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

[cjoye07]

@theologyandfishing What do you disagree with? Are you suggesting that the market for cars will increase by a magnitude of 5 over the next decade? That every household that currently own a car will own 5 by then?

 

[theologyandfishing]

@cjoye07 I disagree with the idea that Tesla will struggle to grow 50% YoY to the point of 12M annual sales.

I also disagree with the sentiment of Toyota's sales somehow being a barrier for Tesla.

 

[cjoye07]

@theologyandfishing The argument is more that your math is assuming revenue from car sales will be 5x larger than is currently is globally. They are not saying that Toyota is a barrier to sales, they are using it as an indicator of baseline global demand for cars.

A high P/E ratio happens when people think there will be high future growth. If Tesla is selling 12 million cars a year, they will have already dominated the entire global market for car sales, meaning there will be no potential for further growth, unless people start buying more cars than they do now. Hence that commenters point that if Tesla is at 12 millions units sold a year, a 50x multiple is absurd. Tesla is already valued as if it will sell 10 million cars a year.

You are assuming that Tesla will continue to be a growth company, even when they have saturated the entire market and have no room to grow left, and that investors will continue to price it like a growth company inappropriately when this occurs.

 

[titus278]

@theologyandfishing Agree with OP. Using current toyota sales as reference to how Tesla won’t be able to sell 12 million vehicles doesn’t account for rapid decrease in demand for ICE vehicles (toyota and all other OEMs) opening up demand for more EVs.

 

[paulcabrera]

@thuva I mean, so far the ones who know the “most” about the auto industry have been the most wrong about TSLA.

 

[jadedjumpman]

@resjudicata Same thing was said about apple and amazon at 2 trillion and 1 trillion.

 

[marvin54]

@theologyandfishing Absolutely nutty DD lol TSLA bulls have been right for so long so I will give them credit. But when every guy on the street talking about buying tsla stock, so many youtubers are making living out of just promoting tesla stocks and when you see these ridiculous DD on reddit with $7T valuation for a car company either this is a big ass bubble keeps on growing or I am just out of touch on how companies are valuated now days.

 

[theologyandfishing]

@marvin54

$12,000 gaap earnings per EV * 12,100,000 EVs delivered * 50 P/E = $7.2T market cap or approximately $7000/share

which number do you disagree with? Just curious

It seems like most people don't like the 10M EVs and the 50 P/E. Not many people have challenged the idea of $12k gaap earnings per EV, at least.. not directly

 

[dave1863]

@theologyandfishing Sure, maybe. Probably not though, because to sell that volume they have to go downmarket. Downmarket will not support that margin.

Think Spark EV, not Model 3. They also will need a truck that is widely accepted.

Tesla has a better chance of liquidating shares and initiating a hostile takeover of GM than achieving 12K GAAP margin on 12MM vehicles.

 

[theologyandfishing]

@dave1863

Downmarket will not support that margin.

This is where we disagree. Everyone seems to think margins are going to go down, yet.. they've only gone up since the first 2013 Model S. Doesn't anyone find this interesting? The mechanism behind it is what I discussed in my post, basically Wright's Law and other efficiencies, such as economies of scale. Until someone tries to quantify it (as I have), what are you using as your source?

In fact your remark is the same argument bears had back in the mid 2010's. Yet, here we are.. gross margins going up. EV's are a new innovative technology that had a loooong way to drop in terms of costs. If you think margins are going down, then you're using non-disruptive products and economies as your basis. I think it's flawed.

 

[jen907907]

@theologyandfishing

they've only gone up since the first 2013 Model S. Doesn't anyone find this interesting? The mechanism behind it is what I discussed in my post, basically Wright's Law and other efficiencies, such as economies of scale.

The economy of scale is what drove their margin to rise as they introduced Model 3/Y.

But afterwards the Model 3/Y has seen nothing but price increase over the past few years. And surprise surprise...increase in ASP == larger margin.

EV's are a new innovative technology that had a loooong way to drop in terms of costs.

You can't get a $9k margin on a $20k car even if the motors/batteries cost nothing. And no, people who buy $20k cars won't be paying $10k for FSD either.

 

[theologyandfishing]

@jen907907

The economy of scale is what drove their margin to rise as they introduced Model 3/Y.

noooo, I take it you didn't read my post. Battery costs have dropped to 1/10th what they were back in 2010. But! there is more economies of scale to come with the new factories

You can't get a $9k margin on a $20k car even if the motors/batteries cost nothing. And no, people who buy $20k cars won't be paying $10k for FSD either.

