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

Tesla in 2020. A good investment?

Tesla’s stock price recently surged past $1,000. it has since fallen back slightly, but I have no doubt it shall return. The last few months have been a roller-coaster for TSLA stock holders. What can it all mean? Is the company now over-valued? or is this actually the market catching up with reality?

It always helps to get some of the big important numbers out there as a basis to analyze this sort of thing. Numbers are always open to interpretation, but you still need them…

  • In 2019 Tesla produced 367,500 vehicles. source.
  • The market cap of the company is currently $180 Billion.
  • The automotive gross margin is approximately 25%
  • YoY revenue growth is 38%

If you look at the number of cars Tesla makes, its still quite a niche player. How can it possibly be worth the same as Toyota, or SEVEN times the value of the ford motor company? How is this a sensible valuation? Here are some points to consider:

  • Tesla has decent profits on each car

Teslas automotive margin is actually REALLY good, and its been growing too, from 20% a year ago to 25% today. How? Tesla do NOT advertise. That already saves them a fortune. They do NOT have any middlemen (you buy online, or in store, direct from tesla), which cuts out a whole other bunch of middlemen, and tesla have such a reputation for good tech that they can attract top talent without exorbitant salaries. The promise of tesla stock is worth way more to potential senior hires than any actual cash anyway.

FWIW Fords gross margin has varied between 18% and 12% over the last 14 years. Thats ford, one of the biggest car companies on earth, and one of the oldest, yet they aren’t as good at making profit from a car as Tesla…

Plus Tesla is the first car company to make actual money from software. The FSD (full-self-driving) hardware is in every new car (they don’t use LIDAR so its cheap), and you can upgrade your car after purchase to enable FSD or in some cases extra range or speed. Thats pure 100% profit.

A culture of constant re-investment and expansion has meant the company has not posted a full year profit yet (although it has multiple sequential quarters of profitability. Expect that to change very very soon, probably in a few months.

  • Tesla is growing like crazy

The global car market is in real trouble, but the company that is not only bucking the trend, but seemingly accelerating into space (literally) is tesla. check out production:

Tesla Has Best Ever 1st Quarter — 102,672 Vehicles Produced ...

Note that Tesla is selling every car it makes. These are not cars made to sit on showroom forecourts for months hoping someone walks buy. There are waiting lists for these cars all around the world.

Remember that its PROFIT in the FUTURE that determines a company valuation. Ford has historically made a LOT of relatively unprofitable ICE (internal combustion engine) cars that suddenly people don’t want. Thats not a good thing, but more of a liability. Hundreds of thousands of employees, and many factories designed and trained to make internal combustion engines are basically a stranded asset (worthless). Ford is well placed to continue breeding horses just as the automobile has been invented.

Note also that the VAST majority of Tesla’s output is from a single car factory in Freemont, an ex GM/Toyota plant for ICE vehicles. Their first dedicated EV-factory in china is currently ramping up, so expect rapid growth. Plus they are already building the 3rd car factory in Berlin. A fourth is expected soon in Texas. This company has only just got started…

  • Tesla has zero competition

Fancy an electric Audi? you can get $20,000 knocked off the price of a new e-tron, a supposed tesla-killer that nobody wants. Or maybe you want a jaguar I-pace? Both of these cars were heralded as the cars that would crush Tesla. Both are relative flops.

Tesla = 75–85% of US Electric Vehicle Sales | CleanTechnica

Even the chevy bolt, a car that GM LOSES money on, is no real competition.

  • Tesla dominates in a rapidly growing market segment

Electric cars are the exception to the declining car industry, in terms of growth. Would you want to be the biog player in this rapidly accelerating market, or a dinosaur left at the top of the crumbling mess that is ICE cars? Dieselgate was the first shot-across-the-bows, but the experience of clean air post-covid19 and the looming nightmare of climate change shows that there is no future for ICE cars. Countries all over the world have already set dates to phase out ICE sales. The leading car companies of the future will be electric car companies first and foremost.

Demand for battery metals strong despite weak EV sales

People always talk about Tesla as a car company, but thats similar to how amazon was a bookstore. Tesla is a transportation and energy/software company, whose current main seller is a car. Tesla energy is a little-appreciated but growing part of the business, and Teslas solar roof tile product is finally starting to ramp up. This diversifies the company and enable it to adjust to changes in demand across sectors.

