Using the Price Earnings Ratio Has Kept You Poor

Tesla now has a $780 billion market capitalization.

I wrote in August, 2020 that Tesla will overcome denial within 8 months to become a $1 trillion tech giant. Five months have passed. A surge to $1100 per share will make Tesla a trillion-dollar company. Tesla will not stop there.

You Could Have Bought Amazon 20 Years Ago and Become Rich -But You Use PE Ratio to Analyze Stocks

However, there is still denial. The most common denial is around PE (Price Earnings) ratio.

If a company’s stock is trading at $100 per share and the company generates $4 per share in annual earnings, the P/E ratio of the company’s stock would be 25. It would take 25 years of accumulated earnings to equal the cost of the investment. This is for a company without growth. They usually the past years earnings. There is also forward PE which uses the consensus estimate. Forward PE. Morningstar calculates Apple’s forward PE at about 28 (as of early August 2020).

Amazon had a PE ratio over 1000 several times. In 2012, Amazon had a PE ratio of 3600. It has gone up 12 times since then. In 2013, Amazon had a PE ratio over 1000 and it went up 10 times since then. As recently as the end of 2015, Amazon had a PE ratio over 500.

PE ratio tells you where the company was. Forward PE means you are at least estimating what the company will do in the coming year. PE can work pretty well for companies with modest growth or no growth. This is helped by looking at PE ratios for industries. Software companies can have 10-15% growth and good margins. This gives that sector a PE ratio of about 60. The coal industry only has a PE ratio of 6. The coal companies have no growth and are shrinking. They are dying industries.

High growth companies require a bit more work to understand and project. You can compare price-earnings with expected annual growth. This is the PEG ratio. If you were picking among the high growth companies, you could look at the PEG ratio and use that if you want to say that one of the high flyers is expensive relative to another.

Gary Black had an analysis of Tesla focused on the next five years. I am more bullish than Gary. Gary is using a more conservative analysis and this analysis only includes forecasting the automotive business. Gary indicates that EVs could become 30% of all new car sales in 2025. A massive Green New Deal could further accelerate the switch to EVs. Federal tax credits of $10,000 per vehicle combined with a $25,000 Tesla EV would mean Tesla EV would cost $15,000 to the consumer while Tesla would make $25,000.

Tesla has the ability to build gigafactories in 12 months. Tesla is expanding Gigashanghai and building out Texas and Berlin. Tesla could add 2-4 gigafactories a year and add many new car models. They could create cyberVans, cyberminiVans, CyberSUVs, CyberminiSUVs and compete in all categories.

It is worth it to do some simple spreadsheet analysis of projected margin growth, factory growth and vehicle production increase. It is worth it to actually understand the business models and projected growth of the high growth companies that have been dominating the stock markets for 20 years. If they have been working for 20 years, maybe they are not a bubble. If there is a bubble maybe it is only for a few months. Pull backs will happen. If you don’t know when to expect them and how large the pullbacks will be then your understanding is not good enough.

You can ignore pullbacks and surges by using dollar-cost averaging. Buy once a month or once very 3 months to get an averaged purchase price.

In terms of demand, Tesla is selling every car they make without advertising. Tesla makes gross margin of $10,000 to $20,000 on every car they make. Volkswagen is losing $4000-5000 on every EV they make. GM is losing about $15,000-20,000 on every EV they make. GM was already losing money on each Bolt they make but they are selling the Bolts at $12,000 below MSRP.

Tesla production and sales over 9 years is showing 50%+ growth in car sales
2,650 cars sold in 2012. Market cap $4 billion
22,000 cars sold in 2013. Market cap $18.5 billion
31,500 cars in 2014. Market cap $27 billion
40,000 cars in 2015. Market cap $31 billion
76,000 cars in 2016. Market cap $37 billion
103,000 cars in 2017. Market cap $54 billion
244,000 cars in 2018. Market cap $55 billion
357,000 cars in 2019. Market cap $81 billion
e 510,000 cars in 2020 (despite COVID-19 shutdowns that reduced by 70,000)

In 2012, Tesla Model S was the 4th best selling plug-in player.

In 2012, Chevrolet Volt sold 7,113 cars.
Toyota sold 5,016 of their plug-in Prius
Nissan sold 4,607 LEAFs. They had a range of 70-138 miles.

