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The realistic investment thesis for Tesla was always that it ends up as big of a player as GM, Ford, or Toyota. The valuation was driven by irrational optimism

The realistic investment thesis for Tesla was always that it ends up as big of a player as GM, Ford, or Toyota. The valuation was driven by irrational optimism and hope it could sustain its margins as competition increases. It's looking like that's not going to happen (no surprise, here), and its margins will end up looking more like a legacy carmaker's. The open question is what happens to car prices as electric drivetrains take over. Between motors being cheaper and battery prices coming down, the BOM should drop, but does that turn into higher margins (mostly for legacy carmakers), higher base trims, or lower prices.

abracadaniel 3y ago
The common response to this is that they are an energy company and not a car company. However, while there has been some progress on the grid scale storage side, solar seems to have faded into obscurity. The only time they’ve ever paid attention to it was when Musk was being accused of acquiring Solar City to bail out his brother.
- panick21_ 3y ago
  A lot of the growth in energy actually came from local storage, not grid storage if you look at the numbers. But its true that the energy business alone is already quick big and growing very fast. That said, people who really understand Tesla, do not think of it as an energy company. Cars are and will be the majority of Tesla revenue, profit and growth. But its certainty good to have power infrastructure and products. Solar as you correctly said, is not working out very well, but I think they have found the roof market to be much harder then expected.
- jacquesm 3y ago
  For Tesla solar has faded into obscurity, because they're a bit player in the solar market. But meanwhile solar has taken off in an absolutely immense way. The number of panels installed in Europe on account of Putin's empire building efforts has accelerated the energy transition quite a bit, likewise for things like heatpumps, house insulation and so on.
aj7 3y ago
You do not appreciate how far ahead Tesla is technologically. A look under the hood of a Toyota BEV, or a study of the negative profit margins of Ford and GM BEV’s would be worthwhile here. And unlike Finder 4.3 and Finder 6, Tesla is no longer perceived as an upstart, but rather, an established leader.
- jacquesm 3y ago
  But why would you look at Toyota? They're not exactly Tesla's main competitor when it comes to BEVs, they have been betting on hybrids and Hydrogen for way too long and only belatedly they've released a BEV. Other manufacturers are much closer to Tesla in terms of range, quality and numbers. In fact, in quality some already surpass Tesla. Numbers aren't really there yet, but Tesla's market share is now about double that of VW and VW does a lot more than just BEVs.
  - dehrmann 3y ago
    Ford beat Tesla to the truck market with the F-150 Lightning.
    - aj7 3y ago
      Ford lost a billion dollars on its EV unit last quarter. “The company loses money on every Ford Lightning it sells — and that was before it knocked thousands of dollars off the sticker price this summer, trying to keep up with a Tesla-triggered price war that's pulling EV prices down.” Recent npr piece. Bringing something to market at a big loss is not an advancement unless you have certainty that you can bring the project into the black. Ford has no such certainty. Moreover when there is rapid technological change, every product must be at least break even because product life is so short. “Ford F150” will persist as the name of a branded product, but the components inside will change much more rapidly than legacy automakers are used to.
      - punkybr3wster 3y ago
        I’m so tired of this number being thrown around. R&D costs aren’t losses. Ford expects their EV division to be net positive by 2025. Tesla started in 2003 and wasn’t profitable until 2020. Only now when Ford takes a couple years to recoup their R&D on a brand new fledgling platform do people loose their minds and only then try their best to compare them to current Tesla who was hemorrhaging billions year after year for nearly two decades. Rivian is operating at a loss. Lucid is loosing $500k per car. GE says they’re going to loose money on their EV division until 2025. All the car companies are playing catch up. Ford and Chevy taking a couple years to do what Tesla did in 20 isn’t the bellwether for Tesla people use it as. The other boutiques on the other hand - I really don’t know how they’re going to survive once legacy manufacturers really ramp up and start doing more vertical integration and write better software.
panick21_ 3y ago
First of all those 3 companies aren't the same, and just throwing them into the same bucket makes no sense. In terms of profit Tesla is already better or very close to Ford/GM. And Tesla is far more global and invest in many things GM/Ford don't. Tesla very much can still in pursuit of GM/Ford range, in terms of sales. Also GM/Ford are mostly shrinking at the same time. I don't see why Tesla couldn't reach that range. Tesla currently is in a very small part of the market and have shown to be able to go into existing markets and attack them. That is what will be happening with Cybertruck, it will likely also have better margins then Model Y. > It's looking like that's not going to happen (no surprise, here) Their margin were unrealistically high for sure. However, that doesn't mean they will turn into Kia anytime soon. Tesla aggressively cut prices to where it was a very serious problem for a lot of competitors, and still had very good margin. Its also just not very smart to compare Tesla margin to other margins because Tesla is EV only. If you measured just EV margin, then Tesla margins are utterly amazing. Because basically all the other OEMs barley make any money or more likely lose a gigantic amount of money on EVs. For how long will the be able to invest that much at a loss? Ford breaking out their EV business has shown this quite well. Ford even their predictions don't reach EV margin Tesla has now 5 years from now, not even close. And I think Fords predictions are widely optimistic. Just like GMs were a few years ago when according to them, Ultium platform would have huge sales and like 20 models by 2023. Others might be slightly better then Ford, but the overall picture in the industry is very much that companies are losing gigantic amounts of money on EVs. Some company have barley even started at this process, Honda, Toyota and co. Tesla is very growth oriented and aggressive and still have quite good margin, and for EV only their margins are very good. > and its margins will end up looking more like a legacy carmaker's That transition to EV will take another 10 years. You are talking about a situation where all legacy has mostly transition to EV and many of them will simply not exist anymore (mostly threw mergers). And some companies for China will be huge. By that time a lot of things will be different and I think Tesla with its relentless investment into other areas, energy, infrastructure, batteries, refining, mining, robotics, AI hardware and AI software is far better positioned then most other car companies for that world.
_hypx 3y ago
Even that is hopelessly optimistic. Tesla has no unique technologies. It can only make the simplest type of car possible: the BEV. It cannot even benefit from the advantage of cheap labor like China companies can. A realistic analysis would inevitable conclude that it will become totally uncompetitive compared to the competition that do have unique advantages.

