How Giga Berlin Could Cause Problems For Tesla In China

Summary

• Tesla helped blaze a trail for the rise of the EV industry, and has leveraged its early-mover advantage to take an early lead.
• While Tesla is still the world's leading EV maker, others are gaining fast; VW has already surpassed it in Europe, where Tesla faces falling market share.
• In China, Tesla has seen solid, but not phenomenal domestic sales, raising the specter of potential market saturation; this is despite significant production volume at Giga Shanghai going to exports.
• The imminent opening of Giga Berlin further complicates matters in China, since Europe has been the top export destination of Tesla's Shanghai plant.
• With the China market already showing early signs of demand saturation, Tesla may struggle to find buyers for Giga Shanghai's cars.

Sky_Blue/iStock Unreleased via Getty Images

Today, Tesla Inc. (NASDAQ:NASDAQ:TSLA) is the biggest and best known electric vehicle (“EV”) maker in the world. Indeed, it holds this distinction by a healthy margin. It is also growing significantly, though the growth rate has cooled markedly of late. Globally, Tesla achieved a record 627,350 vehicle sales in the first three quarters of 2021, 16% more than it sold in the entirety of 2020.

However, while these facts might seem to stand in Tesla’s favor as an investment, they belie shifting dynamics within its key markets. A raft of competition has emerged to challenge Tesla. Fueled by tens of billions of dollars in investment and supported by a proliferation of new EV models, the competition is gaining ground on Tesla at an alarming rate.

Europe, in particular, has proven increasingly tough for Tesla, while China has shown worrying signs of demand saturation. While some bullish investors hope that the forthcoming opening of a Tesla factory in Germany will revive sales in Europe, it risks creating a new problem: excess production capacity at the Giga Shanghai factory.

Should that occur, Tesla could find its vaunted valuation – which is based on the assumption of near-limitless growth – could come under threat.

Let’s discuss.

What's Going On In Europe

As recently as 2019, Tesla was the undisputed top dog of the European EV market. That year, fueled by excitement over the release of the Model Y, Tesla sold 96,492 vehicles. Tesla left its nearest competition in the dust: 2nd-place Renault-Nissan-Mitsubishi Alliance sold 70,778 EVs, while 3rd-place Volkswagen AG (OTCPK:VWAGY) sold 45,850. So rapid was Tesla’s ascension in 2019 thanks to the Model 3 and Model Y that some observers began to question whether other automakers would ever be able to catch up. Fast-forward to today, their question has been answered.

Two years can be a long time in a fast-evolving industry. A wave of new EV offerings, such as VW’s flagship iD series, has hit the European market washing away Tesla’s market leadership in the process. In 2020, Tesla sold just 85,363 vehicles in Europe, which proved to be only good enough for a 4th-place finish behind VW, Renault-Nissan-Mitsubishi, and Hyundai-Kia.

Source: eu-evs.com

Tesla has managed to gain a little ground in 2021, rising to 3rd place with 97,450 sales year-to-date. But VW has maintained the commanding lead it took in 2020, with 195,195 sales year-to-date. Tesla’s European EV market share has slipped from 30.8% market share in 2019 to 13.2% year-to-date.

Source: eu-evs.com

Despite the recent loss of ground in Europe, Tesla investors have stayed positive about the company’s future in Europe. Many expect that the much anticipated opening of Tesla’s German factory, dubbed Giga Berlin, will revive the American company’s fortunes in the European market. The factory, which is anticipated to open within the next quarter, is initially rated to produce 500,000 vehicles annually.

China And The Trillion-Dollar Demand Question

Tesla’s foray into China has gone rather well so far. Its Giga Shanghai factory was completed in record time and has been pumping out vehicles at a solid clip. Tesla has sold about 218,000 cars in China in 2021 through October. Giga Shanghai also produces “Made in China” (“MIC”) vehicles for export, especially to Europe. In October, an estimated 40,666 MIC vehicles were exported, an all-time record representing 75% of total monthly MIC volume. November was also export-oriented, though the data have yet to be disseminated.

Source: InsideEVs.com

Tesla’s total sales in China have been robust, growing rapidly right out of the gate. However, lately there have been early signs of market saturation. Of particular concern is the marked drop-off in sales of the Model 3. As this pair of insightful charts by Seeking Alpha’s CoverDrive shows quite vividly, the recent introduction of the Model Y to the Chinese market has helped to conceal the Model 3’s weakness:

Source: CoverDrive

The imminent opening of Giga Berlin further complicates the China situation. Stripped of its principal foreign export destination, Giga Shanghai will have to find other places to sell that volume.