The 2012 Volt was a hybrid. Range: 35 mi battery-only, 380 mi total, MPGe: 95 city / 93 highway, Battery: 16 kWh 360 V lithium-ion.

A 2012 Tesla Model S sells for $25,000-28,000. The new 2012 Tesla model S was $57,400 for the 160-mile version; $67,400 for the 230-mile version; $77,400 for the 300-mile version. It retained about 40% of its value.
A 2012 Volt sells for $8000-12000. A new 2012 volt was $40,000-46,000. It retained about 20% of its value.
A 2012 Nissan LEAF now sells for about $7000. The new price in 2012 was $36,000.

SOURCES – Tesla, InsideEVs, Gary Black, Macrotrends
Written by Brian Wang, (Brian owns shares of Tesla)

57 thoughts on “Using the Price Earnings Ratio Has Kept You Poor”

  1. Bitcoin absolutely needs payments coming into the system, sustaining and bidding up the 'value' of bitcoin. Without that, the nominal value of Bitcoin would collapse, as coin owners wanting out offered lower and lower prices to sell, but got no takers.

    In your hypothetical "one transaction per year" case, the offer price would have fallen so low that most of the miners would likely have given up and moved their attention and resources to alternatives before that bid could come in.

    It's as nonsensical as me saying that my pocket lint was worth $1M a year ago, but since no one offered to buy it since then, I'm now only willing to part with it for $10M – so I must be 10x richer, right?

    Any offers? By next year it'll be worth $100M! This pocket lint's value is shooting through the roof!

  2. Nope. Not sufficient to make it neither a ponzi nor a pyramid scheme. Merely (possibly) overvalued, like the "Tulip mania". Or, if you prefer, like an overvalued currency. Would also fit.

    Both ponzi and pyramid scheme need payments in the "pyramid", which is not the case for Bitcoin. You could, for instance imagine the case where you have only one transaction for one bitcoin per year, and that each such transaction would cost 10x more than the last one.

    In that case, every one of the millions of Bitcoin owners would have 10x their "wealth" each ear, without receiving a single payment.

    Don't believe me? Here is Merriam Webster definitions:

  3. Bitcoin is its own new species of fraud. There's nothing physical backing it, unlike diamonds or tulips or gold mines. There's no real company whose stock adherents think underlies its value.

    In other words, the very things that make it at least somewhat understandable how someone maybe might have found those previous crazes sensible to invest in, is missing from Bitcoin.

    So – pyramid scheme (because it NEEDS new investors to sustain belief) or ponzi scheme (because it needs new investment to avoid collapsing as early buyers cash out) or some new made-up name -doesn't matter. It's a self-perpetuating fraud.

    Now one could say that if a fraud is believed in by enough people – including fiat currencies – it gains its own reality. But Bitcoin has not yet achieved that status, which is why it has collapsed before and will collapse again…IF the big banks don't stabilize it this time.

  4. Any pyramid scheme can be a great hedge against inflation, if you get in early enough and sell out before it collapses. Still a pyramid scheme, because the vast majority of people will NOT get in early nor get out in time. If you are currently buying bitcoin thinking it'll hedge against inflation, I can only wish you the best of luck – you'll need it.

    Bitcoin's only hope (so far as I can see) as a reasonable store of value is for big banks to stabilize it, maybe to back an international fractional reserve banking scheme implemented using bitcoin blockchain transaction scripting. We'll see if that's what they're up to. Unlikely, I suspect – they generally aren't that innovative.

  5. Well, for most commodities it's a mixed case. How many people are bying land as an investment rather than to build their house on it? If someone is buying a commidity for it's increase in value, they are no different than those that want to get a part of the profits of Bitcoin.

    Plus, Bitcoin can be a hedge against inflation. I find that motive perfectly respectable. Why would you not fight the government taking you money by printing dollars?

  6. Tesla, which recently released a beta version of what it calls 'full self-driving' software and whose Autopilot trailed Cadillac's Super Cruise in Consumer Reports' latest ranking, came in last

    This report has been debunked so many times by now… In short, the authors found that the Tesla SW was best at driving and had the best functionality, but that Cadillac had better SW for making sure that the driver was paying attention to the driving. That's it.

