According to Robinhood: “Tesla's stock has jumped 35% over the past month, becoming the most valuable American car company ever. GM and Ford produced a combined 39x as many cars as Tesla did in 2019, but the electric carmaker is now more valuable than GM and Ford combined. Oh, and Tesla lost almost a billion dollars over the past year while GM and Ford made over $10B in profit. Investors care more about future profits, and they think Tesla's e-cars are the future.”
I still don’t get it. You may think it’s the future, but to justify such a valuation over all other car companies which have been operating for years, and who can compete with Tesla, it seems a little extreme IMO.
EDIT: after reading some comments it seems my conclusions might be inaccurate. All I wanted to point out was that the numbers were shocking at first sight.
Here's what you're missing... Most of the major automakers: Ford, Toyota, Honda, Nissan, Mazda, etc do not have viable business models in the near future. They are so far behind in sustainable transportation its only a matter of time until they lose their economies of scale and are no longer viable businesses. It's an "Iphone moment"... the other car companies have great "flip phones" right now.
This seems really optimistic about the adoption of electric cars. I suspect adoption will be drastically slower than you're imagining, and hybrids as well as gas vehicles will remain relevant for a long time still. Toyota of course has the top-selling hybrid, and introduced a plug-in hybrid version recently. Ford was in the #2 spot and Toyota was again in the #3. Honda takes #5. I think the thesis of these automakers is that they can ride the transition from gas -> hybrid -> plugin hybrid -> electric. I hope you're right, but from what I see, it seems unlikely.
Additionally, Nissan has the #4-selling electric car, and Chevy has the #2.
Tesla has already sold every car they can manufacture, and their entry price is $40k-ish in the USA. Other manufacturers are limiting how many BEVs they produce, and still managing to sell most of the ones they build even though they are universally objectively worse than any Tesla offering.
Tesla Model 3 is the best selling BEV in every market it participates in (not sure about numbers compared to PHEVs). It is selling in comparable quantities to ICE vehicles in the same price range.
A significant number of people buying Model 3 are upgrading from cars costing half the price.
There is little to no indication that EV adoption will slow down (before pointing to a drop in Model 3 sales in the USA consider that the one factory supplies the entire world outside China).
Chinese Model 3 production only started in November. Check back in February, you’ll find it’s the highest selling vehicle (perhaps by model, though I am betting also by manufacturer).
Europe-wide, Tesla Model 3 is top of the charts by a wide margin. The articles you linked mentioned this, France and Germany are behind because the vast demand for Tesla in Netherlands and Norway is sucking all the supply up before France and Germany get a seat at the table.
As Fremont production improves and the German Tesla factory opens, we’ll see that lead grow as Europeans switch to BEVs en masse to escape the cheating ICE manufacturers.
You are basing that on less than one month of sales after the factory just opened. Your claim is bogus, acknowledge that and be prepared to wait for figures for a complete month of Model 3 actually being available in that market.
By February the factory should be working close to its capacity, let’s see what sales are like once Tesla is actually participating in that market.
5300 seems quite low given China’s size compared to, say, Australia. No doubt you will claim it is demand constrained, but that number looks like one boatload. That market is supply constrained.
We’re about one step away in battery tech (which Tesla leads on, among other things (efficiency, integration, etc) from a mid range electric car be upfront cost equivalent with an mid range gas car. Once that’s there, plus charging infrastructure (which is rapidly coming up) the other benefits (maintenance, torque, quiet, fuel costs, etc) will be front and center for every car buyer making the choice between the two technologies.
I don’t think it’s too optimistic. VW with the ID.3 seems like they’re the only ones who will be able to match the scale and qualities of product to the Model 3/Y in the near term.
do they have a roadmap for charging infrastructure? What if they sell millions and it takes 20min to charge knowing that most people will charge at similar times when going to work?
This assumption is wrong that everyone needs to charge before going to work. Once people started hitting queues at charging stations they will start charging at home over night. Though personally I think work place charging stations should be promoted where electric cars get charged at work using solar energy instead of at night at home using fossil fuel based electricity.
That may work in suburban America but I'm not so sure about the rest of the world. Most of my life I've lived in apartment complexes (US) / blocks of flats (Europe) where there was no car charging possibility when parking. It would require huge infrastructure changes to allow most people to be able to charge at home and work, this is different from gas powered vehicles where you need a relatively small number of (centralized) points that distribute fuel. With electric cars that number needs to be much larger and it's distributed.
It can be done over decades for sure but it won't happen overnight.
Hah.. also: fear of war (with Iran) -> oil went up -> people think e-cars will be more attractive -> TSLA up.
One time a few years ago, oil went down and TSLA followed. It'd be interesting to see what will happen with the incoming recession (although then all stocks might go down with people pulling out of the market).
> Additionally, Nissan has the #4-selling electric car, and Chevy has the #2.
From here: https://insideevs.com/news/343998/monthly-plug-in-ev-sales-s... - by # of units sold, no one is even close to the Model 3. People with money to buy electric cars with can probably afford a $50k car (Model 3) that does everything well over $less cars that do everything kinda poorly.
It's not optimism, it's arithmetic: Tesla is stealing units from the other car companies. The other car companies require those unit sales to keep the prices the where they are otherwise they have to raise prices (same goes for insurance).
Sure maybe for the next 2-5 years people will do business as normal but are you really going to buy a Corolla for $30K when you can get a Tesla Model 3 for $30K? That is what will cause a quick shift.
A new Model 3 is 36k, a new Corolla is 19.6k MSRP. Realistically you can get the Toyota for less than half the price of the Tesla. I am not convinced that gap can be closed in 5 years, much less 2.
