What else does a Tesla investor need to know?
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The Captain
Someday, probably. In the meantime the showman keeps touting all these amazing things in the future, which gives a certain class of investors hope that things will turn around. And itâs possible that some of them do come true. Amazon would have platformed long ago if it hadnât developed its cloud (and opened it to others), if it didnât start making a bundle from advertising (easy pickings, actually), and so on. Microsoft and Apple grew far beyond their original missions, Facebook & Netflix havenât, at least to any significant degree as I am aware.
But Tesla has several kinds of investors, I think. Those who are there because they believe in Musk (and have already gotten rich, so how bad can it be?) and those who think the company is going to continue to do great things. Neither of those has yet considered what could happen in an alternate scenario, say, the corporation goes off a does stupid things (the truck, perhaps?) or misreads the market, or alienates a large part of its intended customer base. That could happen; it may indeed have already happened. The question is âcan it get backâ. It will be interesting to find oiut, and frankly at this point I donât think thereâs any way to know.
While itâs not precisely the same, there is another stock experiencing some market trouble, a company led by, or at least strongly affiliated with a charismatic leader, pretending to push the boundaries. Hereâs a story about it and interviews with several of those investors:
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Reduce the price by $55k and it might sell.
Why do you think that? The Tesla investors I know are well aware of the risks. But some of us keep a certain percentage of our investments in high risk, high return stocks, mainly because in this modern world of accelerating technological advances and retail investing multi-bagger stories like Tesla, Amazon, Facebook happen with increasing frequency.
It is easy to rationalize why something that hasnât happened yet wonât. Much harder to identify what will most likely happen among all the things that potentially could. With that in mind, I think you are not asking the right questions when it comes to Tesla. Here is a bull perspective.
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Will EVs replace ICEs/hybrids? I think this is inevitable and will happen sooner than later simply because the EV is the better technology. EVs are mechanically simpler, much more efficient, much cleaner, can be âfueledâ at home, and require much less maintenance. The main factors holding back EV adoption are the price of the battery and range anxiety. Both these are rapidly being dealt with.
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What companies will dominate the future EV market? At this point there is no reason why it wonât be the companies that currently dominate the EV market. BYD, albeit with the considerable financial assistance of the Chinese government, has demonstrate a cutthroat ability to compete and expand. Tesla remains the only company that is currently capable of making a profit mass producing all electric vehicles and it dominates the essential EV charging network.
In summary, we bulls see the early stages where an old tech is being replaced by a new tech and we see two companies that dominate the new tech and appear to be years ahead of the competition in hardware and, with respect to Tesla, in software. My due diligence on the latter tells me that this is the most critical factor for BEV success going forward. So yeah, we invest in one or both of these companies and will stay invested until our answers for #1 or #2 changes.
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Back to my question though â when, if ever, do you think the stock will be valued as a car company?
DB
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Never. Tesla is like Google, Amazon, and Apple in that it is primarily a tech company. These develop a technology and apply it to dominate a particular market sector that in turns funds expansion into other related sectors. In less than 10 years, Teslaâs energy storage business will likely be as big as its car business is right now and it will most likely be making significant income from its AI/supercomputing efforts. Even if humanoid robots turn out to just be curiosities, the engineering learned and particularly the software developed will allow Tesla to be a robotics leader if it decides to move in that direction.
