Can Big Auto Catch Up to Tesla?

You have chosen not to invest in Tesla and missed more than a 100 times runup in stock price.

Now you are still “scared” to invest in Tesla.

You think maybe the other car makers will catch up.

A car expert, Sandy Munro, tells you that legacy carmakers will not catch up. They needed to start five years ago or earlier. Sandy Munro thinks new entrants have a better chance of catching Tesla. Legacy carmakers will have to get rid of factories, unionized employees, have retirement expense obligations and many other issues to make the transition. The dealer network is a problem for the old car companies.

Tesla sells direct to consumers and is able to sell every car they make without paying to advertise its cars.

Legacy carmakers currently buy most of their parts from many other contracted companies. Legacy carmakers do not make their own batteries. Tesla currently has a joint venture and partnership with Panasonic for the Nevada gigafactory Tesla also gets batteries from CATL, LG Chem and Samsung.

Ford has $160 billion total debt. GM has $110 billion in total debt. Volkswagen has over $230 billion in debt and Toyota has $21 billion in debt.

Ford Motor Credit generates about half of the automaker’s profit. This is up from 15 to 20 percent as recently as 2016. A lot of the rest of Ford’s profit is from servicing cars at dealers.

Ford took a $2 billion hit to earnings due to adjustment to pensions and airbag costs. Pension funds were underfunded and they had more airbag liabilities.

Nextbigfuture notices that Volkswagen is one of the biggest of the old carmakers and they did start over 5 years ago. Volkswagen spent $50 billion. Volkswagen is somewhat competitive with good electric cars that people are willing to buy. However, Volkswagen has to sell the ID3 and ID4 at a loss of $4000-5000 for each car. This is offset by not paying a penalty to sell their profitable gas or diesel SUV.

Why didn’t Nokia crush Apple smartphone?

In 2007, Apple introduced the iPhone and the company had annual sales of $20-25 billion. In 2010, Apple had annual revenue of $50 billion. In 2011, Apple passed $100 billion in revenue. In 2015, Apple passed $200 billion in annual revenue.

In 2007, Nokia had over $70 billion in annual revenue. In 2011, Nokia had $57 billion in revenue. Nokia was ahead on revenue for four years after the iPhone was introduced.

Tesla went from $24 billion per year annual revenue run rate to $42 billion per year in the fourth quarter. If Tesla makes 900,000 cars in 2021 and battery and solar revenue increases then Tesla should make $80 billion in revenue in 2021. If Tesla makes 1.6 million cars in 2022, 110 GWh of batteries, solar and has more autopilot sales then Tesla will be making about $150 billion in 2022.

Nokia sold 485 million cellphones in 2007. Apple sold 200 million smartphones in 2020. Apple’s market value is over ten times more than Nokia at Nokia’s peak.

Tesla makes 22-25% gross margin on its cars. This is about $10,000 for each model 3 and model Y. Tesla can also make $10,000 selling full self-driving auto pilot. This is likely 80% margin. About 30% of US buyers buy the full self-driving.

A highly valuable technology company can have a corporate valuation that is far higher than its revenue. Tesla can make 50% margin on its battery storage. Tesla can make 80% margin on its self-driving software. Tesla can make 30% margin on its cars.

Tesla makes their own AI semiconductor chips. Tesla makes their own software. Tesla sells games and entertainment to connected cars. Tesla is making their own alloys and making new manufacturing equipment. Tesla has created an innovative solar roof. Tesla has created a new battery, new battery form factor and battery will not become part of the structure of the cars.

Tesla has installed two giant presses to eliminate 169 parts in forming the rear trunk of its cars. Tesla has 11 more giant presses on order. Tesla invested new 386 steel alloy so that they do not have to heat treat the casting and so that cast forms properly. No other carmaker has this new steel alloy. The other carmakers have not ordered giant presses. It takes many months to a year or more of lead time to get the giant presses ordered from the one company that is the parent of both makers of the presses. It takes months to install the giant presses. The giant presses save about 10% of the floor space of a factory. 100,000 square feet saved. It replaces many robots and hundreds of staff.

Tesla already has the best batteries and best electronics for those batteries. Tesla gets about 30% more range per kWh from their battery packs because of superior electronics.

Tesla at battery day last year described their plan to make batteries and systems at 50% lower cost and with greater production efficiency.

The competitors were promising cars that would be better than Tesla in 2020 and earlier but this never happened. Tesla still has 80% of the US market. Tesla is growing its market share in China. Tesla is expanding its factory in China and will grow its market share in China and Asia. Tesla completing its factory in Berlin.

Berlin and Texas at 500,000 cars per year in 2022, expanded factories in China would mean about 2 million cars per year in 2022.

Tesla is reportedly 30% ahead of schedule for a 100 GWh/year battery factory in Texas. CATL is the largest battery company in the world and is valued at $150 billion. Tesla would match CATL planned production in 2021 with the Texas batteries in 2022. This would be a $150 billion valuation business created from scratch.

