Game Design, Programming and running a one-man games business…

Its 2022. Why you should still buy or hold Tesla stock (TSLA)

I last blogged about this in June 2020. The stock was about $1,000. Its now $937. OMG what happened? was cliff wrong? Nope, there was a 5:1 stock split, and if I check the data, the stock has risen from $187 (adjusted pre split) on that day, to $937 today (in the middle of Ukraine war fears, a pandemic, supply chain and chip shortages, and other geopolitical headwinds no less…). So I feel like my last stock projection on this blog was pretty good. Probably puts me in the top 5% of stock analysts. I should go work at a hedge fund. Haha. No.

So anyway, partly for my own benefit in terms of clarifying my analysis, here is my updated view on tesla, as an investment as of January 2022.

We just had the earnings release last night, and now have full financials for 2021, so its a good time to evaluate the stock. Lets look at some numbers to compare 2021 to 2020:

  • Automotive revenue: Up 73% YoY
  • Profit margins: Up from 6.3% to 12.1% YoY
  • Earnings per share: Up 666% YoY
  • Supercharger Network: Up from 2,564 to 3,476 YoY.

All of this is pretty darned good, given that every other car company seems to be flatlining or declining. Still, Tesla only makes roughly a million cars a year (2021, but with a current run-rate of 1.2million, and guidance of 1.5million for this year), which is peanuts compared to Ford, General Motors, Toyota, so surely the valuation is crazy right?

Actually no.

What matters in terms of being an investor is profit, not car production. If you value Tesla purely as a car company, (and this would be short-sighted), then comparing #units is meaningless. What matters is profit, and tesla somehow have a profit margin of about 29% on each car, compared to 0-5% for most car companies. The average Tesla sells for about $50,000 with no middle-man. Tesla are easily and comfortably making $10k pure profit on every car they sell…

Not only that, but their FSD (full-self-driving) software is now $12,000 per car, with virtually zero marginal cost. Currently only 60,000 owners have the FSD beta, but many more have ordered autopilot, and as that gets rolled out across all countries, and the performance of it improves, the take-rate should climb.

So we are talking here about a company that sells every car it makes, with no advertising budget and no middlemen, a huge backlog of orders, banking $10,000 per car as profit, with the potential for single-click software upgrade of another $12,000 per car. Thats insane.

By comparison, its worth checking out General Motors, who sold 26 EVs in Q4 2021 versus Tesla’s 308,000. (yes 26). Also…every single EV GM has ever made got an urgent battery recall that has wiped out the profit (slim though it was anyway) from every car. To put it bluntly: General Motors have so far not made a single cent in profit on electric vehicles. Oh and GM’s vehicle sales were down 43% btw.

To take another comparison, we have Ford, who actually have a decent EV in the mach-e, but sales are no where close to the model 3 or model Y, and there is no potential software revenue or subscription revenue. Like all the other legacy car companies, Ford leave it up to you to work out where to charge your car on a roadtrip. Tesla not only have the most reliable and largest charging network, its integrated into the cars route-finding, oh and its owned by tesla. So they sell you the car, the autopilot software (as a subscription if you choose), plus potentially the insurance (5 states so far, but expanding rapidly now), and also the fuel.

Imagine a world where all technological development at Tesla mysteriously vanished, and they never innovated again, and cancelled all current in-development vehicles. In this nightmare scenario, you have a company growing its sales of its $55k cars at 50% a year, with $10-22,000 profit per car, decreasing costs per vehicle, an unrivalled charging network and an unrivalled self driving capability. Thats the absolute disaster, apocalyptic scenario.

But then consider the reality:

Tesla has not yet fully rolled out its new line of battery cells (4680s) which mean quicker, cheaper production using dry-battery-electrode systems which vastly reduce required production space. They are just starting to produce cars at Texas with these batteries in a structural pack, which reduces the car weight and cost, boosting profitability and efficiency.

Together with this, they are also switching to using enormous casting machines for the front and back of the model Y, again a huge reduction in required factory footprint (way fewer welding robots), plus higher precision construction (no accumulative weld precision errors), and a lighter, cheaper construction. Again… boosting profits and efficiency even more.

Those two innovations will eventually be rolled to the model 3 and Y at Berlin, Freemont and Shanghai. The only reason they don’t do it now is that the cars are selling so well, and demand is so high, that they cannot yet justify the switchover time to retool the lines. Meanwhile other car companies are shutting down factories and sending workers home.

So the model Y and 3 are about to get lighter, cheaper to make, better range, more profitable.

…and then, we have future products, such as the semi, cybertruck and roadster.

