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Fantastic post!
Small update: in Q3 Tesla generated $1.4b of cash from operations on $6.8b of sales, which is a 20.5% cash generation margin, corporate-wide.
I.e. it's twice as good as ICE automotive, which generates about 10% of cash. Stores overhead included. I.e. by vertically integrating car dealerships Tesla is able to catch both types of profits with a single sale - while offering superior customer experience.
But it's even better: GM and Ford generate about half of their free cash and profits from ''captive financing", i.e. loans and leases offered through GM Financial, etc. If we take out that source of income, which Tesla doesn't fully utilize yet, their margins are 5-6% only. Tesla's 20-25% is obscenely high that allows them to grow much faster - without having to worry about undermining its ICE product.
i.e. Tesla generates cash like Apple does - the Model 3 is truly an "iPhone moment", except that Tesla is growing into a 10-20x times larger market than all of Apple's markets combined...
I've been looking around TMC (and I admit maybe I'm just to stupid to find it...), but is there a one-page summary or something like that here that gives all the rational reasons for investing in Tesla? For a first-time $TSLA investor.
My wife is getting some cash freed-up, and I'm trying to convince her to put it in $TSLA....but she doesn't have the time to read through this forum etc. and I would prefer to give her a neutral view (or as neutral as we can be here on TMC), as oppose to my fan-boy slanted view...
I'm certain the governments will bail them out. And French people will buy inferior French cars, Germans will buy inferior German cars etc. So I think they still have some time to catch up and sell cars even if they are a few years behind.I think we're 1-2 years away from beginning to see bankruptcy(s) in traditional auto
I'm certain the governments will bail them out. And French people will buy inferior French cars, Germans will buy inferior German cars etc. So I think they still have some time to catch up and sell cars even if they are a few years behind.
I'm certain the governments will bail them out.
Waymo valued at $175B.Just some ideas of markets Tesla is in. It kind of gives an idea of where Tesla's market cap can go.
Auto manufacturer: Toyota Motor Corp. $174.2 billion.
Auto retail sales (dealerships): Penske Motor Group market cap $3.8 Billion
Gas station (supercharger network): QuikTrip has grown to a more than $11 billion company with 750+ stores in eleven state
Auto self driving tech: While GM did not disclose the financial details of the Cruise acquisition, reports estimated the purchase to be in the $1 billion range.
Solar (standard panels) and storage: First Solar $4.49 billion
Roofing materials manufacturer (solar roof): GAF has become one of the largest roofing manufacturers in North America, with sales approaching $3 billion.
True. Here are my answers, because they're quick:There are a couple different questions every Tesla investor has to answer:
- How will Tesla avoid commoditization of its vehicles, and maintain popularity and pricing power in the long term?
- On a similar note, how will new electric vehicle models from incumbent automakers affect Tesla's demand?
Why did you ignore Elon’s take on what Tesla’s long term advantage will be? Manufacturing prowess.I just wrote this article, which I think gives a synoptic view: Tesla Turns Up The Heat On Autonomy
There are a couple different questions every Tesla investor has to answer:
I address those four questions in my article, with a focus on partial autonomy and full autonomy. I focused more on non-autonomous electric vehicle sales in a previous article.
- How will Tesla avoid commoditization of its vehicles, and maintain popularity and pricing power in the long term?
- On a similar note, how will new electric vehicle models from incumbent automakers affect Tesla's demand?
- What structural advantages (if any) does Tesla have over incumbent auto manufacturers, suppliers like Mobileye, and tech companies like Waymo and Zoox? What structural disadvantages does it have?
- What is a conservative/plausible risk-adjusted, discounted valuation for Tesla if it remains competitive?
I think Tesla is a very uncertain, high-risk investment that requires a very long time horizon. The uncertainty and risk comes from the unpredictability of technological progress. Also from the precarity of the auto business. Elon has reiterated again and again how hard it is for an auto company to avoid bankruptcy. He recently said that until around September, Tesla was staring death in the face.