Tesla is reportedly making over 50% margin over its cost for its battery storage Power Walls.

Tesla has more cash than its competitors now. Tesla can raise more money with less dilution because they are over 4 times more market value than Toyota.

Tesla biggest competitors make a lot more cars currently, but Tesla will be producing comparable levels of cars in 2025 and more batteries. Tesla makes more money on every car and every battery that it sells.

Tesla has had 50% per year annual growth for 8 years.

But I Like Other Cars More?

Toyota makes 10 million cars in a year. This means 80-90% of the people do not buy a Toyota. 80% of people never buy a Toyota. A car company can become huge and most people never buy their product.

Tesla is will be expanding its product line. They will make the Cybertruck. They will make a van. They will make the small $25K cars.

SOURCES- Met Kevin, Solving the Money Problem, Tesla, Macrotrends
Written by Brian Wang, (Brian owns shares of Tesla)

31 thoughts on “Can Big Auto Catch Up to Tesla?”

  1. Looking at the EV offering in 2021 and what is promised to come I find it hard to see Tesla continuing its streak for EV. In the home battery market there are already competitors existing and more will come. I do not think 50% margin is sustainable for the power wall if you want to sell a lot. My view is that Tesla will hit its car production volume maximum latest by 2025 because the consumer will find just too many compelling alternatives. Already now in 2021 Tesla is not any more market leader for EVs in all countries. Time will tell how that works out. The stock price is not reflecting realistic views but is driven by people who are inspired by the way Elon drives technological development. I would not think that the Nokia/Apple analogy is too good. There are too many different parameters involved for EVs. See the statistics for Norway last year, Audi e-tron over Model 3:

  2. With the factory in Germany, Tesla is a German car in Europe. And there is no reason they could not build factories in the UK, France, Spain or even Eastern Europe.
    Japan might not allow a Tesla factory there, but they are not going to shut down trade with the US. They export twice as much to the US as they import from us. As long as it stays positive for them, they will continue.
    France and Italy? France made 2.2m cars. Italy made just 915k cars. Obviously, they must be doing quite a bit of importing already. The UK made about 1.4m cars.

  3. Your investment strategy has worked and you do look into details way beyond the P&L.

    So your take on the question –
    Where will the real competition to Tesla come from Chinese companies or Apple?
    will be interesting

  4. I like the GM commitment “Zero Crashes, Zero Emissions and Zero Congestion.” If the Chinese don’t get there first, GM could, before long, be the World’s biggest mobility company making and operating autonomous taxis (ATs). By 2030, ATs should be the World’s primary passenger road transport and annually be worth several trillions.

  5. I am getting sucked more and more into the Tesla cult with all the money I made from owning the shares. But don’t re-examine your beliefs. You are right about money and investment

  6. I remember Bezos going on about preferring market share to profits. I guess that strategy worked for him.

  7. Show a profit, pay taxes. You can make a "profit" selling your product, but show no corporate "profit" due to capital depreciation, and other accounting maneuvers.
    Considering all the money spent on plants, and equipment, Tesla has a huge amount of capital depreciation to take against income.

  8. Agree, it's likely an alloy that undergoes precipitation hardening quickly at room temperature, sometime called age hardening. Aluminum alloys that are heat treated for precipitation hardening are usually treated at 100-200 degrees C.

  9. At this point, depending on a firm's bond rating, large amounts of debt could indicate good management. If a company's bond rating is investment grade, long term interest rates are absurdly low. Much lower than they would be without the federal reserve interfering in financial markets.
    Going into debt, using the cash to retire stock shares, or make capital investments could both be great moves. Considering the rate of monetary inflation, Tesla should probably be spending that cash it has on something with real value, like more plants, or companies that produce raw materials it needs. Maybe some cobalt mines in other parts of the world than Africa. Periods of high monetary inflation are not good times to hold cash.
    Hey Elon, here's a cobalt mine in Idaho. Maybe they need partners.

  10. JD powers placed Tesla 30 out of 33 manufacturers in it's latest Vehicle Dependability Survey. I find this surprising considering that inverter driven electric motors are usually much more reliable than any internal combustion engine.
    The three manufacturers that placed lower than Tesla were in order, Jaguar, Alfa Romeo, and Land Rover. If Tesla's reliability is a little bit better than Jaguar, I recommend no one buy one!
    Evidently, Tesla knows that it sucks, because it will not give Powers permission to contact it's customers in the 15 states that require such permission. The data used in the study is from the other 35 states.
    Tesla's reliability was the lowest of any US car company. I understand that VW will soon begin selling it's BEV line in the US.

