Bulls vs Bears on Tesla

Tesla bears still claim that competition is coming for Tesla, but the bulls note that no electric car can yet match the 2012 version of the Model S. Tesla has since improved the Model S by 40%.

China has large overall electric car sales. However, the best electric car models in China are still inferior to Tesla in terms of range of features.

Tesla now has 22.8% gross margin on its cars. Other makers are behind the learning curve and would to have to sell electric cars at a loss to match Tesla’s features and pricing.

Tesla is continuing to make process and technological improvements in all aspects of the car, factory and production processes.

Ark Invest believes that with each doubling of the units produced of a new product (Wright’s law) then there is a 15% lowering of costs. Tesla has made about 875,000 cars in its history. 360,000+ will be built in 2019. They should produce 600,000 cars in 2020. The China factory and the learning curve benefit could move Tesla to a 30% margin even with even lower selling prices.

The Shanghai factory could reach nearly 150,000 cars in 2020 and the Fremont factory could get close to 500,000 cars in 2020.

Tesla could start a new Europe factory in 2021. The Shanghai factory will get more expansions in 2021. This could be 300,000 cars in 2021 in Shanghai. This could mean nearly 1 million cars in 2021.

Tesla is ramping its solar and home battery business again. The California fires will be a massive boost to this area.

Tesla will be building on its lead with batteries using the Maxwell dry batteries. Those will have higher energy density and lower cost.

Tesla will be adding more and more self-driving capabilities. Self-driving robotaxi’s should have an 80% margin business.

Written By Brian Wang, Nextbigfuture.com

54 thoughts on “Bulls vs Bears on Tesla”

  1. gross margin is largely irrelevant, it is all about free cash flow, especially in the car business. I don’t see 1 quarter constituting a trend. As for China, Tesla doesn’t expect to get really started in selling cars until middle of next year. In a market completely saturated with NEVs and where total demand has declined by 34% year on year. Tesla has until 2023, ie 2.5 years to make a 15% pre-tax margin in China or the state will take ownership. That is a very tough hurdle. So the Chinese state (via the state owned banks who have lent Tesla the money) don’t care about gross margin either. And where did you get the figure that it costs Tesla 55% less to produce a Model 3 in China compared to the US? It can’t be labor costs because that is only around 10% of COGS, and less for Tesla given heavy reliance on robots.

  2. Their gross margin has increased from about 16% to about 22% in just one quarter. Please notice that 22% is excellent for a car manufacturer.

    I expect the gross margin for become even better once the chinese model 3 are being produced and sold. It cost Tesla 55% less to set up their model 3 production line in Shanghai compared to the corresponding production line in Nevada. You do the math, chinese salaries, lower capex spending, 100 – 150 k vehicles in 2019….

    Seems pretty sustainable to me…

  3. Even if that happens, the question is when it happens and how big Tesla is a company then. 1000 billion USD capex? 2000 billion USD capex?

    Also, if they manage to push through electric cars and full autonomous self driving though nothing more, those changes are major achievements that will change our lives for the better. Don’t you agree?

  4. Gee, wrong again. They had a Q1 loss of $702m and loss of $408m in Q2, but profit of $143m in Q3. Do the math. Can they turn a sustainable profit? That is the question everyone is wondering, ie when will they turn the corner and can they? My view, as an owner of a Tesla, is that they won’t be sustainable if they do what they’ve been doing. I want my car to have residual value and hopefully trade it in to a really awesome model theta or whatever. They ought to stop making cars and outsource that to someone else, and focus on being a design and tech IP company. Also, drop the cash bleeding charger business. I am a loyal customer, but as an investor I wouldn’t touch them with a ten foot pole.

  5. Do yourself a favor and read the Hydrogen Roadmap strategies of both Japan and Korea, because you are dead wrong.

  6. actually standard oil is a bad example since by the time the federal government got around to its anti-trust lawsuit, their total market share was down to ~40% far from the >90% at its height.

  7. Not impressed with the VW attempt. Not much clearance. Not terribly attractive (front is definitely too tall). Windshield is too short. Doesn’t look sturdy. Who knows…maybe it is.
    Just does not look convincingly off-road to me. Fine on-road, I suppose.

