A major problem with opinion pieces is personal bias which is a good reason to listen to people who are less burdened by personal interest. In the automotive industry that might be Munro & Associates and not necessarily Sandy, the founder, but Cory Steuben, Munro & Associates President.
I have been following EVs since late 2010 and I’m currently trying to predict Tesla’s five to ten year future to orient my investing strategy. Covid-19 created a lot of disruptions, some good, some bad. Zoom, for one, was a great beneficiary but the spike was not sustainable, down 89% from its 10-19-2020 all time high of $568.34. Covid-19 not only kept people at home benefitting Zoom but also kept people off public transportation benefitting the auto industry. Tesla was able to raise prices and margins to unsustainable levels for the auto industry, at least for mass market segment which is Tesla goal for at least for the passenger car segment. Unless Tesla creates a mass market EV in China by 2024/25, they should produce it in Mexico by 2025/26. Will the expected 50% production cost reduction allow Covid-19 high margin levels or will margins get closer to industry average levels? Some people will point to FSD and Robo-taxi outstanding margins but they should be viewed as frosting on the cake, not the base of the cake. It is with these thoughts in mind that I watched
How Fast Will Tesla Kill Gas Cars? Auto Expert’s Answer Will Shock You! | Cory Steuben Munro
In 2022, EVs made up 14% of the global vehicle market. That leaves over 80% of the car market still out there for BEVs. In a period of such expansion opportunities I don’t think Tesla cares a bit about margin. They will price their vehicles at whatever it takes to sell as many as they can make as quickly as possible. I think Tesla believes that their cars are good enough to create a high frequency of brand loyalty and the more Teslas out there, the more opportunities for selling the FSD software when it finally gets perfected. That’s the big future revenue stream.
In BEVs at the moment there is only a Big Two, Tesla and BYD. Tesla’s advantage is in technology and innovation while BYD competes on scale. It is similar to the Apple and Samsung domination of smart phones where Apple has $400B in sales, Samsung $250B, and a bunch of other companies at under $100B. It wouldn’t surprise me if that’s how things actually end up with BEVs when the disruption is over, Tesla and BYD on top with a bunch of more minor players.
But disrupted markets are unpredictable, particularly one that is sensitive to technological innovations. Someone makes a breakthrough on self-driving and suddenly they are king of the hill. Xi decides his legacy requires Taiwan, and suddenly the China market is closed to the west while BYD is shut out of Europe and the US.
It is hard for me not to like Tesla’s chances though. They have lower production costs, better engineering, and the best brand. That’s a tough combination to beat.
I freely admit I’m not smart enough to do that. I think there are just so many unknowns that I would be better off betting on the Kentucky Derby. What I do believe is that Tesla will be worth more in 10 years than it is today. I also think that things could play out in such a way that Tesla will be worth a lot more in 10 years than it is today (See Cathie Wood). But over the short-term I have no confidence that I am smarter than the market.
Cathie Wood’s fund is below where it launched 6 years ago. It is down six-fold from its top at the height of the latest *earnings don’t matter” craze. You may remember the last one, around 2008? And the one before that in 1998?
Most of those guys are, to quote the Burt Bacharach song “parking cars and pumping gas”. Boom boom boom.
Take a close look at the new Toyota Prius Prime and compare it to the Tesla Model 3. The entry level pricing is similar, as is the mpge. However, the Prius isn’t limited on range like the Tesla. If a consumer wants one car that can provide economical commutes and long-range for road trips, the Prius is pretty compelling…