I'm not suggesting they will. I have the ASP dropping to $37k and the gross margin to be 43% around 2027 in my model

 

[jen907907]

@theologyandfishing

I have the ASP dropping to $37k

Barring crazy inflation scenario, that's not low enough if they want to aim for 12M cars a year. People simply aren't that rich.

Secondly, rising water raises all boats. If they can make a 43% margin on a 37k car due to lowering cost of EV, someone would be able to take advantage of the same advancement (even if marginally less) and be willing to sell at half the margin for a much lower cost.

 

[theologyandfishing]

@jen907907

Barring crazy inflation scenario, that's not low enough if they want to aim for 12M cars a year. People simply aren't that rich.

average car in the US sells for $46k: https://www.kbb.com/car-news/average-new-car-sales-price-now-over-46000/#:~:text=Average%20New%20Car%20Sales%20Price%20Now%20Over%20%2446%2C000,-BySean%20Tucker&text=Americans%20paid%20an%20average%20of,higher%20sales%20of%20luxury%20cars.

Secondly, rising water raises all boats. If they can make a 43% margin on a 37k car due to lowering cost of EV, someone would be able to take advantage of the same advancement (even if marginally less) and be willing to sell at half the margin for a much lower cost.

Yes, as soon as the legacy automakers and new EV players burn money with a negative free cash flow for 5 years.

I'll just combine your other comments in this one

Me: I said that costs to manufacture (and also battery costs) are coming down faster than the prices are coming down.

The price literally hasn't come down since Model 3 was introduced. In fact I'll say the battery cost has been decreasing slower than Tesla has been raising their prices over the past 2 years.

(E: I don't know why this part is bolding, I didn't put the # in front of it) What does this have to do with anything? Did you even view my model? I'm admitting that ASP will come down, then you said "then margins will come down," and I said "battery costs and manufacturing costs will come down faster than ASP, resulting in continually growing margins," and then you point out that Tesla has been increasing their prices. What's your argument? And which part of my model do you disagree with? And serious question, but do you realize that the price of Teslas have been dropping in the last 8 years? And that margins have been growing?​

Me:Basically I'm suggesting that Teslas are so nice, the average price paid for a car will go up as EVs become more prevalent.

That's another silly assumption. EVs by themselves will become commodities in the near future, there will be less and less "Tesla is so nice" factor going in the future. Right now people like you are willing to go from a $25k Civic to a $50k Model Y because you can afford it, and you are willing to pay for the EV tax.

Why is this silly? Phones went up in ASP since the iPhone (as an example). People can afford $46k cars. See the link above.

But imagine if there is a $30k CRV EV available with just marginally worse specs, would you still go pay $50k for a Model Y at that point? Rationally speaking you wouldn't, just like you weren't going to upgrade to a $50k BMW for marginally better specs either.

Comparing a $50k BMW to a $50k Model Y is where your analogy falls apart. People don't buy Teslas for the same reason they've always bought gas cars. They buy them because they enjoy them, not because they're forced to buy a depreciating asset that they need to get to their job. Hence, why people are paying more for Teslas than they are their typical gas cars.

 

[jen907907]

@theologyandfishing

average car in the US sells for $46k:

Please look up the difference between average and median. Vast majority of new cars are still far cheaper than $46k, and we are in a global chip shortage and supply chain crunch, which will need to go away for your 12M a year to even have a chance of happening. The average price of $46k won't be sustainable once global supply chain is fixed, let alone the median price being anywhere close to that much.

Yes, as soon as the legacy automakers and new EV players burn money with a negative free cash flow for 5 years.

They won't need to do that, the first mover always pay a heavier upfront cost for the whole industry. And secondly, even if they are negative cashflow it doesn't matter to consumers, competition is competition and they will still take away sales from Tesla.

Why is this silly? Phones went up in ASP since the iPhone (as an example). People can afford $46k cars. See the link above.

Again, look up the difference between median and average, and look up the global median price for cars sold. And secondly, phones and cars are very different price items. Just because people can stomach a huge increase in phone price it doesn't mean the same can be done for cars.

Comparing a $50k BMW to a $50k Model Y is where your analogy falls apart. People don't buy Teslas for the same reason they've always bought gas cars.

No, you completely missed the point. I'm not comparing those two and never did. I'm saying if you wouldn't upgrade from a $25k gas car to a $50k BMW, why would people upgrade from a $25k EV to a $50k Tesla?

They buy them because they enjoy them, not because they're forced to buy a depreciating asset that they need to get to their job. Hence, why people are paying more for Teslas than they are their typical gas cars.

