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Since Tesla is now the elephant in the room - it's possible Tesla is distorting the entire auto industry. Tesla was one of the 5 largest companies in the world

Since Tesla is now the elephant in the room - it's possible Tesla is distorting the entire auto industry. Tesla was one of the 5 largest companies in the world - something an auto manufacturer hasn't been in almost 50 years. Tesla had BY FAR the highest P/E ratio for any company of that market cap (as a percentage of global wealth) in history. Tesla's revenue growth is not much bigger than Alphabet's or Apple's - and these are companies with orders of magnitude more revenue and profit. For the last 50-ish years - outside of a few small companies (Ferrari, etc) - auto manufacturing has been a pretty terrible business. Tesla people keep trying to say that Tesla is really an infrastructure play or an Internet company or a services companies or even a space company - but... currently it's not. And even if it became any of those things - even at it's current growth rate - its P/E to growth rate is still unbelievably high. I don't really care if GM and Ford and Rivian are now overvalued - and compared to them Tesla is undervalued. Auto manufacturing is not suddenly going to become the most profitable business in the world. People aren't going to suddenly start paying more for cars than housing. People aren't going to suddenly own 30 cars a piece. Tesla is never going to grow enough to be worth it's current market cap. But the market can stay irrational longer than you can stay solvent - and I wouldn't take a bet that Tesla crashes if my life depended on it.