    Also, they were not testing Teslas Beta full self driving which is released to a small number of users. This SW is radically more functional than the "standard" full self driving SW that is released to the "masses" that have payed for FSD. Hopefully, Tesla will be releasing the Beta version to all FSD users soon.

    The more users, the faster iterations….

    By the way, D Drake, have you checked out any videos of the Beta FSD? Really impressive and really cool.

  7. Generally, look at the various perf benchmarks competitions of well funded AI teams belonging to the big tech companies and small independent researchers. More compute gives the big boys an edge, but the smaller players are still in the game.

    When I asked for proof, I meant that I would like to see those independent benchmarks which proves that you only need a small team to get to parity with larger teams, not for you to make the same statement again.

    Dojo = compute to do simulations

    No. It's primarily a ANN-training computer with fantastic performance. Training ANN is not equal to simulations. Perhaps Dojo also includes simulations; I don't know. But it's not the point of Dojo.

    Google Cloud TPU Pod 100 petaFLOPS

    Well, that is comparable to Dojo, that is true. Dojo may be about 10x more powerful, but it's in the same range. But is it equally efficient for training convolutional ANN's (= what Tesla uses, as far as I know)? The Google clusters are "general" ANN training machines which may make them less efficient at training ANN aimed at self driving. Also, Dojo is supposed to use unlabeled video for training, which apparently is a big deal. These specific needs may require specific changes in the the computer architecture, so it's not a given that a powerful TPU system could perform these tasks equally well or even at the stated theoretical maximum performance.

  8. I don't believe that's what I said. For the great majority of 'investors', Bitcoin provides no real value to justify it's paper value OTHER than potential for paper appreciation, which derives almost entirely from more people bidding up the price of a limited number of coins.

    Very unlike graphics cards, houses, parking lots, etc.

    Very like diamonds though – which actually has an organization that does what I described, i.e. deliberately acting to stabilize the value. At least diamonds sparkle nicely on jewelry.

  9. If you lower the criteria from "pyramid scheme" from what I described to just meaning: "something that is appreciating in value due to the influx of new owners", then all appreciating assets will be part of "pyramid schemes". Increased demand is mostly driven by an increased customer base, right?

    Example: More people want to buy diamonds/graphics cards/houses/parking lots/oak wood/elf makeup/copper/ so the price increases, which proves that these commodities are part of pyramid schemes. Does this make sense to you?

  10. Tried it, or our mechanics has tried it. They have a site that lists all parts from scrap dealers in Europe, but it doesn't help if the part is unusual.

  11. The "pyramid" portion of a scheme comes from the need to keep adding new suckers to a scheme to keep it going. The same seems true of Bitcoin, at least if it is to keep getting more valuable. Though it is true that a handful of really rich new suckers (banks) can take the place of millions of poorer ones.

    Hmm. It just occured to me that maybe the big banks are playing a different game, after Covid relief made them flush with idle new cash.

    If the banks are willing to commit hundreds of billions of dollars to the project, they COULD stabilize the value of Bitcoin. Buy on any dip, sell on any bump – profitable in itself in the long term, so long as anyone else is interested in buying and selling coins. Eventually people would consider Bitcoin to have a stable value, enforced by the banks. The banks could also provide more trustworthy exchanges.

    Effectively the banks would have control over the value of their own global digital currency, without the difficulties of getting people to accept a new one. Eventually it could become the monetary standard rather than the dollar. No more being at the mercy of the US Fed, that has proven itself willing to risk massive inflation of the dollar.

  12. "The S-Curve here is why, with 5–15 engineers, sees performance not wholly different than Tesla’s 100+ person autonomy team. Or why at Starsky we were able to become one of three companies to do on-public road unmanned tests (with only 30 engineers)"

    Generally, look at the various perf benchmarks competitions of well funded AI teams belonging to the big tech companies and small independent researchers. More compute gives the big boys an edge, but the smaller players are still in the game. Specifically, look at the performance of every self driving startup and their funding levels.

    Dojo = compute to do simulations

    Waymo doesn't build their own compute to run simulations, they get it from daddy google.

