Am I the only one who feels like Schrödinger's cat? 100% agree with Doug on the fundamentals but can't dismiss the fact that everything is a meme now and Elon is a grandmaster of trolling.
Not my opinion, but just as a thought: how about if Tesla achieves level 5 autonomy by 2030 and has a robotaxi network that allows owners to earn revenue with their cars? They could charge for FSD based on revenue/mile with a take rate that would still leave owners with a 7% yield and probably achieve 80%+ attach rates over the entire fleet. Cool to think about.
A sound commentary on future expectations and how stock prices get determined.
I think the writer mistakenly leaves out the Tesla potential on energy storage which is just starting to take off for the company.The stated corporate aim is for energy storage to attain 50% of company turnover.It will be a far larger revenue earner in the next few years than the much touted FSD or insurance.
The only real UVP for Tesla is being a luxury EV car brand with FSD capability. Everything else can be easily replicated by n other companies. Heck even FSD will be tough to defend with a lot of brands already testing their capabilities. It can give an edge for sometime but not for too long when it comes standard with every vehicle EV or not. Regulation permitting. Tesla is overvalued.
This is all very nice, but what is your actual investment performance overall over the time Tesla has been a public company vs. someone who just bought Tesla in the early years and held on?
There are a number of errors in your assumptions and modelling (e.g. assuming that currently existing OEMs will be Tesla's major competition in the future, assuming that there is such a thing as existing "averages" for a heretofore non-existent EV industry, assuming that car ownership and usage will not evolve with new functionality and pricing-per-mile), but they're not worth going through if you haven't learned them over this entire past decade. You're apparently still writing for an income, whereas those of us who took the time to understand the disruption no longer have to worry about an income. It's not clear why we (meaning long-term Tesla investors) should be listening to *you* when we're the ones with the actual results in hand.
It's great to brand yourself as contrarian, but claiming Tesla is overvalued is emphatically not a contrarian stock, it's a mainstream opinion which long-term investors have been swimming against for close to a decade.
If you want to make money investing in a company redefining what's possible in actual engineering, then you can open your mind. Otherwise, just keep doing you, but it's a shame to be misleading others.
What I presented isn’t my “model” it’s a framework for understanding what business results would have to happen to justify a 10% annualized stock return. In other words, the framework isn’t what I’m saying is going to happen, it’s what would have to happen to fundamentally deliver the 10% return. Perhaps that wasn’t clear in the original piece.
Objections that I didn’t include something miss the point of the exercise. You can tweak cars down or FSD down and price in Optimus or HVAC or anything else and it will describe a different scenario. Assume 10.5m cars in 2031, build in $30b in Optimus revenue under the same return parameters, then reassess the probabilities of the new necessary outcome.
With the framework, however you want to tweak it, an investor can decide for himself what the odds are of meeting that demand. You can also test higher stocks returns and see what those outcomes demand for performance. I’m not trying to tell you your kid is ugly, I’m trying to encourage you to think about the probabilities of necessary outcome for a good investment.
As expected, most passionate Tesla believers think there’s no question Tesla will be the biggest car maker in the world, one of the biggest software providers, and have some massive other business, robotaxi or other. It seems many are insulted by the idea that Tesla might only achieve such a lame future.
The point I’m trying to make is that if Tesla did achieve those goals it would be a tremendous business success to any reasonable person. How is becoming the biggest at anything not a huge success? And why should that be a foregone conclusion with essentially 100% odds of occurring? All of these other projects which are just ideas right now could come to fruition and drive even more incredible results.
But the greatest public equity investments are built on prices that only require minor success relative to the present to generate acceptable returns and have the potential to deliver something wildly different with drastic upside. Tesla is already pricing in a massive change from the current state.
To invoke Buffett again “At some price, you don’t pay anything for the future, and you even discount the present. Then, if Dr. Land has some surprises up his sleeve, you get them for nothing.” That’s what makes a good investment for Buffett. He was referring to Polaroid in 1974 in that quote. Tesla has a real future priced in and even some for the surprises up Elon’s sleeve.
Re OEMs, I think Tesla believers are underestimating the probability that these OEMs do figure it out. You asked who. If I said Rivian or Ford or Nio, you’d just laugh. We'd have no way to rationally argue either view. To avoid this circle, I’ll offer actual data. VW sold 450k EVs last year. Half as many as Tesla. They sold more EVs than Tesla in Europe. The Berlin Gigafactory may change this, but the data does not support the idea that VW is helplessly nowhere vs Tesla. And they’ve been playing catch up to Tesla, just as the others are.