abracadaniel 3y ago

The common response to this is that they are an energy company and not a car company. However, while there has been some progress on the grid scale storage side, solar seems to have faded into obscurity. The only time they’ve ever paid attention to it was when Musk was being accused of acquiring Solar City to bail out his brother.

panick21_ 3y ago
A lot of the growth in energy actually came from local storage, not grid storage if you look at the numbers. But its true that the energy business alone is already quick big and growing very fast. That said, people who really understand Tesla, do not think of it as an energy company. Cars are and will be the majority of Tesla revenue, profit and growth. But its certainty good to have power infrastructure and products. Solar as you correctly said, is not working out very well, but I think they have found the roof market to be much harder then expected.
jacquesm 3y ago
For Tesla solar has faded into obscurity, because they're a bit player in the solar market. But meanwhile solar has taken off in an absolutely immense way. The number of panels installed in Europe on account of Putin's empire building efforts has accelerated the energy transition quite a bit, likewise for things like heatpumps, house insulation and so on.

aj7 3y ago

You do not appreciate how far ahead Tesla is technologically. A look under the hood of a Toyota BEV, or a study of the negative profit margins of Ford and GM BEV’s would be worthwhile here. And unlike Finder 4.3 and Finder 6, Tesla is no longer perceived as an upstart, but rather, an established leader.