Corolla gets 32mpg. Assume 200,000 miles over the life of the corolla, that’s 6250 gallons of fuel. $2.79/gallon where I live for $17437 of fuel over the life of the corolla. $19600+17437=$37k
The Tesla requires 50,000 kWh to drive 200,000 miles. At $0.08/kWh (what I’m paying), that’s just $4000 in electricity.
$36k + $4k = $40k
That’s surprisingly close for a Tesla Model 3 versus a Corolla.
8 cents per kw/hr is nearly the cheapest rate in America.
And most people will not be on track to drive 200k miles in their car before the loan is paid off. Which leaves them upfronting a very large percentage of the savings.
Current electric car prices already make economic sense for car fleets where maintenance and fuel saving make it cheaper. One of the reasons delivery companies have been interested in electric vans.
They're going to follow customer demand. If demand for electric cars remains low, they aren't going to abandon the types of cars that are selling really well for them in order to simplify the production process. And there are a lot of reasons to think that demand for electric cars is not going to skyrocket all of a sudden: range anxiety, lack of charging stations, gas prices being fairly low, the time it takes to charge, etc.
Fuel prices in the USA are quite low. There isn’t much demand for a plugin hybrid. People looking for “green” cred and branding may go straight to an electric car, while everyone else buys SUVs and light trucks.
Most of the major automakers work in 5 year cycles, where the cars are basically the same for 5 years but get cosmetic changes. Major design changes need to be part of the next cycle if its non-trivial.
In addition to the very large market opportunity for their stationary storage batteries and solar panels / solar tiles. You can sell those big grid scale megapacks to virtually every government in the world. You can't necessarily sell Tesla cars to every person in most of the third world (or western first world for that matter!).
There is also the potential taxi and trucking businesses if they ever nail self driving. These side businesses are what a lot of people are missing in the comments only talking about Tesla's car business. They are diversifying in a way that some other car companies aren't. I'm not 100% sure that the self driving tech will get where it needs to be for this to become viable anytime soon, but the same applies to Uber and they have a market cap near $60 billion largely based off that same upside.
John Q. Public has no reason to buy an EV. Today's gas prices don't put the same dent in his pocket that $5/gallon* gas did. And there's good reason to believe that $5/gallon gas is probably never coming back.
I am for EVs, Tesla, and anything that can keep us from making large portions of Earth unarable and uninhabitable. But most people's car-buying decisions are driven by economic realities, not environmental concern.
*$5/gallon US average price - I understand it's frequently this high on the coasts and in large cities, and it's almost always higher in countries with appropriately levied fuel taxes.
If commercials tell me anything about what car buyers value, there are so many other apsects John Q Public would appreciate!
John likes fast cars. And oh boy my Nissan Leaf is fun to drive! Mountain driving feels like floating silently into the air. Instant torque, no gear shifting.
John may also appreciate the extra leg room, as even a compact car gains a lot of room without a gas engine.
John also likes saving money and convenience. And while gas isn't super expensive, I wake up every morning with a full charge for about $1. Gas stations just aren't a part of my life. (charging away from home is still a PITA, FWIW)
John might also like skipping the majority of standard maintenance. No oil changes. No random belts. Less brake wear (I think?) from regeneration. Sure, after 100k you'll probably want a new battery, but it's a known cost that's dropping.
Maybe EVs need to drop the 'environmental' badge and focus on how awesome they are.
Fun is pretty subjective. I'm not a car guy and don't have much experience with nice cars.
But, this isn't a nice car- I paid $6,500. I'm just comparing it to every ICE car I've driven (aside from that one time I got 20 minutes in a Lamborghini), and definitely every ICE car you can purchase used for $6,500.
But given the acceleration and smoothness, I'm just betting it's more fun to drive than nearly every car described in commercials fun to drive.
for $6500 you're probably right, unless you're willing to purchase a "project" vehicle. I bet it's a lot more peppy than a 1.5L honda civic. I mainly ask because I see the MSRP for a new leaf is almost $30k, which is where you can start getting into some new entry-level performance cars or a lightly used bmw coupe.
On the Model 3, if you enable Hold mode, then it's possible to drive without EVER using the brakes outside of emergency situations. The rotors and pads will theoretically last forever outside of environmental damage.
While I like the idea of Hold mode, not regularly using the brake will cause the breaking reflex action to fade with time. You really want to have a good "slam the breaks" reflex if you drive a car On the other hand, maybe Tesla feels their automatic systems will break better than humans and this is not really a problem to worry about.
I think njarboe feels that it is the human reflex to 'slam the brakes' will fade if the human doesn't use it enough in 'hold' mode, not the mechanism in the car.
Correct. Moving your foot from the accelerator to the brake is a much practiced motion and your body can do it very quickly without much thought. I rarely use cruse control, so when I do and think I might want to brake soon, I get nervous. I don't really know where the brake is. At that point I put my foot back on the accelerator and now my body knows how to hit the brake again.
Which is why the cybertruck announcement was so huge. The styling dominated the headline, but IMO the biggest news was the pricing. $40K for a full size medium duty crew cab pickup is cheaper than the equivalent gasoline truck.
As a counter point to this, gas in Atlanta costs $3.11 for premium. A BMW 3 series gets about 30mpg. Driving 1000 miles per month in the BMW costs $104 in gas.
GA Power offers $.01 per kilowatt hour rates in the middle of the night. A Tesla Model 3 gets 2.91 miles / kWh. Driving 1000 miles per month in the Tesla costs $3.44.
Fueling the Tesla costs $1200 less per year than the BMW if you drive an average number of miles, and we haven't even gotten to the cost of oil changes and brake pads.
Isn't this ignoring other parts of the world? Europe single handidly can drive this market. Also large portions of asia that would love affordable electric vehicles (not ness "cars") for their densely populated cities. Never mind the short range cargo vehicle market throughout the world.