  8. The two biggest opportunities there for the grabbing are light road legal dune buggies, and tractors. These are both excellent fits for electric. Farms have room for solar arrays easily sufficient for charging tractors. They typically do not go very far daily, and you can have your own quick charger of some kind. Have lunch while it is charging and then back to work. You could even put on your food packaging “no diesel exhaust farm” or something like that. Electric has great torque which is terrific for tractors. One gear takes a lot of the complication from tractors. They often have very expensive complex transmissions. And that is usually that fails and costs a lot to fix. Electric would go and go and go.
    A tube steel (perhaps chrome-molly) road legal dune buggy. Something that can easily do the roughest trails, but runs beautifully on the road as well. Ideally this should be under 2,000 lb. Maybe 1,500 lb. Lots of clearance, good sized windscreen, large travel suspension. 200+ mile range on-road, 100+ mile off-road.
    Ok did a little search. VW does appear to see the dune buggy opportunity: https://www.wired.com/story/vw-id-electric-buggy/

  9. Hydrogen is DOA in passenger vehicles. It is inherently far less efficient than electrical power, and has structurally higher cost. Why buy a car that has expensive powertrain (fuel cell), very limited refueling infrastructure, and costs about as much as gasoline to operate. Maybe hydrogen will have applications in heavy vehicles (trucks, ships) where range is crucial. Most trucking it is more important to have low operating cost than high range, and hydrogen is 6x cost per mile of EV.

    You are also wrong to claim that Korea and Japan manufacturers have decided to abandon EVs. Kia/Hyundai have a very popular EV model (Kia Nero/Hyundai Kona). Toyota has announced they are developing a range of EVs, though they are late to the party.

  10. Tesla just reported a profitable quarter, despite continued investment. So the argument that they make cars for a loss is unquestionably false. On the other hand, it is true that they are likely the only car company that makes profitable electric cars, and definitely have the best margins for any company making EVs at scale.

  11. They reported net income profit this quarter, and are likely to in future quarters except when opening new production lines (which involve step increases in fixed cost without associated revenue). So, there goes this argument.

  12. If only Tesla can experience the disaster that Apple has experienced with ‘catch-up’ players in their space, being only worth $1 trillion (20x current valuation). And Tesla has many advantages that come from not being an incumbent–no dealer network, no legacy business to manage the decline of. Tesla will have competitors, but more likely other new entrants. Tesla has built an ecosystem that will be hard to replicate, and very capital intensive for new entrants. I think they have good moats.

  13. capitalism is about competition that keeps the corruption low but how would a paid Russian troll know that.

  14. Nah, I was thinking of a noun form of the “X derangement syndrome” where someone is obsessed with negative views of X.

  15. You are assuming Tesla will be greedy and optimize earnings for the sale of each car. If they are not greedy, that leaves no room for others to undercut them leaving only niche markets they have not addressed.
    It can be more than niche markets, if they ignore the sensibilities of a lot of the public. Ford made that mistake. All Fords black, and other arbitrary non-choices.
    If Tesla insists on “clean”, no button, no knob stuff, they will definitely leave the door open.
    The biggest problem I see at present is the lack of models to choose from and too great of commonality between models.
    They wanted a reputation for safety, but in doing so rejected motorcycles. But a safer motorcycle would certainly save lives…even if motorcycles cost many more lives. People who drive motorcycles will keep on driving them…may as well make them safer. I think they should have made a self-balancing semi-enclosed motorcycle. Something between the Lit Motors’ C-1, and Randy Grubb’s Decopods: https://www.youtube.com/watch?v=lo_zXe2UWKw
    They are late with the pickup. And I have doubts it will be true off-road. Though I could be wrong.
    The big money is being invested in markets Tesla has ignored or did not prioritize: city buses, semis, motorcycles, pickups, SUV (though they will likely win this segment with the Model Y), air taxis, delivery drones, delivery trucks/vans. Tractors are still being ignored.

  16. My view is the Tesla makes great cars at a loss (disclosure – I own a Model S). I am not sure Tesla has a sustainable business model, though. Other car companies were late to the party because making cars is not exactly a high margin business. And other car makers, rightly so in my view, decided NOT to lose money hand over fist. If Tesla could figure it out and sell 600k-1m cars at a loss in a 80m car-a-year business, so be it.

    I think it would be impossible for a board of any car company to get a car build project that
    would burn through almost $10 billion (Tesla is expected to hit this by year end) without earning money. Will Tesla’s financials become profitable in a sustainable way? Maybe, though I think it will be tough. The higher end market has figured out now how to make their competing products profitable. The Taycan took 4 years and cost about $6bn and looks to make a profit next year. The lower end for EVs is breakeven at best. You can argue about fewer parts and all that, but for an industry of regular cars that hovers around 4-6% operating margin, EVs won’t become any huge contributors to dividends.

    The real threat to Tesla, and EVs generally will be hydrogen. Both Japan and Korea have decided to abandon EV and go with hydrogen for all their vehicles, and – more importantly – for all their power. I suspect when these 2 figure out how to do this profitably, rest will follow.