Tesla is changing the world for the better in ways most donât realize as they get distracted by Elonâs twitters. For example, Tesla is creating electric micro-grids in Africa to bring dependable renewable electric power to small villages. The business potential for this tech seems pretty high, even outside the developing world. Seems a cost-effective way to power data centers for example. Tesla-backed renewable energy startup ZOLA Electric unveils FLEX MAX, the worldâs largest off-grid solar home solution - Tech Startups
Tesla is also a big player in Virtual Power Plants (VPP) that just may be the solution to incorporating renewable energy into antiquated power grids. One Tesla VPP provides cheap electricity to low income households in Australia. Tesla expands massive virtual power plant to 3,000 more homes in Australia | Electrek
Tripling virtual power plant capacity by 2030 could save $10B, meet 20% peak demand: DOE | Utility Dive
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I think thatâs rather Goofyâs point about certain investors not yet considering the alternative scenario. There are some very good reasons to think that one of the companies that currently dominate the EV market (Tesla) might not be one of the companies that dominates the future EV market. Itâs certainly possible that Tesla might still retain dominance as the market matures - but claiming that âthere is no reasonâ to think that might not happen is exactly the failure to consider alternative scenarios that Goofy was describing.
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There is no certainty about the future. It is always âmightâ regardless of the option. If you want to argue that it is unlikely that Tesla will be a major player in the future EV market then make the argument.
But simply saying it might not happen is only to point out the obvious. It also might happen. The question for the investor is whether based on the best available info it is likely to happen.
At this time, I see no reason why Tesla wonât still be a major provider of EVs in 10 years. Iâve given you a couple of reasons why I think that is the case. If you disagree, explain.
But simply saying I might be wrong isnât particularly helpful. I havenât believed myself to be infallible since at least my high school junior year.
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Dealerships (with service centers) are being built/leased. They put one up in my metro area last year:
https://fox59.com/news/breaking-ground-on-new-tesla-facility-on-indys-south-side/
âTheyâre building a combination of a maintenance and sales facility,â
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Teslaâs facility is being built at a time when the demand for electric vehicles is booming.
Heh. Things have certainly changed a bit in less than a year.
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Almost all of their revenue comes from manufacturing, not âtech.â You might argue that tech makes up a lot of their product, and thatâs true, but then itâs also true of internet connected refrigerators, television sets, and for that matter, Toyotas.
I have argued for some time that hybrids are a better solution short term (20-30 years), a segment where Tesla is not represented at all. EVs may be âsimplerâ but hybrids are more reassuring, and come at a price point that is attractive. PBEVs offer some of the best of both worlds, again a segment where Tesla does not have an entry.
And if that happens then Tesla is in a good position. That sort of thing didnât happen with Apple, or with Amazon (15 years to cloud, 20 to advertising), or even to Microsoft, but hey, maybe it will.
I find that vastly unlikely, as unlikely as âeveryone is going to have solar tiles on the roofsâ which hasnât happened either.
That may be true, but is pretty irrelevant to the business case. In any event I find the Tesla topic irresistible because of the new tech, and the acolytes, and, uh, the future. At the moment thereâs trouble in happyland; they just announce a 10% reduction in force, companywide. I donât think that would be happening if the mother ship (cars) was doing so well.
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Absolutely. This is one of those difficult business periods and not just for Tesla. Google reduced its workforce by 6% this year. MSFT laid off 10,000 workers in Jan 2023 and have added more to the list since. Tech companies hired a lot during the pandemic years, apparently way too many.
Iâm guessing the slowing Chinese economy is a real thing and is affecting the tech industry particularly hard. It is certainly affecting the auto industry. I also think that AI is progressing much faster than anyone expected, forcing tech companies to rethink their future plans. In any case, the market has apparently changed in some important way with the major US tech firms announcing the need to refocus priorities and streamline their work force. For example, from a memo from the CEO of Google announcing the layoffs:
Over the past two years weâve seen periods of dramatic growth. To match and fuel that growth, we hired for a different economic reality than the one we face today.
I am confident about the huge opportunity in front of us thanks to the strength of our mission, the value of our products and services, and our early investments in AI. To fully capture it, weâll need to make tough choices. A difficult decision to set us up for the future
So what is this new economic reality that our biggest, most successful companies are suddenly finding the need to make major adjustments for and what are the adjustments needed to capture the benefits of their AI investments? Whatever they are, I donât think they are Tesla or Elon specific.