Europe currently faces a bit of an chicken and egg problem with the EV market. European manufacturers don't produce meaningful EVs which results in no subsidies that would accelerate the market (or those subsidies are also available to hybrids in their lineup which won't be driven in EV mode). In turn they don't have any incentive to move forward with their EV lineup, as most people are loyal to their local manufacturers.
> as most people are loyal to their local manufacturers.
This is perhaps true for a few countries making good cars. The rest of EU is more than happy to drive German and French cars (if they can afford it, of course).
The EU has introduced fleet CO2 emission standards that are going to go up every year. As a consequence the European manufacturers are scrambling to design and produce ev's.
Well, in truth they most likely have something like a decade or so to adjust which is both not a lot and enough for such organizations to adjust.
Sure some manufacturers will go bust and collapse, but other will adapt, and new ones will be created.
I'm quite puzzled by Tesla's valuation, such a valuation is betting on it becoming a huge actor in the post IC automobile industry which is not a given.
I'm also skeptical about the "Iphone moment", functionally the Iphone was a huge step forward (basically having a small computer in your pocket vs having something just doing phone calls, SMSes and snake), but a Tesla, well, right now, it's still a car which does more or less the same thing as any other car (just slightly better in some aspect, slightly worst in others).
It's also not the same market, the Iphone appeared in the booming market of mobile phones which was seeing exponential growth at the time. And also, the gain in functionality and convenience was enough to transform the market from consumers willing to pay at most ~100$ for a flip phone to consumers willing to pay 1000$ for a smartphone with all that entails in term margins and profitability.
The car market by contrast, is not seeing such a growth, and it's unlikely consumers will be willing to spend that much more for their car.
There are potential market shift possible which could be caused by things like reliable autonomous vehicles, tighter regulations forbidding IC vehicles in some cities, cheaper cars (as EV are mechanically simpler, it's a possibility), but these are somewhat elusive.
> Iphone was a huge step forward (basically having a small computer in your pocket vs having something just doing phone calls, SMSes and snake)
The iPhone wasn't the first smartphone. In fact when released it was significantly inferior to existing Symbian and Nokia offering in terms of "objectively useful" stuff like browser behavior, modem bandwidth and third party app support. Obviously it was transformatively better, in ways that the established players didn't understand enough to emulate, but it's not correct to imagine it as a first mover.
In fact the Tesla/Apple comparison seems almost perfectly apt to me.
I still like reading the essay [1] from former Vice Chairman and Head of Product Development of General Motors Bob Lutz from time to time: “Everyone will have 5 years to get their car off the road or sell it for scrap.”
I personally have bought my last internal combustion engine car. I had planned to purchase another vehicle by now, but will wait for the Model 3 (perhaps another?) to mature a bit then go electric. I’m curious how many others out there have changed their calculus, too. I think it’s very analogous to iPhone’s rise, which must account for the stock.
iPhones did not need a charging network. They did not have any disadvantages besides the high price, which made them even more desirable. But I just do not see average people who live in condos buy an EV anytime soon.
> They did not have any disadvantages besides the high price
iPhones couldn't run Flash (which powered all of the interactive content on the internet at the time), couldn't send MMS (which was the way everyone shared photos at the time) or run apps (which was how feature phones added functionality at the time).
"Why on Earth would anyone want one of those!?" was a pretty common reaction, yet they still sold like hotcakes. In the case of Flash and MMS, the whole mobile internet changed to suit the iPhone. In the case of apps, Steve Jobs finally relented, leading to the single biggest software marketplace in the world.
That reaction really only came from makers of competing phones. (RIM execs famously refused to believe the battery life was possible, Balmer threw very unconvincing dismissals.)
The only commonwealthidespread complaint was about the lack of 3G and copy/paste.
However, the overwhelming response to the iPhone was extremely positive. Even from non Apple sources.
RIM didn’t think the iPhone was possible when it was first released. Google instantly changed the direction of their Android project when the iPhone was released.
"Too expensive" is a perfectly fine thing to think about a product like that, and is very far away from thinking nobody wants it.
Qwerty keyboards were always a niche, and "nice, but I don't need one" is reasonably classified as an underestimate of the product but it's still approval.
I still want a slide out keyboard like my Nokia N900 had... and if you don't think $1000 is overpriced for an I-Phone, you probably haven't tried a $300 phone that has very similar capabilities...
It really wasn't that popular initially, at least nowhere near what it is today. There were only 1.5 million sales in 2007, and about 12 million in 2008. For comparison, there were over 210 million sold in 2018.
Actually, the first one wasn't in that much demand, because it had laughably slow processor and cell standard support even by 2007 standards (no UMTS, which was already available on cell networks back then, just not with an iPhone). Apple fanboys stood in line for it and since Apple wasn't able to even produce enough for them, it seemed like "everyone wanted one".
The iPhone 3G changed this fundamentally; you didn't have to be a die-hard Apple fanboy to justify wanting one of those, because it was the only phone on the market that actually gave you sufficiently usable mobile access to "the real Internet".
I certainly didn't stand in line. The iPhone seemed primitive and lacking to me at the time. And I wasn't alone in spending lots of money on alternative phones.
The original iPhone sold for $600 and a 2 year AT&T contract.
The iPhone had a ton of pricing headway to make itself more attractive.
Tesla is almost the exact opposite.
Now, this isn’t an argument against Tesla or its stock price (that’s a different argument altogether). This is an argument against the idea That Tesla and the iPhone are in any way comparable.
The iPhone hit in a market where competitors have mutually agreed to hide away from regulator attention as long as possible.
That is most certainly not the state of the car industry.
