As of yesterday, Tesla (TSLA) surpassed VW to become the second highest valued automaker by market cap. As of the time of this writing, it’s worth some $105 billion.
How is this possible?
Unless you live in a cave, you’ve probably heard that Tesla shares have been on a very strong uptrend the past few months, starting with the 2019 Q3 announcement that sales and profits (EBDIT, not net) were up. And since then there’s been one continuous string of news and announcements that keep bolstering this rise: The Model Y is going into production imminently, the Cybertruck was received well and an expert has chimed in saying it will be “incredibly cheap to bring to market“, Tesla’s China plant was built faster than expected and deliveries have begun, Tesla’s China sales are strong generally, Tesla’s bold new factory in Germany is expected to break ground next month or so, and a whole slew of other news.
Of course none of that can objectively support such an insanely high stock price; VW build 30 times as many cars as Tesla. But VW’s CEO Herbert Diess also acknowledges that Tesla’s technology, especially its software and interface, which allows a constant stream of over-the-air updates, such as offering an instant upgrade of a half-second improved 0-60 time for $2,000 really is revolutionizing the industry.
This realization, which some of us have had for a long time, flies against the classic anti-Tesla argument that the automotive industry is all about efficient production and low margins, and that there was no way a brash Silicon Valley upstart was going to have any meaningful impact on that industry. Well, that theory, along with the TSLA short-sellers, is being tested mightily these days.
Speaking of, TSLA shorts have lost some $6 billion in the recent rally, and some $12-13 billion total in the past years. That’s ironic, because these are the very folks who perpetually pointed out that Tesla was burning capital, for no benefit. The shorts’ losses are now not far off from the total amount of capital ever invested in Tesla. That alone is either very sad or very funny, depending.
Undoubtedly a substantial part of this recent rally has been fueled by shorts having to cover their positions, a classic short-squeeze. The current price exceeds the average of Tesla analysts’ guidance, although some range up to $800.
Speaking of Tesla shorts, Tesla says that an acknowledged short is behind the petition to have the NHTSA review claims of Unintended Acceleration (“UA”). Unlike in the past, when Audi and Toyota sequentially took it on the chin regarding claims of UA, Tesla is not going to go that route. And there’s no reason, as they have the “black box” information to prove that every case of UA is really just wrong pedal application; which is of course the case with all UA, except for pedal entrapment by tall floor mats, as was the case with many of the Toyota cases.
Every case has all the classic UA hallmarks: they happen in parking lots or driveways, when folks are maneuvering, or stopping and starting. And in the process, they hit the wrong pedal. It’s just an inevitable collateral damage of cars with automatic transmissions (or none, in the case of Teslas). Tesla has had numerous suits filed before over UA, and has always been able to prove the obvious. From a statement by Tesla:
This petition is completely false and was brought by a Tesla short-seller. We investigate every single incident where the driver alleges to us that their vehicle accelerated contrary to their input, and in every case where we had the vehicle’s data, we confirmed that the car operated as designed. In other words, the car accelerates if, and only if, the driver told it to do so, and it slows or stops when the driver applies the brake.
We are transparent with NHTSA, and routinely review customer complaints of unintended acceleration with them. Over the past several years, we discussed with NHTSA the majority of the complaints alleged in the petition. In every case we reviewed with them, the data proved the vehicle functioned properly.
As to whether Tesla can live up to the very optimistic assumptions built into its stock price remains to be seen. But the once rampant talk about Tesla being a flash-in-the-pan crony-capitalist subsidy-sucking capital-destroying hype-machine company doomed for bankruptcy is getting mighty quiet.
Oh, fer…seriously?! Fine, give ’em what they want; some people deserve to have $2,000 less in their wallet.
Even with the rightful concerns raised ad nauseam about Tesla, I’m still more optimistic about them than the “new” Fisker (how did their promises of 100K cars per year work the first time around?) and Lucid Motors (Saudi investment…hmm, conflict of interest?).
But Rivian will be the ultimate winner.
I don’t have a crystal ball, but I won’t be surprised to see Rivian become a Ford brand.
I would.
Why would that happen? Rivian is highly capitalized, and Ford’s stake is actually pretty small. T. Row Price recently invested $1.3 billion; Ford’s investment was $500 million.
Maybe Ford will become a Rivian brand?
More likely. Ford’s most valuable property is arguably their dealer network. Rivian will need to build out a sales channel one way or another.