I see 75% revenue CAGR as unlikely, but possible. 25% as unlikely, but possible. And ~50% CAGR as likely, over next 10 years. I don’t think it is 100% definitely going to happen. There is a probability distribution.
Thank you for pointing out that even with a lame 25% revenue CAGR, the stock would return 10% over 10 years. Not bad for a poor outcome. I think Tesla and big investors see 25% CAGR as failure. It would be like giving everything you have for 20 yrs to do 50 consecutive pushups and then only doing 25. It would be embarrassing. The point is Tesla is planning and working toward at least 50% CAGR to reach their 20 million annual delivery target. 25% is much less than 50%, and the stock could still yield 10% even if the totally miss their target growth.
Some hardcore Tesla supporters are more than financially invested, they appear to be emotionally invested. Why?
Are you excited about the metaverse? Tik tok? Web3? iPhone 15?
I’m not.
I’m excited about optimus helper bot ameliorating labor shortages, cybertruck, more autonomous functionality, tesla HVAC, the tesla energy smart home.
You wrote “All of these other projects which are just ideas”
I disagree. Big pieces of the puzzle are already in production. The talent is there and the resources are available to complete and scale these projects. People want these products. Elon and the tesla team are inspiring people all around the world. They are filling a leadership vacuum. Are you inspired by 80 yr old politicians and flailing institutions? Which leaders are you inspired by?
Elon is gaining 1 million followers per week because he is acting like a mentor. A guide, a moral compass, an inspiration.
Perhaps when avid Tesla/Elon supporters hear “tesla will not achieve excellence” it sounds a lot like “your dream will not happen, your mentor is wrong, your favorite team is not good.”
10 yrs ago tesla was about launch the first model S. In 2012 no one could accurately predict or guarantee the success of Model S, X, 3, Y, power wall, megapack, solar roof, Autopilot. Nor could anyone predict that 10 yrs later tesla would be building 4680 cells, Cybertruck, optimus bot and planning home HVAC.
In 2012 investors were buying into the tesla team with Elon at the helm. To some extent that is still the case.
I think it was harder for Tesla to scale from 0 vehicle deliveries to 1 million, than it is for them to scale from 1 million to 20 million.
To invoke Buffet again: It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.
Re: competition is coming
Glad to hear VW sold 450k EV’s. The world wants EVs. They won’t all be Tesla’s. Reminds me that not smartphones are iPhones, most are not. But does Apple have competitors? Apple lost most of the phone market but won a tremendous market cap. So it makes me wonder, are VW EVs making profits? Can the EV production line exist without funding from their soon-to-expire gas car business? Herbert says no, they will need outside capital.
Do their cars have OTA software updates and autonomous functionality? I have not seen a VW EV IRL.
You assume they don't have FSD on every car in the next two years. Every car will have it once FSD is solved, max 2 years. So you need 98% of cars made from 2024 onwards with FSD Subs applied. Also you need to then include the per mile platform fee too.
This is one point, there are many more I could explain. But expect about 20% of global Auto TAM just for Tesla.
You've reasoned by analogy throughout your thesis. It's not a criticism it's a very common misunderstanding when evaluating Tesla.
Subscription to FSD is optional. The hardware will be included in all vehicles. Maybe you're assuming they will require a subscription going forward for all new sales. I would not assume that. https://www.tesla.com/support/full-self-driving-subscriptions
Thanks for the reply Doug. So what most people aren't appreciating is that FSD as stated several times by Tesla is that it will increase utility of a vehicle by up to a factor of 5. This means that for every FSD+EV car they can take five cars (EV or ICE) off the road. Once Tesla raise the price significantly of FSD and implement the Robotaxi model (platform fee per mile) - they will not sell cars to those that dont purchase it up front. They will take prioritise orders from fleet managers, rental co.s, uber, corporations and taxi businesses - globally.