Software is the real wild card, which brings us on to the topic of….

  • Autonomy

People do not generally appreciate the HUGE lead Tesla has over every other company on earth in the field of self driving vehicles. Everybody else is using HD maps and local geo-fencing, or LIDAR, neither of which actually scale. You can get a REALLY cool reliable little bubble car that drives around a geo-fenced and controlled environment like a retirement village right now, that will work amazingly 99% of the time. Lots of different companies are showing off stuff like this, as a way to grab the cash of ill-informed venture capitalists. Tesla is not trying to hype up specific cases, its driving to solve autonomy in the general case, globally, in all conditions, 100% of the time, and its getting there.

The difference between 99% autonomy and 100% doesn’t sound like much but its game changing. 100% means no steering wheel, no driver, and no worries. 99% means basically very good cruise control. My Autopilot v1 Tesla model S is VERY good on highways. It makes long drives safer and way more relaxing. Its not autonomous. When its 100%, I can get drunk in restaurants. I can watch a movie or read a book on long drives.

Tesla Self-Driving Demonstration | Tesla UK

A 2 hour commute is currently a nightmare, but when you can literally be asleep, or reading, or playing games, or working in the car… its not so bad. This will change where people live and work, and how they work. Imagine Uber, but safer, with nobody you have to talk to (or tip), and at one quarter the cost. You could play games/stream music/watch TV in your uber, because nobody else is in it…and thats safer for lone women too. Autonomy at 100% is a MASSIVE big deal financially, and there is a VERY good chance Tesla gets there before anybody else and just eats Ubers breakfast, lunch and all other meals.

Why?

Waymos autonomous cars have driven 20 million miles. In one country. AFAIK in one state. Woohoo. Tesla were at 2 BILLION in November last year. Don’t forget every car they make has autopilot hardware, and the rate they make them is accelerating. Some people value waymo at 30 billion. Lolz.

So to sum up, I don’t KNOW the true value of Tesla, because the companies output and capabilities are accelerating so fast its hard to pin a target on it. Given the actual number of cars shipped, it seems a high valuation, but that number will change a lot in the next year or so, and as EV incentives come out of the EU and the UK, and ICE sales continue to plummet, I can see more people seeing a $1,000 TSLA stock price as actually quite a bargain.

BTW the companies stock has tripled since the last time I blogged about why its a good buy.

Legacy car companies and the shift to EVS. Why they cannot win.

BTW if you followed my tip on tesla stock last year, you would have tripled your money…

Yesterday General Motors gave a presentation about Electric Vehicles and how they were a big part of GMs future. They rolled out a long line of executives onto a stage to make passionately written (but embarrassingly delivered) speeches about how they were going to continue to be the world leaders in EVs. The CEO even wore a leather jacket. It was excruciating, but the presentation is not the problem. The problem is the facts, and the facts are harsh.

Image result for GM EV day

There is a very powerful attempt to drive down the price of tesla stock (an attempt that is failing, but nevertheless, well funded by oil companies). part of the narrative is that tesla is doomed because ‘competition is coming’. This was a claim first made when tesla produced the model S. It was repeated for the model X, then for the model 3, and the model Y gets released this week, and we are hearing it again. So far the claim has turned out to be bullshit, because 58% of EVs sold in the USA are made by tesla still. Thats bad enough, but the future is even worse for the ‘competition’.

There are a bunch of reasons why big legacy auto companies cannot compete, and they aren’t all obvious. I thought I’d list them here for anybody considering selling tesla stock and buying GM or Ford.

Software/hardware expertise

EVs are just TOTALLY different to conventional cars. The expertise in making petrol or diesel engines is useless when it comes to an EV. the actual body design has to be different too. Tesla puts the battery in the floor and the motors between the wheels, but trad companies are still putting the motors in the front because…thats where the engine used to go. This means zero front crumple zone, and no frunk storage, but they do it anyway. A bottom heavy car is safer, as it rarely (if ever) flips, but even now the big gas-car companies don’t get it. They are stuck in gasoline car hardware design mode.

