Sure. A typical car sits in the garage for 95% of the time. An autonomous taxi would be constantly on the move. Through this, we will need much fewer cars, because one taxi will be able to replace multiple cars. Have you checked the mileage of some of the older taxis? I saw a Peugeot 407 with 800’000 km on the clock. An autonomous car easily does a few hundred kilometers every day, if there is demand.
A cheaper taxi (let’s say 0.50 CHF per km) might compete with train and public transport. Wanna go for a day trip to Bern, Basel etc? The taxi will pick you and your partner up from home, the round trip will cost e.g. 100 CHF. Sure, traffic jams can be a problem, but if the whole autobahn only has self driving cars, they can move more efficiently.
Then we need to remember that Tesla also has the semi-truck, meant for goods transport (so we’re not only talking about passengers).
I think through autonomy, we will need fewer cars, which will free up parking spaces and garages. Cars will be utilised much more. So the number of moving cars on the road will not decrease, just the parked cars will disappear. So yeah, I think the total number of cars will be reduced. Still, since the whole fleet needs to be replaced with self-driving EVs, Tesla is in a good spot to grab a huge chunk of that pie.
Based on the last posts on this thread, it looks like what bulls and bears agree on is that TSLA’s car manufacturing does not justify its current valuation. However:
Bulls say that TSLA is way more than an automaker
Bears say that TSLA is nothing more than an automaker
Let’s first figure out what this auto-manufacturing activity might be worth, and then move on to other business lines.
Putting a cap on TSLA’s car activities is quite easy: the car industry is notorious for not earning its cost of capital and therefore most manufacturers trade under their book value (except maybe Ferrari, but this is another topic as they have huge margins due to a high pricing power). Thanks to its recent multiple equity raises, TSLA book value is worth around $15 billion, or around $16 per share (give or take 20%).
At the current price of $737 per share, this means that the other business lines are valued at around $711 per share. So i think we should discuss those other activities rather than the car manufacturer, because that is where all of the disagreements occur.
So what are those other activities and what could they be worth?
Electric cells supply? I have heard arguments that TSLA is so advanced in terms of cell technology that it will hold kind of a monopole on EVs electric cells supply. But so far Panasonic is still manufacturing TSLA’s cells, so I am wondering how much of a head start they really have (If someone has an answer I am genuinely interested).
Solar panels? Currently the biggest solar panel company is Jinko solar, worth around $1 billion. I do not know what is TSLA business model with its panels, but I would guess they do not manufacture the semiconductors needed for those panels, and therefore have no technological advantage over competition. Even if they are as good as the biggest competitor, it only makes $1 billion of the valuation (in TSLA’s case, around $1/share).
This leads us to the main part of the pie: software and its eye-watering margins. Arguments above were saying that while a model 3 would be sold for $35k, there would be additional $35k of software revenues. Let’s talk about this:
I could imagine that part of it comes from upgrades, like for instance the $7k FSD package. But all of it? I don’t think so. As soon as you are outside of Switzerland/US, there are not that many people ready to put $70k in a car budget. Germany’s population median income is $34k/year, and France’s is $31k/year. $70k of car’s worth would be more than two annual incomes in most countries. Maybe poor people would buy those cars the way they buy new iPhones, but that would be a new record in household debt… Which means that software upgrade will likely remain a niche market. Is that bad? not necessarily, it depends on the size of the niche and the margins…
Of course, what everybody has in mind is the fleet of full self-driving robo-taxis and I guess this is where you find the meat and potatoes. There are many questions to answer, of which i will only ask three:
Cameras vs Lidar: Supposing that Tesla manages to develop its camera-based self driving, is ithis such an advantage against Lidar competitors? Lidar seems a good fit for urban environments, while cameras FSD is theoretically suited for any situation. But wouldn’t most taxi rides be in urban environment?
One I was made aware recently: let’s say that we are in 2025-2030 and self driving cars are now a real thing: people are riding cars instead of driving them. From then on, why would people prefer driver-centric cars like TSLA, Mercedes, VW… to robo-taxis that are meant from the beginning for the car rider, like for instance Amazon-backed Zoox? Wouldn’t the legacy driver-centric car manufacturers have to renew their entire fleet?
So it looks that if self driving cars are a real thing, there will be a lot of competitors… How big will be the market and how big of a pie slice can TSLA hope to get? And when?
I would say the autonomous “taxis” will not be 100% like the taxis of today. Yes, you will use them for city rides a lot, but you will also use them for longer rides (commuting from a village and out of town trips), where traditional taxis are just too expensive right now. I don’t see how LIDAR can win against cameras. Humans only have two eyes and don’t need LIDAR.
Sure, I think Tesla will anyway have to make their own car without a steering wheel as soon as it’s possible to use one on the road. The next semi truck will also probably be without a driver cabin. Still, I don’t see how the presence of human-driven Teslas should be an obstacle. These cars play an important role in the transition period. They can be driven by humans but are ready to be taken over by AI. They collect data used to train the AI. No other carmaker has this.
Also, engineering is an art of its own. Tesla has learned through its own mistakes to mass produce electric cars, and they also apply innovations to the process. Just watch one video with Sandy Munro where he talks about Tesla. He says the legacy carmakers are too big, too complacent, to make radical improvements. They are not vertically integrated, too.
@Bojack Again, what are the odds you put on some of those outcomes actually happening in a given time frame?
It’s one question whether Tesla could sell X amount of Y prized cars. Or that Robo-Taxis could generate Q cents for every T miles driven. And so on…
But where do these (according to you, and many youtubers it seems) possible futures sit on a probability distribution?
Tesla actually dominating the EV market for the next 10-20 years is quite possible but I’d put the probability below 50%.