What happens after 20-30 years and why should it take so long? EV batteries are just in the process of crossing the cost barrier for ICE parity. After BEVs become cheaper than ICEs/hybrids nothing is going to stop the transition. Why else is the EU and US so concerned about cheap Chinese BEV imports other than a recognition that their domestic ICEs and hybrids cannot compete?
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Oh my. I guess you donât understand rural folks. Or red counties. Iâll illustrate using Tennessee, where I live.
Knoxville has a population of around 190,000. We have one public fast charger, other than Tesla (yes, I acknowledge that will change.) Maryville, up the road, has a population around 30,000. Thatâs enough to support a WalMart, Home Depot, Loweâs, Target Supercenter, etc. But not a Costco, Whole Fools, Trader Joeâs, etc.
Number of superchargers, including Tesla? Zero. A few 10 miles away or so, and yes, that will also change.
Now. Maryville is city #25 on the list of Tennessee cities by population. There are 490 on the list. So yes, you may find the ease of infrastructure in Chattanooga, Nashville, Memphis and such. It is going to be a VERY LONG TIME before you reach the exburbs, much less the rural areas. And there is a LOT of rural area in the US. By official DMSA (as I saw yesterday on C-Span) 97% of the country is rural. (However it only has 15% of the population.)
Tesla has, how to put it, âcream skimmedâ the urban areas, just as electric companies did and telephone companies did in the early 20th century, but there is a lot of America out there that is untouched by the phenomenon. That is also relevant to EVs in general, as âgassing upâ is wildly inconvenient for some long trips - perhaps not along the interstates, but surely for those into the hinterland. (I just did one. Let me tell you about it sometime. 3 charges on what would have been 1 in an ICE.)
This takes time. Yes, it will happen. It took a decade for internet penetration to hit 50% - and thatâs when everyone had a telephone line if they didnât have cable. Iâm just asking for some reality based thinking here, at least in terms of time. Musk has made this mistake, bigly and repeatedly, not to mention those things which will never come true.
He could take a lesson. So could some others I could mention.
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Developing an EV industry required big bucks and big risk. China & US governments provided monies for the development of the EV industry & rocket industries & charging networks for EVs.
And Tesla has received monies from both the US & China governments.
But that subsidy has ended but Tesla benefited along with China manufacturers.
https://www.reuters.com/business/autos-transportation/tesla-ev-rivals-absorb-costs-after-china-pulls-plug-subsidy-2023-01-05/
US government via Bipartisan Infrastructure Law & Inflation Reduction Act subsidizes made-in-US EV & battery manufacturers & charging infrastructure.
Rather than sending a government official to whine, China has opened a WTO dispute.
https://www.reuters.com/world/china-opens-dispute-against-us-wto-over-discriminatory-subsidies-2024-03-26/
China has initiated dispute settlement proceedings against the United States at the World Trade Organization to safeguard its interests in the electric vehicle industry, the Chinese mission said on Tuesday and the WTO confirmed.
China said it was contesting âdiscriminatory subsidiesâ under the U.S. Inflation Reduction Act (IRA) that it said resulted in the exclusion of goods from China and other WTO countries.
âUnder the disguise of responding to climate change, reducing carbon emission and protecting environment, (these subsidies) are in fact contingent upon the purchase and use of goods from the United States, or imported from certain particular regions,â the Chinese mission said.
So both nations are subsidizing domestic EV & related industries.
BYD is surging[1]. WHY? China governments subsidies? Low cost vertically integrated manufacturing from battery to EV? BYD products are equal or perhaps even better than US EV products?
[1]https://www.cnn.com/2024/03/26/business/byd-profit-soar-after-beats-tesla/index.html
BYDâs profit soared 80% in the year the Chinese EV giant overtook Tesla
https://www.reuters.com/business/autos-transportation/chinas-byd-h1-profit-triples-deliveries-break-record-2023-08-28/
Chinaâs BYD H1 profit triples as deliveries break record
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No offense, but in the large scheme of things related to BEVs, those sparsely populated red counties donât really matter.
