I’ll run corrected numbers in the AM.
Stupid, stupid, stupid.
—Peter <== feeling very stupid himself
Don’t beat yourself up. IMO other posters critiquing what I and others post is the best feature of TMF. A peer review process if you will. By posting one protects others and themselves by setting up their ideas for criticism.
IP,
who likes Seeking Alpha for the same reason, going directly to the comments on the article before reading the article itself
As has been pointed out, I screwed up royally and failed to notice that Toyota’s numbers were in Yen rather than US$. So let’s try again. This will require sharpening up some pencils.
First up, exchange rate. I’m using 130 yen to the dollar. The TTM figures for Toyota are as of June 30. The exchange rate at that point was almost 140. But for much of that 12 month period, the rate was between 110 and 120. Using a larger exchange rate reduces the figures in USD, so I’m being as generous to Tesla as I can.
So, Toyota’s TTM profits are more like $20.6 billion. Tesla’s are still $9.5 billion.
So what about growth? After all, the Tesla story is the growth.
In those 12 months, Tesla built about 1.1 million cars. That is pretty close to their stated capacity as of the beginning of those 12 months. (I got all of my historical production numbers from Tesla here: https://ir.tesla.com/#quarterly-disclosure . The Shareholder Deck includes quarterly production figures and a brief discussion of that production by factory.)
The California plant is at roughly capacity, of 600k cars per year. They claim to be able to bump that up to 650k cars as of the most recent quarter, or 10% growth. We can run with that going forward.
Shanghai had a capacity of more than 450k cars per year. Looking at the total production for those 12 months, apparently the capacity was actually 500k cars. That gets us the 1.1 million actually produced. For the next 12 months, they expect Shanghai to produce 750k cars per year. Again, we’ll use that. And they expect growth from there. I found an article that says they’re upgrading that plant a bit. After the upgrades, they’re expecting it to product 21k cars per week, which works out to about 1.1 million per year. https://electrek.co/2022/06/24/tesla-prepares-upgrade-gigafa… So for following years, I’ll use that.
Berlin and Texas started production very late in those 12 months. Since I’ve already accounted for the total production in the TTM, I’ll assume their actual production was negligible. For the next year, Tesla expects these two plants to produce 250k cars each. It appears that is expected to grow, as it is significantly less than the capacity at their other plants.
According to Wikipedia, the Berlin plant seems to have plans for two growth phases. The initial capacity will be 250k cars, with expansion to 500k and then 750k. I’ll estimate that they’ll get to the 500k level two years from now and 750k four years.
The Texas plant is really big. Second biggest factory in the country (I’m guessing the Boeing assembly line near Seattle is #1) and second largest building in the world by volume. (Again, Wikipedia) Let’s guess that factory’s ultimate capacity is 1500k per year and that production will ramp up by 250k a year until it gets to capacity.
As far as I can tell, that’s all the factories we know about. But Tesla does have other products lined up. The Cybertruck appears to be the closest to ready. They will produce that in Texas. Since I’ve already accounted for the Texas plant, that production is accounted for.
Other products on the drawing board are the Semi, Roadster, and Robotaxi. The car guy in me says the Roadster is the one with the potential for significant impact. Until charging can happen in a matter of minutes instead of an hour or two, the Semi is likely going to be limited to local delivery. That is where it makes the most sense. I’m going to discount the Robotaxi completely. Self driving cars are really hard. And there’s still quite a ways to go there. It will likely happen, but not for a while and not in numbers that will change things. I can see a niche there, but not mass adoption in the way the Model 3 and Y have been adopted. At any rate, whatever production comes from these projects will likely fit into the existing plants.
So let’s total things up. I’m seeing a total of 1.9 million cars for the next 12 months, or about 73% growth. The year after that, I’ve got 2.75 million cars, for another 45% growth. But then things slow down to around 10% growth. At capacity, I seen 4 million cars a year coming out of these plants. That’s about half of Toyota’s production. It would also put it well into the top 10 automakers by volume, making it comparable to Honda, Nissan, and Ford.
