An Evaluation of TSLA; What Value can it Realistically Reach this Decade?

[cymomof3]

@theologyandfishing Do you mean economies of scale? They got that already working. Halving costs is not easy once you are as big as they are now.

Could you give a counter example? When would lowering prices increase margins? You can increase earnings, but at the cost of margins per sold car.

 

[theologyandfishing]

@cymomof3

Could you give a counter example? When would lowering prices increase margins? You can increase earnings, but at the cost of margins per sold car.

um... Tesla from 2013 - 2022? Prices have come down and margins have gone up. Unfortunately, Tesla is the only example we have of an EV business that's even remotely at production scale

Also they have some economies of scale working for them, but they're about to open 2 new factories with a capacity of around 2M EVs a year. More economies of scale to come. They've also innovated with structural battery packs and gigacasting. Elon is always on the lookout for ways to make the assembly line more efficient

 

[jen907907]

@theologyandfishing

that’s not always true

If lower price has the same margins then Tesla would be canceling Model S/X and only be selling the cheapest Model 3/Y now. Since there is much higher demand for the 3/Y due to them being cheaper.

Assuming margin stays static as they go after even the cheapest market segment (the only way for them to have a shot at catching Toyota) is borderline delusional.

 

[theologyandfishing]

@jen907907

If lower price has the same margins then Tesla would be canceling Model S/X and

only

be selling the cheapest Model 3/Y now. Since there is much higher demand for the 3/Y due to them being cheaper.

They've refreshed and brought down the cost to make the S and X. It's more of their "luxury" offering at this point. and I didn't say that lowering prices has the same margin. I said that costs to manufacture (and also battery costs) are coming down faster than the prices are coming down. Hence, the margin going up.

 

[floan]

@theologyandfishing Tesla was the first EV manufacturer investing big in the technology and producing cars in high numbers. They managed to sell increasing numbers of cars to New tech and
environmental affine high income buyers that wanted to be amount the first to own an EV rather than buying a reasonable priced car. Being in that situation provided them to sell cars in a lower luxury segment with large profits, because demand was higher than supply. I don’t see these growth rates sustainable once other car manufacturers offer cars in the segment, nor do I see the profits for Tesla cars per unit possible in lower priced segment. Teslas advantage was being the first and scaling production faster than others.

No car manufacturers ever was market leader in Economy,
Compact,
Mid-size, standard,
Premium,
Luxury,
SUV and sports car segments. Some managed market shares of 7-9% for the whole market, others 15-16% in one segment.

Any estimates for Tesla with higher market shares are just projections of past growth rates to a highly competitive car industry that do not take into account that Tesla will not be as favorable in the customer and investor rankings as it is right now.

With other manufacturers producing EV‘s on larger scales, they will loose their spotlight space in the market and without the stock performance of the past in the future, the same will happen to the stock.

Ask yourself How many Tesla shares you are planning to buy at $1000 this year?

 

[kevinsof]

@theologyandfishing I don't know much about Tesla other business. so I will take a stab at the automotive side. The problem is the 12 million by 2027. Not saying they can't but I am unsure they can sell 12 million vehicles with this type of margins we saw in q4 2021. The world is still poor. There is a limited amount of people that can afford these cars. Tesla cars are in the luxury priced range (I mean a sports sedan that cost $45 to $50K isn't exactly a $30K Honda Accord). by 2027 the estimated sales of luxury vehicles will be about $655 billion (https://www.globenewswire.com/news-...o-Hit-USD-655-0-Billion-at-a-CAGR-of-9-3.html). I estimate about $55K/vehicle...this will be about $655 billion/$55K = 11.9 million vehicle. If tesla were to sell 12 million vehicles they would have to go be able to produce lower priced car as to compete with the camry, corolla, rav-4/cr-v, hilux, etc....The lower price car won't have the same amount of profits (may have same margins but lower profits...ie. 30% margins on $50K is $15K , whereas 30% margins on $30K is only $9K). Unless Tesla can get 100% of all luxury price car, then I don't think they get the same amount of profits. this is not to say their other stuff can't make money: ie. solar, batteries, autonomy, tequila, flame thrower, karoeke microphone, etc.... As of now, they are still a vast majority automotive company. anyways: $7 trillion market cap is more than 3x of current automotive market cap. There is a limited amount of profits in this world. It is not endless. Car building is very capital intensive. Vast majority of tesla cars are sold in countries with big incentives. I suppose rich countries have endless supplies of incentives; but at some point, I think it will end. €9K in Germany, €6K in France, No VAT in Norway. Tesla will be able to still sell without incentive; but I do believe without incentive they won't be selling as much. I do not have any TSLA: just whatever is in VTI and QQQ. I am neither bearish nor bullish. I will take whatever the market gives me.

 

[jadedjumpman]

@kevinsof Bro you need to paragraph.

 

[resjudicata]

@theologyandfishing $7T market cap? Are you high?

 

[dashestoashes]

@resjudicata It's but a mere 20% of the sp500

 

[theologyandfishing]

@dashestoashes not in 2027 it won't be

 

[sheila51]

@theologyandfishing So 15% of SP500..

 

[theologyandfishing]

@sheila51 you think the S&P will only be $47T by 2027? I'd give it higher than that, but nonetheless, my claim is that Tesla could be the largely constituent of the S&P, yes

 

[thuva]

@resjudicata This guy used so many words but has so little understanding of the automotive sector in general. It's wild.

 

[theologyandfishing]

@thuva What am I missing about the automotive sector in general?

 

[dojoloach]

@theologyandfishing High fixed costs, high up-front investment, low margins, high competition. It's a bit like airlines.

 

[theologyandfishing]

@dojoloach I've considered high fixed costs. Tesla has maintained, and grown, it's positive free cash flow since 2018. They already have 4 factories built with a capacity well in excess of 4M EVs.

as for high-upfront investment.. this is why they had negative free cash flow for the first 10 years since inception. They just crossed the line of all time profitability in Q4. They're literally past the hard part

low margins? Their operating margin per car sold is almost 4 times that of GM or other legacy automakers, and their gross margin is is 30% (legacy auto makers is around 8%)

High competition.. yea I agree, Tesla has always had competition, and yet they sell every car they make and have a huge backlog.

 

[matt1111]

@theologyandfishing With Tesla stock price everything comes down to those margins. Will they remain high for years to come? I'm doubtful but if you really believe they won't be bogged down by liabilities and competition then the price of Tesla stock is justified.

 

[theologyandfishing]

@matt1111 True, to elaborate I think it comes down to the dropping costs to build EVs. I personally believe that EV technology, even at Tesla, is still in its infancy and has quite a ways to drop in cost.

I'm doubtful but if you really believe they won't be bogged down by liabilities and competition then the price of Tesla stock is justified.

I've never heard someone tell me that, even under strict conditions that others don't tend to believe, that the price of Tesla stock is justified haha

 

[mark6126]

@theologyandfishing If they're selling 12 million vehicles a year, then a 50x multiple is absurd, because growing that pie becomes harder and harder. Toyota is the largest car manufacturer and sold 10.5 million vehicles in 2021. They have a P/E of 10x.

15x would be generous for Tesla if they ever reach that level of sales.

 

[theologyandfishing]

@mark6126 Well, I disagree