Investor’s Eye View

While Tesla’s sales in China are hardly likely to dry up instantaneously, the scale of steady-state demand may not be enough to absorb the full production capacity of Giga Shanghai. With no new models on the near-term horizon, there is unlikely to be another sudden jolt in demand as happened when the Model Y hit the market.

Tesla is currently valued in excess of $1 trillion. That means, not only is Tesla the world’s most valuable automaker, it is more valuable than the next five top automakers combined. Take Volkswagen, for example. The German auto giant produces millions of cars every year, and managed 8.5% of global auto market share last year. Tesla, meanwhile, has yet to crack 1 million sales in a calendar year and only reached 1% of global auto market share for the first time this year. Yet Tesla boasts a market cap that is nearly ten times that of Volkswagen.

Clearly, Tesla’s stock has a truly monumental amount of growth priced in already. Based on VW’s global auto market share, the market is effectively valuing Tesla as if it will eventually sell the vast majority of all cars worldwide. That sounds rather far fetched on its face, given the intensely competitive and crowded nature of the automotive industry.

Most importantly, the opening of Giga Berlin opening could force Tesla to confront the question of the Chinese market’s real steady-state appetite for its cars. Moreover, even if Giga Berlin ramps up as intended, it will still leave Tesla as just one strong player in a crowded field in Europe.

Putting all of this together, I find it rather difficult to see how Tesla can sustain its monumental valuation as the EV market comes into its own. The assumptions underpinning its share price are beyond optimistic, flying in the face of the mounting evidence from Europe and China, the world's two largest EV markets.

Ultimately, however, it is important to remember that Tesla has proven itself to be astonishingly capable of defying market gravity. Betting on a sudden reversal of investor sentiment due to something as prosaic as economic fundamentals can be unhealthy in the current market.

Anyone approaching this particular name should do so with extreme caution.

Analyst’s Disclosure: I/we have a beneficial short position in the shares of TSLA either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Comments

[Nick Cox]

The only problem Berlin is causing for Shanghai is their slowness (due to environmental ostriches) in getting production ramped up so as to allow Shanghai to meet insatiable demand for the Model Y in Asia.

[solucky]

@Nick Cox

"
The only problem Berlin is causing for Shanghai is their slowness (due to environmental ostriches) "

Dont forget the employees...so far they have not hired that much and still pay under average.

Its worth to translate the comments !!

ecomento.de/...

[Nick Cox]

@solucky
Maybe it is a bit of a case of the cart before the horse as it seems difficult to know when full production will be allowed to start.

[Maxed Out Mama]

@Nick Cox No, there is a genuine problem with the water supply. The Eggersdorf well has been challenged, and that hearing is still in process. The complaint is that the original permit for that well was illegally granted. At the current time WSE (the water company) is warning that water rationing for all customers may have to be implemented.

Google wanted to set up a data center in the area, and was just refused on the grounds of inadequate water.

Further, WSE has filed an update with the authorities saying that the company cannot even guarantee the previously-agreed water to the factory, and most certainly cannot handle the effluent until the on-site water processing plant is completed and the connection to the water facilities in Erkner is completed.

It will be considerably more expensive to operate the factory than Tesla may have planned, and battery cell production is probably not going to ever happen.

Here's a link to what WSE turned in:

www.w-s-e.de/...

Until these issues have been addressed, if Brandenburg were to issue the permit it would take the NABU coalition about four days to get a court stay.

[BericGerman]

Thank you for the interesting analysis.

You should also look at the profit per car, which is very low at Tesla.

Volkswagens platform principle and huge economies of scale effects

combined with a new generation of German engineers who have sustainability and disruption written all over them are not appreciated or insufficient in the article.

Tesla is worth seven times as much as VW. That is a very risky evaluation. This can only be justified, if the technological lead cannot be made up. That seems illusory.
Especially in view of the fact that tesla works heavily with german technology, employs german top managers and engineers in top positions, and the german plant near Berlin is intended to secure precisely this influx of know-how.

Elon Musk was certainly not primarily concerned with the production location, it was about securing know-how, German ev and production and process optimization know-how.

It will lead to a know how drain, in both directions.

