8 Years Ago I Published My Tesla Pricing Model For 2020 As $2,450 (Up 2,845% Since), Here's The Updated Version For 2021-2030
Summary
- Calculations for Tesla Geo Expansion, Deliveries, ASPs, Revenues, COGS, and Income.
- Apple 2020 as a benchmark to help understand Tesla the Behemoth in 2030.
- Some thoughts on Financial Analysts and the "Next Tesla"
Yes, we're 100% in an EV Bubble. Simply put, there are too many "companies" with $0 Revenue and nothing but renderings to show. Unfortunately, naive investors are buying them up as they are searching for the "Next Tesla".
And Tesla is arguably the main reason for this bubble, but it is not part of it. Tesla delivers hundreds of thousands of cars globally, has tens of billions of dollars of revenue to show, and will reach the 1 Million annual delivery milestone very soon.
If you're interested in the background, you can find my previous two articles (with their track record shown above) here and here for reference
Without further due, here's my pricing model for the next 10 years, starting with what will power Tesla's growth in Auto and Energy sectors for the next decade.
Tesla Geo Expansion & Deliveries (2021-2030)
Tesla's manufacturing efficiency improved significantly over the years. Both the construction speed of the factories and production ramp up are already faster than any other OEM in the world. Shanghai factory went from a mud field to delivering Model 3s under a year, which is unheard of in auto industry.
But I think Tesla is only in the 2nd phase of its manufacturing progress. I believe lessons learned from Shanghai, Berlin, and Texas Terafactories will be applied to a 3rd phase for APAC, NA, and EMEA regions. This 3rd phase is where I think both construction and production lines will be modularized and perfected to a level where they will start reaching closer to physical limits of improvements and diminishing returns. 4th phase will be the "mostly copy paste" phase where they will be able to apply both construction and production line modules with 90+% efficiency to the rest of the regions.
On the deliveries side, numbers here are calculated using three main data points;
Current Global Auto and Class 8 Truck Sales and projections
My projections for demand for Tesla vehicles in each region
Region, country, and state-level progress towards clean transportation
Tesla Vehicle ASP & Revenues Breakdown (2021-2030)
Vehicle ASPs are calculated based on current Tesla ASPs, how they evolved historically in each region and how I project they will continue to evolve.
Tesla Income Statement (2013-2030)
Revenues
Automotive Sales and leases are calculated based on delivery figures, ASPs, and how each evolved historically and I project them to evolve over time.
Services will be a very fast-evolving section here as;
1 Tesla is expanding its insurance business to other states and countries overseas.
2. Tesla's used car sales will continue to grow with the overall deliveries
3. Tesla's in-car purchases and entertainment will grow exponentially in the second half of the decade
According to Musk, other OEMs are already using Tesla's SuperCharger Network. But I believe this segment won't make much impact to overall revenues until the second half of the decade.
ARK Invest thinks Autonomous Ride-sharing "will generate $1 Trillion in profits". I'm not as optimistic as them but I do believe Tesla will be generating significant revenue from Rentals and Autonomous Ride-sharing in the second half of the decade.
COGS
Tesla Auto's gross margins will be under stress for the next few years as the company stays in the hyper-growth state. With the 4th phase of manufacturing phase though, we should see significantly improved gross margins. Meanwhile, Tesla Energy and IP Licensing will exponentially grow to 30+% levels by ~2027.
OPEX & Income
Preposterous! How Can Tesla Make All This Money?
I'm not going to go into as much detail as I did in my previous articles here. Tesla has become such a popular company at this point that most of these details can be found in great detail from reputable sources online. But here is a quick high-level summary of *only the major* reasonings of mine;
- Tesla's overall customer experience is at least 4-5 years ahead of VW, GM, and other serious future competitors. (User experience, Safety, Performance, Range, SuperCharger Network, SW updates, Autonomous Driving, Sales & Insurance ease....)
- Tesla's battery technology is at least 2-3 years ahead of Auto and Energy rivals and *it's now accelerating more* with the 4680 form, material, manufacturing, etc. improvements. Tesla Energy and Auto are set to lead in cost and efficiency fronts for the foreseeable future.
- Solar and Battery Storage markets are exponentially growing and will continue for decades as the world transitions over to sustainable energies. Tesla, with its superior battery and solar technology and process improvements, will be leading these industries as long as they keep executing at its current pace
- Tesla SW and HW in Autonomous Driving, Energy & Storage Management, Manufacturing, and Internal Processes are at least 4-5 years ahead of competition. And it's still improving faster than its rivals.