  17. As my father always told me growing up, the measure of a man is what he accomplishes. Much of Elon Musk’s competition evolved because of his accomplishments and would either not have existed otherwise or been decades behind the current curve. People, who have not accomplished anywhere as much as he has can bash him all they want. Their opinions are, quite simply, irrelevant. If you don’t like the price of his stock, caveat emptor.

    Personally I admire the man for his accomplishments. I respect his goals in space especially and not only wish him well but will actively support him in achieving them by signing up for Starlink as soon as it becomes available. I am a trucker (prior IT) and will buy one of his electric trucks once the range improves, and not by much makes it viable for short haul runs without diesel costs (I have a 50k micro hydro rig going in that could charge it).

    Haters will hate, jealous smaller people are what they are. As current street wisdom says, don’t hate the player, hate the game.

  18. I want my Tesla car/solar/battery wall/Supercharger/StarLink bundle price Elon, PLEASE! And travel mile discounts from SpaceX!

  19. Actually, it more an effect of vertical integration. Controlling all aspects of production. See Standard Oil for how its done if you want to monopolize an industry. Facebook followed this model to an extent by gobbling up other social media platforms that were compatible. SpaceX is doing it with their internet and space launch services. Tesla is trying to do it for energy consumption. Tesla will do well, but not on the scale of SpaceX, which will likely be worth as much as Apple in or Amazon in 5-7 years time. Starlink is no joke it has an instant 20-50 billion revenue stream possible, quickly. People can change internet quicker than a car or add solar. A few hundred for a router and 70-100 per month is an easy change since its similar in cost and not a big hit. If he can get even a 3% world market share, plus a decent amount of financial services, shipping, military, and aviation contracts its 100+ billion in annual revenue, likely over 200. Thats a trillion dollar company.

  20. So we have an industry that is dominated by enormous multinational corporations, often government owned directly or heavily subsidized.

    These are the very huge, world dominating multinational corporations that socialists have been holding up for nearly a century as the epitome of ever more powerful oligarchic powers that will dominate the world forever unless political action is taken to overthrow their power.

    The libertarian types say “no, with free competition some competitors will arise with new tech and business practices that will bring down these behemoths”. They are laughed at for being naive.

    A competitor arises with new tech and business practices that threatens to bring down the behemoths.

    Socialists panic because this new competitor, a literal start-up that is challenging General Motors itself, is proof that vast multinational corporations will be unchallengeable.

  21. Even if the electricity comes from a coal power station, the coal burners are a hundred km North of the city. The diesel bus exhaust pipe is 2 metres in front of me.
    I can see which one pumps less pollution into my face.

  22. Weird….so all those oil subsidies that help gas cars…those don’t count?

    And its losing millions a year on billions of revenue because its expanding massively. and those expansions are paying off. They announced 2 days ago that they turned a profit of 143 million for this quarter. Even while still expanding rapidly. Feel free to keep shorting them though. lol.

  23. Weird, I dont think other car manufacturers wont exist. In fact im confident that Elon will never have a monopoly in the vehicle department. But he has done amazing things, and will drive innovation to compete in a industry thats been sitting on its heels for way too long.

    And spacex has a couple very solid contenders coming up, Blue origin for example has what appears to be a better engine. And they DO have the funding to be a serious competitor.

    But any competitor has to be able to get ahead of elons development curve-and so far they just havents managed it. And thats primarily due to Elon it appears to me. Give someone who understands this the budget, and the freedom to do it, and Elon will face real competition. But until they change their development environment he is going to remain ahead of them.

  24. What I enjoy is that some of them put money into it, and lost a billion dollars recently. I bet Elon is having a serious laugh about it too.

  25. Quite agree. There are legit criticisms and concerns. But there’s too much “You’re just a fanboy/troll!”

  26. What are you talking about? We don’t live in a pure libertarian capitalist economy. The federal government intervenes in the market on a massive scale. Then there are additional state and local government intrusions and controls.

  27. Man, the lengths people will go to to bash Musk and his companies is truly weird. Here is a guy who should be a unifier, uniting right wing bootstrap capitalists with lefty environmentalists and everyone else who just loves fast cars or who geeks out at new space technology (NBF, helloo!). Instead there seems to be endless numbers of internet complainers bitching about the companies, the guy, pretty much anything and everything, whether it makes sense or not.

    I don’t really understand the mindset. I mean I sorta get the contrarian angle, where fanboyism offputs, but this is way beyond the pale. Sorta makes me believe the conspiracy angle, with disrupted, or soon to be disrupted industries paying for sock puppet complainers.

  28. Who says the air will be less polluted? We are terrified of nuclear, and wind farms and solar have huge carbon footprints to manufacture and maintain.

