Article: 5 Reasons to Buy Tesla Now

I’m recently back in Tesla with a 7% position. I do worry about the macro risks over the next year but with a reasonable PE ratio (50-60), strong cash flow, and so many wins such as the recent partnership with Ford on charging stations, cybertruck rollout, 25K vehicle, FSD beta progress, etc, there is a lot to like.

Great article that speaks of a plethora of catalysts:

Price Cuts Sparking Demand
-Great strategy to take market share, crush rivals, and expand tax credits

Stock Repurchase Plan:
-A meaningful buyback is coming in Q4

A Hummer Replacement?
-Cybertruck coming with already 1.5 million in backlog. Ford should be worried.

Full Self-Driving (FSD) Deployment:
"Tesla will have a Chat-GPT moment later this year.”- “Musk should know – he was the brains and investment behind Open AI’s Chat-GPT.” Ok, this is a touchy subject, let’s just say Tesla is making progress, unlike cathy wood, i’m very skeptical of the timeline for FSD.

Electrifying “Non-Automotive” Growth
-energy storage and generation CAGR of 47% in recent years

Full Article:

5 Reasons to Buy Tesla Now (yahoo.com)

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I’ve been holding off on replying to a Tesla thread, given previous rules from Saul, but since this hasn’t been killed, I’m going to add to it, especially given today’s news.

First, I have to disagree that the referenced article is “great.” For instance, there has no real news on a stock repurchase since it was first proposed when the stock was around $110, and with the stock over $230 it seems unlikely that’s going to happen now.

But, there are a lot of actually good reasons why TSLA remains, IMO, a great investment.

What we have with Tesla is a mega-cap company (over $700B) that is growing top line revenue (51% 2022/2021, 70% 2021/2020) and currently exceeding their guidance for a 50% CAGR of vehicle volume deliveries for ten years starting in 2020. And this is all without considering any of the auxiliary businesses, like solar roofs, powerwalls, megapacks, robotics, FSD, etc.

Model Y was the best selling passenger car of any kind in the world in Q1. Yeah, more Model Y’s sold than Corollas (including variants).

Recently, Ford announced it is adopting the Tesla charging plug standard (known as NACS for North American Charging Standard), first with adapters that also support previous and current Ford EVs, then in 2025 natively. And just today, Mary Barra went on Twitter Spaces with Elon Musk to announce that GM is doing the same. Musk said Tesla will provide equal support for GM vehicles as they do for Tesla vehicles, but Ford and GM owners will still have to pull up to “pumps” with Tesla branding.

What this means for VW’s Electrify America, Chargepoint, or Blink is anyone’s guess. I have to believe they’re going to have to license (for free, presumably) Tesla’s charging standard patents. And on the legacy OEM side, what are Mercedes, BMW, and the VW group (including Audi & Porsche), Hyundai, and then what are the startup OEMs (Rivian, Lucid, Fisker, etc.) going to do in North America?

And yes, Cybertruck is coming this year. Right now many think its looks are too polarizing for it to sell in volume, but well over a million paid reservations say otherwise to me. The Rivian R1S and Ford F-150L have a number of good aspects between them, but Rivian can’t scale (and the short bed limits appeal to the “lifestyle pickup” market), and Ford has already announced that they need to do a second generation to improve the vehicle. The major risk for Tesla, IMO, is that they can’t produce enough 4680 cells to ramp up CyberTruck production, but rumor today is that Tesla has recently asked suppliers to plan on a 375k vehicle/year run rate, up from 250k.

A much-anticipated Model 3 refresh is apparently in the works, too, following an announcement this week that all Model 3 and Y variants now qualify for the full $7500 fed tax rebate.

And Tesla is working on a low-end, mass-market vehicle. Characteristically, Tesla already showed how they can build affordable EVs that are profitable for the company. Also characteristically - and ironically - since Tesla didn’t show a “concept car” rendering, Mr. Market didn’t believe them and sold the stock down. Other companies claim they can and will sell cheap EVs but they don’t “show their work” as to how they can do that profitably, especially since no-one except Tesla seems profitable with their EVs today. You can watch the video on the new assembly process here:

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The dominant vertical that could vault TSLA ahead of every other company extant is Musk’s planned subscription model for the FSD robots.