In Germany, Tesla has a cult factor, Elon Musk is seen as a hero and role model for disruptive thinking and entrepreneurship by us young entrepreneurs, but Tesla cars seem stuffy in terms of body design and german manufacturers have brought out real electric must haves.
Volkswagen is shedding its skin like a Cameleon, converting fast into a ev producer, BMW, Porsche, Audi and Mercedes have always been cool and the most popular employers.

Elon deserves to win, but there are many forks in the road. Not only the German one.

If Tesla is going to earn money, it will be with the cosmos around it, with the cars themselves it will be difficult.

[Tdot]

There is no really point in attempting to "rationalize" Tesla's share price with normal business metrics, beyond being the hyped up meme stonk it has become. With the likes of Crazy Cathie Woods pumping random targets to $3000 on the basis of musky unicorn dreams and faith in The Cause, there are plenty enough acolyte hodlers who will keep buying shares at any price. And bless their hearts, many have made money doing it, at least on paper.

Tesla stonks are willfully priced on the market at 20x revenues, 20x the company's assets, 40x the net shareholder equity liquidation book value, and 200x earnings. So be it - the risk is all on the hodlers, especially those buying in high. The share price could go to "zero" tomorrow, and it wouldn't change anything fundamentally within the company itself, perhaps apart from no longer being able to sell or leverage more shares to raise cash to stay afloat in the face of rising competition.

[solucky]

@BericGerman

"
In Germany, Tesla has a cult factor "

Its more cult than technology...the biggest cult is that you can drive an EV for free under todays incentives.

[LucasVanHool]

@BericGerman People forget that Audi and Porsche are VW + some large brands in Europe, non existing in the US, like Spanish SEAT and Tsjechian Skoda. All these brands are VW.

[neogago]

Thank you for writing this piece. The beauty of TSLA is the extremes of opinions on it. Most either hate or love the company and/or the stock. This causes its implied volatility to be sky high. If played right, either as a bull or a bear, one can win big but if your investment thesis is wrong, expect to lose your shirt. This is a stock where one’s conviction gets tested often. Unfortunately, the stock has not been kind to the bears for a long time. Is it their chance to shine now? Time will tell. But it is a sign of a healthy market when there are differences of opinion. Just place your bets and let’s see what happens. Good luck to everyone (bulls and bears alike)

[Fangorn]

Tesla is SUPPLY Constrained.
Waiting lists stretch 6-8 months for most of its models.

"Europe, in particular, has proven increasingly tough for Tesla, while China has shown worrying signs of demand saturation. While some bullish investors hope that the forthcoming opening of a Tesla factory in Germany will revive sales in Europe, it risks creating a new problem: excess production capacity at the Giga Shanghai factory"

A new problem of excess production capacity??

Seriously? You realy think that is an issue when they are clearly not Demand constrained !! They're sold out - they can't produce them fast enough enough.

[Russell's Decalogue]

@Fangorn Not that there aren't sincere Tesla unbelievers by any means, but there's also an army of shorts out there. As well, armies of Lilliputians concealing their admiration behind envy and their envy behind indignation.

Sour and cynical types in the media are pouring considerable energy and resources into egging all of them on. And why not? With so much money and resentment on the table, audience and readership points are ripe for the picking.

Although there's some sensible discussion of the risks, mostly it's a lot of rot being talked. But if the other information I'm getting is anywhere near accurate, the 50 days between now and January 25 will see three or four announcements which will do a great deal to squelch it.

[Fangorn]

@Russell's Decalogue I've always been bemused at the animosity directed at Musk and at Tesla. It's a visceral hatred on the one hand, and clearly sponsored idiocy, in my opinion, perpetuated by the likes of Gordon moron Johnson. There is no way he is independent, in any sense of the word.

[LucasVan]

@Russell's Decalogue Overhiping is as bad as undervalueing Tesla. Tesla is a good company and I believe Elon is a great guy who diserves his succes. Afterall he "created" the today EV market. However with a P/E of 350 to 400, I believe Tesla is overvalued today, especially when you see his nearest competitor, VW, at a P/E of 5. Tesla will be a great company in the future, however will never reach a level as VW.

[Actionable Conclusion]

$970 down from $1200 in less than a month.

This is opportunity.

If you have no position in Tesla, but wish to have one, consider dipping the toe and buy tween a 10% and 33% stake. If it crashes hard from here, then load up down the line.

If you're short Tesla and deep underwater, consider covering tween 10% and 30% of your position. If you are not losing any sleep and not anywhere near margin call... just trim 10%. If you are losing sleep over the trade, consider trimming 30%.