enchiridion 5y ago
Tesla is not saying that it is a space or internet company, that is SpaceX.
runako 5y ago
> Tesla's revenue growth is not much bigger than Alphabet's or Apple's - and these are companies with orders of magnitude more revenue and profit. I'm not that big of a Tesla bull, but you have to remember that stocks trade on forward expectations. The trillion $+ market cap companies basically have saturated their primary markets. Microsoft is not likely to find another billion desktop PCs onto which to sell a US-priced Windows/Office suite anytime soon. By contrast, if you buy the Tesla story, they are really just getting started. > Auto manufacturing is not suddenly going to become the most profitable business in the world. I tend to agree with this. However, it's worth noting that Tesla's margin profile is significantly different than all legacy automakers. Their gross margin is ~30%, which is within striking distance of AMD's. And Tesla is still sub-scale for the auto industry. EVs are a different beast than traditional ICE vehicles, so margins will initially be better on EVs for all EV manufacturers.
- ahahahahah 5y ago
  > but you have to remember that stock trade on forward expectations. Great insight, except that you are just repeating the start of the whole discussion, literally from the first line of this thread: > I want to point out that companies are valued based on their future and projected growth, not how much they are worth today.
  - runako 5y ago
    What did you hope to add to the discussion with this comment?
- danans 5y ago
  > EVs are a different beast than traditional ICE vehicles, so margins will initially be better on EVs for all EV manufacturers. Please explain. This runs counter to the common understanding that unless a manufacturer scales up their battery production significantly, their profit margins on EVs are lower due to the high cost of the batteries. The California compliance EVs were sold at a per-unit loss. Tesla shook this up by targeting and marketing to the luxury market, where they could charge a premium. Many smaller scale non-luxury manufacturers have pretty lackluster EV offerings (looking at you, Subaru).
  - Animats 5y ago
    Margins will initially be better on EVs for all EV manufacturers. Right now, where there's an electric and a gasoline powered version of a comparable model, the electric version seems to cost about US$10K more. See Ford F-150, Chevy Bolt, BMW iX. That needs to stop.
    - runako 5y ago
      > the electric version seems to cost about US$10K more Disagree. F-150 Lightning XLT is ~$5k more than the ICE equivalent, which means it costs less after the tax credit. (I'm not sure the baseline model is the same as the baseline ICE F-150.) The Bolt and iX are essentially compliance/concept vehicles that don't have ICE editions, so you can't say they cost more than their comparable models. Once those two get real EV strategies, we will be able to make direct comparisons between e.g. the Chevy Tahoe and the Chevy Tahoe EV.
sithlord 5y ago
I know you touch on it, but what if all the other manufacturers start using proprietary tesla things, such as batteries or the (arguably vaporware) self-driving algorithms?
ascar 5y ago
Exactly this. While valueing companies on future growth makes sense, Tesla's current evaluation is bigger than the 10 largest car manufacturers by market cap after combined [1]. That kind of implies that people think Tesla alone will be as profitable as these other ten combined, which just seems like a totally crazy bet to take. Tesla would have to take over huge parts of their market share while keeping high margins on expensive cars. There isn't so much population that is able to spend 50k or 100k on a car. [1] https://companiesmarketcap.com/automakers/largest-automakers-by-market-cap/ https://companiesmarketcap.com/automakers/largest-automakers...
- aeternum 5y ago
  Most of the people holding the stock at this valuation do not see Tesla as only a car company. Their Powerwall is quickly becoming the leading home energy storage solution. It will be interesting to see if they can also deliver on solar roof, beat NVidia with project Dojo, beat Waymo with self-driving, and beat Panasonic with battery manufacturing.
pbourke 5y ago
> People aren't going to suddenly start paying more for cars than housing. People aren't going to suddenly own 30 cars a piece. Tesla is never going to grow enough to be worth it's current market cap. There are around 290M cars on the road in the US, of which 1.3M are electric. Over the next 20 years, the majority of those 290M will get replaced by an electric vehicle. One of the major drivers of this will be cost: it will just be significantly cheaper from a TCO perspective to drive electric. Electric is such a shift that traditional car purchasing forces like brand loyalty are disrupted, and there will be a land rush to claim new market share. Electric also presents heretofore prohibited avenues for vertical integration: Tesla wants to sell you the car, the home battery and the solar panels to go with it. Standard Oil was broken up for similar types of vertical integration. Electric will also present opportunities for ongoing service revenue (value-added services such as in-car infotainment) that automakers have tried for years to break into (unsuccessfully) If you’re the early leader with a promising track record, as Tesla is, a 1T valuation is not surprising.