His plan to charge all car owners for Full Self Driving robotics on a subscription basis would result in new revenue that would amount to well over a trillion dollars per year when Tesla FSD vehicles reach 10 million, which the self described “pathological optimist” says will hit the roads within 5 years. If he gets TSLA halfway there, the stock could be valued higher than AAPL & MSFT combined.

Musk also said in that CNBC interview, that Tesla has a massive lead in AI over every other company on earth, “so much so, I can’t even tell you who is #2.”

Everyone knows Musk is often too optimistic on timeframes, but he clearly believes that FSD is at hand. For the first time, I believe him. I used to believe FSD was a pipe dream, no mas.

I started loading up right after that interview. Assume others were also moved by it.

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Hi smorg, I tried to make clear that the reason for banning Tesla discussions in the past was that the discussions wandered off into bitter arguments, and also that Tesla seemed to grab the entire board. Neither has happened at all recently so I’ve let it go.
Saul

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Hmmm. $1T on 10 million vehicles is $100,000 subscription cost per vehicle per year. Maybe some people would pay $100,000 per year for this but not 10 million people.

GauchoRico

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There is a problem with your calculation. It’s 10 million ‘new’ vehicles per year but the old ones are also subscribed. By 2030 it’s supposed to be 20 million ‘new’ vehicles. My spreadsheet says, at 45% annual growth:

2020	   500,000
2021	   725,000
2022	 1,051,250
2023	 1,524,313
2024	 2,210,253
2025	 3,204,867
2026	 4,647,057
2027	 6,738,233
2028	 9,770,438
2029	14,167,135
2030	20,542,345
Total	65,080,891

Denny Schlesinger

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There’s even more to consider:

  • 10 million cars refers to the production rate per year. The target for that is 2029. Tesla already has 4 million cars on the road today, and by the time they hit 10 million sales per year there will be close to 28 million on the road. So, that’a a larger base.
  • Depending on what car you started with, the current subscription cost is either $99 or $199 per month. Or you can buy it outright for $15k (or $9k more than advanced AutoPilot). You would need to hold on to your car for over 6 years to make buying FSD the cheaper option.
  • At the end of 2022, the take rate on FSD was about 19%.

Even so, I wouldn’t do that 28M * 0.19 * $1200/yr math.

It’s hard to come up with a good number for the cost of FSD development and implementation to Tesla. The software development team is fairly large and the effort has been going on for years. Tesla has spent a large amount of money on Nvidia GPUs for its back-end data-munching cloud, and has an additional development effort for its own AI chip to be used in its future “Dojo” supercomputer. And unlike other OEMs that only equip vehicles with the additional hardware if the car is ordered with advanced ADAS, Tesla puts the hardware for FSD (mostly cameras and higher-spec compute) into all its vehicles. Tesla has even indicated that the hardware will be standard in its future $25k vehicle as well. This enables the SAAS model, but raises the base cost of vehicles.

It’s hard to project what the future revenue from FSD will be. Right now, FSD is a toy and not worth the money over the “Enhanced Auto Pilot.” I justify it as it informs my TSLA investment and it’s fun at times (scary for passengers, though), so I question whether the 19% take rate is more historical (when it was lots cheaper) and that the current take rate is lower. But, the real issue is that when FSD gets good enough to be SAE Level 4 (I believe Tesla will skip over Level 3, but that’s a whole 'nother discussion), the economics will change with the possibility of robo-taxi or other vehicle sharing options. That’s eye-popping potential, but we’re so far from it that I don’t think it’s worth spending any time today considering it as a TSLA investment point. Might even be a con if you think Tesla will not actually get there. And a large robo-taxi fleet could handle more trips with less vehicles at lower cost such that some people would forgo owning a vehicle at all.

Which brings me to a larger framework for discussing potential TSLA investments. It’s all too tempting to look at FSD, Optimus robotics, etc. and talk about potential futures, but even the best case, those are years out. And when we look at the older “potential businesses” like solar roofs, powerwalls, and megapacks, we don’t see a level of production and adoption, not to mention profitability, that moves the needle. Which is why I hand-waved them away in my first post. What made Amazon a historically great investment was that they created a whole new business (AWS) that they still dominate with huge profits. Tesla might do that, but so far that’s not something for a potential investor to count on as anything other than a lotto ticket.