I say this because:
As of April 2020, just more than 86 percent of Americans live in metropolitan areas, counties that include or are adjacent to major cities with populations of 50,000 or more, an all-time high. Census: Rural America shrinks as people flock to big cities | The Hill.
I suspect most cities of 50K or more will have at least one supercharger soon. GM is welcome to the remaining 14%.
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I live out West in a town of about 60K, there is a notable Tesla charging setup in one of the shopping centers, must be 20-30 spots, rare to see than used⌠And they re clear across, so a block away from the busy Target, other shops, so an owner is going schlepp whatever he/she buys, all that way, so no wonder they are mostly vacant⌠We do see a lot of Teslas on the road, around town⌠But Elonâs quirky personality hastened off our interest, likely many others⌠Turn it all back to the original inventors, toss the quirk!
Iâve talked with a couple Tesla owners, they manage, but mostly with home charging setups, I thank them for investing in the future, but when it came time for us, we went Hybrid, wanted the distance, RAV4 Hybrid, Limited, 500+ on fillups, generally seeing 40 mpg⌠It will outlast us I imagine, no clutches, maybe brake wear, tires, wiper bladesâŚ
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Similar thinking here. A good number of Teslas around here in upstate NY. I have one friend who drives a Tesla and loves it. Every time I see him the first thing out of his mouth is how fast it is. Zero to 80 in 6 nanoseconds or something like that.
He claims it handles poorly in icy conditions, but I wonder if thatâs due to his infatuation with speed. Even when he doesnât drive in during icy spells, he keeps it plugged in to keep it charged.
Since we totaled our 2012 Civic last year, I drive more like a little old lady than like Niki Lauda. We bought a 2024 Accord hybrid. It can also go from zero to 80 in 6 nanoseconds, but only if itâs fired out of a canon. My stodgy Accord gets me up to highway speed in the length of an on-ramp, even in economy mode. Works for me. After 6 months, we have 1,500 miles on it (I calculate the payback to be 42 years). Pretty sure one of my grandchildren will inherit it.
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Tesla has been building these sales and service centers for over 15 years.
But they are Tesla owned and are not âdealershipsâ which is a different business model and are owned by independent companies
Mike
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Sure - though youâve switched from seeing âno reasonâ that they wonât be dominant to no reason they wonât âstill be a major provider.â Hereâs a few reasons they wonât be dominant:
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No one dominates the global auto industry generally. Consumer tastes, needs, and preferences are fractured. Itâs an industry that countries use tariff and industrial policy to meddle with. And because cars are big and heavy, itâs tough for any one company to geographically dominate. So in the modern ICE era of globally traded cars, no one company ever had as much as 20% of the market, and almost never as much as 15%. And thatâs before China takes its place on the global manufacturing stage, like Japan before it. So Tesla and BYDâs brief dominance of BEVâs is only temporary, an artifact of the transition period - once the market shifts, weâll be back to a world where no company has a dominant role.
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BEVâs and Tesla have stopped growing fast. BEVâs have stopped taking market share from ICEâs, and itâs hybrids (both conventional and PHEVâs) that are continuing to grow. Thatâs definitely a reason to think rapid BEV growth was a product of the near-zero interest rate/high subsidy environment - which is ending, and may never return.
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You canât be dominant globally without being dominant in China, and Tesla wonât stay dominant in China. Tesla blew their strategic planning with the Cybertruck instead of a mass-market car below the Model 3 for the Chinese market. The Chinese market is the most important EV and BEV market in the world - 60% of global EVâs and BEVâs are sold in China. Teslaâs ceding that portion of the market to the Chinese manufacturers for at least three years, which theyâll never be able to get back. Theyâre not fast or nimble enough. BYD introduced the Seagull in April 2023, and managed to sell a quarter million of them in China that year alone - Tesla hasnât shown any ability to move that quickly. And they bear a lot of country risk in China, because if the government in the future decides that thereâs overcapacity serving the Chinese EV market, thereâs a good chance that theyâll keep Tesla from expanding.