And you can see how "old industry" will play with old wet cell batteries and newer batteries in data center spaces (newer batteries are considerably safer in reality with each cell monitored, with the battery wall automatically removing problematic cells, and requiring less than a fifth of the space of wet cells). However wet cell manufacturers have been really good at manipulating and adding regulations that make newer batteries untenable to have since regulations are purposely broad enough that each inspector you bring in will cited the same regulation as having a different meaning.
On top of that: no (physical) keyboard, no GPS, no 3G support.
They were almost the textbook definition of a disruptive product (worse on traditional metrics by which products compete, but better on some key factors that have customer value)...
Then you need to look closer. A long range model 3 can go 310 miles and charge quickly at superchargers. Condo dwellers can basically treat this car just like a gas car with fewer fillup options.
A lot of people should do the math on the model 3. The math is current car payment + 90% gas payment = new car payment on a model 3. The remaining 10% is what you pay for electricity.
> Condo dwellers can basically treat this car just like a gas car with fewer fillup options
The building that I live in is going to run out of physical space for electric meters long before it has issues with electrical capacity. My neighbor opted to forgo having a charger for his Model 3 and instead put one into the garage of his weekend home (he doesn't drive much during the week so he'll be ok).
Given existing equipment on the market now, our building can support maybe 10-15% electric cars. If you are designing a new building, there is no limitation. Our condo board has been searching for a solution and has found some things that are "promising", but nothing that will solve our problem before we run out of space. Again, this is a physical space limitation for the meters, not electrical capacity. And it's a problem where the solution will have to interface with the existing built environment and the existing electrical grid and the existing safety codes, etc. If all you pay attention to are single family homes with garages, you'll never know this is an issue until sales take a nosedive in big cities.
All the charger networks have solved this. Just choose a network (Chargepoint, Semaconnect, etc.), put in a 2- or 4-connection charger, and each EV owner pays for each charge with an RFID card or their phone. There are also online services for scheduling and paying for use of private (not-smart) chargers (evmatch.com), and others that specialize in your exact problem (multiple chargers in shared dwellings): evercharge.net
In a condo building, each parking space is deeded to the owner as a limited common element for the exclusive use of the owner. The charger in the parking space is owned by the owner of the parking space and the electrical connection runs to a utility closet that the electrical utility controls.
In a new building, you just design the electrical system so this is a non-issue. In an existing building, it's not so simple. Any state that has a lot of condos is going to have 100+ years of condominium laws that govern the ownership and usage of space in a condominium. You can't force someone to share their space and you can't authorize someone to enter someone else's space.
Condo associations that want to solve this can. It isn't a technical problem and it won't slow down EV adoption very much. It is kind of like adding satellite TV and plenty of HOAs have figured that one out despite not having it wired into the building. Yes, specific organizations will be slower than others, but as the demand ramps up more and more people will want this solved in their own HOA and they'll start getting it done like dominoes.
People on our condo board have owned Teslas for years. We are a building that is out in front of it. Coax cable doesn't carry 240V power. This isn't something you can hand-wave away.
At least in Germany, that math doesn't add up. Electricity is - if it's not heavily subsidized, which had been the case for a long time with a lot of EV charging spots over here, although only by accident - at least about 50% of the comparable gas price per mileage. Can be even more than 100% in some corner cases, but I think 50% is a good approximation, assuming you charge mostly at home.
I drive a hybrid and charge at home. My stats on electricity costs, after almost two years, is that my electric kilometers cost me 1/3 of my gasoline kilometers. For reference, it's in Portugal where electricity cost 0.2€/kWh and gasoline 1.5-1.6€/L.
And there's the local difference that makes or breaks this kind of calculation. For Germany these numbers currently are more like 0.3€/kWh and 1.2-1.3€/l.
Portugal has the fourth most expensive electricity in the EU. You are unfortunately above our level, because of taxation (Germany holds the top spot). Throughout the EU, the calculation is better for EVs. The median is at about 15¢/kWh.
I love the implicit assumption that electric vehicle adoption will run rampant, but at the same time, electricity costs will remain "negligible" and charging/pricing won't adapt to the increased demand...
Higher costs for electricity would be a great problem to have because solar is already competitive at current prices. Costs would have to go up 5x at least to make even a bad EV in an expensive kW/h locale cost as much as a gasoline car. At that rate almost anybody could make money deploying solar generation and storage in a remote locale, and of course for those with the luxury of having a roof.
I can afford any production car. I choose not to allocate money that way and I’m far from unique there.
We drive 10K miles per year across two drivers. My daily electric (LEAF) costs me $0.05/mi for energy (and I love it). My wife’s SUV costs $0.10/mi for gas and a few pennies for oil (and she loves it). She pays $600/year max for fuel. That covers about a month of Tesla car payment.
Ah, it doesn't work out in your case because you've already made the transition to electric. We went from two gas guzzlers (one of them was a 40mpg diesel, the other a fairly typical 25mpg) to one model 3 and the financing equation easily works in our case. Obviously not everyone is going to give up a car, and the math doesn't work for everyone. But more people should be doing the math rather than just looking at the sticker price of the teslas.
Going from $0.11/mi to $0.05/mi ($0.20/kWh in MA) even at 20K miles per year saves $100/mo. That’s not economically compelling. Driving 1/4 of that (per driver) is even less compelling. I bought an electric because I wanted one (and there was $10K in government cheese in the trunk).
$100/mo is pretty compelling to lots of people. Why throw money away? My locale is even better because I pay $0.08/kwH (Portland, Oregon). We like to ski; every time we drive up the mountain was $50 in gas for our Ford Escape. Now it's roughly $5. That alone represents $180 a month. In the summer we have different hobbies that are equally travel intensive so it's a year-round win.
Why spend $50K or more to save $100 or even $180 a month for maybe 8 years and get $10-20K back at the end? That’s just not compelling on an RoI basis.
