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
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