The long time horizon comes from 1) the fact that a significant amount of growth is already priced in to Tesla's market cap and 2) the uncertainty of technological progress and the growth rates of Tesla's businesses means that it's near-impossible to exactly time or predict when the upside potential for Tesla could materialize.
If you want to hear the opposing view, read this excellent essay by Andreessen Horowitz partner Benedict Evans: Tesla, software and disruption
I think it's important to avoid over-exposure to Tesla investor exuberance. Of course people on the TMC investor sub-forum think Tesla is going to the Moon. That's some selection bias right there. Also, there are a lot of accounting errors and other financial mistakes posted on TMC. It's just a forum. You can't trust what you read here. In my experience, people also get angry and abusive even if you are optimistic about Tesla, but less optimistic than they are. There is group polarization happening here. You will have a hard time hearing anything other than what you already want to hear.
I think it's also important to avoid over-exposure to low-quality criticism of the Tesla investment case. Reading too much nonsense on Seeking Alpha, Business Insider, or on Twitter can make you over-confident because it tricks you into thinking that all there is on the other side of the argument is nonsense. You should seek out the strongest critics and the strongest criticisms, and try to ignore the other stuff. (I should probably follow my own advice on this point. )
If you listen too much to people who are exuberant about making money off Tesla stock, or if you listen to too much nonsense that is negative about Tesla, I think you will end up being over-confident and will not think enough about the real problem space.
On that note: what is the best, smartest criticism of the investment case for Tesla that everyone has read? What articles, videos, etc. would you recommend to understand a rational, intelligent, informed opposing view?
Necessary disclaimer that this is not investment advice and you should understand the risk and consider consulting a professional financial advisor before staking a lot of money on any particular investment.
Why did you ignore Elon’s take on what Tesla’s long term advantage will be? Manufacturing prowess.
I believe Tesla will do to heavy manufacturing what Amazon did to traditional retail.
Part 2: Why Tesla, Specifically?
All EV makers are not the same.
Pretty much every automaker produces at least one electric vehicle. They need to - not just for PR reasons, but because it gains them access or discounts in various markets, due to ZEV regulations. But there's a difference between "making an electric vehicle" and "making a serious attempt to actually switch to EVs".
Traditional automakers are heavily invested in ICE technology. Their existing platforms are all designed around ICEs. They usually make their own engines. Indeed, these two things are the vast majority of what a traditional automaker actually owns; they outsource most of the parts that can be used in either EVs or ICEs to other suppliers. If they undercut ICEs, they devalue their billions upon billions of investments; it would ruin them. It's in their best interests to slow down the EV conversion as long as possible, so that their existing facilities can depreciate on their own and go through their normal cycle lives.
Enter the "compliance car".
Making an EV profitable is very different from simply making an EV. A manufacturer could make EVs that cost them half a million dollars each to build, sell them for $15k, and so long as the volumes are low, justify that via the PR or ZEV benefits they get for those vehicles. That doesn't make them actually "$15k cars". Manufacturers limit sales by making only small volumes available. This is achieved in various ways - for example, "long waiting lists that don't diminish because production increases are kept slow", "We're going to pretend that it's actually available in your market although we're not actually sending many/any", or even just "Look, we're not even going to pretend; it's only going for sale in ZEV states where we need to move them." Oftentimes dealers are left uneducated about EVs and with financial incentive to drive EV buyers to ICE vehicles. Ads for EVs are often minimal or counterproductive or market-selective. And often the vehicles themselves are designed to only appeal to a narrow subset of buyers, such as by lacking range or true fast charging.
This is not Tesla.