Software wise its even worse. tesla make their own software, and are even now making their own self-driving AI chips. Thats right, they are designing the silicon for their cars in-house. Thats a crazy amount of expertise. Legacy companies instead use dozens of chips each from different manufacturers, with virtually no in-house software expertise, and have a nightmare hiring decent auto-experienced software devs, who all clearly want to work for elon musk.

Image result for tesla autonomy day

BTW that self-driving chip is not just a prototype, they have been shipping it in cars for months already.

Factory Design

Teslas fremont factory used to be a legacy car factory and its a MESS in design terms. It was originally built to make ICE cars a long time ago, and is far from optimal design or layout for modern production. EVs require a totally different approach. This is why their chinese factory is built from scratch as a huge EV-only factory to produce super-modern cars. Legacy firms can’t demolish old factories and re-start, they have neither the time, money or the support of unions/governments to do so. Teslas 2nd purpose built factory (Germany) is breaking ground this month.

Workforce

Legacy auto is heavily unionized and unions HATE EVs. They have good reason to, as an EV is much, much simpler to build, and requires a much smaller workforce. A shift from legacy cars to EVs threatens jobs and the unions know it. Teslas workforce is, and always has been EV-only.

Dealerships

Tesla sells direct, but legacy is stuck with a dealership network they have to support for legacy cars. The dealerships HATE EVs, because so much dealership income is from maintenance and servicing, and EVS require almost none (My own EV has been serviced once in 4.5 years. Nothing was wrong). Also virtually nobody at any dealership knows anything about EVs. Consumer feedback from dealership visits is highly critical. often the customer knows more than the sale staff, who want to sell you an ICE car anyway. You are lucky if 1/10 cars in the ‘showroom’ is an EV anyway.

Late to market

Make that VERY late. Tesla made it clear EVs could be cool with the roadster in 2008. Then came the model S in 2012. Thats eight years ago. EIGHT years after the first mass-market electric vehicle, and the legacy auto firms are talking about delivering a certain number of cars in five years (optimistically). Its WAY too late. Many people already equate electric car with Tesla. 58% of USA EVs are Tesla. Their market lead is huge.

(BTW I didnt forget the Audi E-tron, Jaguar I-Pace and Nissan LEAF in that chart, they just dont even make the top 5… BTW this is not the end-game, tesla is still growing like crazy:

Batteries

Tesla make their own batteries in Nevada (and soon in China too). They partner (for now) with Panasonic to do this, but the tech is owned by tesla. They are the first company to go all-in on building a massive EV-battery production facility. other companies rely entirely on outside suppliers. Tesla have the best battery management technology in any EV. (See chart below),

Image result for tesla battery efficiency chart

If you want to work in EV battery research, its absolutely clear who you go to work for, and its not GM or Ford. Batteries are VERY expensive. Anybody can make a 400 or even 600 mile EV, you just have to put a staggering amount of batteries in it, but making an affordable 300 mile car is VERY hard, and its purely about battery tech.

Tesla Model 3

Marketing

Tesla tout EVs as the future, and ICE cars as the past. They are right. Everybody knows it, but the legacy autos cannot say it. They make the overwhelming amount of their profit from ICE cars. Even GM admit that the bolt loses them money. They cant market their cars as the future or superior without admitting 99% of their lineup is inferior and the past. They HAVE to be pro-ICE cars because thats what they make, but in doing so, they have a conflicted marketing message. Meanwhile Teslas advertising budget is still ZERO dollars.

So to sum up..

Legacy autos have a workforce that hates EVS, assembled in factories designed for ICE cars, Their sales people hate EVS, and their hardware and software experience is minimal or actively damaging. They outsource the most important components, they are woefully behind, and their own product line prevents them from marketing EVs successfully.

TL;DR: Don’t believe the bullshit. The ‘competition’ for Tesla is fucked. There is way more chance that BYD or even Google/Apple could be a serious EV player than any of the old auto companies.

My year => 2019 <=

I’ve really taken to trying to avoid social media use lately, which came to angry prominence once during the year and again recently during the UK election, so I’m likely going to blog more, and continue to tweet less. Anyway, here was my 2019!

Personal stuff!