Tesla actually implementing Robo-Taxis by 2025 and dominating the market for at least 10 years afterwards I’d probably put somewhere below 5%.
Predicting the future is messy and I would warn that you (and others) may be falling prey to base rate fallacy. You’re concentrating too much about very specific information and neglecting information about the base rate of any of this ever happening.
As an example, I think the following base rate probabilities are rather low:
Establishing a monopoly in manufacturing (car manufacturing)
Sucessfully implementing a service that never really existed before (Robo-Taxis)
Fending off competition for that new service you just created (Being first doesn’t mean that you’re the best, or the most profitable.)
And I’d also caution that you should take into account the base rate probabilities for the following things (some of these might overlap with the ones before):
A company is large and successful one year and fails a decade later.
A company is quite successful but this productivity doesn’t translate into the stock price the way you’d want.
It would be interesting to try model this. Maybe using guesstimate:
This way it might become clearer where everyone actually disagrees with each other.
I’m guessing it’s pretty uncontroversial that TSLA stock price is to some degree driven by a compelling narrative. It’s a very nice story, and Musk is charismatic, and everyone wants the story to go well.
This has been beneficial to TSLA owners and (who knows) might last for a long time, but it is another huge uncertainty about how the stock will be priced in 10 or 20 years. The narrative might become boring, a scandal might change public perception, or public perception will shift independently making the narrative less compelling. Given the current levels of the narrative being so wide-spread, a decrease in it’s impact seems much more likely than a further increase (mean reversion).
I don’t know how large a fraction of the current stock price is explained by narrative. As far as it is, I’d say that we should expect that effect to diminish rather than increase.
Well, I invested 40k into TSLA, now it’s at 70k and I don’t intend to throw any further money at the company. I know the bulls are either very optimistic or downright crazy, but I’ll take this gamble and will keep the stock for the next 10 years at least. If it should go bankrupt, so be it.
This doesn’t seem like a good investing practice.
We should be investing to maximise risk-compensated returns given our personal side constraints.
And not be thinking about money as “free”, at least not when it’s 70’000k and we’re presumably not billionaires.
In major urban areas, many are already constantly on the move, being used in double shifts. And the reduction in cars will be limited, due to patterns in working hours and shifts: Many people are commuting at the same time, during rush hours.
A large part of that is going to be “empty” kilometres though.
In the end there’s just not that many taxis to replace.
So why does seemingly notice and note their sub-par built quality?
…which just happens to be their cash position.
Personally, I believe Apple entering the electric vehicle market and some day (during my lifetime) overtaking is more probable than Tesla selling 20 million cars in 2030.
This thread is really interesting, thanks all of you for this quality exchange!
I don’t know enough to analyse if Tesla will emerge as the predominant force, but just to add fuel on the fire : don’t you guys think that in the next 10 years the road landscape inside the cities can change drastically?
More and more city centers (in Europe for all I know) are trying to banish or greatly reduce car traffic. In addition, electric bikes and other kind of new individual transport are flourishing and are disturbing traffic, which may lead to an adaptation of the circulation probably at the detriment of cars (bike lane seems to be not enough/not secure enough nowadays with really fast electric bike and scooters, and may be adapted sooner rather than later).
I’m not sure if and how it can affect TSLA, but maybe it is a thing to take into consideration when analyzing the car market as a whole. Maybe more impactful than “everyone is on remote due to Covid” in my opinion.
Once again: they have taken over an existing factory in Fremont, where they can’t change a lot of stuff. The gigafactory in China has been built from scratch and there the quality is reportedly much better. So just wait for Berlin and Texas.
Regarding traffic. I think carpooling may help. Also using small buses with dynamic routes for busy destinations.
Regarding city landscape. I’m excited to see how cities will evolve once parking space will free up. I also think it’s a bad idea to built new tram lines. They usually occupy space where there could be a road, and self-driving ev buses will be more economically viable than trams.
I wonder if the Boring company can play a role in both topics mentioned above. So far it looks unconvincing. Can’t imagine what would happen if the car broke down in such a tight space…
I doubt so, seeing how difficult it is to add a few kilometers of bike lane on existing roads, there will be a lot of resistance when they’ll start touching private buildings. However, I am quite persuaded that autonomous vehicles will provide an interesting alternative to our currently unaffordable public transport.
That doesn’t quite fit with the narrative here and elsewhere:
Tesla’s supposedly revolutionary engineering.
New robots operating in the factory.
Lots of old equipment from NUMMI days being repurposed for use at other U.S. Toyota plants.
Now, admittedly it may be their first factory, they have taken over some equipment, and they may still be „learning“. But I think it’s more down to a company culture that puts numbers first, at the expense of quality.
It depends what you consider as quality. Built quality meaning how they put some parts together might be a problem. This means you might get some panel gaps, or some plastic stuff not fitting correctly, or maybe hear some squeaking while driving, because not everything is tight. People will be annoyed by it.
But these are first world problems. The engine is great, the battery works, the software mostly performs fine (given its complexity and frequent update schedule). I am driving a Model 3 from 2018 and you may notice some imperfections, if you’re a car freak. But the overall feeling is very futuristic. When I get into another car, it feels either like some plasticky shit. In Tesla, the acceleration is instant and strong, the gas pedal feels very responsive. The brakes are strong, the steering wheel is very responsive. Just get into a Model 3 once to get a real feeling. I can give you a ride
I did not invest super early too since I did not want to pick single stocks but now I’m up 80% and there is no reason to sell before 2030 to see what happens.
At the end it’s simple, you have a stock or you try to understand why not, but it’s a bet and as a bet it should be threated in the portfolio…
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