There are many reasons to like a Tesla. It’s almost surely not the cheapest way to motor though. A $5K Honda and investing the difference will be wildly cheaper during the ownership period (including no need to carry collision/comprehensive insurance!) and have a much higher residual value (in the investment account). To me, that should be more compelling to many people.
> But I just do not see average people who live in condos buy an EV anytime soon.
Depending on where you live, there are sometimes EV charging spots in apartments/condos. To me, this is pretty clearly a supply/demand issue.
Today, there aren't enough EV drivers for condos to care, but as the percentage of people who own EVs increases, more places will install chargers. It's the exact same process that resulted in gas stations being everywhere.
And you'll start to see free charging evaporate (or appear in the form of rising rent/HOA fees). Condos can afford to "subsidize" a couple of free spots for a complex, but they're not going to be saying "free electric charging for hundreds of vehicles".
You'll probably end up paying to have one installed at a dedicated parking spot and get the power charged to you. It's going to be the equivalent of renting a spot in a carport instead of a standard uncovered parking. Most of the Apartments I've rented have had covered or garage parking available, I've never paid the extra for it, but it's there.
Condo associations in my city have been permissive/proactive about this issue, wiring a few parking spots near the building with 220v, and assessing the owner with the cost. Our city has also installed charging stations at public buildings to encourage EV adoption.
It's really unknown at that time. If (IF) a few changes in techniques, materials and manufacturing processes align, with the climate friendly mentality, it's far from impossible that ICE will vanish fast and be replaced by EVs.
Of course these are all IFs:
- battery chemistry: change in electrolyte, if not solid state
- modular wiring (way less expensive cable to make and install)
These two are worked on as of now, if they pan out, that's another drop in price and increase in usability.
Taking in account that the amount of money flowing into EVs has most probably increase by an order of magnitude (German brands, etc, all are investing). This may very well cause an overall drop in prices in all parts. Commoditization..
You are right about infrastructure, but I'm not convinced it's going to be a deal breaker for many people living in condos.
Even a level 1 charger (1.4kW) can add >50 miles worth of charge overnight (12h) and people living in condos tend to have a shorter commute.
And it's going to get better - for example Ontario mandates 20% parking spaces have charger installed and remaining 80% be ready to have one installed since 2018. IIRC the requirement is 200A per parking spot.
it's certainly a little inconvenient but people are already buying evs who live in condos in Seattle and San Francisco and probably other places. Don't forget apartments, they have the same issue
The higher end apartment buildings are getting chargers here in the Seattle area, while the lower ones are still slow on the uptake. It is just a matter of time now, anyways.
If you google "ford enterprise value" and "tesla enterprise value" you get values of 156B and 86B, respectively.
Stockholders are not the only people who have claims on the liquidation value and future profits of a company. Bondholders and pensioners do as well. Market cap != valuation.
Hmm that sounds misleading for the conversation at hand.
If enterprise value is market cap - debt (forget cash) then you’re saying this is the net dollar value of owning every share of Tesla.
But “rational” investors are aware of debt. It would seem to me you should be adding the debt to the perceived future earnings to actually come up with gross expected income.
That is if I buy Tesla and Ford for $10 each, and the Ford has no debt, and the Tesla has $10 debt, and I pay $10 because I consider them equal value... that would mean you expected total future earnings from holding each to be $10 from Ford and $20 from Tesla.
That's a little miss-leading because Ford's EV includes a lot of debt for car loans & leases which tend to get paid back by someone else and are secured by the cars.
Bondholders have claims on part of the company's assets and these claims reduce the value of the company (that's the liabilities part of the equation).
Pensioners don't have any claims on anything except perhaps on their pension funds if they have one.
Right, those other claim holders represent reductions in the value of the company.
If I borrow $300 billion (heh) and call myself a car company, that doesn't make me a more valuable company than Ford and Tesla combined - my net worth hasn't changed.
Market cap == (perceived) value.
Enterprise value is the COST TO PURCHASE the company, if I'm considering buying it.
Like buying a used car and assuming payments:
enterprise value (real cost) = purchase price + loan balance - coins under the seats
Market cap is the cash I have to pay up-front
Debt is the new debt I will have to pay when I own it.
Cash-on-hand is the cash I get back when I buy it
Different companies are capitalized differently - some use all equity, some all debt, some a mix.
Not sure I agree that other claim holders represent reductions in the "value of the company". The same company can be capitalized different ways - the enterprise value for that company should be unchanged.
Enterprise Value is absolutely not the “value” of the company. The Enterprise value is the actual amount a company will cost you if you buy it at Market Cap.
IOW, if you buy a company for a $100bn but it has liabilities of another $100bn that means it’s cost to you is actually $200bn, because you will also have to pay that additional $100bn. That’s why cash reduces the EV of a company, because if you pay $100bn for a company that has $50bn in cash, you effectively paid only $50bn (which is the EV).
I passed all three CFA exams a few years back and studied this extensively. I might be remembering incorrectly, but think you're making factually incorrect statements. Appreciate your comment and the motivation to think about this more.
I recommend reading up on these terms:
* market value of equity
* book value of equity
* intrinsic value of equity
More. Normally burning a trillion dollars would have taken about a trillion off the market cap, so if it held steady that means a trillion dollar gain somewhere else.
Less valuable. What you're missing is that the reason debt is counted is because it is used to buy up assets. In this case, if the cash is entirely burned, it means the value of equity dropped to zero because debt typically has collateral. So the trillion dollars you borrowed would need to be paid back by selling the rest of the company's assets. So in reality, if let's say this trillion dollar debt was super senior and first claimant to assets. It'd drop to the previous market value of the company and the rest of the company's capital structure drops to zero.
