General Motors. VW Group. BYD. Apple. Amazon.
These are a few of the companies that might challenge Tesla for global electric vehicles supremacy. Those believing Tesla will win the EV and autonomous vehicle race with all others losing, will likely be proven wrong. In fact the last newsletter update, suggested that I might sell all of my remaining Tesla shares due to a competitive “crossroads” the company is experiencing. I have yet to sell any additional shares, however. And as I assess the likelihood that Tesla’s valuation can be supported by the company’s future prospects, I may not sell any time soon.
While some challenger companies will thrive in a future automotive world, Tesla still could thrive even more. After reading Tim Higgins well researched book about Tesla and Elon Musk, “Power Play,” it’s clear the company and Musk have a history of overcoming big obstacles. The company could actually sell nearly 800,000 vehicles worldwide this year - up from 500,000 in 2020. Tesla actually wants to increase sales 50% per year into the future, which would represent about 19 million vehicle sales by 2030.
NINETEEN MILLION VEHICLES seems like an unrealistic level of global sales volume by 2030. It’s twice the level of sales today for an automaker like Toyota. Yet, what if Tesla’s goal to reach the stars actually drives the company to land on the moon instead? What if sales growth is only 25% per year through 2030? That’s 3.7 million electric vehicles per year by 2030 - still a tremendous level of EV sales. And while the company scales production and sales, what if Tesla also continues to drive down EV production costs thereby increasing its per vehicle margin substantially? And what if the company can concurrently produce increasing levels of recurring revenue driven (auto insurance, vehicle connectivity subscriptions, AutoPilot subscriptions, Super Charger network revenue, etc.) driven by accelerating vehicle sales. A company with…
Increasing production and sales (scaling)
Continued margin improvement
Growing levels of recurring revenue
…would begin to resemble the business model of a company like Apple in the smartphone, tablet, computer and wearables markets. For Apple, market share is an irrelevant metric. More important is the share of revenue Apple receives and the profits the company produces from their various businesses. This Apple business model for automotive seems to be where Tesla wants to exist. In fact, any company attempting to compete with Tesla in the EV space should be implementing their own similar Apple model as well.
My decision to hold or sell Tesla shares, leads me back to Charlie Munger’s view of Elon Musk when asked recently:
“Never underestimate the man who overestimates himself.”
Musk and Tesla have been underestimated for years. Yet the company sold nearly 500,000 EVs last year, and has a valuation as of yesterday of $714 billion. That level of performance is probably worth holding the stock - for now.
Note: If I didn’t own Tesla, I don’t believe I would buy the stock at its current level, however (currently $753 per share).
What I’m Reading, Watching, and Hearing
Disclaimer
TaaSMaster, LLC is not a registered investment advisor or broker/dealer. All investment opinions expressed by TaaSMaster, LLC are from personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors may occur.