    Google Cloud TPU Pod 100 petaFLOPS

    "As part of Alphabet, Waymo uses Google’s data centers to train its neural nets"

    "Tesla, which recently released a beta version of what it calls 'full self-driving' software and whose Autopilot trailed Cadillac's Super Cruise in Consumer Reports' latest ranking, came in last"

  13. It appears any competent team with 'imited' resources can go from zero to close to parity with the plateaued performance of the leaders of the pack, going beyond that requires open ended funding.

    Proof please.

    Just look at the actual leader of the pack, even Waymo can only barley perform non-independently in a geofenced area

    They are not the leader of the pack for precisely the reason you state: they can only operate in a geofenced area

    I'm surprised the dont already have a "Dojo", i suppose they were

    depending on data from the deployed fleet. Most of the rest of the pack

    are getting the majority of their self driving miles in their own Dojo, even waymo.

    The "Dojo" is supposed to work on video data, not single images and perform about 10^18 operations per second. Does Waymo have that kind of a system? Is so, please provide proof.

  14. It's not a story about failing, it's about the time and effort required to get meaningful progress after you get your ML system over ~90%. It appears any competent team with "limited" resources can go from zero to close to parity with the plateaued performance of the leaders of the pack, going beyond that requires open ended funding. The question being, is a 99.9% competent system 2 years away or 10-100.
    Just look at the actual leader of the pack, even Waymo can only barley perform non-independently in a geofenced area.

    This isn't just a problem for self driving, everything calling itself an AI currently exhibit this problem on the road to superintelligence, the only thing that goes exponential is the need for more resources.


    I'm surprised the dont already have a "Dojo", i suppose they were depending on data from the deployed fleet. Most of the rest of the pack are getting the majority of their self driving miles in their own "Dojo", even waymo.


  15. Well, at least they will try, I grant you that. But a few years of monopoly would give Tesla a boatload of income with which to finance their expansion.

    I think that the situation for the chinese market is not clear. Given the chinese government and how they would look upon a foreign company being in control of their transportation infrastructure, I think they will make sure Tesla is not the sole supplier. This includes stealing the Tesla SW if necessary.

    But I also believe that Tesla is scaling their production (in general) much faster than other automakers, and more importantly, scaling their FSD-capable fleet infinitely faster than their competitors. The competitors have in fact not even started putting FSD-capable vehicles on the streets.. With the possible exception of Nio in China, who intends to put a luxury sedan on the Chinese market by 2022.

    And this will lead to a local monopolies in the USA and Europe. Other markets are less clear. How about Asia in general? How about India? How about South America and Africa? I don't know.

    But my bet is that Tesla will have a near monopoly in USA and Europe for the next ten years. And that's worth trillions in valuation….

  16. Sorry to be a stickler for definitions, but in a "pyramid scheme", the participants are forced to sell additional "units" to new owners. So the progression looks like an "inverted pyramid", where the start/bottom is very narrow (few owners) and the top/front line is a very wide area (many owners). The money flows downwards towards the tip, where the earlier "layers" receive a "cut" of the new sales.

    This is not the case with Bitcoin. Nobody is forced to sell anything. The number of Bitcoins is fixed, not expanding. There is no stream of money "down the chain" of Bitcoin. So Bitcoin is clearly not a pyramid scheme.

    You are of course perfectly free to consider Bitcoin worthless – I'm not arguing any side in this comment – but it is not a pyramid scheme. Different animal altogether…

  17. A few things. The author stated that they reached 1 fatality in a million, which seems to be pretty safe, even though the claim is never defined clearly. So that seems to counter his broader claim that full self driving is impossible with current technology.

    He also acknowledges that you need a lot of edge case data and that this is crucial to the success. Tesla is the "king" of edge cases with their fleet collecting data, so that would actually – at least – strengthen the idea that Tesla is the leader in the field.

    And, his estimate that full self driving is "beyond" the capabilities of current HW/SW seems to be a guess. Granted, he has experience in the field, but just because his small team failed, it doesn't prove that Teslas large and well financed team also would. Remember, Tesla is introducing "Dojo", which will allow them to "chase nines" very efficiently.

    Side note: I would love to hear more about "Dojo", but there seems to be very little information forthcoming.

