The environmental credit trading company known as Tesla announced financial results for the first quarter on Monday. They sold twice as many cars as they did a year ago, which is great, but their profit per car declined by about $2,000 per car. That's probably due to the mix of models they sold, but it's still not great news.
Net operating profit clocked in at $594 million, but $518 million of that was from selling environmental credits to other companies plus a one-time sale of Bitcoin. Taking that into account, their actual net profit from selling cars and batteries came in at $76 million, or 0.7% of revenue. That's not great, and it hasn't changed a lot over the past year despite selling a lot more cars. It's especially not great since the next year or two are going to bring a ton of competitors into the electric vehicle market.
None of this is to say that Tesla is headed for failure. They have loads of cash and are well aware that they can't count on environmental credits to sustain them for a lot longer. No, the part I don't get is this:
What is it about Tesla's performance that has caused their stock price to skyrocket by about 10-15x since the end of 2019? There are so many things I fail to understand these days.
Like AOL in its time with the acquisition of Time warner, Tesla used the hype to rake in cash by selling overvalued stocks (buying real assets for AOL). This allowed Tesla to survive the transition phase to a real profitable company but as the reality of economics are sinking in the valuation will trend down inevitably.
My calulations show that $76 million is 12.8% of $594 million. Maybe my math is wrong. I've been out of grade school for 55 years.
Ahh...12.8% of profit, but not of revenue.
Musk effect? The scent is alluring.
Electric, yes, but people are betting on the moon shot of self-driving cars. They are dying for it--literally. The batteries and electric cars are commodity businesses, or soon will be. The question is then, Apple or Microsoft model? Or Sinclair or Amiga?
I only got into the stock market a couple of months ago, but it is already clear that when what's-his-name long ago talked about irrational exuberance, he was being redundant. The market is irrational. Also, the market is extremely focused on the extreme short term.
Maybe small sample size, but that's what I've noticed.
Watch Consumer Reports Trick A Tesla Into Driving Without A Driver,
https://www.huffpost.com/entry/tesla-elon-musk-autopilot-self-driving-china_n_608377a1e4b02e74d21998b8
Liked the video.
Tesla should lose all of their environmental credits because of their involvement in Bitcoin. What a climate catastrophe that is.
A few years ago there was massive short interest in Tesla. It was a bet that the company wouldn't make it, wouldn't survive, but would go bust and shut down.
That didn't happen, and the shorters had to cover their shorts. Meanwhile, the only people holding Tesla were the true believers, the ones who believed in the mission, and weren't selling, no sir, not for anything.
So covering those shorts got really expensive. I think that's why Tesla stock costs what it does today.
ALSO, Tesla is loved for its battery technology, which is not at all in the commodity space.
Tesla does make great batteries,, but others are coming along. The pandemic gave Tesla a year reprieve. See also:
https://www.caranddriver.com/news/a31226611/gm-ultium-electric-vehicle-battery-revealed/
and:
https://www.motortrend.com/news/toyota-solid-state-battery-ev-2021/
Not only the shorts covering the short positions, but the inclusion in the S&P 500.
Plus, the fact that if it was not for the incredible short interest, the price would have been higher in 2018 and 2019.
I own a Model 3 and a Tesla Solar and Powerwall system, but no stock. Its impossible to say what the stock price should or shouldn't be, but I can say that as far as the products of the company are concerned:
1. You wouldn't think a new car company, brand new, could develop and sell better and more EVs than an existing car company, but at this point you would obviously be wrong. That's another reason the price was depressed. People just figured that an existing company would come along. But nope. I'm starting to wonder if the existing companies are still years away, maybe VW. The problem is that switching to an EV drivetrain is not easy for ICE cars or ICE factories.
2. Tesla's self driving software is valued at zero. I have the FSD package, and although I don't know when, its clear from the upgrades that its going to work. I don't know that it means robo-taxis for some years, but, I mean, it already works.