We had a few short mini holidays this year, one of which was to Bruge (Belgium) which is a great place to go to because you can just get a train there (no flying! yay!), another to the southwest of the UK (which I drove to), and one long flight, which was to Canada. I always offset my flights, and try not to do it often, but it was justified as a combined holiday, and 50th birthday and biz trip to a games conference. Somehow, I have flown in 2 different helicopters this year. Thats just ‘indielife’ I guess.

By far the best thing I did was fly in a helicopter over the mountains near Banff. Truly amazing, and impossible to convey in mere pictures. It was an expensive treat but worth every single penny. Cannot recommend it enough.

Also somehow, in a drunken moment of panic, I booked a balloon trip (near where I live). This was a bit scary for me, as I dont like heights, but actually it was fine, a perfect day, and good fun. Something I always wanted to do.

I played the guitar more in the last year than I have in the previous ten years (at least). I got back into it a bit. I used to be pretty good, now I just cant physically keep my hands moving that fast, but its still something I find a nice distraction from constant work, and its a cool thing to be able to do now and then.

Charity Stuff.

Our second school in Cameroon opened, and I also re-did the war child thing at Christmas where we donate about $10k a year to children affected by war. Really proud to have done this for so long.

Eco stuff

I took part in an environmental demonstration locally (very low key), and also joined the extinction rebellion London protests, although did not get arrested, but did have a very heated ‘exchange of views’ with a fairly famous climate change denying media-whore who I will not dignify by printing his name. Really glad I attended. Current news makes it pretty clear that events are happening exactly as scientists told us they would. Future prospects depress me :(

Stock-market stuff

I still trade a lot on the stock market. I made some very optimistic trades as a day trader about a year ago, which forced me more and more and more into the red over the last year, resulting in a shockingly expensive margin call where I lost a bunch of money. I have now made every penny of it back, all on a single stock. This is an epic story worthy of its own HBO mini-series but is summed up in this simple chart :D

I am glad I stuck with it :D

Positech

Oh yes…I also run a games company. LoL. 2019 was a fairly stressful but definitely improving year. It was the year in which I made a shocking number of updates to my car-factory game Production Line, and also released not one but two pieces of DLC for it: Doors That Go Like This and the Design Variety Pack. Both have sold well, and broken even, but these things only really pay off over a few years.

As of this moment, the base game has sold a total of 114,000 copies on steam, plus a fair few pre-steam and on some other platforms. Its a $25 game, so thats not bad, plus I have a large back catalog of other games that continue to sell well on steam. We have sold 150,000 games roughly this year, a 24% drop of the previous year, which was boosted by being when Production Line was initially added to steam.

The stress of 2019 company wise has proven to be Democracy 4, which was originally slated to be shown to the public much earlier, but some stuff under-the-hood proved to be harder than expected, so although the current version of the game is now awesome and looks crisp and has some l33t new functionality, we are behind schedule, and probably going to go over-budget. However, I’m now working on it quite a lot, and have currently 1 SFX person and 2 artists working on content, and will very shortly be showing it off to people both on video, and in March at a show in London, which will be interesting.

Its hard to stay objective about Democracy 4. Lost of signs point to this being a successful game, and the ideal game for 2020, but I hate to be too cocky about how a game will do, and the release of any sequel is always plagued by people (normally the loud 0.1%) upset that you have dared make a sequel, or saying its just a re-skin, or whatever. I do dread having to deal with that sort of thing… but its part of selling to the public I guess :(

I expect 2020 will be just purely the year of Democracy 4. its a HUGE game (we rolled 4 expansion packs into the base game), and will likely be our biggest release ‘event’ so far, in terms of people wanting to play it. It will certainly be the most expensive game I’ve ever released. Fingers-crossed it works out, and I don’t look an idiot :D. I am optimistic though. Democracy 3 already looks old, clunky and tired compared to the new game.

Social Media & other Stuff

2019 is the year I clashed badly with social media, and the internet. Not in the usual sense, that if you have known me over the years you will know I have got involved in controversy a lot and drawn the attention of people a lot… This year, I actually managed to avoid that, at least in public.