  18. And finally, we have the service life of the individual components. While looking at the said rear windshield wiper motor, it was obvious that it would not have broken if the shaft would have been rust protected. By, say, galvanizing it or making it of stainless steel. Just by adding a minor production cost of a ~20 cents would have made it "imortal".

    And once you start looking at different parts of cars, you see the same recurring theme: very cheap and minor modifications to the production would have extended the part lives drastically.

    I have no idea if Tesla is trying to improve on this situation or not. But once they start producing for their own robo taxi fleets, they will at least be motivated to minimize the cost over the whole service life, not just the sales price.

  19. So, if a car manufacturer would be serious about keeping the maintenance costs down, it would standardize all parts. All seat belts for all postions, all window lifts, all side view mirror motors a.s.o. This would ensure a thriving after market as well.. But of course, no manufacturer wants this.

    And you are 100% correct about not designing for things to be easily replaceable. To get costs down, a manufactuer could design in larger modules and standardize them so that the unit price would be low.

  20. Now we are driving a Toyota Land Cruiser, but it's kind of old, so thinks break regularly. 2007 model.

    I just had to replace the rear window windshield wiper motor. Of course, the motor shaft was not stainless steel so it had rusted and thus the motor had to be replaced. Spare motor: ~400 USD.

    Now, while trying to first fix it myself I lost the plastic cap that covers the windshield wiper joint. It weighs about 10 grams.. Talked to the dealership and they want 240 USD for the cap. Without it, the exposed screw would rust prematurely. I could probably have it 3D-printed for less, if I only knew what the shape was..

  21. I replace the back seat belt on an Opel Astra after having owned it (bought it new) a few years. Cost of replacement ~260 USD, whereas most was the part. This was about 2015, so not that long ago.

    That's when I learned that seatbelts are not standardized. They are not the same for different positions in the same car, let alone for different car manufacturers and models. Basically, every freaking seatbelt is "unique". And the reason is of course that the car manufacturer – Opel in this case – wants to have a monopoly on the spare part and sell it at an exorbitant price.

    So a part which should – with competitition – cost, say, 10-20 USD costs ~200 USD.

  22. $200 for a seatbelt? I replaced a belt not that many years ago and I think they were a fraction of that. I can't remember how much, but I would definitely remember if it was into triple figures.

    This was just a standard Mazda, which uses the same belts as 90% of the Japanese cars, so it wasn't anything special. If I remember correctly the set I got wasn't even from the same model, but it fit just fine.
    Or it may have been the seats. I got the seats from the more upmarket Mazda 6 which were totally compatible, but nicer, than the ones in the Mazda 3 (which had been stolen).

    Detangenting again, you are spot on that maintenance and spares are NOT optimised for (most) vehicles. I know a couple of mechanics who claim that any job that takes 1 hour on an Australian car, will take 2 hours on a Japanese car, and 4 to 8 hours on a European car (depending on which company). I don't know where American cars fit on that scale, they are still pretty rare in my country.

    And at dealership hourly rates that means that a lot of Euro cars have savage depreciation once they are passed their warranty and the owner is paying for routine work.

    Eg. A Renault Sport Clio RS 182. Considered the best little hot hatch of the early 2000s. But you can pick one up for about the cost of one year's registration… because every few years or you have to replace the fragile and vital timing belt, that needs a mechanic familiar with French cars about a day, $1000 at least.

  23. Bitcoin isn't just *a* pyramid scheme.

    It is the most magnificent, marvellously assembled pyramid scheme ever!

    • A great "mysterious origin" story – an unknown genius creator who held back a fraction of the coins, making them a billionaire without needing to produce or distribute a product or even maintain a service.
    • Wonderfully complex technology combined with a "Fight The Man" meme – replacing evil-government-created-and-inflated fiat currency. That meme-ware sucked in the tech nerds needed to form its foundation – running its software and creating an eco-system around it.
    • Terrific 'rags to riches' story material. Those who got in on the ground floor essentially for free with just a normal PC, quickly earned enough coins to make them easily a millionaire today. These days all you have to do is buy some bitcoin on an exchange and wait to get rich as even greater fools jump aboard. Eventually the greatest fools of all – the big banks – decide to stop missing out on the amazing 'profit potential'. (Happening now!)