3. Tesla's energy biz is also valued at zero. Another mistake, as the use of solar panels and powerwalls is a game changer for delivery of electricity, especially the powerwalls.
Musk appears to have every chance of being a jackass, but I would not bet against the guy accomplishing what he says he will do.
Yes, when your stock is relentlessly shorted and continues to be successful, it amplifies the rise in value. The irony is those short sellers were the best thing to happen to Tesla's stock.
Interact much with Tesla fans and it quickly becomes clear many of them are religious zealots and fervent members of a cult of personality. I am always struck how much Elon is like Donald, except Elon is much smarter and hard working.
Tesla’s are somewhat eccentric compared to other cars, and their business model is definitely unconventional (no dealers, no advertising, no PR department, no third party repair permitted). When you own a Tesla you only own the hardware, Tesla owns the software and can modify it any way it wants, including banning you from supercharging stations. Other eccentric brands ran into trouble when they sought to expand their market beyond a loyal base (Saab and Subaru come to mind). This plus continual quality issues, a number of poor design choices and the first serious competition from established automakers makes me skeptical of Tesla’s future, but then again Elon has been foiling the short sellers for a long time now.
"What is it about Tesla's performance that caused their stock price to skyrocket by about 10-15x since the end of 2019? There are so many things I fail to understand these days."
That's because you've in some sense bought into the myth that the market is rational. It is anything but. See, e.g., APPL.
I've funded my retirement looking for companies with lots of hype and which command a premium merely because they're "cool". I just ask myself, What do people get into fistfights over around Christmas?
I owned TSLA for a while, but sold because I can't stand Musk. I made some, but could have made a lot more if I stayed in. But, you see, I'm irrational.
Say what you want about Apple, but they make a lot of money. I would not compare their stock to Tesla.
You know, I don't really blame you for your feelings about Musk. He puts a lot out there that is easy to latch onto and dislike.
I think he's pretty obviously spectrum, and that colors how I feel about what he says. The thing is, he says everything he thinks out loud and in public. No other auto manufacturer CEO does that. They have press agents that process everything they say to the nth degree. I'm sure most of them think worse things than Elon says, but never say it out loud.
Meanwhile Musk says what he thinks at the moment, but like most spectrum people - there are no intended associations or innuendo to go with it. He's likely oblivious to those sorts of things.
He is not so oblivious when he is criticized. Witness the NYT auto writer who wrote a lukewarm review after an early Model S ran out of battery after a cold night (Do Tesla’s still have a problem with high vampire loads when parked?). Or the diver in Thailand who saved the trapped kids and got called a child loving pervert after he criticized Elon’s silly rescue torpedo.
It's not profitable for other car manufacturers, either. The largest single driver -- estimated $10-12K -- of BEV costs is the battery, which is why Musk is investing heavily into R&D and manufacturing of battery cells.
"Paying far less than other automakers for lithium-ion battery cells allows Tesla to also lead the industry in the cost to manufacture EV battery packs. Cairns data estimates that Tesla’s battery packs cost, on average, $187 per kWh while GM’s packs cost $207 per kWh and the auto industry spends an average of $246 per kWh for battery packs." -- https://bityl.co/6ZY8
It was just a couple of years ago when GM stated that it was losing money on every BEV it sold. So, who has the easier transition to manufacturing -- the company that started from scratch as a BEV manufacturer and has ironed out all the kinks in the process, or the ICE manufacturers forced to move to 100% BEV fleets to meet global requirements?
Tesla's going to have something like 6 "Giga" factories around the world by the end of the year. That's why Tesla's stock is so high.
Tesla apparently has the lead in lithium-ion factories. But what if some other technology (not discovered by Tesla) turns out to be better? High-tech is high-risk.
Appetite for risk is what makes young companies chase wild dreams while old ones lose market share slowly.