    Besides, with lithium batteries, you are changing air pollution for toxic waste landfills.

    Yeah, the Second Law sucks.

  29. Tesla is the opposite of capitalism. It has always been propped up by massive government subsidy. It STILL loses hundreds of millions of dollars a year.

  30. And this, boys and girls, is why pure liber(al/tarian) capitalism invariably leads to monopoly. The lead actor gets more and more economies of scale, until the other actors cannot compete. Elon Musk is a veritable poster child of this effect, what with Tesla and SpaceX.

  31. Does it matter? We’ll all be thankful the air is less polluted. We’ll all be thankful oil country sponsored terrorists will lose access to resources as the global demand for oil begins to dip. That’s a big permanent change.

  32. I don’t know who’s waiting in the wings to snap up Tesla’s technology – other than China itself, and they won’t use legal methods to do that anyway

  33. From what I can see, the big car companies are putting out EVs mainly to ‘be in the market’ and pull in customers considering EVs.

    They simply won’t have access to the battery production capacity to switch quickly to pure EVs. Even if they make it a priority, I doubt they’ll be able or willing to expand battery production as fast as Tesla can and must.

    So their big push is going to be hybrids and secondarily plug-in hybrids with a small electric range for those who definitely want some kind of EV.

    From a climate change perspective, hybrids may even be a better way (than EVs) to go for the next 5-10 years. Far more of them can get on the road far sooner, significantly reducing gasoline consumption without replacing it with electricity still largely produced using fossil fuels in many areas. [ https://www.linkedin.com/pulse/ghg-potential-hybrid-vehicles-critically-needed-under-kevin-f-brown/ ]

    This all has some pretty big implications for the oil companies for the next decade. Oil company profits should decline. Gas prices might fall. The number of gas stations should decline. Stations may commonly react by installing a few EV chargers. That in turn will increase the relative comfort level of would-be EV buyers.

  34. Often lions adopt an ambush strategy: one scared the zebras from the back and three or four attack by surprise the one that got ahead of the rest as it is likely to have burned more energy to Sprint faster…
    This is true in industry too: being an outlier leaves you more exposed. I am not saying that this is necessarily the case for Tesla, but who knows…

  35. Everyone who knows anything about the business cycle which I don’t know much knows that as a new product becomes a commodity there is less incentive to pour money to improve it technologically singularily. When apple started making money on the Iphone it had created, it did spend more money to improve it, but more importantly a web of companies was created contracting and subcontracting only to create small improvement on the product in every iteration with no one company having a technological advantage or monopolizing the market, this is what I think is just about to happen with the electric car.

  36. One detail.. Please note that Tesla had not introduced any new battery chemistry even though they are pooring massive amounts of moneyinto battery research. So there might be a few iterations of battery improvements ahead, not just the dry electrode technology…

  37. But how big will they be once the others catch up? Say that Tesla gets to full autonomous driving in 2021and the others in 2025. Don’t you think that Tesla would have sales of about a few million cars per year by then? And would that not mean that they would have even more money to use for innovation?

  38. Remember, if we are in the jungle and a lion attacks us, I only have to put run you, not the lion.

    Tesla only has to keep the lead long enough for most Legacy car makers to die. This will happen. Period.

  39. Nope, with what they are with the Maxwell batteries and autonomy is not that far ahead as what Tesla did when they started selling Luxury Electrical cars. After a breakthrough things take their shape and the stream of innovation quickly dries up. They are already not that far ahead as they used to be and with this sales share will follow down as well.

  40. After Maxwell and self driving, there may be something else that they do. Creative minds have new ideas all the time. Maybe even better batteries, or something no one else has thought of yet.

  41. …And what’s after the Maxwell dry batteries? They have reached the wall of the technology that they can exploit. Autonomy is a technology that everybody is working on, Tesla will be the first to exploit among a horde but technologically is not in the lead. The Maxwell batteries will be followed by a bit better dry cells, not by Tesla, or perhaps by something much better by who knows who as there are so many companies already involved by the next generation of batteries. This will leave a room from the near future for everyone else to start closing the gap. The same as what has happened with the Apple Mccintosh Personal computer, the Iphone and eventually will with spaceX. In our age what was a novelty five years ago is a commonplace today. Elon Musk companies are not about new technologies that take a lot of time to catch up with, but existing that that he is putting to a good use. Now that they have reach the point that they need to implement new technologies, they are as good as anybody else. Personally I am glad that I don’t have a Chinese mentality and I have a mind set that can grasp that only seldom the winner should and does take it all, part of it has to do how were you trained in the system you grew up in, I guess.

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