This is what gets Tesla to the mission faster. And this is why Tesla is so laser focused and take so much risk with autonomy by putting h/W in every car before the s/W is even ready as they know that utilisation of vehicles will increase - which is their mission to transition the world to sustainable energy. This is what the key is, the real risk is when will they get there? If they do, the market cap is in the multi trillions very quickly as the order book will be enormous. If they don't, they just scale manufacturing and keep reasoning by analogy and taking 20% of global TAM and hit their 20m vehicles by 2030 (which you've quite conservatively stated as only 11m or so btw). Appreciate hearing your thoughts on this and if this has changed your thesis?
Thank you, Doug. Fascinating read. Always good to understand a more bearish analysis. You’re right, however, about people not changing their mind on this one. In my view, the market keeps underestimating the top & bottom line growth opportunities for Tesla. Of course, as you rightfully point out, opportunity does not equal guarantee, but we’re likely talking a >50% chance of reaching a $10T+ market cap in 10 years. When discounted to today even the part that is the current core business (EV hardware) is drastically undervalued (at 2-2.5% interest rate). In other words, it’s very reasonable to assume that today Tesla is a 8,000 lbs (electric ;) truck driving across a bridge built for a 15,000 lbs max load.
To build a safety margin into your investment strategy, in my opinion the price is the wrong candidate to concentrate on. Because nobody knows whether the current price is too high or too low. I know of a guy who never bought a computer because prices are dropping every year and he is still waiting for the perfect deal ... Better build the safety margin into the sum you are going to invest: If you believe in Tesla and can afford to buy two shares - just buy one. If TSLA doubles - fine. If TSLA drops 80%, buy 5 shares more. Then, your average price is (($900 x 1)+($180x5)) = $1,800/6 = $300 per share, which might be enough of a safety margin. If you happen to be a strong believer, you may buy the dip at 60% down, if you are a very strong believer, you may buy the dip at 40% down. But regardless how strong your belief is - stay disciplined.
Am I the only one who feels like Schrödinger's cat? 100% agree with Doug on the fundamentals but can't dismiss the fact that everything is a meme now and Elon is a grandmaster of trolling.
Love the newsletter Doug!
Not my opinion, but just as a thought: how about if Tesla achieves level 5 autonomy by 2030 and has a robotaxi network that allows owners to earn revenue with their cars? They could charge for FSD based on revenue/mile with a take rate that would still leave owners with a 7% yield and probably achieve 80%+ attach rates over the entire fleet. Cool to think about.
A sound commentary on future expectations and how stock prices get determined.
I think the writer mistakenly leaves out the Tesla potential on energy storage which is just starting to take off for the company.The stated corporate aim is for energy storage to attain 50% of company turnover.It will be a far larger revenue earner in the next few years than the much touted FSD or insurance.
The only real UVP for Tesla is being a luxury EV car brand with FSD capability. Everything else can be easily replicated by n other companies. Heck even FSD will be tough to defend with a lot of brands already testing their capabilities. It can give an edge for sometime but not for too long when it comes standard with every vehicle EV or not. Regulation permitting. Tesla is overvalued.
This is all very nice, but what is your actual investment performance overall over the time Tesla has been a public company vs. someone who just bought Tesla in the early years and held on?
There are a number of errors in your assumptions and modelling (e.g. assuming that currently existing OEMs will be Tesla's major competition in the future, assuming that there is such a thing as existing "averages" for a heretofore non-existent EV industry, assuming that car ownership and usage will not evolve with new functionality and pricing-per-mile), but they're not worth going through if you haven't learned them over this entire past decade. You're apparently still writing for an income, whereas those of us who took the time to understand the disruption no longer have to worry about an income. It's not clear why we (meaning long-term Tesla investors) should be listening to *you* when we're the ones with the actual results in hand.
It's great to brand yourself as contrarian, but claiming Tesla is overvalued is emphatically not a contrarian stock, it's a mainstream opinion which long-term investors have been swimming against for close to a decade.
If you want to make money investing in a company redefining what's possible in actual engineering, then you can open your mind. Otherwise, just keep doing you, but it's a shame to be misleading others.
You assume there will be competition but do not say who. So… who?
In an era of high demand for autonomous EV’s and low demand for gas cars, with what products are Toyota, Ford and GM avoiding bankruptcy?
Did you address solar? Energy storage? HVAC? (yes they are doing HVAC)
Your model assumes Optimus will generate $0 of revenue in 2031?
Is this a troll?