- dgudkov 5y ago
  >Over the next 20 years, the majority of those 290M will get replaced by an electric vehicle. Let's optimistically assume that Tesla will sell 100M of new cars in the US in the next 20 years at the average price of 50K per car and profitability 10%. 100M x $50K * 10% = 500 billion which is already less than Tesla's current 1 trillion valuation.
  - pbourke 5y ago
    1. There are other countries 2. What if Tesla gets $1-2k ARR along with each sale for charging or other services?
  - skinnymuch 5y ago
    That’s $25B profit per year excluding any other profit. That can actually justify a 1T market cap.
    - dgudkov 5y ago
jliptzin 5y ago
It’s more than just cars though. Just one example (of many) - do you pay Ford extra money when you go on a road trip, or does that money go to Exxon, etc? In my Tesla when I go on a road trip, I am giving them more money to charge on the road. Also, when we switched from horses and carriages to automobiles, I’m sure being an auto manufacturer at that time was probably insanely profitable. Maybe not the most valuable kind of company in the world at the time (or maybe it was), but definitely up there. We’re now in another transition from ICE to electric vehicles. There’s going to be another period where EV manufacturing becomes extremely valuable as demand for EVs surges over the next couple decades. After that, as the EV market matures and the competitive landscape evens out, profits will come down again.
random314 5y ago
If Tesla can sell 4M cars at 10K profit every year, that's an annual profit of 40B dollars. 1T valuation will be justified. Right now they are projected to sell more than 1M cars in 12 months.
- onlyrealcuzzo 5y ago
  No - they'd still need to get their profit margin to be ~25% instead of ~10%. Tesla can definitely sell more vehicles OR increase margin - but it will be substantially more challenging to do both at the same time over a short horizon (10 years).
  - random314 5y ago
    Tesla is operating at significantly over 10% per car profit as per estimates. A report earlier this year estimated almost 30%. https://www.teslarati.com/tesla-record-q1-2021-gross-margin-average-cost-decrease/ https://www.teslarati.com/tesla-record-q1-2021-gross-margin-...
- LogonType10 5y ago
  >Right now they are projected to sell more than 1M cars in 12 months So after converting from Musk time to human time, this means it'll take 5 years?
  - random314 5y ago
    They sold more than 237K last quarter. Check their earnings report.
    - LogonType10 5y ago
      Yes, and?
      - random314 5y ago
        One year is composed of 4 quarters. I will the rest of the math to you.
bitcoinmoney 5y ago
But what if Tesla is the new BTC? It’s price solely due to stock demand and not fundamentals anymore.
oxplot 5y ago
> Auto manufacturing is not suddenly going to become the most profitable business in the world. Tesla's mission statement has nothing to do with cars: "Tesla's mission is to accelerate the world's transition to sustainable energy". Transport just happens to be a very large segment that needs to be transformed to use sustainable energy so that's what they're focusing on. Tesla has just become an energy supplier in Texas. That's another market that's been stagnant forever and is going to see a huge shakeup when tech such as virtual power plant become widespread. Tesla is already running some of the largest energy storage for the grid in the world. Then there is AI. What other automotive manufacturer do you know that has 1000s of people working on AI, makes their own chips and has training data from millions of cars on the road? AI isn't just to make your car autonomous. There is the Robotaxi potential which in itself is an entire market. AI doesn't stop there: once Semi is out with autonomous driving, that will cut the cost of transporting goods by a large chunk - no more paying drivers and way less cost on fuel. That's another market entirely and will large fleet companies rushing to save cost by purchasing trucks from Tesla. In case you missed it (which I believe you have), there is autonomy in general manufacturing which Tesla is planning to target. That's yet another completely different market with a huge potential. Did you hear about the car insurance? Ye, that's another one which Tesla is targetting. I'm pretty sure there is a bunch of things I forgot. Tesla is not a car manufacturer. It's a behemoth in the making which will overtake Apple, Google, Meta, Fossil fuel and some more combined, times 10.
panick21_ 5y ago
The other car companies were never vertically integrated. Huge parts of their profit went to dealerships and suppliers. The suppliers and dealers often have better market valuations comparatively. Current manufactures make almost no margin on cars and make decent margin on supply of parts. Tesla own that whole chain end to end. As they scale up and build up a huge fleet of cars that need service that is not covered this will become a hugely profitable business. Other car companies are buying batteries and that is almost 1/3 of the cars price. Tesla will make their own batteries. Most other car companies will buy their driving assistant tech, Tesla has it in-house. Solar and utility storage are small markets now, but they will continue to grow and no other car manufactures has anything in that range. Maybe Tesla will not be worth what they are now, but they deserve to be way higher then GM/Ford and so on.