This way you are happy either way, if the stock rises after you cover... you're glad you made the move and now have less exposure and less pain. If the stock crashes further, you're happy for that too.

Either way, you can find some comfort in what for most TSLA.Q is the most severe of pain trades.

This is what trading is all about, finding simplicity on the other side of complexity. Making our decisions logical and easy.

Good luck out there. To both Tesla bulls and TSLA.Q alike.

[Larry Hall]

@Actionable Conclusion There is/are supposed to be an announcement(s) on 9 Dec. Is it just about the new factories, or does it include a possible share split or other news? That's three days away. Then there will be reporting of Dec. production numbers in early Jan. - Shanghai has rumours of big increases.

The announcements on the new factories may include news on batteries. The work on batteries is ongoing. In late January, I think, there is a quarterly report. Regardless of specific production/vehicle sales numbers for the quarter, revenues and profits should be 'healthy.'

[Actionable Conclusion]

@Larry Hall

Agreed, every quarter is more spectacular than the last. With Austin and Berlin set to soon go online, with the 4680 rumored to be ready for mass production... hard to see a crash in Tesla's business anytime soon.

What could crash the party? 1) Berlin is endlessly delayed. 2) 4680 has endless tech hurdles and headaches.

Barring either, 2022 should kick off to a great start.

[solucky]

@Actionable Conclusion

"
What could crash the party? 1) Berlin is endlessly delayed. 2) 4680 has endless tech hurdles and headaches. "

Both are not disruptive....

Berlin must run verry well and still assemble chinese parts to compensate the lower incentives next years. A 5 times larger 4680 that have 5,05 times the capacity and 3-5% lower cost also dont help alot

[Larry Hall]

I think we should approach your conclusions with extreme caution as well. It is not true that Tesla needs to sell the 'vast majority' of cars worldwide to succeed. You underestimate EV adoption and rate of that adoption, as well as the expansion of Tesla production. We will see that again in Q4 numbers. The fact of the imminent opening of the two new 'super factories' also outweighs any concern (?) that Shanghai-made Teslas will have a hard time finding buyers. The demand for Teslas is only increasing. The number of Teslas produced next year - barring Omicron morphing into a super-Delta varian - will be remarkable. The numbers in four or five years will be astounding to Bears.

[buyandforget]

@Larry Hall
Tesla needs to sell the vast majority of cars on the planet to justify the current valuation. Unless they can suddenly make energy storage and solar roofs a going concern.

[Larry Hall]

@buyandforget We'll see. I think you and others underestimate the margins they are moving towards and the threat Tesla and a few other EV makers pose to the ICE companies.

[WillLong]

@buyandforget
"Tesla needs to sell the vast majority of cars on the planet to justify the current valuation. "
If Tesla was selling the vast majority of cars on the planet, their valuation (no matter what sensible measure) would go up. I hope this isn't news for you.

[Aussie Machead]

What happens when the banks refuse to provide car loans (individual and corporate) for petrol or diesel vehicles as part of the bank's climate ZERO by 2050 policy. There are massive numbers of EVs to be purchased in the next decade and ICE cars to be abandoned

[buyandforget]

@Aussie Machead
Major ICE makers will finance the cars themselves.

[Aussie Machead]

@buyandforget really??? So as locked in ICE manufacturers file for bankruptcy - they will be lending to customers to buy their products .. sounds like a recipe for disaster

[LucasVan]

@Aussie Machead ICE manufacturer are flexible. They produce the cars in demand. VW starter their EVs only this year and they already have the lead in Europe.

[Aussie Machead]

Still a long waiting list for Tesla Model 3 and Model Y in Australia and no supply of new Model X or Model S during 2021. I think this article is a bit of overreach - I looked to see who the author was..

[SimonR2]

@Aussie Machead The UK and US are showing Feb 22 for 3 (so next quarterly lift in the market) and 'early 2022' for Y. Much shorter than a friend was quoted for Mach-e, Q4, EQS and ID.4
Australia is stating 8-12 weeks for 3 (so next Q cycle and not 'long' at all is it), Y not yet available to order.
So looks like you guessed rather than actually making sure of any facts, after all they may not fit your preconceived idea of what they should be, unfortunately - internet!

[Krzysztof Kowalczyk]

@SimonR2 Par the course for TESLAQ: lying by omission and cherry picking.

For Model 3 SR, it's June 2022. Only the expensive models are Feb 22 (LR) and Dec 21 (performance).