For further significant growth, we’d need to see more plants. Those appear to have a lead time of 3 to 5 years from concept to initial production. The Berlin plant was on the long end of that range, while Texas was on the short end. To continue growth at higher rates, we’d need to hear about plans for another plant or two in the next 2-3 years. Without more production capacity, Tesla’s growth is going to significantly slow 5 or 6 years from now.
So how does this translate into financials?
For market cap, (and again risking Yahoo finance) Honda is at 46 billion on 4.9 billion net (yes, I did the yen conversion this time). Nissan is - well - apparently 15 billion. I’m not going to trust that one. There’s something odd going on and I’m not researching it right now. Ford is 61 billion on 11 billion net income. Toyota is 205 billion on 21 billion net. Tesla is pretty volatile, but apparently 850 billion today.
Let’s keep the Tesla profit forecast simple and assume vehicle sales and net profits scale together. Six years from now, that would put Tesla’s net income at about $35 billion. That’s today’s 9.5 billion divided by current production of 1.1 million (net profit of 8600+ per car, BTW) times 4 million expected production 6 years from now.
So Honda is selling for about 10 times annual earnings. Ford is 6 times. Toyota is 10 times. And Tesla is selling for 24 times the projected income 6 years from now. To get to comparable prices, Tesla needs to double sales from the expected sales volume 6 years into the future.
So a buyer of Tesla stock today is paying for all of the known projected growth over the next six years and then a doubling in production from there.
–Peter
So a buyer of Tesla stock today is paying for all of the known projected growth over the next six years and then a doubling in production from there.
True (maybe) if Tesla were just a car company.
The Captain
BTW, which of the other Tesla initiatives is likely to generate “S” curves? Robots? Grid storage? Autonomous driving?
Good question. Which of these products would have the mass market potential of, say, a smart hand held telephone in the early 2000s?
Robots? Maybe. They’ve been talked about for a very long time. And we certainly have highly useful industrial versions (which look nothing at all like the popular concept in the 1950s). The biggest hurdle I can immediately think of is that many people actually like to do things. Hobbies are everywhere, from stamp collecting to needlework to gardening. Even fixing up old cars. (How long until Teslas become collectible?) There are many things that people probably don’t want robots to do. What is the thing they DO want robots for? I don’t know.
Grid storage? If so, I don’t think that’s an S curve. More like a P on it’s back. Quick ramp up, broad peak, drop to a background level once the optimum level of grid storage is reached. More of a flash in the pan. Nice if you can get it, but not a long-term winner.
Automomous driving? Not impossible, but really hard. And mass transit is just a better solution. The cost of a passenger mile on a lowly bus is way cheaper than any self-driving car. Definitely some possibilities in industrial or tightly controlled settings. Maybe the giant trucks in pit mines. Already being done in warehousing, if you consider automated pallet handling to be autonomous driving. City bus routes? Perhaps, especially if there can be a bit of traffic control and not moving strictly in general traffic lanes. But I don’t see the potential for an S curve here. I could be wrong, though.
–Peter
True (maybe) if Tesla were just a car company.
Cars are about 85% of their sales dollars. The rest is solar panels and associated batteries (Powerwalls, not for cars).
So it mostly a car company.
—Peter
Grid storage? If so, I don’t think that’s an S curve. More like a P on it’s back. Quick ramp up, broad peak, drop to a background level once the optimum level of grid storage is reached. More of a flash in the pan. Nice if you can get it, but not a long-term winner.
I’m 99.99% confident grid storage is an S curve. Here’s why: Over the last 20 years, solar PV costs have steadily declined by about 16%/year, wind by 6%/year, and batteries much more than that. Those trends cannot continue forever, but they don’t have to continue very many more years before renewables plus storage is the hands down cheapest option.