    The pyramid collapses when there's more 'investors' looking to take a big profit after a big fast spike, than are left to be fooled into buying late.

    The only question is whether it will inflate again after it collapses.

    The answer is YES – because I know a secret technological trick that will let me (and a few early investors and clever engineers who help implement my method) get rich (tax-free) by restacking the pyramid !

  24. Tesla will be the sole/major supplier for RoboTaxis for only a short period, a few years at most. There is too much money there for other automobile companies not to enter the market.

  25. I don't know whether Freightliner became desperate, or the owner, then Daimler-Chrysler just laid down the law to it's subsidiarity.
    I can tell you that the change moved through the plant department, by department, as did TPS trainers. The single biggest change was giving everyone on the assembly line the power to stop it if there was a problem, whether it was no part, defective parts, or a failure of tooling at a station.
    Previously, trucks were sent on down the line without parts, and dealt with in a part of the operation called "off-line", a very expensive way to do things. Only mid level management(shift manager) could restart the line, after looking into the problem.
    It really made management serious about having good parts, in time for the truck that needed them. The time the line was down was not wasted unless it ran over 10 minutes or so, since employees were trained to clean up, get parts ready, refill consumables….
    My best guess is that Daimler instituted the TPS in an auto plant that was near failure as a last chance to return to profitability, realized it was like printing money for the company, once done, and then rolled it out everywhere.

  26. First rule of investment club: invest in what you use.

    Everything I use has had massive gainers over the years: Apple, Amazon, Facebook, even Okta and Docusign. If you are coming in regular contact with a company's products, there's a reason. And you can bet their earnings are growing.

  27. The time horizon for improvements in machine learning systems and thus the robo taxi network part .


  28. What part is nebulous here?

    A robo taxi network would be worth trillions, that is a "done deal". Now, is it a done deal that Tesla will manage to solve full self driving (FSD)? No, but it's looking very good. They are already "chasing nines".

    So when buying Tesla, you have to ask yourself if the expected return – a 10x here – times the expected probability of success is larger than one (1). If yes, it's a buy. And since the upside is so large – a 10x – you only have to "believe" in a probability of more than 10%. Right?

    (1) Well, actually you would have to ask if the product would be bigger than your expected return over the expected time fram. Say, 5 years, and 15% net return on you investment. So larger than 1.15^5~2. But that's a detail.

  29. True, they may not change even if there is ample motivation. I was, through, interested in how long it would take. Knowing this would improve my "model" of how fast a company might change if motivated. Like, say, WV. They seem to be motivated, or at least Herbert Diess is.

    To continue on you tangent.. No, the automakers don't have a magical technology for improving the fuel economy by a factor of 10. But they could have a technology for reducing the maintenance costs of their cars drastically. Why should window lifts break when used so sparingly? Why should a replacement seatbelt cost 200 USD as a spare part?

    Here we actually know that the automakers make all their profits from spare parts, and not the actual car sales.

  30. The magical thinking part, when you accept nebulous possibilities as a certainty.
    It's a serious declaration of faith when someone buys a share of a $700B company that has so little revenue.

  31. How long did Saab take to abandon their old, unprofitable methods? Or Holden? Or Rover? Or Pontiac? Studebaker?

    There is a long history of major brands taking too long to react and not being able to pull off a changeover. I wouldn't use the technical possibility of leopards changing their spots to say that they will if they are just motivated enough.

    (To go off on a tangent, that also kills the story that "car makers have secret technology that could make a super car that uses 1/10 the fuel, never needs repairs and was invented by a local mum. But they keep it hidden because they make more money producing the polluting designs with kickbacks from the oil companies and make money directly from poisoning unicorn princesses."
    Clearly if the entire company is going down the gurgler, they'd throw a few Hail Mary passes if they actually had such a thing in the bottom drawer.

    End tangent.)

  32. Sorry, but this is about the worst investment advice anybody can give (particularly for investing over the long term). While P/E is not the end all/be all in investment decisions, it is a very important factor in determining a stock's value (especially with the treasury printing cash like it's going out of style).

  33. The only "mitigation" that I see is if the competitors can use ANNs with "attention" to boost performance and thus catch up with Tesla. Teslas ANN's are using convolutional ANN's and it may be that "attention"-ANN's are superior, not only in language application, but also on vision applications.