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I generally agree with your post, but think that we’re going to see a big step up in megapack revenue / income in the next couple of years. They’re currently ramping Lathrop + Beijing to produce 80 GWh of megapacks annually.

If you go on Tesla’s website, it currently states the earliest delivery date is Q1 of 2025 so there appears to be sufficient demand. The price varies depending on quantity and location, but we’ll use $2m / megapack (which is on the lower end). At 4 MWh / megapack, Tesla will be selling 20,000 / year once both factories are ramped, resulting in $40B in annual revenue.

I believe the CFO said they expect similar margins to the auto business over time, so assuming 15% income margin those two factories will be producing ~$6b in net income, which is 50% of last year’s net income. Obviously the car business will continue growing to make this a smaller piece of the pie, but it will be a tangible boost to earnings.

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Thanks for the comment.

I should have been more clear. I left out a few important data points necessary to support that revenue estimate. You may know that Cathie Wood’s revenue estimates for the Tesla robotic taxi are much larger than $1T. I was trying to tone it down.

Musk stated in that David Faber interview that those 10M new vehicles would be taxis operating 24/7 in addition to the more modest take from charging individual owners. So he sees his FSD robots disrupting taxi/Uber/Car rental businesses.

Of course, the subscription business, which will be the dominant source of TSLA revenue, is expected to operate at at 80%+ margins, much greater than 25-30% auto manufacturing margins.

If indeed, we assume that Musk will deliver the FSD at scale within the next year or two, seems like maybe Cathie Wood’s latest 10 bagger call for TSLA stock by 2027 should be taken seriously.

Most of the other factors giving TSLA an enduring competitive advantage are well covered in other comments in this thread.

Musk has often been late in delivering products, but I don’t know of any time he has failed to deliver. Anyway, I’m in TSLA now for the first time and it has become my #3 position behind FOUR and SMCI. I think it’s a good value here and hope to add when I can.

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Smorgasbord1 already said a lot of what I was thinking. I would just color it by saying it is the tech they develop around the car that I am most interested in, rather than the cars themselves. There are potential usage and subscription based revenue streams starting up. If they were just a car maker I wouldn’t be as excited. Though, as with all my investments, I want them to be winning today, not just a story for tomorrow, so I like they are building more Megafactories (now talk of Spain along with Mexico) and have plenty of room to expand the car business.

Some things that caught my attention as catalysts for more growth:

  • Becoming the dominant “gas station” provider for electric vehicles. The charging tech is a clear winner. There are great videos on YouTube that demonstrate how much better the combined AC/DC connector and standard are; safer too, like “Tesla's Charging Partnerships Just Changed the EV Landscape... - YouTube” I don’t suppose anyone has modeled out how the revenue from usage scales…?

  • There is a very good chance they could license their self-driving tech to other car makers to unlock a new channel of subscription revenue! Tesla has already expressed interest in doing this and they have a massive data advantage over everyone. They are years ahead (if time was all it would take, which it isn’t). I don’t think this will cannibalize their own offerings much as they have an ecosystem and user experience advantage. One of the reasons I am only shopping for a Tesla for myself is the self-driving + car OS technology. It all just works so well.

  • Robots (this is farther in the future and not really part of the thesis today, except that it is another example that demonstrates how their tech can lead to more than cars)

  • Robo-taxis. Again the vision feels a bit far away, BUT, Tesla leases do not end with an option to buy. Tesla gets the cars back to add to their own fleet. They are basically using customers to finance a fleet of cars that they own. This has to be good for something. I hope we start to see zones in places where robo-taxis become a reality, even if they have to use special lanes or routes. e.g. the Las Vegas Strip tunnels idea. It could start as a novelty but prove the tech, making it more of an accepted part of life, and then grow from there. We’ll see. The lease thing caught my attention though.

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Here’s a recent article talking about a 224 megapack project that’s expected to be finished by the end of next year: Tesla Megapack 2XL to power new giant 877 MWh Neoen battery project | Electrek

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