People usually think of grid storage as being paired with a renewable project, but the storage can be paired with traditional assets too, like a nuclear plant, storing energy at night when it isn’t needed and selling during the day at higher rates. Same with natural gas plants, which are more efficient if they aren’t ramped up and down all the time. Or even not tied to a particular asset at all.
As Neal Stephenson says, the future is already here, it just isn’t well distributed. Renewables plus storage is already the cheapest option in some cases. Utility grid storage is already cost effective in some cases. The main driver in the cost decrease is global production. The more renewables are produced, the cheaper they get, and the cheaper they get, the more are produced. We’re at the bottom of the S curve so it doesn’t seem like things are happening, but once renewables plus storage become clearly the cheapest option, the demand for grid storage will explode. I suspect that day is not too far off.
I expect Robots will find a 3rd (after industrial production and, sorry to say, war) as senior aides. Most seniors and their children want to avoid all but the highest quality and quite expensive old folk homes and robots are at the edge of being able to handle an immense part of the tasks of private living: medical checks, cooking, cleaning, amusing, appropriately assisting in communications with family friends health workers, and more.
Which firms? I am looking most closely at those with advantages in building robots that can comprehend what a human either wants or needs, and so I look to voice recognition and body observation. Interesting candidates exist but I am not buying, just wondering.
david fb
Utility grid storage is already cost effective in some cases. The main driver in the cost decrease is global production. The more renewables are produced, the cheaper they get, and the cheaper they get, the more are produced. We’re at the bottom of the S curve so it doesn’t seem like things are happening, but once renewables plus storage become clearly the cheapest option, the demand for grid storage will explode. I suspect that day is not too far off.
I fully agree that grid storage will explode up. Don’t know when, but I expect it to happen.
The question is what happens after that. Is it an S curve that pops up to a high level and stay there? Do grid storage providers keep installing a high level of projects? Or does it drop back down to a lower level?
Grid storage isn’t like a consumer product with a relatively short life (like a smart phone or a car). Once a grid storage facility is up and running, it will stay there for many years. Decades, probably. Yes, batteries will likely need to be replaced from time to time, and there’s always on going maintenance. But the facility itself is there to stay.
At some point, there is a maximum amount of useful grid storage. More storage beyond that is only going to come from growth in electricity use, not from building new facilities. Phones and cars and other consumer products get replaced on a regular basis, so have a high level of ongoing demand. Once demand for grid storage is satisfied, production cannot stay at the level needed to build all that storage. It will necessarily fall to a lower level representing growth plus the very infrequent replacement.
So I think that grid storage will ramp up nicely and settle in at a peak level for a while. But after a decade or so, many of the most cost-effective installations will be done. Demand for new storage will start to taper off.
What will continue is the need for batteries. Those are going to have a shorter life than that of the whole grid storage plant. And batteries are also pretty useful for EVs.
Switching to Tesla specific thoughts, I can see Tesla slowly morphing from the mostly car company that it currently is to a battery company. Or perhaps a car and battery company. Make batteries for their own cars, and supply batteries to other companies for various uses - EVs, grid storage, home storage, whatever else the future us can think of.
And maybe that’s what you have in mind when you’re talking about grid storage.
–Peter
Don’t beat yourself up. IMO other posters critiquing what I and others post is the best feature of TMF.
Thank you for the reminder.
It’s still a big and embarrassing mistake. And one that was avoidable. I just took what I “knew” (That Toyota was the biggest automaker) and ran with that info without thinking. I expected to see big numbers, and that’s exactly what I got.
The failure was to give the numbers a sanity check. Being off by a factor of 10 is bad enough. Off by a factor of 100 (very roughly the dollar/yen exchange rate) is a whole different order of magnitude.
–Peter
Interesting candidates exist but I am not buying, just wondering.