Certain events during the year (nothing related to me) made me realize just how AWFUL social media is. The angry hate mob was out in full force, directing righteous furious anger at whatever individual or group was determined to be the hate-figure of the day. I’ve seen online hate mobs practically salivating over the potential to drive people to suicide, and its just horrible. Combine this with the mess that is modern politics and ‘fake news’ and people happily sharing stories that are not true, and I think 2019 is the year the internet broke, and became a torrent of abuse, not an amazing place filled with information.

I carried out a few steps to isolate myself from all this crap this year. I quit a newsgroup I’d been in for many years, quit a forum I’ve been on for over a decade, removed all my posts from one I’d been in for fifteen years, deleted 75% of my facebook friends, and left every single facebook group and page that wasn’t for one of my games. I vowed to tweet less, not discuss anything contentious online, and reminded myself I should freely block and mute anybody who is rude or abusive.

I just don’t need, or want any of this. Also its totally optional. A friend of mine has a VERY successful indie games biz and he tweets maybe once a month, and he does write-only, he never even reads twitter. He is a hero.

One of the reasons I intend to blog more and tweet less, is that this blog is mine. Its not even hosted by wordpress, its on a dedicated server. if you are abusive, you get blocked for life, no come-backs, no exceptions. ah… *bliss*.

Things I enjoyed

Succession. TV show loosely based on a fictional Murdoch family. Amazing. Watch it

Silicon Valley. TV show, final series was this year, fantastic, loved it.

The Goldfinch. Great movie. I didn’t expect to like it…not my kinda thing. but it was a very nice surprise.

Samsung stupidly wide monitor. Absolutely amazeballs. Couldn’t imagine gaming without it now.

Company of one. Business book, the joys of staying small.

So yeah…thats my 2019. Hope yours was cool :D

Stock Market Analysis ‘fun’

EDIT: lol. I had some serious bugs in my code, so ignore those numbers. The real ones are less extreme :D

To try and crack down on my almost comical tendency to overwork and be working 100% of the time, I decide to do some ‘fun’ coding today instead of work, to help me ‘relax’, which is something people keep telling me to do. Obviously I’m still me, so it involves programming..

I dabble on the stock market (I used to work up there many lifetimes ago) and something I have long found infuriating is the absolute awfulness of UK retail stock-market reporting. Its almost like they don’t WANT you to know if you are making money or not.

My broker (Hargreaves lansdowne) is great at telling you your current profit or loss as a percentage and in financial terms, on each trade, but this doesn’t take into account how long you held the stock, rendering it effectively useless. If stock A has been held 4 years and is up 4%, thats way less attractive than stock B, which I bought last Wednesday and is already up 1%. They make it IMPOSSIBLE to get the real ‘;annualized’ figure.

What I wanted was ‘the rate of return, if I held this stock for a year, and the stock growth was linear over that year, given its growth during the time I held it’.

It turns out, to do this, I had to copy and paste a bunch of PDF files into .txt files, then write my own code to parse it all and rearrange it into a CSV so I could visualize it using excel. This also meant grabbing a copy/paste of today’s prices for stocks I still hold and have not sold, and then doing the SUPER TEDIOUS work of copying and pasting dozens of names, because it turns out HL use ‘different text’ to describe a stock in their PDF reports than they do in their live prices (grrr). Its also annoying that they changed their formatting about 2 years ago to include the exchange code, so I had to detect those and strip those out of some lines of text. Plus there are other errors, and missed text here and there, meaning my results are (so far) probably not 100% accurate.

I suspect all the data I *do* have is correct, but in some cases there are some missing buys and sells, so I’ve effectively ignored those stocks.

Still…it amused me for over half a day, and means I can bask in my glory on these stocks:

And cry into my sleep about these…

None of it is as good/bad as it looks, because the results are annualized. For example I think I held my bitcoin for about 48 hours, and some of the others I held for very short periods as well. Its probably worth doing some sort of clever smoothing code to work out which are the ‘long term good picks’ versus me just getting lucky over a week or a month.

My TSLA stock is a good example. I’ve made a series of buys (and one sell) over a great many years, and although its been very volatile lately, the ROI on an annualized basis is looking pretty sweet. The Biotech Growth Trust is also looking pretty cool, and I’m also happy with Materialize and Teradyne.

I should probably do that pointless legalese bullshit here that says ‘this is not advice’, but frankly if you take stock picking advice from a British Chocaholic game developer who likes to drink a lot, then you probably aren’t going to listen :D.