That's 7 months for the most popular model, in US, where Tesla has factory making 200k+ of Model 3 cars per year.

In contrast, Ford makes 50k cars per year in Mexico, for sale world wide. Even if their waiting times were also 7 months (they are not) it wouldn't indicate the same level of demand i.e. same level of future sales.

Which is why Tesla has a ridiculous 70% EV market share in US.

[SimonR2]

@Krzysztof Kowalczyk You accuse me of cherry picking when he outright lied? Ridiculous.

[Brn2Run]

I agree John, good article. But in Europe Model Y arrived in august this year, not in 2020. Then you get a little different look on Teslas sales in Europe in 2020, carried by mostly only Model 3.

But, now the correction will come for Tesla, no doubt. If it will be 700 or 500 I dont know, but its coming down again, as it should.

Their cars are good though, love my Tesla.

[doubleE]

@norwaycub

I would not count on a major correction if I were you

[SimonR2]

@doubleE I agree, the stock price is based on the story, not fundamentals at all, as such fundamentals will be slow to change the story, they always are. When they do though it can get ugly really quickly.

[solucky]

@doubleE

"
I would not count on a major correction if I were you "

Depends on the Q4 effect of " lost subsidies " in Q1.

Some markets changed their rules or get new gouverments that announced cuts...the 30% less incentives in China might be only a few hundred USD.

[EV_supporter]

Tesla cars' production cost is going down.
Legacy cars' cost is going up.
Ignore temporary supply chain impact for both cases.

Tesla's $25k autonomous vehicle is coming. This car will not be small, I think it will be the same size as Model 3 but slightly taller. Anyone who thinks people will not buy this car should get their head examined.

[buyandforget]

@Blackboxtrader1
Speculation. Major ICE makers have the manufacturing advantage. We see that by the spectacular rise of VW. Many on this board told me that they were burdened bu their ICE operations and could never catch up.

[EV_supporter]

@buyandforget

I assume you are talking about VW's EV business. Many people just look at the units sold without looking deeper. I think VW will have huge trouble. They can't compete with Tesla today. VW CEO confirmed this.

Tesla's FSD is a big deal, what if Tesla could sell vehicles at $10,000 and still be profitable? I can't imagine how other car companies could survive.

[buyandforget]

@Blackboxtrader1
Look at the models and factories VW has already making EVs, while still making big profits on ICE. Plus the battery ventures. The performance of VW EV's is competitive. They can introduce new models faster then Tesla and build them in factories worldwide. Including in low wage jurisdictions like Spain and Slovakia.

[RAW314]

Hey Guys -

Three things to mention here.

First, TSLA is ramping up their Megapack business big time. They will sell every battery pack they can produce to electric utility companies all over the world. And given the huge head start both Solar and Wind biz have had, the world needs every battery pack they can make! I heard they have orders into 2023 at this point!

Second, I believe TSLA will blow the competition out of the water with two future things: 1) A $25 K car for the masses, and 2) Self driving capability. What other company can do either of those two things?

Finally, how much debt do the other car companies have compared to TSLA?
Last I heard, VW was $295 Billion in debt! That's a HUGE burden to be carrying on your back while you try to catch TSLA who streamlined their NEW factories with tons of automation and continues to get better every week. Just sayin....

Big Al

[julianbook]

@RAW314 That's a joke, right?

[solucky]

@RAW314

"
Self driving capability. What other company can do either of those two things? "

Still selling as FSD hardware installed ?

If yes = sensor range to short for FSD = upgrade the 2 million cars on the road for free :-)

[RAW314]

@julianbook No. I wasn't joking about any of it. What part did you not like?

Musk has repeatedly stated he wants to wean us off of fossil fuels ASAP by playing big in the energy sector as well as the auto market. I know that's a very ambitious goal, but Musk showed the world how to build an EV that people will want and actually buy. He was ahead of the pack against global warming, and we will all benefit from cleaner air and water.

Elon and TSLA reminds me of Steve Jobs and Apple. Both have idealistic goals and very good products!

Tesla owners are loyal believers in the car and the company. My guess is the vast majority are environmentalists too, and want what's best for the planet. Of course the planet would be better off if we could all just give up our cars, but that's not going to happen, so going electric is the best alternative to ride sharing and TAAS.

When TSLA finally gets the governmental nod for FSD cars, then lives will be saved because computers aren't emotional drivers, they obey all the laws, and they don't drive drunk or high.