Agreed 100% – Rivian wisely is building vehicles in the segments North Americans buy the most of, and delivers impressive performance and range. Buying the Diamond Star plant for a song gives them a manufacturing cost advantage too. Rivian isn’t publicly traded (yet) but watch out – I wouldn’t underestimate them at all.
I would never short stock like Tesla. The reasons are simple: first, there is a huge demand for EV’s. My province is now at a 15% take rate on EV’s and estimates for next year are at 20%. The only thing keeping EV makers from more market share is keeping up with demand. There are now three Model 3s and two Leafs in my parking garage. That’s about one third of all the cars parked there. The rest don’t bother with cars.
Second, Tesla makes a very enticing product, one that consumer are eager buy with their own money. I find the negativity regarding EV’s really comical. I suppose similar things were said about the Model T. Fact is, some folks would rather complain than do something constructive.
“Second, Tesla makes a very enticing product, one that consumer are eager buy with their own money. I find the negativity regarding EV’s really comical. I suppose similar things were said about the Model T. Fact is, some folks would rather complain than do something constructive.”
Where in the world do Tesla customers pay for their cars with their own money? Does Canada really not offer handouts to entitled rich people in exchange for carrying the ball along the path to no middle class?
Where in the world do Tesla customers pay for their cars with their own money?
In the US, where the federal tax credit for Teslas is zero now. And in 32 states that have no state tax credit.
I’m sure there’s a number of other countries that don’t have direct incentives too. And in the ones that do, they will run out also.
Does Canada really not offer handouts to entitled rich people in exchange for carrying the ball along the path to no middle class?
True; they really don’t, since the Canadian tax credit for EVs can only be used for the cheapest version of the Model 3, as there’s an upper end price cut off ($45k). Rich people aren’t going to be happy with a low-end Tesla.
Got any more insightful questions?
I’m sure most of the Model 3 sold in Canada are taking advantage of the $5,000 the Canadian govt is offering. Yeah there has to be a base model for under $45k but as long as that technically exists you can add $10k in options/trim levels.
So Tesla created a special, severely range limited Canada only “Standard Range” for $44,995, off menu, so the “Standard Range Plus” at $53,700 qualifies for the rebate.
https://electrek.co/2019/05/01/tesla-cheaper-model-3-canada-incentive/
it’s worth it , especially for us Québécois . Whe can add the $8,000 provincial incentive on top of it . + another bonus : hydro-electricité is cheap here .
You don’t need to worry about Canada’s policies. You need to worry about your own..
The $45,000 limit is just that. No amount over this is permitted.
I’m not worrying about Canada’s policies. I’m just sharing the facts.
The fact is people in Canada are getting gov’t incentives to purchase Model 3s, and not just the off menu model designed to exploit the gov’t incentives.
Here it is straight from the govt of Canada. https://www.tc.gc.ca/en/services/road/innovative-technologies/list-eligible-vehicles-under-izev-program.html
Standard Range ($44,995) and Standard Range Plus ($53,700) qualify and your own link shows that 47% of the BC gov’t incentives went to Tesla buyers.
Where in the world do pickup customers pay for their trucks with their own money? Kelley Blue Book just said “Full-size truck sticker prices start in the neighborhood of $28,000, but the average price paid has risen to right around $40,000.”
Tesla Model 3 base price without tax benefits: US$39,990.
CJ: How many millions of well-heeled self-employed Americans have (not) bought big SUVs and pickups with their own money in the past some years, given the outrageously extravagant 100% tax write-off available to them thanks to the tax code? That can easily be worth 25-32% of the sticker. I’m sure the numbers grossly exceed any EV tax credits that have been given out. Where’s your outrage about that?
If it was up to me, the only way to take a section 179 deduction would involve having a giant company logo on every surface of your vehicle and license plates that decry that it is tax deductible.
I believe the Model X qualifies for this deduction as well and it is likely that the model Y will also have a GVWR of over 6000 lbs.
OK, but that’s mostly irrelevant to my point. I wonder if anyone has ever calculated the total cost of this tax deduction.
And of course, ironically that tax benefit probably is taken disproportionately by the folks who are most likely to bitch about EV tax credits. 🙂
The depreciation schedule in Canada is five years.
If you opt for the 179 and get the write off all in one year then you don’t get the depreciation in future years. So yeah properly timed it can get you into a lower bracket for a given year in certain circumstances. And of course if you don’t drive it until it has no value you’ve got a tax liability when you dispose of it. And of course if it isn’t 100% business use you have to prorate everything.
Chicago, for another place.
You are making things up again, 10% of the passenger vehicles sold in BC were EV, PHEV or fuel cell in 2019. So that doesn’t include vehicles classified as trucks. That is due in part to BC and federal gov’t incentives and the fact that gas is much more expensive in Canada than it is in the US.