jacquesm 3y ago
But why would you look at Toyota? They're not exactly Tesla's main competitor when it comes to BEVs, they have been betting on hybrids and Hydrogen for way too long and only belatedly they've released a BEV. Other manufacturers are much closer to Tesla in terms of range, quality and numbers. In fact, in quality some already surpass Tesla. Numbers aren't really there yet, but Tesla's market share is now about double that of VW and VW does a lot more than just BEVs.
- dehrmann 3y ago
  Ford beat Tesla to the truck market with the F-150 Lightning.
  - aj7 3y ago
    Ford lost a billion dollars on its EV unit last quarter. “The company loses money on every Ford Lightning it sells — and that was before it knocked thousands of dollars off the sticker price this summer, trying to keep up with a Tesla-triggered price war that's pulling EV prices down.” Recent npr piece. Bringing something to market at a big loss is not an advancement unless you have certainty that you can bring the project into the black. Ford has no such certainty. Moreover when there is rapid technological change, every product must be at least break even because product life is so short. “Ford F150” will persist as the name of a branded product, but the components inside will change much more rapidly than legacy automakers are used to.
    - punkybr3wster 3y ago
      I’m so tired of this number being thrown around. R&D costs aren’t losses. Ford expects their EV division to be net positive by 2025. Tesla started in 2003 and wasn’t profitable until 2020. Only now when Ford takes a couple years to recoup their R&D on a brand new fledgling platform do people loose their minds and only then try their best to compare them to current Tesla who was hemorrhaging billions year after year for nearly two decades. Rivian is operating at a loss. Lucid is loosing $500k per car. GE says they’re going to loose money on their EV division until 2025. All the car companies are playing catch up. Ford and Chevy taking a couple years to do what Tesla did in 20 isn’t the bellwether for Tesla people use it as. The other boutiques on the other hand - I really don’t know how they’re going to survive once legacy manufacturers really ramp up and start doing more vertical integration and write better software.

panick21_ 3y ago

First of all those 3 companies aren't the same, and just throwing them into the same bucket makes no sense. In terms of profit Tesla is already better or very close to Ford/GM. And Tesla is far more global and invest in many things GM/Ford don't. Tesla very much can still in pursuit of GM/Ford range, in terms of sales. Also GM/Ford are mostly shrinking at the same time. I don't see why Tesla couldn't reach that range. Tesla currently is in a very small part of the market and have shown to be able to go into existing markets and attack them. That is what will be happening with Cybertruck, it will likely also have better margins then Model Y. > It's looking like that's not going to happen (no surprise, here) Their margin were unrealistically high for sure. However, that doesn't mean they will turn into Kia anytime soon. Tesla aggressively cut prices to where it was a very serious problem for a lot of competitors, and still had very good margin. Its also just not very smart to compare Tesla margin to other margins because Tesla is EV only. If you measured just EV margin, then Tesla margins are utterly amazing. Because basically all the other OEMs barley make any money or more likely lose a gigantic amount of money on EVs. For how long will the be able to invest that much at a loss? Ford breaking out their EV business has shown this quite well. Ford even their predictions don't reach EV margin Tesla has now 5 years from now, not even close. And I think Fords predictions are widely optimistic. Just like GMs were a few years ago when according to them, Ultium platform would have huge sales and like 20 models by 2023. Others might be slightly better then Ford, but the overall picture in the industry is very much that companies are losing gigantic amounts of money on EVs. Some company have barley even started at this process, Honda, Toyota and co. Tesla is very growth oriented and aggressive and still have quite good margin, and for EV only their margins are very good. > and its margins will end up looking more like a legacy carmaker's That transition to EV will take another 10 years. You are talking about a situation where all legacy has mostly transition to EV and many of them will simply not exist anymore (mostly threw mergers). And some companies for China will be huge. By that time a lot of things will be different and I think Tesla with its relentless investment into other areas, energy, infrastructure, batteries, refining, mining, robotics, AI hardware and AI software is far better positioned then most other car companies for that world.

_hypx 3y ago

Even that is hopelessly optimistic. Tesla has no unique technologies. It can only make the simplest type of car possible: the BEV. It cannot even benefit from the advantage of cheap labor like China companies can. A realistic analysis would inevitable conclude that it will become totally uncompetitive compared to the competition that do have unique advantages.