Enterprise Value is a metric used for acquisitions to determine the real cost of acquiring a company (that’s why cash lowers enterprise value, since it helps pay off some of the cost of acquiring the company, and liabilities increase the enterprise value because those are additional amounts of money you will
Have to pump into the company).
If you borrow $300 billion you still have $300 billion in assets. Unless something unexpected changes, Ford won't be able to realize that Enterprise value. The number of car companies will shrink, not grow, evs are just the wave over the horizon that will really hurt them. Tesla actually has a chance to drastically grow their sales.
(B). The company is worth $300 billion to the bondholders, and $0 to shareholders, giving a total value of $300 billion.
And that's assuming the company is being liquidated. Most companies with viable businesses are worth a lot more than their assets because the big part of the valuation is assumed future earnings.
So you can create infinite value by borrowing more and more money.
I'd love to create lots of value for you by borrowing money from you. I would even consent to not destroy any of that value through making payments.
The bond is worth $300b to the bondholders, but only because it is expected to be paid back and is secured by the $300b assets. You can prove that by assuming those assets disappeared: how much is the bond (or the company) worth to the bondholders then?
Every single fair transaction has a net value of $0. If I buy a chocolate bar for $1 that's worth a dollar to me, I'm up one chocolate bar worth $1 and down a dollar. No net worth change, but it is validation the chocolate bar is worth $1.
I read a different analysis [0] arguing that comparing the market cap of Tesla to that of Ford and GM isn't really comparing apples to apples, since the latter have enormous pension fund liabilities.
How enormous are these pension fund liabilities? Looking at the balance sheet of GM, their last annual pension fund liability was put at $18B, roughly 10% of their total liabilities. It doesn't seem much and probably shouldn't factor that highly into comparisons with TSLA, right?
From my seat, that really remains to be seen. The existing companies don't seem to have found a way to compete with Tesla's EVs yet. They may get there eventually, but Tesla has it now.
Regarding valuation, one point I read elsewhere is that Tesla does a lot more in-house, which adds to the valuation, whereas the existing companies will buy a lot of their parts and/or contract out work. I don't have a source on the specifics, but if true, the logic certainly seems reasonable and would explain things. The value of a company shouldn't be based on their final product, but on the value they added to the parts/components they took in to create that product.
>From my seat, that really remains to be seen. The existing companies don't seem to have found a way to compete with Tesla's EVs yet. They may get there eventually, but Tesla has it now.
This somewhat reminds me of BlackBerry. They're basically the only game in town right now, and thus maintain a market advantage.
However as larger companies shift to EV's as the technology matures how will Tesla be able to maintain its advantage and market valuation?
Should the VW group, Toyota, or the Renault–Nissan–Mitsubishi Alliance decide to go all in on EV's will they be able to produce something akin to the iPhone to Tesla's BlackBerry?
No! No, no, no. This will not happen. It's a total pipe dream.
These ancient companies, so set in their ways, who have been incrementally making tiny adjustments to their cars for decades, will never "suddenly leap forward" to come out with something more advanced and more appealing than a Tesla.
Tesla isn't the blackberry here, the other car companies are! You're basically the guy in 2008 saying "sure Apple has an advantage now, but what will they do when Blackberry catches up and shifts to touchscreen based phones?" Guess what never happened.
VW group is going very heavily for mainstream EVs, seriously ramping up production, and the models don't look like the toy concept EVs of yore either.
Maybe Audi and BMW have to think about what it means to make a competitive EV since their price-points are similar to Tesla's, but VW proper will be pushing EVs at the ~$30k MSRP range. They don't need to be more advanced than a Tesla at that price because there is no significant market of people cross-shopping $50k Teslas and $30k VWs. What these manufacturer's need to do is release electric cars with reasonable ranges, near existing price-points, that look and feel "German Car".
>You're basically the guy in 2008 saying "sure Apple has an advantage now, but what will they do when Blackberry catches up and shifts to touchscreen based phones?"
Not really. BlackBerry basically invented the smartphone, and introduced it to market success. We're talking pre-2008 BlackBerry is Tesla today.
Tesla basically invented the EV, and is leading the market.
I think where the analogy breaks is that Tesla didn't invent cars. Electric cars are new as a viable thing and have some advantages and disadvantages, but they're not a difference in kind, like a Blackberry/smartphone was over a thing that only makes phone calls. They compete directly with the old thing on the traditional terms, like performance and fuel cost.
People are going to start preferring electric cars. They're faster and more efficient and battery improvements are likely to continue to reduce their disadvantages (up front cost and range). The traditional carmakers could make a strong commitment to electric cars right now, the question is will they? It's like asking Microsoft to embrace Linux in 1999. They could do it, and they might be better off if they did, but you can certainly see why they might drag their feet in a way that makes them worse off in the long run.
They also have a huge problem with dealer incentives, because the dealers make most of their money on service and electric vehicles need less service, but the dealers are the ones choosing which cars to promote to anybody who walks in the door. It's no use to make a great electric car if any time somebody comes in looking to buy it, the dealer convinces them not to.
> These ancient companies will never "suddenly leap forward" to come out with something more advanced and more appealing than a Tesla.
Volkswagen are doing exactly that. They have many BEVs models coming out this year across their multiple car brands (such as VW, Audi, SEAT, Skoda, Porsche).
The Porsche Taycan is the only 800 volt EV on the market today. The Volkswagen ID.3 has similar range to a Model 3 at a lower price point.
People have been saying this same shit for a decade and yet here we are in 2020 and still "the legacy manufacturers will be catching up ANY DAY NOW, just need a LITTLE more time."