Tesla in fact was down 15% in 2019 compared to 2018.
So no people aren’t buying Teslas in Canada with their own money, at least for most Model 3s and demand isn’t outstripping supply.
Gasoline is no longer much more expensive in Canada. We are paying C$1.30 a litre today. That translates to US$3,68/gallon.
The price I was paying in California was $3.30 a gallon. It amounts to $4.00 on a tank.
Indeed we paying higher taxes, but the oil companies are ripping you off.
You and your ilk now absolutely nothing about Canada. Best to keep quiet when one ignorant.
https://vancouversun.com/news/local-news/number-of-electric-vehicles-on-b-c-roads-on-the-rise-province
Rip-off seems right! I understood the US to be making a lot of its own stuff now: ours is 100% imported from distant ports to a small pop in a huge country, we pay about AUD $1.30-$1.40 per litre and 42 cents of THAT is federal taxation, so with tax somewhere about 15c a litre (-ish) in CA, big oil is surely makin’ big dough!
California consistently has the highest gas prices in the US. For example I paid $2.47/gal at the Costco in Burlington Wa last weekend and as usual there were a number of cars wearing BC plates filling up before heading home. It is much worse in Bellingham where gas is now $2.53, where it is very common to see people filling up 3-5 5 gal cans to take home. Even at the $2.74 a gallon I paid closer to home today, $3.68 is much more expensive.
The link you posted says 9% in BC last year, my number came from CBC
https://www.cbc.ca/news/canada/british-columbia/bc-tops-canada-in-zero-emission-car-sales-1.5359331
Furthermore your link states that of that 9% only 65% are pure EVs, the rest are Plug in Hybrids/Range extended EVs.
So pure EVs were 6% of the BC market in 2019.
It is also says that 47% of the provincial incentive applications that were approved last year were for Teslas. So it sure looks like many BC Tesla buyers are using at least some gov’t money to buy their cars.
And just like CA, you can get a permit to use the car pool lanes if your car has a plug a valuable incentive for some.
“the argument that the automotive industry is all about efficient production and low margins, and that there was no way a brash Silicon Valley upstart was going to have any meaningful impact on that industry”
21st century electric cars are a classic example of disruptive innovation.
1) An existing market is mature, suppliers are large, with low margins and relatively little innovation.
2) The disrupting companies come along with some big advantages (zero-carbon, extreme acceleration, fun to drive, fuel at home, wireless feature updates, etc.).
3) Established companies don’t take the disrupters seriously, and respond with Fear, Uncertainly and Doubt (FUD) like range anxiety, battery replacement costs, you’ll be stuck with an orphan. Or at best they offer responses but without really believing in them.
4) Disrupters, if successful, ultimately prevail and the status quo fundamentally changes.
Countless examples: Model T, transistor, fiber optics, copiers, digital cameras, supermarkets, encyclopedias, smart phones, etc. Many fortunes were made and lost.
TSLA stockholders are betting on the principle of disruptive innovation succeeding in automotive transportation. So far, so good.
Exactly – and all the other manufacturers a scrambling like mad right now. Excellent analysis.
Great synopsis.
Looking down the list I find a couple of surprises. Ferrari in the top ten? Worth more than Ford? Enzo’s ghost must be getting a good laugh at Henry II.
The stock market is certainly a casino, nowadays owning a particular stock is like placing a bet on a particular horse. A stock with some pizazz like Ferrari or Tesla will get more bets. Elon Musk knows this well.
(Personally I believe in betting on the house, aka the market index.)
The Ferrari brand is one of the most valuable in the world, and doesn’t require billions upon billions in continuous capital expense to maintain a modest slice of a ferociously competitive world market.
The only significant problem with Ferrari’s car business is that hyper sports cars (and now SUVs) are a completely discretionary purchase, and therefore subject to general economic weakness.
One of the shows on TV I came across stated that Ferrari actually has an “economies of scale” advantage over companies like Toyota at the absolute high end of the market. They said this when the Lexus LFA’s were priced more than the equivalent Ferrari.
The show explained that because all Ferrari does is build at the very high end, they realize “economies of scale” for their lightweight and carbon fiber components more than Toyota can because the LFA shared very little with other Toyotas.
I may be wrong but I don’t think Tesla can stay above 350.00 per share very long. I also think Ferrari is overpriced too. But that is a different conversation.