The most interesting statements on last nights earnings call have been totally ignored by the incredibly poorly informed financial press. There were two BIG pieces of news in there which have gone over people’s heads. Firstly: Tesla production is no longer battery constrained. Secondly, they are confident of growing 50% this year in their existing factories, ignoring new ones.

BTW Tesla have completed the initial build out of two massive factories, about to come on-line. They are the biggest and most efficient layouts yet, designed purely to build EVs, with no legacy nonsense. The dry-battery process means the factories output per square meter is way higher than people are expecting, Ditto with casting. Absolutely nobody seems to be prepared for the volume of EVs that will roll out from Texas and Berlin. Tesla are already getting good at efficient production. (Even in old, legacy factories).

…which brings us to batteries. Tesla is the only large car company that takes direct control over its battery manufacturing. They still partner with CATL and Panasonic and probably others too, because their demand for batteries is insatiable, but their new factories are being built with battery production facilities on site. While other car companies are left to the free market to beg for supplies from the big players, Tesla have had gigafactory Nevada running for years already.

In theory, being chip or battery constrained would be bad, because both stop you reaching targets, but frankly if the battery constraint has now faded, that leaves tesla open to start producing real quantities of its semi truck quite soon. The company seems to be going out of its way to avoid mentioning this truck, and quite happy to leave people guessing, but as it is clearly a vehicle that requires more batteries than it does chips, its likely that we will see serious production of the semi sooner rather than later.

People get upset with the CEO on twitter, and err…ok, if thats your investment thesis, you do you, but frankly having a CEO with 77 million twitter followers seems a great way to keep a zero advertising budget. People also fixate on Elons ambitious timelines and obsession with FSD and humanoid robots and doge coin. Thats fine… but its blinding so many people to the fact that tesla is an industrial giant thats accelerating and accelerating. You don’t have to listen to breathless youtubers with backwards baseball caps rapidly spewing hyperbolic bullshit to believe in this company, you can simply look at the financial statements, and try out the vehicles (and comparison shop a tesla versus any other EV).

All the data is right there, in the open. Its like a cash-vending machine that people are walking past and ignoring because Elon said a mean thing once. You do you, but I’ll keep enjoying the profits.

…oh, and by the way, I haven’t even mentioned Tesla energy, or the fact that ICE car bans are rolling out in the next decade, or any EV incentives that Biden may get passes. Those are all extra icing on the stupidly profitable cake. I’ll leave you with a vehicle production chart

(I should probably state this is not investment advice. FFS I am a game developer, not a regulated financial whatever. This is just my opinion. Do your own research. Just because the company has grown 1,500% since I suggested investing does not guarantee future results etc :D)

3 thoughts on Its 2022. Why you should still buy or hold Tesla stock (TSLA)

  1. I prefer to invest passively, and I wouldn’t ever buy stock in a particular company – even if I was really interested and knowledgeable about the product. But then, I also wouldn’t gamble on sports, even though I enjoy watching it, although I can see why someone might get extra enjoyment from having a personal stake in the outcome. So good luck with your investment

  2. I sold 2 of my Tesla stocks which I was still holding and got around +1000€ profit. I’m waiting for a good dip so I can buy 3 or 4 Tesla stocks back to my portfolio. :) I still remember that I shouldn’t have sold those 12 stocks I had but they allowed me to have the portfolio that I have now. In the other hand if I sold them late last year, I would have made tons of more money and now I could have bought even more to my portfolio or widened my portfolio with other stocks and then bought back the same amount of Tesla stocks but things went as they went so here I am buying just a little more to my portfolio. :) Thank you for these blog posts. These are really interesting.

  3. I am incredibly happy with my Tesla stock investment. But when I had to pick a new car last year, I opted against a Tesla, even (or especially) after test-driving a Model 3 for a week-end. That’s mostly for practical reasons…a Model 3 is simply a bit small for a family of four (plus two cats, occasionally), the Model S/X are out of my price range (and not even sold at the moment) and the Model Y wasn’t reliably available yet when I ordered. But it’s also the overall package. The experience might be better in the US, but to me, the Tesla autopilot/driver assist systems felt incredibly clunky…more like a distracting toy than an actual assist system.

    So at the end of the day, I went for a Skoda Enyaq (so VW under the hood). A bit too SUV’y for my taste, but it’s got the space that I need, a decent range and really solid driver assist system. And let’s not forget about all sorts of little bells and whistles that probably are the things that eat up legacy auto’s profit margins, but leave the Model 3 looking and feeling a bit “bare bones”.

    Don’t get me wrong. I’m a big fan of Tesla as a company as well as their vision. But they are still missing a few models to cater to me as a customer. And FSD is nowhere near ready yet and likely won’t be for quite some (Elon-)time.

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