What I presented isn’t my “model” it’s a framework for understanding what business results would have to happen to justify a 10% annualized stock return. In other words, the framework isn’t what I’m saying is going to happen, it’s what would have to happen to fundamentally deliver the 10% return. Perhaps that wasn’t clear in the original piece.
Objections that I didn’t include something miss the point of the exercise. You can tweak cars down or FSD down and price in Optimus or HVAC or anything else and it will describe a different scenario. Assume 10.5m cars in 2031, build in $30b in Optimus revenue under the same return parameters, then reassess the probabilities of the new necessary outcome.
With the framework, however you want to tweak it, an investor can decide for himself what the odds are of meeting that demand. You can also test higher stocks returns and see what those outcomes demand for performance. I’m not trying to tell you your kid is ugly, I’m trying to encourage you to think about the probabilities of necessary outcome for a good investment.
As expected, most passionate Tesla believers think there’s no question Tesla will be the biggest car maker in the world, one of the biggest software providers, and have some massive other business, robotaxi or other. It seems many are insulted by the idea that Tesla might only achieve such a lame future.
The point I’m trying to make is that if Tesla did achieve those goals it would be a tremendous business success to any reasonable person. How is becoming the biggest at anything not a huge success? And why should that be a foregone conclusion with essentially 100% odds of occurring? All of these other projects which are just ideas right now could come to fruition and drive even more incredible results.
But the greatest public equity investments are built on prices that only require minor success relative to the present to generate acceptable returns and have the potential to deliver something wildly different with drastic upside. Tesla is already pricing in a massive change from the current state.
To invoke Buffett again “At some price, you don’t pay anything for the future, and you even discount the present. Then, if Dr. Land has some surprises up his sleeve, you get them for nothing.” That’s what makes a good investment for Buffett. He was referring to Polaroid in 1974 in that quote. Tesla has a real future priced in and even some for the surprises up Elon’s sleeve.
Re OEMs, I think Tesla believers are underestimating the probability that these OEMs do figure it out. You asked who. If I said Rivian or Ford or Nio, you’d just laugh. We'd have no way to rationally argue either view. To avoid this circle, I’ll offer actual data. VW sold 450k EVs last year. Half as many as Tesla. They sold more EVs than Tesla in Europe. The Berlin Gigafactory may change this, but the data does not support the idea that VW is helplessly nowhere vs Tesla. And they’ve been playing catch up to Tesla, just as the others are.
https://insideevs.com/news/560278/volkswagen-group-sales-2021/amp/
I see 75% revenue CAGR as unlikely, but possible. 25% as unlikely, but possible. And ~50% CAGR as likely, over next 10 years. I don’t think it is 100% definitely going to happen. There is a probability distribution.
Thank you for pointing out that even with a lame 25% revenue CAGR, the stock would return 10% over 10 years. Not bad for a poor outcome. I think Tesla and big investors see 25% CAGR as failure. It would be like giving everything you have for 20 yrs to do 50 consecutive pushups and then only doing 25. It would be embarrassing. The point is Tesla is planning and working toward at least 50% CAGR to reach their 20 million annual delivery target. 25% is much less than 50%, and the stock could still yield 10% even if the totally miss their target growth.
Some hardcore Tesla supporters are more than financially invested, they appear to be emotionally invested. Why?
Are you excited about the metaverse? Tik tok? Web3? iPhone 15?
I’m not.
I’m excited about optimus helper bot ameliorating labor shortages, cybertruck, more autonomous functionality, tesla HVAC, the tesla energy smart home.
You wrote “All of these other projects which are just ideas”
I disagree. Big pieces of the puzzle are already in production. The talent is there and the resources are available to complete and scale these projects. People want these products. Elon and the tesla team are inspiring people all around the world. They are filling a leadership vacuum. Are you inspired by 80 yr old politicians and flailing institutions? Which leaders are you inspired by?
Elon is gaining 1 million followers per week because he is acting like a mentor. A guide, a moral compass, an inspiration.
Perhaps when avid Tesla/Elon supporters hear “tesla will not achieve excellence” it sounds a lot like “your dream will not happen, your mentor is wrong, your favorite team is not good.”
10 yrs ago tesla was about launch the first model S. In 2012 no one could accurately predict or guarantee the success of Model S, X, 3, Y, power wall, megapack, solar roof, Autopilot. Nor could anyone predict that 10 yrs later tesla would be building 4680 cells, Cybertruck, optimus bot and planning home HVAC.
