Category: investing

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

 

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:

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.

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.