- Tesla's Vertical Integration, Pace of Product Development, Engineering Talent, etc. are not even present in most industry players. So until they get their act together, Tesla is ahead for the foreseeable future.
- Governments around the world, both at country and local levels are banning fossil fuel vehicles, incentivizing solar and battery storage, etc.
No Way! No Company Has Even Come Close to That Market Cap!
I want to tell you about a little company called Apple (AAPL) in Cupertino. (Fun fact! I used to work there!) It's been the world's largest company by market cap for years at this point. Its profits, cash reserves, brand power, etc. probably broke more records than any other company in history. I don't think I need to go on more about how incredible Apple's success has been. So here comes my point;
Apple is the World's Largest Company Thanks to iPhone
There I said it. Some can deny it all they want but it's the truth. Many Apple "soldiers" (that's what I used to call them when I worked at Apple) used to deny this with great fervor.
Side Note: I like Apple and I think it makes great products. I have used both iOS and Android over the years. I'm typing this article on a Pixel Book but currently use an iPhone 12 Max, love them both. Also, I have always found it silly how people get so worked up about iOS vs Android, Mac vs PC, etc. None are perfect, they are all human-made, they all have pros and cons. Get over it. But unfortunately, human beings instinctively love to tribalize every subject.
Not only iPhone is Apple's "Halo Product" (gets people hooked so they end up buying Macs, iPads, etc., and get too invested to ever switch out) but iPhone's profit margins are mind blowing.
But let's keep the numbers official from Apple's FY 2021 Q4 10Q and take iPhone, Mac, iPad Revenues combined, which is essentially three quarters of Apple's Revenues. So roughly more than $1.5 Trillion of its market cap relies on these products. (That's about the size of Amazon (AMZN) and higher than Google (GOOG) (GOOGL), Facebook (FB), Tesla…)
Even if you ignore all the positive factors like iPhone's halo effect, higher profit margins leading to higher share prices, etc., iPhone is still close to 60% of Apple's total revenues.
Source: Apple FY2021 Q4 10Q, (breakdown & visualization by me)
Apple only recently rose to ~20% of global smartphone market share. It was mostly in mid-teens for years.
Source: Counterpoint Research, (breakdown & visualization by me)
Apple dictates less than 10% of global pc market
Source: Statista, (breakdown & visualization by me)
Apple is the undisputed king of the global tablet market. But the market size is too small to bring in any meaningful impact to Apple's $2+ Trillion market cap
Source: GS.StatCounter (breakdown & visualization by me)
Tesla's TAM (Total Addressable Market) is More Than 10 Times larger than Apple's
I don't think I need to say much more here… Simply put, Apple became the world's largest (and arguably the most successful) company in the world by grabbing less than 1/5th market share of a less than $1 Trillion market. Tesla is already in three $1 Trillion+ markets (Auto, Energy, and Car Insurance) and may potentially be in five if Autonomous Rental and Car Sharing and Autonomous Driving SW/HW Licensing grow into similar sizes.
Potential Risks and Challenges to Tesla's Dominance
1. Battery and Material shortages
This is already an issue today. It has been delaying the launch of Semi and Energy products. And it will be a global issue for many years to come. On the positive side, Tesla, with help from its partner Panasonic (OTCPK:PCRFY) and suppliers LG, CATL, Samsung (OTCPK:SSNLF)... is in the best position among all OEMs
2. Production Challenges
Tesla seems to have learned a lot from the Model X "Faberge Egg" mistake. "Production Hell" days also are not even in the rear mirror. Production ramp for both Model 3 and Model Y has been nothing but spectacular. But considering the complexity of products like the Semi, Solar Roof, etc. this is still one of the biggest risks
3. Elon Musk
Love him or hate him, Tesla is where it is today primarily thanks to him. But like most ultra-successful and/or genius people in history, he never ceases to create controversy. If Elon finally gets himself in some serious trouble where he can no longer lead Tesla, solve issues, iterate strategy, attract talent, etc. Tesla will have serious issues and delays.
4. Macro Economic Downturns and/or Geopolitical Conflicts
Considering how well Tesla did compared to other OEMs during Covid-19 pandemic, some may take this as granted. And we all know the world's largest auto market is governed by a paranoid Communist regime. Any negative changes in either would affect above model significantly.
But None of the Analysts Say So!
I have personally witnessed close to 15 years of failures and short-sighted approaches by financial analysts. Let alone read about how majority of financial analysts missed out on some of the most successful growth stories in history before I started investing. Let's take a step back and observe...