enchiridion 5y ago

Tesla is not saying that it is a space or internet company, that is SpaceX.

runako 5y ago

> Tesla's revenue growth is not much bigger than Alphabet's or Apple's - and these are companies with orders of magnitude more revenue and profit. I'm not that big of a Tesla bull, but you have to remember that stocks trade on forward expectations. The trillion $+ market cap companies basically have saturated their primary markets. Microsoft is not likely to find another billion desktop PCs onto which to sell a US-priced Windows/Office suite anytime soon. By contrast, if you buy the Tesla story, they are really just getting started. > Auto manufacturing is not suddenly going to become the most profitable business in the world. I tend to agree with this. However, it's worth noting that Tesla's margin profile is significantly different than all legacy automakers. Their gross margin is ~30%, which is within striking distance of AMD's. And Tesla is still sub-scale for the auto industry. EVs are a different beast than traditional ICE vehicles, so margins will initially be better on EVs for all EV manufacturers.

ahahahahah 5y ago
> but you have to remember that stock trade on forward expectations. Great insight, except that you are just repeating the start of the whole discussion, literally from the first line of this thread: > I want to point out that companies are valued based on their future and projected growth, not how much they are worth today.
- runako 5y ago
  What did you hope to add to the discussion with this comment?
danans 5y ago
> EVs are a different beast than traditional ICE vehicles, so margins will initially be better on EVs for all EV manufacturers. Please explain. This runs counter to the common understanding that unless a manufacturer scales up their battery production significantly, their profit margins on EVs are lower due to the high cost of the batteries. The California compliance EVs were sold at a per-unit loss. Tesla shook this up by targeting and marketing to the luxury market, where they could charge a premium. Many smaller scale non-luxury manufacturers have pretty lackluster EV offerings (looking at you, Subaru).
- Animats 5y ago
  Margins will initially be better on EVs for all EV manufacturers. Right now, where there's an electric and a gasoline powered version of a comparable model, the electric version seems to cost about US$10K more. See Ford F-150, Chevy Bolt, BMW iX. That needs to stop.
  - runako 5y ago
    > the electric version seems to cost about US$10K more Disagree. F-150 Lightning XLT is ~$5k more than the ICE equivalent, which means it costs less after the tax credit. (I'm not sure the baseline model is the same as the baseline ICE F-150.) The Bolt and iX are essentially compliance/concept vehicles that don't have ICE editions, so you can't say they cost more than their comparable models. Once those two get real EV strategies, we will be able to make direct comparisons between e.g. the Chevy Tahoe and the Chevy Tahoe EV.

sithlord 5y ago

I know you touch on it, but what if all the other manufacturers start using proprietary tesla things, such as batteries or the (arguably vaporware) self-driving algorithms?

ascar 5y ago

Exactly this. While valueing companies on future growth makes sense, Tesla's current evaluation is bigger than the 10 largest car manufacturers by market cap after combined [1]. That kind of implies that people think Tesla alone will be as profitable as these other ten combined, which just seems like a totally crazy bet to take. Tesla would have to take over huge parts of their market share while keeping high margins on expensive cars. There isn't so much population that is able to spend 50k or 100k on a car. [1] https://companiesmarketcap.com/automakers/largest-automakers-by-market-cap/ https://companiesmarketcap.com/automakers/largest-automakers...

aeternum 5y ago
Most of the people holding the stock at this valuation do not see Tesla as only a car company. Their Powerwall is quickly becoming the leading home energy storage solution. It will be interesting to see if they can also deliver on solar roof, beat NVidia with project Dojo, beat Waymo with self-driving, and beat Panasonic with battery manufacturing.

pbourke 5y ago

> People aren't going to suddenly start paying more for cars than housing. People aren't going to suddenly own 30 cars a piece. Tesla is never going to grow enough to be worth it's current market cap. There are around 290M cars on the road in the US, of which 1.3M are electric. Over the next 20 years, the majority of those 290M will get replaced by an electric vehicle. One of the major drivers of this will be cost: it will just be significantly cheaper from a TCO perspective to drive electric. Electric is such a shift that traditional car purchasing forces like brand loyalty are disrupted, and there will be a land rush to claim new market share. Electric also presents heretofore prohibited avenues for vertical integration: Tesla wants to sell you the car, the home battery and the solar panels to go with it. Standard Oil was broken up for similar types of vertical integration. Electric will also present opportunities for ongoing service revenue (value-added services such as in-car infotainment) that automakers have tried for years to break into (unsuccessfully) If you’re the early leader with a promising track record, as Tesla is, a 1T valuation is not surprising.

dgudkov 5y ago
>Over the next 20 years, the majority of those 290M will get replaced by an electric vehicle. Let's optimistically assume that Tesla will sell 100M of new cars in the US in the next 20 years at the average price of 50K per car and profitability 10%. 100M x $50K * 10% = 500 billion which is already less than Tesla's current 1 trillion valuation.
- pbourke 5y ago
  1. There are other countries 2. What if Tesla gets $1-2k ARR along with each sale for charging or other services?
- skinnymuch 5y ago
  That’s $25B profit per year excluding any other profit. That can actually justify a 1T market cap.
  - dgudkov 5y ago