That's only true for relatively early adopters like you, and not even close to describe the global automotive consumer. If you think Tesla will be selling 12M premium cars a year to people who "buy them because they enjoy them", then you should invest in $RACE, not $TSLA.

 

[theologyandfishing]

@jen907907 alright dude, let's wrap this up. You got plenty of upvotes from the bears so you should feel happy and vindicated. We're obviously not changing each other's minds, and therefore this DD wan't really aimed at you. You can stay bearish if you want. I don't care. I aimed this DD at the curious ones who don't speak up because they don't know much about Tesla (or at least, realize they don't know much lol) and who deserve a fair, quantitative DD with numbers. I've given that to them. Now we'll sum up our tedious and near pointless back and forth with our points of disagreement (for the quiet ones reading):

I believe that ASP and costs of manufacturing will both fall. I believe that costs will fall faster than ASP, resulting in increased margin. In fact, this is what we observe in the past decade. The trend has agreed with my prediction up to this point. You believe that this trend will reverse, and that margins will go down. You believe this because Tesla will have to start "selling to the downmarket" or whatever, which is also.. exactly what Tesla has been doing for the past decade.. making lower priced EVs.

I claim that people buy Teslas because they enjoy the car, somewhat like a hobby, and that people are willing to buy Teslas at slightly higher prices than their former gas cars. And despite the past agreeing with my prediction, you once again disagree. Insisting that I'm wrong.

You believe margins will go down, and you don't agree with any of my numbers. You don't think Tesla can make $12k gaap earnings per EV, despite the trend suggesting they will soon:

https://imgur.com/Wr8FK9x

You don't agree that Tesla will sell 12M EVs annually, despite the trend suggesting they will around 2027: 934,000 * 1.50^8 = 11.4M

I don't think you mentioned P/E, but I'm going to o on a limb and guess that you don't believe Tesla will be trading at a 50 P/E by 2027. Ok.

Alright, I consider this discussion wrapped up. I won't be replying anymore, as it's really exhausting and time consuming, especially the way the back and forth goes down a bunch of rabbit holes. We'll leave it up to the viewer to make their own decisions.

 

[jen907907]

@theologyandfishing No, none of those numbers make sense.

The luxury segment in the entire world is smaller than 12M cars, and you can’t make 12k margin on a non-luxury car.

Tesla’s margin varies drastically between models. The cheapest Model 3 has a much lower margin than a Plaid Model S. If Tesla wants to aim for 10M cars per year the only way is to significantly go downmarket.

Now good luck maintaining the ASP when you are competing against $22k Honda Civics.

 

[theologyandfishing]

@jen907907

The luxury segment in the entire world is smaller than 12M cars, and you can’t make 12k margin on a non-luxury car.

Tbf, many are switching from Honda Civics to Teslas. Myself included (bye bye 2014 Honda Civic, Hello Model Y)

Now, as to what extent people are trading in $25kish cars for Teslas is.. hard to determine.

Basically I'm suggesting that Teslas are so nice, the average price paid for a car will go up as EVs become more prevalent. There.. said it.

But ASP will still come down, and yes.. I think margins will go up.

 

[jen907907]

@theologyandfishing

Basically I'm suggesting that Teslas are so nice, the average price paid for a car will go up as EVs become more prevalent.

That's another silly assumption. EVs by themselves will become commodities in the near future, there will be less and less "Tesla is so nice" factor going in the future. Right now people like you are willing to go from a $25k Civic to a $50k Model Y because you can afford it, and you are willing to pay for the EV tax.

But imagine if there is a $30k CRV EV available with just marginally worse specs, would you still go pay $50k for a Model Y at that point? Rationally speaking you wouldn't, just like you weren't going to upgrade to a $50k BMW for marginally better specs either.

 

[samdasari]

@theologyandfishing A lot of the past criticism of Tesla was A. doubting their ability to stay solvent and B. doubting their ability to scale. People always knew that there was a decent amount of consumer demand. Suffice to say, that old criticism is pretty irrelevant since clearly Tesla proved them wrong.

However, Tesla is now a regular company. It's like lifting. Tesla has already made its noob gains. It's much easier to grow 50% YoY when you're still far behind on filling demand that already exists, but now they face the challenge of generating new demand. Something they really never had to do.

Are 12 million people going to want a Tesla in 5 years? I'm not so sure. People want EVs, but that doesn't mean they have $45k to spend on the cheapest one, let alone thousands more to spend on a FSD subscription that doesn't even really work. It doesn't mean they want the fastest, most cutting edge thing. People mainly want EVs for the fuel efficiency.