Over 35,000 lives are lost per year in the USA alone, and I believe the number is close to a million per year world wide. So this is a huge problem which TSLA and Waymo will solve in time. Think about a family member who won't die because of some drunk driver! Eventually getting into a car will be like getting into an elevator or an airplane. Traveling by car will be a lot safer than it is now.

Big Al

[blaumeise]

The boss is selling, so you should sell too.

[Baslim]

@blaumeise The boss is trimming and if you have not trimmed in the last 2 years you should be trimming too or do so if it runs up again.

[JRP3]

@blaumeise If that's the conclusion you draw you don't understand what's happening in the least.

[Maxed Out Mama]

@Baslim Musk is not even trimming. He is selling shares so as to be able to exercise options with the net result of substantially increasing his total shares.

But a lot of commenters don't care about facts at all!

Of course, if any of us could buy in at below $500 we'd be making a huge profit, so we should do it. The question for retail investors is whether we should be buying shares at these market prices.

Not criticizing your comment, and I do share your frustration at the absurdity.

[Ev star]

VW is laying off 30,000 workers, running out of CEO, and struggling to finance the transition to EV's. Tesla produces cars 3X ​​faster than VW and with less than half the workers! VW has no air updates over, and sales have been decreasing and Tesla has been increasing, with no shortage problems. Who has to modernize and take care of the future is VW

[Alexander the Great II]

@Ev star ,

Correct, VW is in a bad position. Very bad.

[Brn2Run]

@Ev star Actually, VW doesn`t produce as many EVs as they could. They have many models out now, but limited production. Guess most of their focus is on the other 95% of their business, as it must be to keep as many jobs as possible, and make money at the same time.

[Maxed Out Mama]

@Ev star This article is not about VW, so I have tried to stay away from the topic, but you have your whole VW narrative wrong. The Diess/Workers Council conflict is ongoing and I think they may have won this round.

Diess wanted to cut employment and go heavily into EVs. The workers look at it differently. However it has always been true that EVs are simpler to build than ICE cars, and auto employment will of course be cut in the end.

[ShankaSwingTrades]

How Giga Berlin Could Cause Problems For The OEM's would be a better article.

[Baslim]

@ShankaSwingTrades paying $30K more TCO for BMW 3 series or Mercedes C class with the same specs should scare these companies an awful lot.

[solucky]

@Baslim

"
paying $30K more TCO for BMW 3 series or Mercedes C class with the same specs should scare these companies an awful lot. "

True if you compare it with an " premium " AMG / M not true if you compare it with another " non luxory " long range ICE / Diesel here.

The BEV is arround 25K more expensive but collect over the lifetime at least 15 K incentives . Maintanance we must wait if timing belts and oil changes are more expensive than battery and suspenion issues.

Xceed / Formentor cost both arround 26K, fuel costs 20K, road tax 1K, maintanance / repairs arround 6K = 53K for 200kkm / 10 years

A 80 KWH BEV 53K + 14 K fuel + no road tax + maintanance lets guess 2K = 69K

Its still a verry expensive hobby without gouverment incentives

[JRP3]

@solucky Why would you think an EV would have suspension "issues" that an ICE would not? Do not try to pretend they are heavier, there are heavier ICE's all over the roads, suspensions are designed for their loads.

[andymlm]

To evaluate Tesla solely on their car business is quite misleading in my opinion. Do some DD into their product breadth and you will realize they are not simply a 'car company'. Of course there is always a risk to everything that they are currently doing.

[Maxed Out Mama]

@andymlm All of their profits come from the cars. Without the cars, the other businesses have no value at all.

[Baslim]

@MaxedOutMama Saying Tesla derives it's revenue and profits from vehicles is obviously true but saying that Tesla and other OEMs should make similar amounts of money per vehicle is just as obviously false.

[doubleE]

@MaxedOutMama

The car business had no profit two years ago. It will make around $9 billion in GAAP profit this year. It turned on a dime. So will the other businesses. Lack of profit does not mean lack of value. Otherwise Tesla’s car business was worth zero in 2018

[eager1]

There is a waiting list for TSLA cars. Every car they make is sold before it is finished. 2 huge factories coming online this month and you are saying demand is not there.
Oh, wait. I think this says it all: I/we have a beneficial short position in the shares of TSLA

[solucky]

@eager1

"
Every car they make is sold before it is finished "

NO!!!!

At least in europe we have any quarter model 3 in the lot...sure S/X and Y are limited

[Maxed Out Mama]

@eager1 That may be true, but I have been puzzled to note that Tesla is cancelling orders now if people don't take delivery this year.