jliptzin 5y ago

It’s more than just cars though. Just one example (of many) - do you pay Ford extra money when you go on a road trip, or does that money go to Exxon, etc? In my Tesla when I go on a road trip, I am giving them more money to charge on the road. Also, when we switched from horses and carriages to automobiles, I’m sure being an auto manufacturer at that time was probably insanely profitable. Maybe not the most valuable kind of company in the world at the time (or maybe it was), but definitely up there. We’re now in another transition from ICE to electric vehicles. There’s going to be another period where EV manufacturing becomes extremely valuable as demand for EVs surges over the next couple decades. After that, as the EV market matures and the competitive landscape evens out, profits will come down again.

random314 5y ago

If Tesla can sell 4M cars at 10K profit every year, that's an annual profit of 40B dollars. 1T valuation will be justified. Right now they are projected to sell more than 1M cars in 12 months.

onlyrealcuzzo 5y ago
No - they'd still need to get their profit margin to be ~25% instead of ~10%. Tesla can definitely sell more vehicles OR increase margin - but it will be substantially more challenging to do both at the same time over a short horizon (10 years).
- random314 5y ago
  Tesla is operating at significantly over 10% per car profit as per estimates. A report earlier this year estimated almost 30%. https://www.teslarati.com/tesla-record-q1-2021-gross-margin-average-cost-decrease/ https://www.teslarati.com/tesla-record-q1-2021-gross-margin-...
LogonType10 5y ago
>Right now they are projected to sell more than 1M cars in 12 months So after converting from Musk time to human time, this means it'll take 5 years?
- random314 5y ago
  They sold more than 237K last quarter. Check their earnings report.
  - LogonType10 5y ago
    Yes, and?
    - random314 5y ago
      One year is composed of 4 quarters. I will the rest of the math to you.

bitcoinmoney 5y ago

But what if Tesla is the new BTC? It’s price solely due to stock demand and not fundamentals anymore.

oxplot 5y ago

> Auto manufacturing is not suddenly going to become the most profitable business in the world. Tesla's mission statement has nothing to do with cars: "Tesla's mission is to accelerate the world's transition to sustainable energy". Transport just happens to be a very large segment that needs to be transformed to use sustainable energy so that's what they're focusing on. Tesla has just become an energy supplier in Texas. That's another market that's been stagnant forever and is going to see a huge shakeup when tech such as virtual power plant become widespread. Tesla is already running some of the largest energy storage for the grid in the world. Then there is AI. What other automotive manufacturer do you know that has 1000s of people working on AI, makes their own chips and has training data from millions of cars on the road? AI isn't just to make your car autonomous. There is the Robotaxi potential which in itself is an entire market. AI doesn't stop there: once Semi is out with autonomous driving, that will cut the cost of transporting goods by a large chunk - no more paying drivers and way less cost on fuel. That's another market entirely and will large fleet companies rushing to save cost by purchasing trucks from Tesla. In case you missed it (which I believe you have), there is autonomy in general manufacturing which Tesla is planning to target. That's yet another completely different market with a huge potential. Did you hear about the car insurance? Ye, that's another one which Tesla is targetting. I'm pretty sure there is a bunch of things I forgot. Tesla is not a car manufacturer. It's a behemoth in the making which will overtake Apple, Google, Meta, Fossil fuel and some more combined, times 10.

panick21_ 5y ago

The other car companies were never vertically integrated. Huge parts of their profit went to dealerships and suppliers. The suppliers and dealers often have better market valuations comparatively. Current manufactures make almost no margin on cars and make decent margin on supply of parts. Tesla own that whole chain end to end. As they scale up and build up a huge fleet of cars that need service that is not covered this will become a hugely profitable business. Other car companies are buying batteries and that is almost 1/3 of the cars price. Tesla will make their own batteries. Most other car companies will buy their driving assistant tech, Tesla has it in-house. Solar and utility storage are small markets now, but they will continue to grow and no other car manufactures has anything in that range. Maybe Tesla will not be worth what they are now, but they deserve to be way higher then GM/Ford and so on.