Why I think Tesla is a good investment

November 26, 2016 | Filed under: investing

I’ve owned a Tesla model S for almost a year now. here is a fab picture of mine taken shortly after I got it:

tesla

It has a few minor scratches. At one point it went back to have the charging flap replaced, but I suspect this was actually only a problem caused by a spot of glue melting in heat on one side of the car. It also needed a door handle replacement recently. Other than this, its been fine. I wont bore you with my personal opinion of the car (its fucking amazing), I want to talk about the company.

Tesla hasn’t made a profit yet. they have paid zero dividends. They have a market cap of $32 billion , revenue of $4billion and a loss of $700 million. Why would anybody invest in such a company?

Tesla is the first major new car company to establish itself in a long time. In fact many people thought it could not happen. That they are still here…is impressive. that they did this as a completely new type of car company (electric) is even more insane. That they are also world leaders in self-driving technology at the same time…is getting ridiculous. That their first mainstream product (the model S) has won numerous ‘car of the year’ and customer satisfaction awards, and is rated the safest car you can drive…is getting beyond parody.

So the product is VERY good, and they have massively beaten the odds. That alone is room to be optimistic, but there is much, much more.

The companies next product (the Model 3) collected so many pre-orders that it was the biggest consumer pre-order event ever. Not this year, or not in cars…its the biggest pre order in history. This is a company with a huge (free) media presence and fan-base. Its marketing costs are practically zero. Ever seen a Tesla ad? me neither. They don’t need them. Think about all that money EVERY other car company spends on ads, and that Tesla don’t need to spend a penny. Even apple advertises.

model3

So they have a good product and a big marketing advantage. What else?

Tesla has pioneered the selling direct-to-customers business model in the US and in Europe. They have even had to fight court cases for permission to do this. The competition is *so bad* that they try to take out court injunctions to stop people buying from tesla. Thats when you know you have the best product. By cutting out the dealership, tesla ensures potential customers get accurate advice, a decent demonstration and test drive, and the company controls everything from production of the car to sales and servicing. Oh… and also the fuel.

Ford sell you a car, but not direct, thats through a third party dealership. You are then on your own. You don’t stop at Ford petrol stations to fill up with Ford petrol that was pumped out of the ground with Ford oil rigs. Tesla are on their way to doing this with the supercharger network and their acquisition of solar city.  Tesla aren’t just selling you a car, but potentially a new Tesla roof that powers your new Tesla car and which tops up your Tesla powerpack in-between trips where you stop at the Tesla supercharger to fill up with energy generated by Tesla solar panels. At some point they will likely buy up an industrial robot company like KUKA, and have even more vertical integration.

This isn’t a car company, its an end-to-end energy and transportation company. The market cap potential of tesla isn’t General Motors, its general motors + uber + exxon mobil.

The *risk* in all this, is that competition with deeper pockets comes along and beats Tesla at its own game. In theory, this is a big risk. In practice…its kinda laughable. Apple, the famously deep-pocketed tech superstar have been quietly and smugly talking about their driverless apple car business for years. Still no car, not even a concept car, not even a sketch. It’s not going to happen. Apple takes years to make a phone with a new button, they aren’t about to make cars.

Every week a new ‘concept car’ or ‘preview model’ of a 2018 or 2019 car gets announced by Jaguar or Mercedes or BMW. Every time, without exception, the cars tech specs are laughably behind the model s and the model 3. The model S exists RIGHT NOW. For a company entirely new to electric cars to beat Tesla, they need a BETTER car than the S, a supercharger network already in place, fantastic brand-awareness and cutting-edge in-car tech. Nobody is close to this. Nobody is even within binocular range of this. The Tesla P100DL is faster (0-60) than a Bugatti Veyron costing $2.25Million. (The tesla is $135k). Thats not a slightly better car, its like a different fucking species.

