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In terms of base tech, Tesla is more like Apple + BEV than like GM + BEV. Said another way, a Tesla is a supercomputer you can drive around. A GM is a car with

In terms of base tech, Tesla is more like Apple + BEV than like GM + BEV. Said another way, a Tesla is a supercomputer you can drive around. A GM is a car with an electric motor. Also, Tesla sales growth is 40% annually over the last 3 years and will likely continue for 5-10 years. GM's might be 1%. Keep in mind, GM is fighting to retain market share. Tesla is taking it away from the incumbents. They really cannot be compared in this analysis. Apple is the closest as a proxy for future P/E. If the legacy autos spun out their BEV business, that would be the closest comparable.

itsoktocry 6y ago
>Said another way, a Tesla is a supercomputer you can drive around. A GM is a car with an electric motor. They have an awesome software experience, but they buy off the shelf parts and assemble them into cars, just like everyone else. Nothing about that makes it a supercomputer on wheels. >Tesla is taking it away from the incumbents Competitors are already taking EV share back in some markets. Won't be as easy as you seem to think.
- 11thEarlOfMar 6y ago
  I was referring to this supercomputer: https://heartbeat.fritz.ai/computer-vision-at-tesla-cd5e88074376 https://heartbeat.fritz.ai/computer-vision-at-tesla-cd5e8807...
  - itsoktocry 6y ago
    I don't see a "supercomputer" in that article anywhere.
xyzzyz 6y ago
If Tesla keeps growing 40% for 10 more years (which would be hugely amazing achievement), in 2030 it will become the biggest car producer in the US, selling something like double the number of the next biggest competitor, GM. I'm not going to speculate on likelihood of this, but consider this: if the optimistic scenario is that future revenues are expected to be twice that of GM, wouldn't you expect Tesla's value to be something like twice of value of GM, additionally discounted by time needed for these revenues to materialize? Alas, the market cap of Tesla is >10x that of GM. Moreover, the market cap of the biggest car companies have been relatively stable over last 10 years, as the market cap of Tesla was soaring. If the expectation is that the Tesla will eat the automotive market (as it well might), wouldn't you expect the market cap of other companies fall accordingly? As of right now, it seems like the market expects insane increase in revenues of entire industry, not just Tesla, which doesn't seem likely to me: Tesla's growth is almost certainly mostly predicated upon cannibalizing sales of its competitors. I think Tesla is great company, and I think Elon Musk is exactly the kind of person we need more of, if we want to have bright future instead of stagnation or degeneration. My only point is that Tesla's market cap seems to be greatly inflated, by factor of at least 5x, and possibly even 20x.
- bryanlarsen 6y ago
  Market cap is the wrong metric for comparing the value of two companies, Enterprise Value is the right metric. The Enterprise Value of GM is $150B. There's <4X difference between the two, not >10X.
  - xkjkls 6y ago
    Enterprise Value can be incredibly misleading for companies with large financial arms. GM has a large financing arm that provides loans to consumers which is what makes up the vast majority of their total debt. If you EV correctly captured what you wanted, companies should make as many loans as possible.
    - bryanlarsen 6y ago
      That's nonsensical. If Company A borrows $10 from the bank and then loans $10 to Joe, it's got $10 in assets and $10 in liabilities on its balance sheet. A fair price for Company B to acquire Company A is $0 in cash changing hands. That's the market cap. But on the books for Company B it will show a cost of $10 to acquire Company A. It had to assume a debt of $10 to gain assets worth $10. To company B, assuming a debt of $10 has no material difference from paying out $10 in cash. So $10 is the true value of the transaction.
      - xkjkls 6y ago
        > If Company A borrows $10 from the bank and then loans $10 to Joe, it's got $10 in assets and $10 in liabilities on its balance sheet. Yes, it's equity hasn't changed. However, the debt on its balance sheet has, so the enterprise value formula of EV = market cap + debt - cash now has, because the loan asset won't be counted as cash, but the loan liability will be counted as debt. That's why no one calculates enterprise value for bank/insurance companies. It doesn't provide any insight or meaning.
- 11thEarlOfMar 6y ago
  > Tesla's growth is almost certainly mostly predicated upon cannibalizing sales of its competitors. Yes, this is a large element of the reason that Tesla's stock price has grown quickly (though from here, who knows) while the incumbents have not. A notable difference that plays into the discussion is the profitability of the business itself. Tesla should be able to achieve a ~30% gross margin. The legacy companies come in around 15%, once you expense their R&D spend (it's hard to find, I did it once. They amortize it over car sales on their P&L.). A significantly higher gross margin is a significant competitive advantage, but also enables higher net earnings. In principle, P/E is founded on 'anticipated net earnings'. Clearly, buyers today (whether they are aware of it or now) are anticipating Tesla to be greatly profitable in the future. In my mind, there is no rational thesis that justifies the current trading levels. Buyers today couldn't possibly be thinking through the risk they are taking, unless they know they can hold for many years, and through stomach-churning gyrations. That said, if any NHers have a thesis that they've penciled out and which determines, 'yes, buy TSLA at $860 (1:40PM EST 1/8/21)'. I'd be very interested in seeing it.
dmode 6y ago
The comparison to Apple or a software company only makes sense is if an incremental sale requires very little investment. That's not true for Tesla though. They have to scale up massive factories to meet demand, while Apple can quite easily scale up iPhone production through contract manufacturers. Apple can also scale up their subscription revenue on TV, Music, Arcade and what not with zero incremental investment. These two companies are not comparable at all. Apple has very little CapEx on its books.

itsoktocry 6y ago

>Said another way, a Tesla is a supercomputer you can drive around. A GM is a car with an electric motor. They have an awesome software experience, but they buy off the shelf parts and assemble them into cars, just like everyone else. Nothing about that makes it a supercomputer on wheels. >Tesla is taking it away from the incumbents Competitors are already taking EV share back in some markets. Won't be as easy as you seem to think.