    Could Tesla "switch" to "attantion"-ANN's? I do not know if their dedicated ANN-HW could run "attention"-ANNs effciently. If the competitors would be really lucky, then both Tesla and the competitors would have to switch to "attention" -ANNs at some future time, and thus end up closer from a technological stand point. It may even be that "attention"-ANN's are so much better than convolutional ANNs that they require less data to be trained, and thus removing some of Teslas massive data lead.

    But that is a lot of "if's"…..

    Of course, the US government could just mandate that Tesla be split up. They may not like having a 10-20 trillion dollar company regardless of how "good" it is percieved to be. Or the Chinese government could just force Tesla to transfer their SW or else be kicked out of China. Or they would just outright steal it.

    I honestly see government intervention as more likely than competitors catching up before 2030…

    But even if Tesla would "only" have a 50% market share of robo taxis in Europe and the USA and zero percent of the chinese in 2026, this would still justify a multi trillion dollar market cap.

  34. The market for transportation as a service will be supply constrained. I.e., all robo-taxis will be completely sold out for all suppliers until there are hundreds of millions of robo-taxis on the roads.

    Remember, robo-taxis are cheaper than normal taxis by a factor of 10, and even cheaper than personal ownership per mile, so we are basicaly talking about replacing 2 billion cars with robo taxis. With, say, 100-200 million robo-taxis globally. It's going to take quite a while to produce this amount of robo-taxis, so the market will be saturated at some time – guessing here – perhaps… 2035? 2040?

    Tesla has a market share of FSD-capably vehicles of more than 99% today and right now, I see no other EV-maker putting FSD-capable vehicles on the market. In fact, I don't see any other EV-maker scaling their production of EV's without FSD-HW at the rate that Tesla is scaling their production of potential robo-taxis.

    In your opinion, when will the other competitors produce cars with FSD-HW? And when will they be at the same FSD-SW-level as Tesla is today? Please note that they will have to "collect" billions of miles of data, just as Tesla has done. Then, and only then, can they launch competitive robo taxi networks.

  35. Telsa corrent value can be justify by robo taxis only if its the only company providing them.
    since that will not be the case, you need to redo your spreadsheet with the high end where Tesla has up to 10% of the competative robo taxis market.
    That is still a nice value, but it doesn't justify 700B$ valoation now.

  36. Sorry, but there is no "new economy" as many believed in the late 90'th.
    What there still is a hype and a bubble.
    True many early investors in Tesla and Bitcoin became rich, as in ant peramid schem.

    But unlike most peramid schems such as Bitcoin, Musk has used the free cash the unwise investors pured on him , to build a real company, that has a real high value (around 100B$).

    It's extremely hard to predict how far and how long a bubble will continue growing, especially when mid stage peramid investors such as Brain keep markting because they know that ones the peramid schem finish finding new victims, it will crash.

  37. iirc amazon was a book store.
    they call Tesla a car company
    in both cases the designation isn't even in the ballpark.
    now, want to talk tulips, think bitcoin. but it appears it has crossed from vaporware into name brand hollowbox.

  38. Forget about the PE value for Tesla right now. What is your estimate of how much Tesla could earn from a robo taxi network? Take that profit and multiply it by – say – 25, and what do you get?

  39. How long did it take them to implement the "Toyota Production System" counting from the time when they were desperate? I'm asking since the legacy automakers don't seem to be desperate about Tesla yet, and the clock is already ticking..

  40. I agree with Brian, but he is missing the most important part of the puzzle: robo taxis.

    I have also made my own spreadsheet where Tesla arrives at 20 million cars per year at 2030 in a geometrical succession. Now, in itself, the car sales are not so important, they are only important as "carriers of self driving".

    If you make this excersize, you will find that the profitability of Tesla will explode once they are producing all of their cars for their own robo-taxi network. My guess is that this will come in 2026, at which point Tesla will be worth multiple trillion dollars, even with a fairly low PE-ratio.

