a Silicon Valley software shop you want to iterate fast, even if it breaks stuff temporarily. Tesla seems to choose the latter approach most of the time, while traditional automakers do the former. That’s why their UIs seem 5-10 years behind; they don’t add tech until it’s tried and true, with the consequence that it won’t be current by the time it comes out.

I think this will stabilize eventually. Apple is kind of the same, and at its best is the model for this dual focus.

 

[VT_EE]

It's like the saying "never meet your heroes".

Before buying it, I was way more excited and sometimes even found myself daydreaming about driving it. Now the excitement levels keep dropping with every bad design choice I notice, every bad build quality part which went into it. It's not one thing. Maybe my expectations were too high because I never owned such an "expensive" car. My previous ICE was a 2016 Mazda 6 and the build and ride quality was way way better than the 2016 Model S I have now.

Apart from the instant acceleration and the idea of driving an EV and not paying for gas, there's really nothing that great about a Tesla.

Wow, I also own a 2016 Mazda 6 GT and my Model 3 is far superior to the Mazda. They aren’t even comparable. The Mazda only surpasses the Tesla in panel alignment and paint quality and that’s with an early Model 3 build (mid-2018). The Mazda is an utter dog compared to the Tesla with regard to driving dynamics.

 

[traxila]

I fully agree. I never claimed them being a startup. What I'm saying is that they preserved their startup DNA, which is a huge advantage.



I would certainly hope that. But I don't believe the challenges are over. What if there is a major global recession, a new war or some other sort of black swan event? Also, in my opinion their ambition is just too big, and they will continue to take huge bets. You might argue that building FSD is betting the company. Because if they don't solve FSD (or if it should be outlawed, or something), the current lofty valuation (and possibly even part of the customer enthusiasm) will be hard to sustain...

Yes they still have the startup DNA. I agree.

FSD is included nowhere in Tesla valuation. Waymo has been assigned 100 bill valuation and more for its self driving future. Where is Tesla’s?

Tesla’s valuation right now may be a bit high, but it is based on their dominant disruptor status and the lack of a response from the OEMs who are about to be destroyed. Once again we see how hard it is for legacy businesses to engage in the creative destruction of their cash flow, even under existential threat.

Also they have a real moat in their battery production and chemistry. And this is before they even launch the latest generation they have been working on since Maxwell purchase!

Black swan events...yes. Please tell me what company is immune to this? All you can do is push forward and continue to add to the cash pile on a quarterly basis in a measured manner.

Elon would argue that nothing Tesla has engaged in has been overly ambitious (except the MX), but rather the obvious and necessary action for them to survive and thrive and achieve their mission. There had to be a bet company moment with the M3. There was no other way. That never has to happen that way again.

 

[traxila]

ROFL

No.

Being able to commiserate with others who have the same crap customer service isn't the same as actual customer service. Tesla is giving itself a black eye with the complete and utter lack of support after the sale and it's chasing a lot of people off. Poor timing now that everyone else is getting into the EV game. Once there's something comparable from another manufacturer I'm gone and a lot of people I know feel the same.

OK. Spread the BEV gospel and go in peace. Need a lot of BEVs out there.

 

[electracity]

I sort of took it seriously until I got to your number 6. Then I knew you were just being funny...

Well, it's objectively true based on independent surveys.

 

[Lozza12]

It's like the saying "never meet your heroes".

Before buying it, I was way more excited and sometimes even found myself daydreaming about driving it. Now the excitement levels keep dropping with every bad design choice I notice, every bad build quality part which went into it. It's not one thing. Maybe my expectations were too high because I never owned such an "expensive" car. My previous ICE was a 2016 Mazda 6 and the build and ride quality was way way better than the 2016 Model S I have now.

Apart from the instant acceleration and the idea of driving an EV and not paying for gas, there's really nothing that great about a Tesla.

For a second I kinda understood what you meant, but then I thought “well why can’t anyone else make such a good EV as Model 3?” Tesla simply has the best all-round offering right now and the other car makers seem unable or unwilling to keep up....but let’s see how good ID3 is.