11thEarlOfMar 6y ago
I was referring to this supercomputer: https://heartbeat.fritz.ai/computer-vision-at-tesla-cd5e88074376 https://heartbeat.fritz.ai/computer-vision-at-tesla-cd5e8807...
- itsoktocry 6y ago
  I don't see a "supercomputer" in that article anywhere.

xyzzyz 6y ago

If Tesla keeps growing 40% for 10 more years (which would be hugely amazing achievement), in 2030 it will become the biggest car producer in the US, selling something like double the number of the next biggest competitor, GM. I'm not going to speculate on likelihood of this, but consider this: if the optimistic scenario is that future revenues are expected to be twice that of GM, wouldn't you expect Tesla's value to be something like twice of value of GM, additionally discounted by time needed for these revenues to materialize? Alas, the market cap of Tesla is >10x that of GM. Moreover, the market cap of the biggest car companies have been relatively stable over last 10 years, as the market cap of Tesla was soaring. If the expectation is that the Tesla will eat the automotive market (as it well might), wouldn't you expect the market cap of other companies fall accordingly? As of right now, it seems like the market expects insane increase in revenues of entire industry, not just Tesla, which doesn't seem likely to me: Tesla's growth is almost certainly mostly predicated upon cannibalizing sales of its competitors. I think Tesla is great company, and I think Elon Musk is exactly the kind of person we need more of, if we want to have bright future instead of stagnation or degeneration. My only point is that Tesla's market cap seems to be greatly inflated, by factor of at least 5x, and possibly even 20x.

bryanlarsen 6y ago
Market cap is the wrong metric for comparing the value of two companies, Enterprise Value is the right metric. The Enterprise Value of GM is $150B. There's <4X difference between the two, not >10X.
- xkjkls 6y ago
  Enterprise Value can be incredibly misleading for companies with large financial arms. GM has a large financing arm that provides loans to consumers which is what makes up the vast majority of their total debt. If you EV correctly captured what you wanted, companies should make as many loans as possible.
  - bryanlarsen 6y ago
    That's nonsensical. If Company A borrows $10 from the bank and then loans $10 to Joe, it's got $10 in assets and $10 in liabilities on its balance sheet. A fair price for Company B to acquire Company A is $0 in cash changing hands. That's the market cap. But on the books for Company B it will show a cost of $10 to acquire Company A. It had to assume a debt of $10 to gain assets worth $10. To company B, assuming a debt of $10 has no material difference from paying out $10 in cash. So $10 is the true value of the transaction.
    - xkjkls 6y ago
      > If Company A borrows $10 from the bank and then loans $10 to Joe, it's got $10 in assets and $10 in liabilities on its balance sheet. Yes, it's equity hasn't changed. However, the debt on its balance sheet has, so the enterprise value formula of EV = market cap + debt - cash now has, because the loan asset won't be counted as cash, but the loan liability will be counted as debt. That's why no one calculates enterprise value for bank/insurance companies. It doesn't provide any insight or meaning.
11thEarlOfMar 6y ago
> Tesla's growth is almost certainly mostly predicated upon cannibalizing sales of its competitors. Yes, this is a large element of the reason that Tesla's stock price has grown quickly (though from here, who knows) while the incumbents have not. A notable difference that plays into the discussion is the profitability of the business itself. Tesla should be able to achieve a ~30% gross margin. The legacy companies come in around 15%, once you expense their R&D spend (it's hard to find, I did it once. They amortize it over car sales on their P&L.). A significantly higher gross margin is a significant competitive advantage, but also enables higher net earnings. In principle, P/E is founded on 'anticipated net earnings'. Clearly, buyers today (whether they are aware of it or now) are anticipating Tesla to be greatly profitable in the future. In my mind, there is no rational thesis that justifies the current trading levels. Buyers today couldn't possibly be thinking through the risk they are taking, unless they know they can hold for many years, and through stomach-churning gyrations. That said, if any NHers have a thesis that they've penciled out and which determines, 'yes, buy TSLA at $860 (1:40PM EST 1/8/21)'. I'd be very interested in seeing it.

dmode 6y ago

The comparison to Apple or a software company only makes sense is if an incremental sale requires very little investment. That's not true for Tesla though. They have to scale up massive factories to meet demand, while Apple can quite easily scale up iPhone production through contract manufacturers. Apple can also scale up their subscription revenue on TV, Music, Arcade and what not with zero incremental investment. These two companies are not comparable at all. Apple has very little CapEx on its books.