Some feedback…
My apologies for the mixup leaving the 2018 share price in post-split numbers. I reflected the 10% bump that day correctly (which was the real point, not the absolute dollar value) but didn’t go back to un-split the price to 2018 terms. (I noted the error on the blog post…)
My point in describing the 2018 tweet incident is that it reflects a prominent case where Musk did not contemplate the restrictions about officers of a publicly traded entity making forward looking statements that can potentially mislead investors. The fact that this communication had not been approved by the board suggests his planning was ad hoc and had not been vetted appropriately, especially for such a volatile stock. The fact that the SEC charged him with securities fraud and extracted $40 million in penalties from him as an individual and Tesla the firm indicates the severity of the offense.
The Bloomberg article references a case where Musk responded to an online critic by publicly labeling him a pedophile. That’s an example of the exact bad social media behavior raising concerns across all media platforms and an example of the type of behavior that could grow exponentially if Musk fails to figure out a way to solve the content mediation problem for a platform with 200 million daily users. It is also an example of bullying behavior of the richest man in the world which can have a much larger impact than the average troll on any of these platforms.
I have no concerns about the value proposition of Tesla VEHICLES. Among the owners and test drivers I’ve spoken to, satisfaction in the performance, quality and value of the VEHICLE is unanimous. Tesla the COMPANY has contributed a great deal to the auto industry by demonstrating how much vehicle engineering has to change to switch from internal combustion engines to EV with much heavier focus on software for driver interfaces, control systems and self-driving capabilities. Tesla’s leadership has also clarified to markets and governments how much re-invention is required for the charging infrastructure required to make the vehicles practical for more customers in more destinations. People forget our existing investment in gas stations didn’t happen over night for free and a switch to electric will require similar investment (and standardization).
My concerns about the VALUATION of the COMPANY stem from reviewing math on units sold, opportunities for market share growth and capital investment needed to get from current state to a top 3 player in the industry by volume. Tesla produced 305,840 vehicles in the fourth quarter of 2021 which confirms capacity to make at least 1.2 million vehicles per year. Ford produced 1,104,000 vehicles in 4Q2021 and 3,942,000 vehicles for the year 2021, roughly 4 times the capacity of Tesla from the assembly line back through supply chains. Worldwide production for Toyota was 2,077,000 for 4Q2021 and 8,234,000 vehicles for the year 2021, roughly 6.8 times that of Tesla. Ford employs 183,000 workers and has a market capitalization of $59 billion. Toyota employs 371,365 workers and has a market capitalization of $233 billion. Tesla employs 99,290 workers and has a market capitalization of $906 billion.
Thinking of those numbers in ratio terms, the ratios of capitalization to production capacity unit are:
Tesla – 906000000000 / 1200000 = $755,000
Ford – 59000000000 / 3942000 = $14,967
Toyota – 233000000000 / 8234000 = $28,297
Looking at the ratio of capitalization to employees,
Tesla – 906000000000 / 99290 = $9,124,785
Ford – 59000000000 / 183000 = $322,404
Toyota – 233000000000 / 371365 = $627,415
To me, these ratios would normally be about equal for a relatively stable industry in which competitors are using similar technology to create similar products. When the numbers vary significantly, the variation would be due to some combination of these factors:
- one firm having invested more or less capital than the others
- one firm’s competitive advantage / disadvantage stemming from technology choices
- one firm having higher or lower productivity than the others
- one firm have higher or lower expectations for growth
For example, I would expect Ford and Toyota to have roughly similar ratios of capitalization to unit capacity because they both build a mix of EV, hybrid and ICE vehicles. Toyota’s higher ratio is likely due to higher estimates of long term unit growth volume since Ford is voluntarily shrinking from the sedan market to focus on trucks and SUVs. If the above ratios were plus or minus 100% of each other, I couldn’t tell you if that meant anything scientifically. When one of the firm’s ratios are ten times the others, the delta has to stem from high expectations, especially when I would expect them to be LOWER reflecting lower manufacturing complexity.
Part counts in electric vehicles are far lower than ICE technology vehicles so one can argue that Tesla’s plant investments and work force won’t need to be as massive as traditional ICE-based makers. That’s true for the car assembly but doesn’t reflect investments required for battery manufacturing being split between Tesla and Panasonic and doesn’t reflect investment and labor needed to build out charging station infrastructure. It isn’t clear to me if Musk plans on continuing to own / control charging stations or if he expects / wants to encourage others to build out that infrastructure with industry standards.
I have no short or long position that benefits either way from what happens to Tesla or any of Musk’s firms. I am interested in the behavior of the world’s richest person and what he is enticed into doing in other sectors given much of the wealth providing him influence and clout is tied to something that I see as highly overvalued. As stated before, I don’t care about Tesla’s stock price (or Twitter’s…) My concern is that a volatile stock is a major concern to the world’s wealthiest human who has a pattern of impulsive and inappropriate communications that can move entire markets.
Regarding the point on user counts with Twitter, I assume most advertisers know “subscriber” counts are very fuzzy factually and, to a large degree, the absolute numbers don’t matter. If I’m an advertiser trying to reach 10,000 humans in a particular location and demographic in the next week and the cost to do so on Twitter is $XXX dollars, I don’t really care whether Twitter says there are 219 million active users or 400 million or a billion as long as I get some sense I reached my targeted 10,000 in my ZIP in my desired demographic. If 200 of those come by my store, I got what I wanted regardless of how many fake accounts exist in the system. I think inflated user counts due to bots and hackers has been an open secret across social media certainly since at least 2016. However, after watching Facebook shares plummet twenty percent on February 2, 2022 after subscriber losses were reported with earnings, Twitter knows that any process developed that can identify and block bot activity in volume could trigger a similar reckoning and result. Of course, if they go private, they won’t have to worry about that.
WTH