Why I am so bullish about Tesla (TSLA)

I own a Tesla model S, and am also a long term investor in Tesla. I’ve bought shares in them a few times, and traded the volatility a bit, and still hold a decent amount of shares. Of all my investments, Tesla is the largest single company. Why?

Fundamentals

people get can too hung up on price/earnings ratio, profit and market size. If you look at the fundamentals of the company without knowing anything about the product, TSLA is a joke. Its losing money, a LOT of it, and its market share and revenue cannot possibly justify its valuation. Luckily, there are darned good reasons for all of that…

For a very long time, Amazon made no profit, but the share was a darned good bet because it was a ‘get big fast ‘ play. Amazon now have near market dominance and everyone accepts that profitability is a choice, and a matter of when not if. Growing rapidly during development, and ignoring profit is a proven strategy.

Tesla is not losing money in the way people think. They are investing a LOT of money in capital expenditure, and some in R&D. Basically they are trying to copy Ford River Rouge factory in terms of vertical integration and scale. This is catastrophically expensive in the SHORT term. Investing to grow is fine, there is no evidence tesla actually loses money when it sells you a model S/X.

The market share of tesla is awful, but its market share of electric cars is WAY better, and nobody expects this market to do anything but grow rapidly. Most people accept that the Tesla model S absolutely crushes other electric cars (except maybe the more expensive BMW i8), so it already has a killer product. I’d be amazed if their dominance of the electric market does not get more pronounced when the model 3 is released.

Product.

The Tesla model S is incredible. Fast as hell, quiet as a mouse, looks outstanding, mine has a 220 mile real-world range, great range of gadgets, over-the-air updates and bug fixes. Impressive autopilot, incredibly good safety ratings. Cheap to insure, Very cheap to power, Cheap to maintain. It also has a great brand, and the company has a charismatic and visionary leader.

Vertical Integration.

Tesla will sell you solar panels to generate electricity, a tesla powerpack to store it with, and an electric car to use it, all seamlessly controlled by your mobile phone. When you go on roadtrips, you can stop at a tesla owned supercharger to fill up with cheap power courtesy of tesla, at super-fast speeds. When you buy any of the panels, battery or car, you do so in a Tesla store. And that car battery? its made by Tesla too. Even apple depend on samsung for major components o the iphone. Tesla are limiting their dependence on outsiders whilst simultaneously capturing the profit at every part of the sale.

Direct Sales.

All of teslas serious competitors are big old car companies. All of them sell through franchise dealerships. Those dealerships make a big chunk of their money through servicing. Electric cars require virtually no servicing compared to an ICE. Not surprisingly, the salespeople at other car showrooms want to sell you an ICE, something they understand, and which they have a financial incentive to sell. That BMW salesperson doesnt really want to sell you an electric car. All the Tesla sales peoples sell is…electric cars.

First Mover.

Tesla was the first company to bring out a desirable, sexy electric car, and the only one to design one as electric from the ground up (model s). They have no legacy ICE crap to deal with. They are not tainted by emission standards scandals or other nonsense. Their tech, their factories, their designers…all focused 100% on electric cars. The time for competitors to wake up and smell the coffee was the year the model S came out. They didnt notice, and even if they had, they needed to change direction fast. They didn’t. Tesla are way ahead.

Superchargers.

Tesla own the petrol stations as well as the car. Its genius. The experience of other charging networks is awful. You need a phone app to find them, then you need one of several different cables to plug in. You then need a swipe card, and an account, to swipe and authorize on an app, then you need to pay. When I find a tesla charger (which the car will navigate me to) I just stick the cable in my car and go grab a coffee. No passwords, no logging in, no hassle, nothing. Its actually way more convenient than petrol.

Diversification.

Maybe the model 3 will suck. Maybe all the tesla cars will be beaten. Big deal. Tesla is an energy & storage & transportation & battery company. Soon they will announce a tesla truck. In many ways they have a more diverse base than the big auto companies. The chances of ALL of their energy/storage/car bets failing are trivially small.

So there you go. I am not a financial advisor blah blah, but I do read everything I can about a company I invest this heavily in.  FWIW TSLA shares are $351 today. :D