Finance Professors and their students; Financial Analysts
(They Don't Get It. Not Just Tesla, Apple, Amazon… Most Disruptive Companies)
Professors on the left, and their students, professional analysts, on the right... This same failure story happened for Amazon for a decade, Apple before than any many other disruptive and long-term thinking companies
If you also prefer to invest in disruptive, high-growth companies, just ignore most analysts and famous academics. Most financial analysts missed out on Apple's massive growth after Steve Jobs' return, Amazon gradually taking over the world, and many other disruptive companies' slow rise to success. There were hundreds of short-sighted analyst notes during 2000s on how Microsoft (MSFT), Blackberry (BB), etc. will crush Apple, how Amazon will always lose money and never turn profit, etc. And there are hundreds of stories of people who invested in these companies against their financial advisors' advice and made incredible returns.
In Tesla's case, Harvard Business Review pretty much had an annual negative report on Tesla. Famous NYU Gurus… Ehm... I mean Professors, kept predicting Tesla's demise but eventually, they all turned around.
This all started making sense to me after recognizing the pattern of analyst and professor failures. If studying a bunch of financial ratios and case studies, making historical comparisons, etc. made everyone a business guru, we would see at least some of them in the Most Successful People lists. Or accomplishing something major. Not your college dropouts Jobs, Gates, Winfrey, Musk, Zuckerberg, etc. Let alone financial analysts jockey from quarter to quarter. They are incentivized to think short-term by profession.
Even by the time most analysts realize how they missed out on a major disruptive company, it's almost always too late. Sometimes even then, their reasoning for rushing to raise price targets doesn't make any sense. Let alone their never-ending historical comparisons like "Tesla will be the next AOL", "This is the Second DotCom Bubble", "Competition Coming", etc.
I honestly don't remember the last time I read an analyst report on any company that made me say "Wow, ok. That was a super useful insight!". And Hedge Fund managers and their precious wisdom? Just look at below chart and research for yourself;
Children investing in S&P 500 with their piggy banks made much better returns than the "smartest guys in the room". Its mind-blowing people continue to pay these managers 20-30% fees for this type of embarrassing performance.
Final Word to Fellow Individual Investors (And the Search for "Next Tesla")
Investors are a healthy part of the economy. Not everybody has the life circumstances, personality, time, etc. to start companies or build things. So we help fund companies we believe in and in return share some of their fruits. You do not need a degree in Finance (I don't. I learned all my financial statement reading and number crunching skills from YouTube, etc.) or follow some guru or pay for "exclusive reports", etc. to figure out good companies to invest in. All you need is to get better at recognizing patterns, filtering out noise, inspecting relevant information, and making long-term investments.
As for everyone searching for the "Next Tesla" stock, there doesn't seem to be one. I've looked into most American and Chinese EV and battery startups over the years. None of them check out all the 3 main areas I inspect; compelling products and strategy, strong leadership, and sensible financials.
And if your idea of "Next Tesla" is an EV company and stock that will grow 20+ folds, then Tesla is the Next Tesla!
Best of luck to everyone!
This article was written by
Analyst’s Disclosure: I am/we are long TSLA, DOCU, CHWY, IMPF, SOFI, VIEW. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
I am Short: NKLA
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
Recommended For You
Comments (808)
changing the drive train is not transformational. it was electric before.
Walmart's 2020 Revenues were $560B (About 2.6% of US GDP)Now the question is "If Tesla sells almost double the number of cars VW does today, *along with being market leader in Energy Deployment and Storage market, Autonomous Driving Rental and RideSharing, Licensing out Superchargers, SW, HW, Manufacturing, good chunk of Auto Insurance market....* does it make sense for it to be twice as large as Walmart's GDP share?"If your answer is yes, then the next question is "Do you believe Tesla will reach ~26% Gross Margin across all its products?" (~26% GM is from my model)If your answer is yes, then you're looking at way above unprecedented levels of Gross Profit (About 5 times Apple's Gross Profits)And the logic goes on down the list...But if you don't agree with Revenues as the best possible comparison but Market Cap is, then there's the >15X historical P/E ratios which balloon values incredibly. And I'm having a hard time coming up with a logical answer there. I hope that helps. Thanks again for the thoughtful comment.
They are a sales broker for an insurance company. Their margins will change almost zero. Do you think your state farm agent makes more than state farm?do you even realize that they aren't in the insurance business except as a reseller?