Tesla, as a company, lives or dies on EVs. It has no ICE infrastructure. It must profit healthily on EVs, and its EVs must be appealing, made widely availalble, and marketed by people who are not just going to try to push people to ICEs. And this shows. As you can see in their most recent Q3, Tesla earns over 20% margins (and growing) on its automotive business, well en route to 25+% (many automakers are happy to get 10-15%). Shorts will (rightfully) point out that this is misleading because Tesla has to pay for stores, while other automakers pass such costs off to dealerships. But this is only a small portion of Tesla's expenses. Tesla is now profitable - having a free cash flow of nearly a billion dollars last quarter - and now has the resources to direct money into pretty much whatever it sees fit. These resources will only continue to grow. Model 3 margins are far from maxed out. Q3 Model 3 volumes can double at minimal cost (no new lines) at Fremont, to an average of 7k per week on the limiting lines, and 10k per week on the non-limiting lines (the output of which can be used to speed up the start of new factories in China and Europe).
Do people actually want Teslas? Um... let's let this speak for itself:
10 Nasty Tesla Model 3 Charts | CleanTechnica
View attachment 350208
View attachment 350211
View attachment 350212
Note how obscenely Tesla is crushing its competition. This is not a coincidence. They make great cars. Not simply fast and long range, but with a vastly superior (years ahead) charging network (one that actually enables realistic roadtrips, unlike the barely-visible "competition"), OTA updates, etc. Tesla leads every year in consumer satisfaction surveys, over 90%, versus an industry average closer to 2/3ds.
Shorts inevitably launch into the "Meh, demand will dry up soon!" argument. But of course, it's the same nonsense argument they make every time. The reality is:
Even the main thing that they hold against Tesla - the notion that the US (note: just the US) tax credit will start expiring for them isn't certain.
- Tesla is far from selling its cheapest version yet (independent teardowns suggest that the $35k Model 3 will cost $28k to make once production volumes hit their peak). Market size grows vastly as prices drop
- Tesla is only selling to a fraction of its global market (US + Canada)
- Tesla is not yet offering leases - the way that most people buy cars
- Stores are currently spread far and wide, as Tesla has had no need to push the vehicles more
- Much of the world remains entirely untouched by Tesla.
- Tesla does not advertise at all
- Most people prefer not to buy cars in their first model year or two
- Word of mouth spreads exponentially over time as the number on the roads grows.
The best way you can tell how serious an automaker is about EVs, vs. just being hype, is their secured battery capacity. As batteries are everything to EVs. Gigafactory alone makes half of the world's total battery supply. And that fraction is growing. Add in the Panasonic 18650s that are exclusively made for Tesla and they have 60% of the world's total supply. How can you take the "competition hypothesis" seriously when one company so utterly dominates the market?
While the shorts have been out screaming "Tesla has been burning money", Tesla has been investing that money in tech and infrastructure. And it's payed off in a several year advantage over its next closest competitors. Check out the teardowns of the Model 3s; people seeing how they tick for the first time have been describing them like encountering tech from another planet. Nobody is even close. Now we keep seeing automakers targeting "where Tesla is today" with vehicles that will be out "several years from now". Except Tesla is not, and never will, just rest on its laurels; this show is only getting started. Unlike other automakers, Tesla does not pay a dividend, and will not until it's basically "taken over the world". This lets them redirect all of their profits into tech and growth.
Part 2: Why Tesla, Specifically?
All EV makers are not the same.
Pretty much every automaker produces at least one electric vehicle. They need to - not just for PR reasons, but because it gains them access or discounts in various markets, due to ZEV regulations. But there's a difference between "making an electric vehicle" and "making a serious attempt to actually switch to EVs".
Traditional automakers are heavily invested in ICE technology. Their existing platforms are all designed around ICEs. They usually make their own engines. Indeed, these two things are the vast majority of what a traditional automaker actually owns; they outsource most of the parts that can be used in either EVs or ICEs to other suppliers. If they undercut ICEs, they devalue their billions upon billions of investments; it would ruin them. It's in their best interests to slow down the EV conversion as long as possible, so that their existing facilities can depreciate on their own and go through their normal cycle lives.
Enter the "compliance car".