The best I can tell, car and light truck global revenue is $3-$4 Trillion a year, and is expected to climb to $5T by 2030. I think a lot if people are betting, perhaps rationally and perhaps not, that Tesla is poised to be in the late 20s and 30s what GM was to the auto industry in the 50s....far and away the most dominant, not only in car sales, but battery technology, charging stations and the whole EV infrastructure. Could Tesla be setting itself up to generate $1T in revenue in 2030 by owning 20% of the global market? Don’t know, but I’d say if anyone can, it is Tesla. $1T a year is quadruple Apple’s annual revenue (but Apple does have high margins).
I recall 10-15 years ago a lot of people besmirching Amazon as their stock price was considered by many to be overvalued for a company that had virtually no profit. But, like Tesla today, Amazon was setting the stage to reconfigure and dominate the entire retail industry.
The best simple analysis I've seen of Tesla's stock price is that based upon battery factory plans. Tesla says their expansion is battery constrained.
They state a plan to have 3000 GWh/year in battery production by 2030. Volkswagen announced a plan to build by itself or with partners six battery factories totaling 240 GWh/year by 2030. GM is on track to have 120 GWh/year in batteries by 2030.
If you add it up, Tesla is on track to have 50% of electric vehicle sales in 2030, using battery production as a measuring stick. That would justify a much higher stock price than this.
I funded my retirement with Tesla stock. While I sold most of it when it joined the S&P 500, there are no tough times ahead for Tesla for the foreseeable future. Tesla has its stock valuation because alot of people believe that it will have a dominant and disruptive position in the world's biggest consumer market. Here is why:
- Once people drive an electric car for a week, they realize that internal combustion vehicles suck. Electric is ridiculously fun and easy. There is little maintenance, no smelly fluids, and they have instant maximum torque from a dead stop. The total cost of ownership of a Model 3 is probably comparable to a Camry/Accord type of car, and the Tesla is far better.
- 10 years from now, we will be hitting the middle of the S-curve of electric vehicle adoption, and nobody will want to buy an obsolete car with an internal combustion engine. This will be extremely painful for legacy car makers, and many will not make the transition to electric successfully.
- Tesla is still years ahead of legacy automakers in technology, lowering costs, manufacturing, and charging infrastructure.
- Tesla actually has a high gross margin on the cars it makes. It is only marginally profitable because it is taking the profits from the cars it makes at its two assembly factories and plowing it into building two more gigafactories. Once those are producing, Tesla will build more factories. Each factory brings in more profit for the company.
Part of the reason is that Tesla has become a "meme stonk." Young investors with their stimmy money can buy Tesla with no trading fees using apps like Robinhood, so a lot of them do. Tesla is I think the #2 most bought stock on Robinhood.
Retail investors are small potatoes with Tesla stock. It's the big investment houses that make up the bulk of shareholders. The volatility makes Tesla very attractive for higher risk investing and hedge funds.
Because the stock market is unmoored from actual real-world valuations these days. There's too much capital and too much in savings sloshing around in the system - it's basically become just a giant casino.
Nah. The stock market being unmoored explains why GOOG is trading at 37 times earnings. It doesn't explain why TSLA is trading at 1,000 times earnings.
That's not really the right chart. For all we can tell from that chart, maybe Tesla was grossly undervalued in 2019. The right chart is more about market cap or price/earnings ratio. It's the fact that Tesla is valued by the market more than Toyota, and that Tesla is selling at 1,000 times its earnings.
Tesla is clearly in a bubble. But bubbles can last a long time. There is no way that Tesla can earn enough profit to cover the price of their stock. Competition will skyrocket. New battery technologies will eliminate any price advantage they have now. When other car companies make their own electric cars they won't need to buy credits from Tesla.
The true believers think that Tesla will take over 90% of the car market and profits will go to the moon.
Tesla does a good job of hyping their stock. Anytime there is bad news they immediately come out with a distraction. There was a bad fire in the Fremont plant. Immediately after they announced that the CFO would now be called Master of Coin and Elon's new title was Technoking. Stupid, but it pushed the other story out of the news.
Bubble.