In 2012 investors were buying into the tesla team with Elon at the helm. To some extent that is still the case.
I think it was harder for Tesla to scale from 0 vehicle deliveries to 1 million, than it is for them to scale from 1 million to 20 million.
To invoke Buffet again: It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.
Re: competition is coming
Glad to hear VW sold 450k EV’s. The world wants EVs. They won’t all be Tesla’s. Reminds me that not smartphones are iPhones, most are not. But does Apple have competitors? Apple lost most of the phone market but won a tremendous market cap. So it makes me wonder, are VW EVs making profits? Can the EV production line exist without funding from their soon-to-expire gas car business? Herbert says no, they will need outside capital.
Do their cars have OTA software updates and autonomous functionality? I have not seen a VW EV IRL.
You are creeping me out with your Elon worship! Where else have we seen that I wonder? 🤔
Hi, Gaurav.
Humans look for leadership. Humans look for a path to better.
The fact of the matter is this 1 guy is internationally recognized and approaching 100 million followers.
I speculated as to why.
If it is “creeping you out”
Well
Stay off the internet
Doug, you've made several errors.
You assume they don't have FSD on every car in the next two years. Every car will have it once FSD is solved, max 2 years. So you need 98% of cars made from 2024 onwards with FSD Subs applied. Also you need to then include the per mile platform fee too.
This is one point, there are many more I could explain. But expect about 20% of global Auto TAM just for Tesla.
You've reasoned by analogy throughout your thesis. It's not a criticism it's a very common misunderstanding when evaluating Tesla.
Subscription to FSD is optional. The hardware will be included in all vehicles. Maybe you're assuming they will require a subscription going forward for all new sales. I would not assume that. https://www.tesla.com/support/full-self-driving-subscriptions
Thanks for the reply Doug. So what most people aren't appreciating is that FSD as stated several times by Tesla is that it will increase utility of a vehicle by up to a factor of 5. This means that for every FSD+EV car they can take five cars (EV or ICE) off the road. Once Tesla raise the price significantly of FSD and implement the Robotaxi model (platform fee per mile) - they will not sell cars to those that dont purchase it up front. They will take prioritise orders from fleet managers, rental co.s, uber, corporations and taxi businesses - globally.
This is what gets Tesla to the mission faster. And this is why Tesla is so laser focused and take so much risk with autonomy by putting h/W in every car before the s/W is even ready as they know that utilisation of vehicles will increase - which is their mission to transition the world to sustainable energy. This is what the key is, the real risk is when will they get there? If they do, the market cap is in the multi trillions very quickly as the order book will be enormous. If they don't, they just scale manufacturing and keep reasoning by analogy and taking 20% of global TAM and hit their 20m vehicles by 2030 (which you've quite conservatively stated as only 11m or so btw). Appreciate hearing your thoughts on this and if this has changed your thesis?
Thank you, Doug. Fascinating read. Always good to understand a more bearish analysis. You’re right, however, about people not changing their mind on this one. In my view, the market keeps underestimating the top & bottom line growth opportunities for Tesla. Of course, as you rightfully point out, opportunity does not equal guarantee, but we’re likely talking a >50% chance of reaching a $10T+ market cap in 10 years. When discounted to today even the part that is the current core business (EV hardware) is drastically undervalued (at 2-2.5% interest rate). In other words, it’s very reasonable to assume that today Tesla is a 8,000 lbs (electric ;) truck driving across a bridge built for a 15,000 lbs max load.
Thanks Patrick. What do you assume revenue and FCF will be to support the 10t valuation?
To build a safety margin into your investment strategy, in my opinion the price is the wrong candidate to concentrate on. Because nobody knows whether the current price is too high or too low. I know of a guy who never bought a computer because prices are dropping every year and he is still waiting for the perfect deal ... Better build the safety margin into the sum you are going to invest: If you believe in Tesla and can afford to buy two shares - just buy one. If TSLA doubles - fine. If TSLA drops 80%, buy 5 shares more. Then, your average price is (($900 x 1)+($180x5)) = $1,800/6 = $300 per share, which might be enough of a safety margin. If you happen to be a strong believer, you may buy the dip at 60% down, if you are a very strong believer, you may buy the dip at 40% down. But regardless how strong your belief is - stay disciplined.