  41. Hmmm, there are a lot of cheap Chinese EVs now too, some of starting to be sold in America. Here's a list of Chinese electric cars on Youtube:
    The first video on the list is literally called "TOP 5 CHINESE ELECTRIC CARS THAT CAN OUTSELL TESLA MODELS IN CHINA WITHIN 2-5 YEARS" and it came out 2 weeks ago. It says 1.2m evs have been sold in China, the world's largest potential market. BTW, Tesla is not even among the top 20 cars sold in Europe, a mature market, sure, but a rich one. Sure, Tesla can do what Apple does and aim for the mid-high end market, leaving the low end to the Android equivalent in EVs. They almost have to do that, and yes, the election just gave a big boost in tax credits to EV makers, but that's already factored in, IMO. Maybe ease in on pullbacks, if any, but it's too rich for my money. Now, immugene, with a cancer vaccine, that's something you can still get on the ground floor on…but so are a thousand other companies. Which ones will be the next Tesla?

  42. P/E is a good yardstick for stable companies in a mature industry. Food Lion supermarkets comes to mind. It is not a good yardstick for a rapidly growing company in an immature industry like electric cars.
    Not only that, the auto industry isn't so much mature, as it is ossified, with nothing much fundamentally new happening for the last 30 years there except hybrids. Even advances in production of cars is stilted.
    Battery cars aren't new. Even discounting those around the turn of the 20th century, GM gave birth to, and murdered the EV1, and people have been converting their own cars to electric for decades.
    The automotive industry was/is ripe for disruption, and Tesla is as disruptive as it's namesake. Huge growth is possible, if Elon can hold it together, or if his replacement retains his values.

  43. The belief is that it is the ultimate growth stock. As it saturates the auto market, it adds other products. There are PV panels, and home battery/inverter products already.
    Supposedly, home HVAC based on the chiller based system with fancy valve gear, and several heat exchangers that their cars use, is in the works. It would heat, or cool your home, as well as heat water for domestic use. It will likely have a higher COP because it is chiller based. I suspect they will experiment with supercritical CO2 as a "refrigerant", and it will be a success. One advantage is that it would come preloaded with refrigerant, since it would not be a "split system". CO2, now it's for cooling too!

  44. Tesla's success is not because of some proprietary technology no competitor has, or barriers to entry that protect it's market. It's success, due to it's superior products, is because it's led by an engineer, and engineering comes before marketing, and even short term profitability. Tesla has also managed to remain innovative, avoiding "that's not the way we do it here" mentality, and embracing change that brings advantage.

    The thing is, these are "open secrets", that anyone can copy. How long will it be until desperation drives legacy auto makers into accepting Tesla's credo? I watched Freightliner throw away decades of corporate culture to embrace the "Toyota Production System"(they called it the truck production system) and Kaizen.

    It was beautiful to watch. During the change, I was a technician at the end of the main assembly line, and later a final inspector for QC. There was a noticeable drop in assembly defects, and quality in terms of things like paint job at the end of the line, as TPS worked it's way through the plant. Quality increased, total production increased, and hours worked per truck improved throughout the plant. The sad thing was, it could have all been done 30 years earlier.

  45. But you are not looking at the constraints, only at the rate that Tesla can built its factories.
    The global car market is of a certain size, and if anything is expected to shrink.
    No car company worth worth like Tesla, true, their profits are much lower, because Tesla is able to produce its car cheaper which allows it to make a larger profit. This gap has been narrowing and will continue to narrow as other manufacturer ability to produce Electric cars cheaply and the market as a whole matures.

  46. 100 percent agreed. The only thing I'd change is that magical thinking makes people TEMPORARILY rich.

    I like this site but I would never take financial advice from any of the articles.

    The only thing that would make Brian favor Tesla more is if it were a Chinese company

  47. In 2012, Amazon had a PE ratio of 3600.

    I dont see the similarities. Tesla's revenue and yoy ramp can't justify the valuation in my book. I think it's less the case p/e is keeping people poor, more the case magical thinking is making people rich. Fortune favors the bold.

    Amazon 2012
    Revenue: $61.1 B
    EPS: $-0.09
    Assets: $32.5 B
    GP: $15.1 B
    Market cap: $100 B

    Tesla (twelve months ending September 30, 2020)
    Revenue: $28.176B
    EPS: $0.52
    Assets: $45.691B
    GP: $5.955B
    Market cap: $696.81B

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