As in this post at TMC:

teslamotorsclub.com/...

See this page - Tesla is telling everyone with an order on hold to lift the hold or the order will be cancelled.

teslamotorsclub.com/...

The speculation is that US customers are deferring deliveries now waiting for the incentives to come back. That seems a reasonable explanation to me.

I don't know how to interpret this. If Tesla really had way more orders than it could fill, they probably wouldn't be doing this. When one of the persons posting above took off the order, the customer was immediately assigned a VIN and told that delivery would occur in December.

But perhaps Tesla's move is more about wanting to collect higher prices.

[doubleE]

@MaxedOutMama

That is discourage people delaying orders to take advantage of federal tax credit next year.

[Baslim]

Pretending that Tesla is demand constrained as production and deliveries went up by 80% last year while raising gross margins from 25% to 30% and maintaining only a few days of show room inventory is pretty poor analysis.

Comparing BEV market share is pointless when most of them are production constrained and customers prefer them to ICE vehicles.

[solucky]

@Baslim

"
customers prefer them to ICE vehicles. "

Many of these customers buy 3-4-5 Model 3 to sell them after 6 month in other european markets. Its stealing simple and easy " legal " 15-20K year...but these behavior will dissapear as soon as the gouverment wake up.

Myself know alone 3 model 3 paid from german taxpayers and driven in the netherlands

[captainccs]

@solucky "Many of these customers buy 3-4-5 Model 3 to sell them after 6 month in other european markets. Its stealing simple and easy " legal " 15-20K year...but these behavior will dissapear as soon as the gouverment wake up."

Scalping EV subsidies? Who would have thought... but it does put EVs on the road. ;)

[Baslim]

@solucky Assuming governments will wake up any time soon is wishful thinking.

The German customer is likely getting 60%-80% of the benefit of the value of the government benefit in your example. Tesla would just sell in the Netherlands if the subsidies disappeared possibly at a slightly lower price but calculating that would be really hard.

[hawkeyec]

Too many folks believe the myth that was the basis for the movie "Field of Dreams," namely, "If you build it they will come." The trouble is that capacity/supply does not create demand (called Say's Law in economics). Overcapacity reduces profits and increases competition in a damaging way. Tesla's market share is steadily declining in EC markets and competition is rising in China.

[Bill Cunningham]

@hawkeyec
Today's Wall Street Journal has an article discussing some of the challenges Tesla may be about to face in China:

www.wsj.com/...

[SomeGuy14]

@hawkeyec

TSLA share price relies on the infinite demand portrayed by the Elongelicals. They won’t easily let this go by showing their weak hand. I suspect we will see more self inflicted “delays” in Germany.

[dmce]

@hawkeyec - "The trouble is that capacity/supply does not create demand (called Say's Law in economics)"

But building more capacity when there is demand increases sales volume, which lowers unit cost. That allows for a reduction in price which creates more demand. It is a positive feedback loop.

Tesla's sales in Europe have increased pretty dramatically this year as supply from Shanghai has increased. OTOH legacy automaker sales in Europe have actually declined this year despite them selling more EVs (to avoid the emissions fines). Thus Tesla is taking market share in the overall auto market in Europe. As @JRP3 said in another comment here the fact that the EV share of the overall auto market is expanding faster than Tesla can expand capacity is not a negative.

[fairestcape]

Plenty of "errors and omissions" in this rather poor effort to assess Tesla's current and future positions. While typically "Seeking Alpha" in tone and content, the author lacks even the most rudimentary grasp of not only what Tesla IS, but what Tesla DOES and intends doing.

Here are some "schoolboy errors" made by this author, and why he's not embarrassed to make them in a public forum, is a bit of a mystery.

To "snapshot" market-share at a point which may (at first glance) offer credibility to the argument (Tesla is losing market share) is a common ploy from people whose mission is to discredit the company. Far more relevant is the demand curve, and the facts show that demand is massive. This ironically presents Tesla with some big headaches, the nature of which will be obvious to any informed observer of basic business management.

Next, evaluating Tesla on the basis that it is a "car company" is a fundamental error, and probably explains all the other inaccuracies evident in this commentary (and others like it). While much of Tesla's technology is currently evident in the vehicles they are making, it is the innovative technology and business culture that's important - along with the pace of innovation and the threats such innovation is posing to scores (hundreds) of other businesses across many commercial and industrial sectors. To get a better understanding of this, watching and listening to people like TONY SEBA is helpful, as he is excellent at describing the impact of disruption, and how the complex web of convergenices play a role in this phenomenon.