So lets follow your branch of statements: They are commissioned sales arm of (I think Liberty Ins.)... so they make money, they sell more cars and they probably sell more insurance they make more money... they are not insuring the car (lets say Liberty is) then they have no liabilities. The car is in an accident... they make money providing parts. Seems good to me. Lets say they are using another companies structure to get started in the insurance business... and that they will develop an even better structure once they can free up some time to do so... they can keep the premiums the same or slightly lower, have intimate knowledge of the types of accidents their cars are in, the cost of repair, etc. as recorded from their computer in the car. Tweak their antonymous software to mitigate if not avoid those accidents, tweak their manufacturing process to make repairs easier, set up their supply chain for automated delivery of parts based on the initial accident etc. All lowering cost to insure while premiums are being collected and take a while to lower due to the nature of the business. Tesla would now have sold the policy, collect the premiums, set up the repairs with Tesla original parts and have the fastest response time at the lowest cost... each step of the process making Tesla money. One can't compare that process with todays insurance company. If I was Mr. Musk, I would outsource the liability portion of the insurance and keep the collision part.In both scenarios Tesla is making money off the sale of insurance - I think the later will be the route Tesla takes.
Your statement makes no sense the Tesla's sold in China are made in China.
ARKK which is based upon similar viewpoints! It's the future that counts! Past financials don't show the future, and are a good way to get in trouble. Good job!
There's a portion of your model which is way too negative. It has to do with the "non-controlling interests" ($850 million) and "redeemable non-controlling interests"($604 million).This mostly has to do with the SolarCity acquisition. SolarCity had sold interests in its solar installations to outside investors partly for cash and partly because they couldn't use the tax benefits. SolarCity was reporting gains on these sales (investors were paying up for the tax benefits) even though the piper eventually needs to be paid. Tesla added some more solar leases to the pool and also added auto leases, both of which added gains which came close to offsetting the "losses" (outgoing payments) on prior deals so it wasn't particularly noticeable. Tesla terminated the auto VIE's in Q3, they aren't doing a lot of new solar leases and few are being added to the pool anyway. As a result, Tesla is now in the process of paying the piper. It's why the numbers have recently turned noticeably negative. You'll notice the redeemable portion has actually decreased from $643 million to $604 million over the past year due to redemptions. Tesla will continue to do redemptions so there's $604 million to go (probably over many years) plus earnings on the outstanding interests they are entitled to. The $850 million of non-controlling interests will continue to get "earnings" as well as "principal payments" as well. I'm watching these figures, and Tesla doesn't provide much disclosure (my biggest issue with the company) but my best guess now is that future quarters will look similar to Q4 for a while, possibly modestly increasing. Tesla doesn't really have a loss here in any case. They show 100% of the income and cash flow for these solar leases and then subtract at the bottom the portion that doesn't belong to them but rather the outside investors. Although I'm not questioning their GAAP presentation, analytically its best to subtract these amounts from the solar gross margin and cash flow. Interest expense directly attributable to the energy segment should be subtracted as well. It highlights just how poorly that segment continues to perform. The flip side is that if SolarCity/Tesla Energy's continued losses are subtracted out, the auto. segment doesn't look as bad. One of the implication of the non-controlling interests is that Tesla didn't buy 100% of Solar City. These interests still retain their ownership portion. Furthermore, they get regular payments even though TSLA investors don't. I originally came to Tesla via SolarCity. There continue to be major problems there, some obvious, some not. I hope you now understand why I question Tesla's valuation. I've written a number of articles about Tesla Energy over the past year or two:"Tesla and its Energy Business, A Deteriorating Trend"
seekingalpha.com/..."Tesla's Day of VIE Reckoning Approaches"
seekingalpha.com/..."Tesla's Day of VIE Reckoning Has Arrived"
seekingalpha.com/...I've also written articles shooting down undue negativity:"Tesla's Cash Balance to Remain Close to $5 billion"
seekingalpha.com/...SolarCity's Confidential Treatment Orders are not a Concern for Investors"
seekingalpha.com/...I hope you will read these articles and consider the issue objectively.
But it was directionally right. And considering it was almost a decade out, it ended up being relatively accurate *about a year late*.My new model is much more elaborate. I thought about every little detail I can over the years so I'm highly confident it'll be more accurate this time.
Tesla has been subsidized for years. Its main area of revenue till this day, are the environmental credits it is getting.Elon knows he has a lot to be grateful for. Government environmental policies helped in keeping Tesla afloat.
unfortunately, he really isn't grateful. He is mad at California, and he says it is unwelcoming to entrepreneurs, but he somehow became the 2nd richest person in the world due to California.He is an ungrateful bore in reality.