I haven’t even mentioned the fact that electric cars are actually MORE convenient than petrol (My car starts each day fully charged), costs 4p/mile in fuel, and that Tesla are building the worlds biggest factory to literally double the global supply of lithium ion batteries to get costs down. This is not a normal company. Apple think removing a headphone jack is ‘visionary’. Tesla management must collapse in hysterics when they read statements like that.

Yup, I have Tesla stock. I have a fucking Tesla T-shirt, I’m a believer. I also read about them a lot. I simply cannot see how anyone will stop this company. Lets check in a year from now and see if I feel the same way :D.

 

 

3 Responses to “Why I think Tesla is a good investment”

  1. Joel says:

    I’ve pre-ordered a model 3, in fact I stood in line to be one of the first in Sweden to get it. Unfortunately I live in an apartment and don’t have an outlet at my parking space. Which takes away the major reason to get an EV. I would still have to go fill up at a station regularly, only it will take an hour instead of 3 minutes. So I will probably give up my spot. :'(

  2. As you said, they are selling the whole pack, and controlling/owning anything from the car to the way it is charged.

    Apple also does this.

    The main benefit? Locking consumers in.
    Once you invested enough in this company, following a biased calculus you addressed in a previous blog post, you won’t want to ‘lose’ it, even though it already has been paid anyway, and you cannot do nanything about it.
    This wrong feeling of needing to redeem what has already been paid by continuing to buy from the same very company will prevent you to start from zero with any other brand.

    Once Tesla has a foot in you doorstep, it is here to stay. Just like Apple.

    On advertising: Apple does the mto attract new customers, ie reaching out of their fan base. Tesla relies on this base exclusively.
    Apple is profitable, Tesla is not. Noticing any correlation there?

    Electric cars are nothing new. The main problem is storing electricity, as it is also the root cause of many other struggles, not solved as of today.
    Tesla invested a lot in batteries and Musk bought back a company set up by his cousins on his icentive, SolarCity: he is trying to make profit from his all-electric gamble, not the other way around.

    As you pointed out your car already needed servicing on parts no other car usually need at this age, to my knowledge.
    You are implying their product is of great quality with awards… I would rather look at their fan-base. You know, in the computer science world you have some things called ‘certification’. They do not endorse any skill or talent, they are just ‘badges’, ‘tags’ people wear to make them look better. Awards are shiny, but getting them does not mean your product is great, nor does they mean not habing it implies your product is crap. Awards are about having leverage amongst people being able to help you push for getting it.
    Customer satisfaction… well, a majority of Tesla clients being fans, I do not feel the need to connect the dots for you… :o)

    For security, you worded it right: the car is rated as one of the safest, there is not proof it is. You pointed out strange service changes, the ‘self-driving’ ability is ambiguously being marketed, because it is not supposed to be used without the driver being able to take control back at any given time, Tesla have been cheap on the ‘auto-driving’ sensors (Google would not have used hideous protuberant systems if there were better ones, as some scientific labs in the same field use, the problem being the cost): all this concur on cheapness, lack of reliability and thus lack of security.

    Even with proper advertisement, it is unsure if Tesla would reach out to ‘normal’ customers (ie not fans). Despite its marketing machinery, Apple is unable to do so. Apple buyers usually either do not care and want shiny stuff (Apple being great at design/UX) or are fans.
    I am definitely suspicious about Tesla leverage on this.

    It is high time they stop selling dreams and make a proper factually-solid great product. That will allow them to reach the critical volume of customers to be profitable.

    So far, Tesla means fantasies. You are a believer: stick to this phrase, and please do not be that peremptory about all the thing you *find* great about this company and its products.

    • cliffski says:

      Interesting reply, thanks. I agree that neither my car door handle or recharging flap *should* have ever been an issue, but I put this down to being an early adopter of new tech. The model X had issues with the first ones shipped, which buyers now say are largely resolved.
      This is why I have high hopes for the model 3, as it builds on everything tesla have learned from the S and the X.
      Personally I think autopilot is a distraction. Tesla have their work cut out for them making a mass market electric car, and the autopilot is less of a USP than the cars range and performance.