While any company can be subject to adverse effects from both internal and external influences, such "risks" to Tesla have diminished substantially in the last 18-24 months. After nearly 15 years of overt and often vitriolic criticism, most of the company's most ardent critics and opposers are now publicly acknowledging that Tesla is not only a solid and extremely secure company, but that the risks are now more applicable to Tesla's competitors, and increasingly so. Ford and VW CEO's have said as much, followed very recently by the CEO of Stellantis. (We can safely ignore Mary Barra, and her little boyfriend Mr Biden).

There is also a big difference between the PRICE of a company's stock, and the VALUE of the company. As even the most simple-minded horse knows, the PRICE of stocks is mostly based on emotional and subjective influences. The VALUE of a company is assessed on a comprehensive and careful analysis of its progress, current and future financial performance, and a detailed study of its historical performance, extrapolated into the future. (The latter involves spending thousands of hours over many years, paying attention to what a company is doing, while the former is usually gut reactions to moving lines on a computer screen).

I think we can all safely ignore this article. It is both incompetent and irrelevant.

[LucasVan]

@fairestcape This article is not about the value but about the price of the company. Sure Tesla had a great value but it's price is to high.

[Steve Funk]

@fairestcape
What a long winded diatribe. How about giving us an upper limit of Tesla market penetration? Sounds like you believe 100 percent “ take-over-the-world” scenario is not out of the question.

[aurelio milaor cabal]

@LucasVan TSLA has always been " Too High", and will keep going too high, " All aboard now ".

[doofburger]

Pure drivel. And the author knows it. And all readers know it.

First, Tesla is growing, sells all cars it makes, has enough demand to push wait times out to a year, and is raising prices on top of that.

Second, given the situation described above, Tesla decides where to sell cars, meaning some areas will not see the hyper growth year over year that demand would cover. The number of cars sold to Europe is growing, your 2020 pandemic stat aside, but also It made no sense to continue to supply that great a percentage of European EVs while paying shipping/export fees when they could just sell the cars elsewhere. Hence a European factory -- the demand is still there, as evidenced by the wait times and the price hikes, profits and market share will be huge.

Third, most important, and since you know this, most dishonest on your part: A shrinking percentage of a growing pie is not a bad thing if the pie is growing fast enough. Nobody but the insane expects Tesla to maintain a 70% worldwide slice of the EV pie. Their market share HAS to fall. As ICE cars are replaced by EVs, the EV market will grows to 100 million vehicles, if Tesla's share drops to 20%, that's 20 million vehicles. Who cares that market share dropped to 20% -- they'd be producing 20 million vehicles and rolling in profits.

Pure unadulterated drivel.

[solucky]

@doofburger

"
As ICE cars are replaced by EVs, the EV market will grows to 100 million vehicles, if Tesla's share drops to 20%, that's 20 million vehicles "

Why should we have more vehicles in the future ? I thought owning a car is so 1990 and the future is TAAS. And so far we never had 100 million cars + light duty vehicles.

At least in germany many recognized that they dont want / need a driving license and use modern form of transportation

[doofburger]

@solucky I do like the way you pick at some detail of an argument while totally missing the main point. Tesla bears in particular seem to be very good at that. Is it a psychological thing that allows bears to be happy by thinking they're right when they're actually totally wrong?

Prior to the pandemic total motor vehicle slaes were 97 million. www.statista.com/...
I don't think it's too big a stretch to say we'll hit 100 million sales as the world economies recover and middle class numbers grow worldwide. But you do you, buddy. If you want to quibble over how big the pie is going to grow then you do that. It really doesn't matter. Even if it's only 50 million and their market share falls to 20% they are groiwing to 10 million vehicles sold.

See, that's the point here: a shrinking share of a vastly growing pie is not a bad thing. Obviously their market share is going to fall, because they have no intention of supplying the world with 50 million or 100 million vehicles. Tesla has always stated they want others to step up their EV production.

[solucky]

@doofburger

"
Prior to the pandemic total motor vehicle slaes were 97 million. "

Motor vehicles that include semis and other heavy duty machines...cars it was 78 million.

"
Even if it's only 50 million and their market share falls to 20% they are groiwing to 10 million vehicles sold. "

And with the speed that the marketshare falls it should be closer to 3-5%