Tesla: The past and the future

Tesla is an American company that designs, manufactures and sells self-driving electric cars, batteries and solar panels. It was founded in 2003 by Martin Eberhard and Marc Tarpenning, and was originally called Tesla Motors. (1)

The mission of the company is to accelerate the world’s transition to sustainable energy. Tesla is a company projected into the future.

The company’s CEO is Elon Musk, a South African–born entrepreneur and investor. Talking about why he started his first company, he said: “I knew I wanted to be involved in technology. In fact, the only reason I started a company back in ’95 … was because there were only a few internet companies and I couldn’t get a job at any of them.” (2)

Elon Musk interview
Elon Musk 

He has founded the following companies:

  • SpaceX
  • Neuralink
  • PayPal
  • The Boring Company.

Robert Downey Jr. used Musk as his inspiration when getting into character as Tony Stark, the protagonist of the Iron Man movie. (3)

Tesla success derives from Musk’s ability to think 20 years ahead and see a future with AI and renewable energies.

Tesla's Model 3 presentation
Tesla’s Model 3 presentation

According to its 2018 sales, the most important segment of the company by far is the automotive.

sales by segment - 1h 2018

In the chart below, you can see that the most important market served by Tesla is the United States.

sales by geographic region

Tesla’s financials

From a value investor standpoint, Tesla is a terrible investment at its current price. To see why, just compare Tesla’s numbers to those of another automaker. As illustrated in the chart below, Tesla has been unable to make profits and has so far proven to be a cash-burning machine.

EBIT and net income in million -yoy

From a growth investor point of view, it’s hard to say if Tesla could represent a good investment. Even though the company’s share price has already gone up a lot in recent years, it is difficult to tell how much growth margin there still is.

This will depend on the market share that it is able to secure in the next few years, and how its new and future products, such as the Model 3, the truck, the roadster and the Model Y, perform from a sales standpoint.

The chart below illustrates how revenues are starting to grow to significant levels, as expected by the market; but this has already been factored into the stock price. So, if you are thinking about investing because of these numbers, I’m sorry but you are too late.

As you can see from the chart below, the number of cars delivered is finally growing, reaching mass production thanks to Model 3 sales.

This increase in production will allow the company to achieve economies of scale, meaning huge savings in costs. Tesla’s most sold car is the Model 3, the newest and cheapest car among the three on sale.

q3 cars delivered - by model

Tesla is a story stock, with ups and downs often based on news and Musk’s tweets. It is also the favorite target of short sellers. Some people say that Tesla will be a trillion company in a matter of years; I will just say that its volatility makes it a company for investors with steady nerves, and for day and swing traders.

Tesla's Model 3 presentation
Tesla’s Model 3 presentation

If we look at the P/E average of the automaker industry and we apply this number to Tesla’s market value, we’ll notice that the market is pricing in more than $6 billion of earnings at the current price.

Tesla's P/E vs automaker industry average

Many will argue that Tesla isn’t like other automakers and can’t be compared to them; it is really a tech company and therefore you should apply high-tech company market multiples, as with Netflix, to come out with the correct evaluation. Nevertheless, Tesla is an automaker and I don’t find it that odd to compare it to its peers; even more so because in the near future competitors will try to emulate Tesla’s cars in order to take the biggest possible slice of the rising electric car industry profit cake.

Tesla’s stock performance

Tesla has outperformed the Nasdaq in the past five years. It has proven to be a great investment for early investors. The stock price skyrocketed between 2013 and 2015, but since June 2017 it has been moving sideways.

Tesla vs nasdaq

Conclusion

Tesla’s stock price has already priced in huge expectations for its future financial results. The company has reached a market valuation of more than $50 billion, while making just a few cars a year compared to other automakers. The automaker industry is very tough but Tesla has shown the world that there is a huge demand for technologically advanced electric cars.

Since companies usually invest their cash in highly profitable markets (or market niches), old automakers have observed what Tesla has been doing, and have decided to take action. They want to avoid a possible disruption by making huge investments in electric cars. For example, Volkswagen, after the emissions scandal and the replacement of key management roles, has announced that in 2019 it will launch a new electric car each month. This is very bad news for Tesla because competition reduces industry profits. So far, Musk’s company has been the only big player in the electric self-driving car industry, but times are changing, and this challenge will demand the ability to be at the cutting edge of innovation year after year, following Apple’s example in the smartphone industry. Apple has managed not only to survive but to grow stronger due to the harsh competition encountered in its sector. Tesla needs to keep making giant leaps in innovation to lead and dominate its industry in the coming years.

Trivia: Musk chose Tesla’s car names, Model S, Model 3, Model X and Model Y, in order for them to spell S-E-X-Y. Unfortunately, as you have probably already noticed, Musk was forced to call one car Model 3 instead of Model E. That’s because Ford had already trademarked the name in 2013. (4)

Tesla Possible Strategies 2019

What do you think about Tesla’s future? Let me know in the comment section below.

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Check out my book: A Beginners’ Guide to Stock Investing.

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References

1. https://en.wikipedia.org/wiki/Tesla,_Inc. [Online]

2  https://www.youtube.com/watch?v=bx2RWsUX-hI

3.  https://www.linkedin.com/pulse/true-story-elon-musk-robert-downey-jr-tony-stark-ashlee-vance. [Online]

4.  https://www.greenoptimistic.com/ford-model-e-tesla-20160831/#.W8ICBmgzbIU. [Online]

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