I am not buying, just waiting. In away it’s a freebee with Tesla, the motor part is not the major issue, robot intelligence is and with the work done on FSD Elon Musk is calling the robot part “General Intelligence.”
Is there a market for a billion personal robots? The robot being much smaller than a car is much less costly in resources making AI and software the principal ingredients – Apple level Gross Margin.
But Crossing the Chasm is a ways away! I believe a real prototype will be shown in the upcoming AI day I believe scheduled for September. Put it on your calendar!
The Captain
Yes, Tesla should have a high PE. Yes, Tesla is going to grow a lot. But no, Tesla is not worth the current price. The current price is based on perfect execution by Tesla for the next decade (give or take a bit), plus inaction by the competition during that time. I think the odds of both of those things happening is pretty darn low.
But when you take into account the USD to Yen conversion rate of ~138 (I hope I have my numbers correct), do you just take your “decade” and divide by 138? That gives me about a month (give or take a bit).
Mike
But when you take into account the USD to Yen conversion rate of ~138 (I hope I have my numbers correct),
You do.
do you just take your “decade” and divide by 138? That gives me about a month (give or take a bit).
I wish it were that easy. Instead, you have to have to spend a couple of hours doing some proper research into possible growth rates instead of blithely assuming astronomical ones that are obviously impossible to achieve.
—Peter
Over the last 20 years, solar PV costs have steadily declined by about 16%/year, wind by 6%/year, and batteries much more than that. Those trends cannot continue forever, but they don’t have to continue very many more years before renewables plus storage is the hands down cheapest option.
That trend has stalled out, and is expected to remain stalled out for at least the next two years:
https://cleanenergynews.ihsmarkit.com/research-analysis/grid…
Costs don’t always fall with increased production. In fact, under basic economic theory marginal costs should generally rise as you try to produce more, at least in the near term. We see that with battery materials right now - as more and more automakers (and consumers) are demanding batteries in their cars, the prices for those materials (and then ultimately the cars) are rising. That’s a big part of why the cost of electric cars hasn’t fallen appreciably, and has indeed increased somewhat, even though we’re producing a few million more EV’s now than we did two years ago. And grid storage providers have to compete with auto makers for these resources.
It might not be possible for both massive electrification of the automobile industry and conversion of electrical storage from predominantly pumped hydro/thermal storage to battery storage to happen at the same time.
Albaby
At some point, there is a maximum amount of useful grid storage. More storage beyond that is only going to come from growth in electricity use, not from building new facilities.
The “S” curve is about adoption, it speeds up at around 15% market penetration and slows down after around 85% market penetration. As you phase out fossil fuels you have to replace it with electricity. As you lift people out of poverty you have to supply them with electricity. It’s not as if the current grid is the limit.
There is more. Now grid storage is mostly installations by big utilities but in the future expect more “Virtual Utilities,” individual homes and business that can feed the grid in times of need. By becoming a source of income it will accelerate the adoption. The electric enterprise will increase in size considerably as it morphs from utility centric to distributed.
Enphase (ENPH) is an interesting candidate.
The Captain
long ENPH
The question is what happens after that. Is it an S curve that pops up to a high level and stay there? Do grid storage providers keep installing a high level of projects? Or does it drop back down to a lower level?
The progression I see happening is that at first we’ll see new renewables plus storage displacing new conventional generation. In other words, instead of a new gas plant, it will be a new wind plus storage (or whatever). The existing fully depreciated gas plant will continue to be cost effective for a long time, but eventually it will reach the end of its useful/cost effective life and have to be replaced. So you’re right, there could be an eventual drop off. I think it is a ways off though.
But maybe not. If electricity prices continue to decline due to the virtuous cycle as I suggest they will, then lots of energy intensive marginal industries suddenly become practical. Desalination is an obvious one. Steel and concrete could be made solely using electricity. Carbon capture perhaps. List goes on. But that just means you need even more power and more batteries.