I think that you are close, but its more like Tesla is Apple now and the rest of the industry is trying to be Android. Where Tesla dominates the US with a proprietary charging network, others are slowing inching (or millimetering?) forward with open charge networks and a variety of new designs.
Eventually they are bound to catch up on volume. But by then, might Tesla have a significant desirability advantage? And in the auto-market, desirability is an amazingly effective proxy for assessing margin advantages.
Tellingly, though, Blackberry failed not in the face of emerging competition from the existing establishment (e.g. Nokia and Palm) but because it got one-upped by another, even more innovative platform by a newcomer to the mobile market.
I mean, I agree that at some point Tesla is going to get beaten. But to argue that GM or Toyota will do it seems... less likely.
In a sense yes, the mobile phone market shifted from being phones to mobile computers, and a computer company dethroned them.
For all I know as cars become more integrated with computers we'll see an iCar, or a Google Car which will shake up the industry. Currently major car brands view tech companies as their competition in the long run.
You're implying that the legacy manufactures could come up with some radically new sort of ev that would be as superior to Tesla cars as the iphone was to the BlackBerry. But the legacy manufacturers are already producing and designing ev's, and they are all inferior to Teslas.
> Tesla does a lot more in-house, which adds to the
> valuation, whereas the existing companies will buy
> a lot of their parts and/or contract out work.
In that respect, they remind me of Apple. However, I thought cars and their component parts were considered to be commodities. Are investors now arguing that not having hardware design know-how is going to hurt the big car companies?
The suppliers are beholden to their master and can live or die on a whim. GM, et al know the cost of manufacturing down to a penny and control supplier margins very tightly. They also collude with other manufactures to suppress prices.
> The existing companies don't seem to have found a way to compete with Tesla's EVs yet
If you look at actual vehicle sales, I'd say this quote is optimistic at best. Tesla is still very much fighting an uphill battle in terms of market share.
Optimistic? In the US, Tesla is selling an order of magnitude more cars per month than value EV's like the Leaf and two orders of magnitude more than "Tesla killers" like the iPace or eTron.
Tesla isn't selling 1.3 million cars per year yet like Ford, so yes, optimistic. I wasn't speaking about strictly the EV market. Why would the big automakers need to compete in the EV market when EV adoption numbers still only amount to a rounding error in terms of the big companies' overall sales?
2) Price is only a very small part of the adoption equation, people happily pay $80k for ICE pickup trucks for instance.
3) You didn't add this but I will - it's not clear the EV platform is the preferred alternative to the ICE for consumers yet, as evidenced by overall global vehicle sales.
> multiple companies have higher quality electric vehicles
When I bought my Tesla in mid-2018 the alternatives were the Bolt and the Leaf. Both had significantly worse range--I was looking at a 180-mile roundtrip commute for the next year, so range was important. Both were uncomfortably small for me. Neither matched Tesla's driver assist features for my almost entirely highway commute. Neither had fast-charging options along my commute route; Tesla had two superchargers.
The situation has changed a bit in the last 1.5 years, but still nobody else matches Tesla's range or charging network.
I'm not sure what metric you're using for quality, but Tesla won me over on features, not name.
> Tesla's are pretty ugly
Subjective. The X is a bit strange, but the falcon doors are actually super convenient (as long as they don't break). The S and 3 exteriors are both very nice looking in my opinion, though I'm not such a fan of the spartan interior on the 3.
> Oof. The last thing I'd want to add to an already horrible commute is a supercharger stop, or more.
The Tesla had enough range that if I was able to charge regularly I didn't need the supercharger, but it was a nice backup if something prevented me from charging.
Also stopping halfway through the drive and grabbing a snack while at the supercharger wasn't really a bad thing.
>Kinda a pain in the ass in a garage
I have a standard 7ft garage door and they can fully open with about 2 inches of clearance at the top. Not really a pain at all.
Having tried all reasonably priced EVs, its not a question of style.
My original plan was to get a Leaf but I ended up buying a Tesla. It just drives better than the other cars and you get a much better car with a larger second row, more practical cargo space with a Tesla than the other EV options. That is without mentioning that you have to wait months to get a Leaf plus or a Kona electric. The latest VW may be interesting but it didn't exist at the time. I don't see where the higher quality electric vehicles are coming from.
It is a very polarizing car, some strangers will go up to you and tell you how Tesla will go bankrupt, you'll have no one to service the car, it will lose all its value and other things like that. "The name" is nearly a liability to me. It is just a car, it is useful.
Yes, same here. I also initially wanted a Leaf, in part because I don't really want my car to be so conspicuous--before the Tesla I drove a tan Corolla, about as inconspicuous as you can get. But the Leaf (and Bolt, which was the other EV option at the time) simply didn't make sense.
The early build quality was poor and they had a lot of problems with ordinary things breaking that had nothing to do with being electric and everything to do with being inexperienced at making cars. They could be doing better now but it's a little early to say because the more recent cars aren't that old yet. Either way it seems more like teething issues than something they won't get right eventually.
Meanwhile it's fairly unambiguously true that electric drivetrains are a lot simpler and should require less maintenance in general.
Car companies have years of office politics that impact their ability to see the future. I think this has clouded their judgment. People are rooting for Tesla. The gas industry has propped up the short sellers and now the ones that have the money are the ones that believe climate change is real and that Tesla is apart of the solution. New technology in batteries, automation, AI, etc is driving Tesla not sales of the car. That’s because Tesla is a tech company not a car company. How much data have they collected for their autonomous driving?
>> That’s because Tesla is a tech company not a car company
The traditional car companies specialy is not cars. Its manufacturing and supply chain management.
Tesla does seem to be mastering manufacturing, and being more vertical they dont need as much supply chain handling.
They are not particularly advanced in tech from what I've seen. They do have a bunch of young motivated engineers that have a lot to learn and they can skip over a lot of things and take advantage of the supplier network providing the hard stuff.