Tesla makes less than half a million cars at a loss and has the market cap of a company that makes ten million cars profitably. Whether you can accept the reason why or not, it has nothing to do with a present or future balance sheet.
So you have the ability to divine their future balance sheets? Wow.
It is the future, Look how long Tesla has been in perpetual capital-burn mode compared to how long it took Ford to create the mass-produced auto industry and amass a fortune that adjusted for inflation could compare to what has been squandered on Tesla. Seriously. The billionaires throwing bundles of money on this bonfire are not doing it because they expect to make more money. They’re doing it because the only way left to feed their avarice is to eliminate the wealth of people clogging their ski-lift lines and riding wave-runners within earshot of their mega-yachts.
I guess you haven’t heard that Tesla has been very strongly cash-flow positive, as in $1.5 billion in EBTID profits? That’s a major reason their stock is up.
“Net profits” are largely meaningless in the business world, as they are calculated with all sorts of non-cash factors. EBTID profit (cash flow) is where it’s at.
You need to get caught up to date, and come up with a new anti-Tesla schtick. That old one doesn’t work anymore.
And your last line sounds a bit like the rantings of a lunatic. Are things not going so well for you?
This is a person who has used “the climate scam” unironically here. What do you think?
People always think they’ve discovered new accounting principles that obviate thousands of years of history before a crash. it’s funny how that works. I suppose it is like how some people ignore fifty years of disproven lies about ecological collapse in order to go along and get along with people who see them as obstacles that can be destroyed. .
I think what Tesla has done is very impressive, even if their cars are not accessible to middle America. Even in this space, I don’t think people can appreciate how difficult it is to launch a car company. Teslas are not just credible cars, but serious contenders, right out the gate!
I think climate change is a reality. Is it man made? We don’t know, IMO.
Europe had a mini-ice age that coincided with the dark ages. Before that, they used to cultivate grapes in Britain. Was that man-made? I think not.
But I think to some extent, human activity of the past 150 years (volume and burning) has contributed. Will electric cars help? Yes. So would taxing fuel so that North Americans drove like Europeans and Asians.
IMO, Tesla’s valuation is very high for what it is. IMO
But what do I know? The ‘stock market’ (really, selected indices) is at record highs. Our govt is spending $3 for every $2 it takes in. I wish I could do that. It must be good. The old rules of how to run things perhaps no longer apply. Perhaps conventional profit and loss metrics don’t apply any more either–it’s not my field of expertise, and without positive cash flow, what goes is profit, right?
(how much of Teslas positive cash flow is from Detroit Three payments for CAFE credits?)
All this money flowing into stocks, and a lot of it flows into Tesla, to the consternation of GM, and Ford, and their stock ( but there is some sanity–Toyota is valued the highest, which makes sense).
When, or if, the money flows OUT of the stock market, will Tesla stock withstand the tide of outflows because it is special? We will see. Unlike the real world, there are no physical laws in stocks–or economics.
In the past, the elite, lorded it over the commoners. The USA was the leader in questioning that approach to organizing society. It has been a struggle between the few and the many. During peak Curbside Classic era (that would be the 1950s to 1990s), the in many regards (unless you had the misfortune of being drafted and did not return from Korea or Vietnam physically and/or mentally whole) the “many” had their highwater mark. Starting in the early 1970s, and accelerating after the 1990s, the flow of power and control has begun returning to the few, and the middle has been getting squeezed….with no end in sight.
While I can’t articulate concisely why this is (there are many BOOKS, filling 200-300 pages that do so, from both sides of the spectrum), I empathize with some CJSin’s sentiments. The world is changing, change can be hard.
A Model 3 is roughly the same price as an F-150 that “truck” is the bigest seller in the USA.
I smoke four packs of cigarettes a day and weigh 300 lbs. I am completely sedentary.
I went to doctor and he told me to quit smoking and diet. I went to another 96 doctors and the told me the same.
On the 97th doctor, I was finally told what I already knew: I can continue to smoke and eat fast food five times day.
So I can get a Model 3 for $30-35k? Like an F-150?
Who else knew that…
Tesla Model 3: White, 18″ wheels, black interior, autopilot $39,990 per the Tesla.com 1/23/2020.
Ford F150 XLT SuperCab 6 1/2 ‘ bed with modest options $43,560 per Ford.com 1/23/2020.
Sure, the Ford will be discounted but this is far from loaded and is only a two door.
Comparable enough for me.
I’m in agreement:
https://wolfstreet.com/2020/01/24/tesla-global-deliveries-compared-to-top-10-volkswagen-toyota-gm-ford-honda-fca-mercedes-chart/