I see several calls to action besides the economic arguement. One is the situation in Urkaine of course, which is a poster child for the economic dangers of relying on fossil fuels. As if the entire history of the Middle East wasn’t enough. But also the problems with the Colorado river system and the Yangtze threatening to disrupt formerly reliable hydroelectric supplies.
https://www.theguardian.com/world/2022/aug/22/china-drought-…
Costs don’t always fall with increased production. In fact, under basic economic theory marginal costs should generally rise as you try to produce more, at least in the near term. We see that with battery materials right now - as more and more automakers (and consumers) are demanding batteries in their cars, the prices for those materials (and then ultimately the cars) are rising. That’s a big part of why the cost of electric cars hasn’t fallen appreciably, and has indeed increased somewhat, even though we’re producing a few million more EV’s now than we did two years ago. And grid storage providers have to compete with auto makers for these resources.
You’re right, and if you look at the price chart there have been several years in the past when prices went up. Overall, the trend is strongly and unmistakably down though.
You’re right, and if you look at the price chart there have been several years in the past when prices went up. Overall, the trend is strongly and unmistakably down though.
And overall, that trend took place during a time of relatively low EV production (in absolute terms). Those conditions are not likely to continue going forward - and certainly not in a scenario in which EV’s are eating the ICE world.
Albaby
The failure was to give the numbers a sanity check. Being off by a factor of 10 is bad enough. Off by a factor of 100 (very roughly the dollar/yen exchange rate) is a whole different order of magnitude.
Actually, the failure was to redo your analysis as though there was any worth to it at all. When you are analyzing a company or industry and you are off by a couple of orders of magnitude on the most important number, it means you have no understanding or feel for the business. You should just stop before you make things worse.
In this case it’s just fooling around, so I suppose it doesn’t matter.
But seriously, do you not understand that Tesla’s vehicle business is going to generate more profit for them than Toyota’s will by next year? And likely more profit than the entire cast of legacy manufacturers a couple of years after? Exponential growth is like that. Especially coupled with the shrinking sales of those other manufacturers.
-IGU-
I wish it were that easy. Instead, you have to have to spend a couple of hours doing some proper research into possible growth rates instead of blithely assuming astronomical ones that are obviously impossible to achieve.
So what’s your analysis after “proper research” as to what are possible growth rates for Tesla and Toyota?
-IGU-
But seriously, do you not understand that Tesla’s vehicle business is going to generate more profit for them than Toyota’s will by next year?
How is that going to happen?
Their profit for the current trailing 12 months is 9.5 billion. They did that by making 1.1 million cars (plus a bit of solar, which I’m ignoring for the moment.) Looking at their new plants coming on line and guidance from the company, a projection of 1.9 million cars in the next 12 months seems to be pretty reasonable. That’s about 73% growth from the previous 12 months. Scaling that straight to profits, that is 9.5 billion plus 73% or 16 billion of profit for the next 12 months. Toyota’s TTM profits are 20-something billion for the last 12 months.
So are you saying that Toyota is going to make less profit in the coming year than they did in the previous year? Or are my projections for Tesla off?
Please keep in mind that it is Tesla themselves who are saying they have the capacity to build 1.9 million cars in the coming 12 months.
It’s conceivable that figure could be as high as maybe 2.5 million cars. But that would take an pretty quick ramp up in production in Shanghai, Texas and Berlin - higher than the company is guiding. And that level of production would just get Tesla to profits even with Toyota, assuming Toy has no growth or decline in the next 12 months.
…
Hmmm. Reading again, maybe you are talking about the rate of profits at that point in time - one year from now. If so, you could be right. By the end of next year, they very well may have the capacity to produce more profits than Toyota. But those profits would come during the following year. I’m projecting actual results for the next 12 months. And those profits are highly unlikely to exceed Toyota’s for the same time period. Two years from now? Yes, it’s quite possible. In fact, that’s pretty much what my projection says.
–Peter