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Tesla has been mediocre at some of the things car companies have to do. Theyâre inconsistent at matching their product lineup to future consumer needs - YES to the Model 3 and Model Y, but "??? to the Model X and Cybertruck and 2022 Roadster and Semi (why falcon doors or an $80K pickup truck or a new roadster, or a semi tractor if it eats so many batteries relative to your other offerings?). They havenât even tried to run a public relations department or brand management effort or advertising shop for many years now. They donât have a great track record at supplying parts to the aftermarket for repairs (which was a problem with the Hertz fleet) - not bad, just not great. That hasnât come back to bite them yet because theyâve been able to thrive with only two mass-market models in a transition period - but those skills will be necessary in a more mature market, and Tesla hasnât shown they have them at the level they would need to be dominant.
Those are just a few. The most speculative reason for doubting the bull case for Teslaâs EV segment dominating the market is that I think Elon will be completely uninterested the last half of it. Going from 0 to 2 million EVâs clearly involves changing the world, inventing brand new technologies and being on the bleeding edge. Going from 2 million EVâs to 4 million might involve some of that, though part of it is the âmaking autonomy workâ part rather than just the âpenetrating new EV segments and marketsâ part. But going from 4 million EVâs to 8 million? Thatâs probably not groundbreaking any more. Itâs just the boring, tedious work of applying problems that have already been completely solved to new markets, with only incremental and minor improvements. If Musk genuinely thinks of Tesla as an AI/robot company that happens to make cars, rather than a car company, then itâs easy to imagine that once EVâs are âsolvedâ for the most part, heâll lose interest in devoting resources or time to âfilling in the cornersâ of that enterprise and focus the company on moonshots like robotaxis and robots, rather than making a smaller cheaper (but not revolutionary) version of the Model 3 to fend off the Chinese in Asia and Europe or more fully developing the aftermarket repair part supply chain.
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Sure they do. Youâd be amazed how many people take vacations. 
Iâm sure thatâs true. Iâm sure itâs also not very important. I say that because I can drive 30 minutes and still be in Knoxville. Who wants to visit a friend and have to drive an hour for a quick charge?
OK, since you didnât ask: My trip to Kentucky. I charged to 100% in my garage, which is enough to reach my buddyâs house. But because there are no Level 3 chargers anywhere in his town, I had to stop and recharge halfway there so I wasnât stuck in Bumville, Kentucky. Was at 75%, went back to 100% Had a lovely day. But not enough charge to get back to that charger, not to mention back home, so I had to drive to Lexington for a fast charger. Was at about 30% by the time I got there. Charged back to 100%, when I put âhomeâ in the GPS it informed me I didnât have enough charge to make it, so I had to stop at that original fast charger again to get home.
Three stops, and over an hour added to the drive. In an ICE car I would have filled with gas in his little town, turned around and come home. Plus âplanningâ, which is rather unusual to have to do.
Donât get me wrong, I still love the car, and yes, some of these issues will be sorted out, but it is going to take A LOT OF TIME, not just a couple years. This will not kill the industry of course, but it appears to me that the âearly adoptersâ have mostly been satiated, and we are into the era of âfast followersâ (like me), and it keeps slowing down from there. [I do expect the Tesla pickup to fall off the curve far more quickly, itâs not a good pickup for at least half the users (contractors, landscapers, etc.) and itâs vastly weird for any but the âlook at me, Iâm firstâ crowd.]
PS: Did you notice in my example of âMaryvilleâ with zero fast chargers that it was area #30 or so out of over 400 listed in just this state? Thereâs a lot of real estate out there, gonna take a while to wire all of them.
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Unless, of course, there was a history of staffing up and then periodically trimming to cut back to the best ⌠which Tesla has.
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