Making an EV profitable is very different from simply making an EV. A manufacturer could make EVs that cost them half a million dollars each to build, sell them for $15k, and so long as the volumes are low, justify that via the PR or ZEV benefits they get for those vehicles. That doesn't make them actually "$15k cars". Manufacturers limit sales by making only small volumes available. This is achieved in various ways - for example, "long waiting lists that don't diminish because production increases are kept slow", "We're going to pretend that it's actually available in your market although we're not actually sending many/any", or even just "Look, we're not even going to pretend; it's only going for sale in ZEV states where we need to move them." Oftentimes dealers are left uneducated about EVs and with financial incentive to drive EV buyers to ICE vehicles. Ads for EVs are often minimal or counterproductive or market-selective. And often the vehicles themselves are designed to only appeal to a narrow subset of buyers, such as by lacking range or true fast charging.
This is not Tesla.
Tesla, as a company, lives or dies on EVs. It has no ICE infrastructure. It must profit healthily on EVs, and its EVs must be appealing, made widely availalble, and marketed by people who are not just going to try to push people to ICEs. And this shows. As you can see in their most recent Q3, Tesla earns over 20% margins (and growing) on its automotive business, well en route to 25+% (many automakers are happy to get 10-15%). Shorts will (rightfully) point out that this is misleading because Tesla has to pay for stores, while other automakers pass such costs off to dealerships. But this is only a small portion of Tesla's expenses. Tesla is now profitable - having a free cash flow of nearly a billion dollars last quarter - and now has the resources to direct money into pretty much whatever it sees fit. These resources will only continue to grow. Model 3 margins are far from maxed out. Q3 Model 3 volumes can double at minimal cost (no new lines) at Fremont, to an average of 7k per week on the limiting lines, and 10k per week on the non-limiting lines (the output of which can be used to speed up the start of new factories in China and Europe).
Do people actually want Teslas? Um... let's let this speak for itself:
10 Nasty Tesla Model 3 Charts | CleanTechnica
View attachment 350208
View attachment 350211
View attachment 350212
Note how obscenely Tesla is crushing its competition. This is not a coincidence. They make great cars. Not simply fast and long range, but with a vastly superior (years ahead) charging network (one that actually enables realistic roadtrips, unlike the barely-visible "competition"), OTA updates, etc. Tesla leads every year in consumer satisfaction surveys, over 90%, versus an industry average closer to 2/3ds.
Shorts inevitably launch into the "Meh, demand will dry up soon!" argument. But of course, it's the same nonsense argument they make every time. The reality is:
Even the main thing that they hold against Tesla - the notion that the US (note: just the US) tax credit will start expiring for them isn't certain.
- Tesla is far from selling its cheapest version yet (independent teardowns suggest that the $35k Model 3 will cost $28k to make once production volumes hit their peak). Market size grows vastly as prices drop
- Tesla is only selling to a fraction of its global market (US + Canada)
- Tesla is not yet offering leases - the way that most people buy cars
- Stores are currently spread far and wide, as Tesla has had no need to push the vehicles more
- Much of the world remains entirely untouched by Tesla.
- Tesla does not advertise at all
- Most people prefer not to buy cars in their first model year or two
- Word of mouth spreads exponentially over time as the number on the roads grows.
The best way you can tell how serious an automaker is about EVs, vs. just being hype, is their secured battery capacity. As batteries are everything to EVs. Gigafactory alone makes half of the world's total battery supply. And that fraction is growing. Add in the Panasonic 18650s that are exclusively made for Tesla and they have 60% of the world's total supply. How can you take the "competition hypothesis" seriously when one company so utterly dominates the market?
While the shorts have been out screaming "Tesla has been burning money", Tesla has been investing that money in tech and infrastructure. And it's payed off in a several year advantage over its next closest competitors. Check out the teardowns of the Model 3s; people seeing how they tick for the first time have been describing them like encountering tech from another planet. Nobody is even close. Now we keep seeing automakers targeting "where Tesla is today" with vehicles that will be out "several years from now". Except Tesla is not, and never will, just rest on its laurels; this show is only getting started. Unlike other automakers, Tesla does not pay a dividend, and will not until it's basically "taken over the world". This lets them redirect all of their profits into tech and growth.