> You may think it’s the future, but to justify such a valuation over all other car companies which have been operating for years
Operating for years is a cost, not a benefit. TSLA can hire all their most experienced engineers, without the cost of paying pension benefits to their former employees. It's the same playbook that JetBlue used to beat the existing airlines, by poaching pilots from other airlines without paying for their training or funding their legacy cost structure.
"At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don’t need any transparency. You don’t need any footnotes. What were you thinking?"
- Scott McNealy
Now, TSLA is only at P/S of 3.8, but that's even more absurd for a car company than 10 is for a computer company.
We'll see. So far we have been wrong. The bulls deserve to gloat, but time will tell.
Honestly, price to sales alone is a joke of a metric for a growing business. Tesla revenue will likely double within the next 24 months (with quarterly trends clearly showing that towards the end of the year). That would put them at 1.9 P/S at that point with more products on the way.
P/S only works well when the situation is relatively static.
I mean, yes, context matters, and there are cases where things are overvalued (obviously), but the reason prices rise is because revenue (profit) is expected to grow. All of those “basic” assumptions seem to assume that there is 0 growth. The arbitrary ten year payback period doesn’t make sense either.
It’s like saying a baby can’t possibly get a job, and ignoring the fact that some babies grow up into adults. I’m sure a more clever analogy exists but that’s the best I have on hand.
Perhaps in theory. In reality, Ford & GM are slow to move, slow to adopt, and not seen as a "luxury" / "cool" car manufacturer. I am not a Tesla fanatic, but you must admit it seems they're gaining a bigger and bigger competitive advantage.
I actually don't consider Tesla a car company. They are a software company with world-leading expertise in energy production and storage. Vehicles are currently what they're mostly focused in applying this technology to, but that will change in the future. The stock price reflects the likelihood that Elon will accomplish the goals he has set out.
If they solve self-driving, that by itself will be worth over 100 billion dollars.
> If they solve self-driving, that by itself will be worth over 100 billion dollars.
Sadly, as a Tesla driver, I don't think this is coming anytime soon. There are still significant issues with Tesla's hardware, like the cameras getting blinded when the sun is at a low angle.
> like the cameras getting blinded when the sun is at a low angle.
That sounds like a pretty serious issue for a vision based system. I wonder how lidars do in that condition.
In Europe, I'd also be worried about ability to detect crossing cyclists (when they have right of way) and pedestrians in bad weather conditions, like in mist or when it's snowing heavily.
Perhaps front sideways pointing radars could help with that a bit?
How on earth is a reasonable comparison Company A, whose _most expensive_ car _tops out_ at about $140K, and Company B, whose _least expensive_ car _starts_ at $335K.
These are not remotely comparable companies, regardless of how much "owner love" each may have.
I stand corrected, I assumed that their lineup was sorted by pricing. The Portofino does start from there.
The Roadster has been discontinued for seven years. What it sold for then, as a fundraising vehicle (literally and figuratively), or what it sells for now as a collector item, used, is still a problematic comparison.
I'd probably be thinking more Lincoln / Cadillac when I was looking for a comparison for a US higher end manufacturer.
Have all the other auto makers dumped massive amounts of investment into sourcing batteries? Do they have their own GigaFactories? How about contracts with lithium mines?
Sure, the other auto makers have the existing infrastructure to assemble cars, but if they don't have a way to get batteries cost effectively, they are way behind the curve compared to Tesla.
Isn't it more likely speculation on future stock price than a belief in real world performance? People can pretend it's due to diligent research resulting in a confident position that Tesla will come out on top, but that sounds more like someone trying to create a narrative rather than admitting a lot of people are gambling.
I don't think your conclusion is inaccurate at all. Yes, enterprise value reflects total business value...but the EV of these companies is pretty similar given the discrepancies in actual profit.
Part of Telsa makes sense, they are staking out a corner of the market that isn't big now but will be in the future. But the price you are getting for this risk makes zero sense (there was a very non-zero chance of them going bust this year).
I actually knew one of the biggest active shareholders here, and the logic is really "hit and hope". Iirc, they have said publicly that they can see this going bust quite easily but they think the upside will pay off...well, I don't get it either. The upside is whatever Ford or GM is now...and they are worth more than that. As an investor, it isn't worth losing brain cells on this...easier ways to make money, way easier.
> The upside is whatever Ford or GM is now...and they are worth more than that.
I like Tesla as a car company and agree with this sentiment as an investor. There's a reason that I sold my shares, and also a reason that I never had very many. :)
Having said that, I'd like to add Toyota and BMW to your list of comps. BMW in particular demonstrates that there may be at least some potential for upside, IMO.
BMW are valuable because their labour is priced in a currency that is very weak (same is true of Toyota but to a far lesser extent). I don't think any of these companies are worth owning (again, there are just far easier games to play than megacaps).
Given the Quarterly losses of App based car rides, there is no cut and dry answer to this. May be this is a right time to buy a Cab company.
Because sooner or later - Uber and Lyft want to turn profitable, then there is a margin in certain markets where Taxis will not only be competitive but probably cheaper.
My main point is that the market cap seems a bit excessive. I can see Tesla having a competitive advantage, and I also see the bet some investors are making on it disrupting the car industry. But after reading those numbers, it just shocked me a little.
Tesla also has a residential energy company inside it. Not saying that should make up the difference in valuation, but it’s a nice compliment to the car business.
I still don’t get it. You may think it’s the future, but to justify such a valuation over all other car companies which have been operating for years, and who can compete with Tesla, it seems a little extreme IMO.
EDIT: after reading some comments it seems my conclusions might be inaccurate. All I wanted to point out was that the numbers were shocking at first sight.