  11. It is not day trading. The simplest approach is dollar cost averaging into the better tech stocks. Tesla, Palantir, Nvidia, TSM etc…

  12. I say that because I have friends and relatives who I have not been able convince to buy Tesla over the last two years. The excuses they give are what I rebutt in this article. I now help some manage their investments and have made them each over 50% in 3-6 months. I have lived in silicon valley-Bay Area since 1996. Like many people I did not get conviction around the big internet stocks and kept thinking Amazon etc… were too expensive. I did get a substantial amount of Netflix. But I followed more of the buy the funds approach. I did not make that mistake this time around.

    I now recognize that the buy the funds approach is mostly wrong. Right now we are in a transition. Many of the big companies are dead companies walking. It is like buying a fund of retail stocks thirty years ago where Walmart was mixed in with Sears, K-Mart etc… There are large sections of the economy that will clearly lose.

    To make the change, you have to accept the mistakes that have been made over the last 20-30 years. See what happened and is happening. The reward is you can start doing a lot better with investments. If you are earlier with career and getting out of debt. Follow the DaveRamsey approach to fix finances.

  13. E.G. many of the people who could have most benefited from BTC or Tesla, etc, investments in the last few months just didn't have more than 20$, if that. I'm talking about average people who are too busy trying to make ends meet the "conventional" way: working to pay rent and trying to find conventional jobs thru conventional methods.

    A tiny fraction of those people will have the awareness and/or the courage and/or the time to pivot to learn to program or day trade etc.

  14. It's not at all the intent, esp once you actually learn what B.W. is like from the bits of bio and occasional posts on NBF… But it still comes off as cruel/arrogant to say "you chose not to invest in Tesla".

    Because the overwhelming majority of people simply *do not have the means* or the awareness of this investment opportunity to benefit from it.

  15. I do not get commission from Tesla for shares. I own shares which are up 7X-10X. So I made quite a bit of money by owning Tesla. I have and have had Tesla options. I could get $100-400 if someone bought solar or powerwall using my link or supercharger miles for someone buying a car. But no one has.

    Many people invest in index funds. Most invest more in April. Maxing out their 401K or IRA and getting more index funds. Another $300-500B going into index funds and benchmark funds. Another $6-10B going into Tesla in April.

  16. For a "big three" company to compete against Tesla, it would have to go through bankruptcy so it could divest itself of it's pension liabilities, and union contracts. It would probably be better rather than being restructured, the companies assets would be sold at auction.

  17. Apple is using a 'golden cage' lock-in so its customers come back buying the next product despite it being overpriced.
    They'd lose their huge collection of music that they can access from almost all Apple devices otherwise.

    Tesla has merely
    – invested earlier in electric drives
    – invested earlier in battery tech availability and quality
    – changed relationships with Tier One suppliers to have more direct control over component design

    And Tesla is facing the European and Japanese car industries. Europeans and Japan would rather stop trading with the U.S. altogether than allowing Tesla to largely kill their automotive industries. This isn't some pioneering sector like semiconductors was in the 80's, and smartphones. There are hundreds of thousands of jobs on the line in Germany, France, Italy and Japan each.

  18. I said the same thing about Amazon in 2001. Their P/E ratio was enormous, that meant they were overpriced, right?

    I didn't realize the P/E was so high because they were plowing most of their revenue back into the business for expansion. Now their share price is 100X higher.

    Tesla is doing the same thing. Most of their earnings go towards building new factories and developing new tech.

  19. Musk does not have to raise capital, he chooses to because aT the current stock $ he can. 
    It is very smart to sell stock at this grossly inflated $ if people are willing to buy it, and they are.
    All of this new capital helps them to improve & expand all the while his stock continues to increase, it costs him 0$.
    Look at debt of GM,Ford, VW etc
    Then look at Tesla

  20. What kind of question is that ?. No, the big auto will never catch up to all-mighty Tesla, they will all go bankrupt and Tesla is going to dominate the world. Is that what you want to hear ? … damn Tesla Cult.

  21. Hey Brian, how much of a commission is TSLA paying you?
    It's great that you a passionate about the stock but I think some reasoned counter arguments would make for a better article.

    Some notes on the hype:
    1. Current market share slightly less than 20%. The current stock price implies at least 40% market share based on average selling price of $60K and assuming 10 million care sales by 2030. Is this realistic?
    Side note: Apple's market share has been a steady ~15%/year for the last 10 years despite the innovations.
    Before you ask how much the share price of Apple has risen over that time look at ROE for Apple & PEG.

    2. competition to watch out for – esp from China e.g. NIO backed by Tencent, Geely backed by Baidu and even AMZN aquiring Zoox taxi company – this excludes the current big boys who are in the market e.g. BMW, Volkswagen, Toyota, BYD @ ~ 5% each . What is the probability that:
    (i) a new player becomes dominant OR
    (ii) an existing player doesn't ramp up production?
    Both of which will take away market share.

    3. One of the largest reasons for the increase in share price is TSLA's inclusion in the index which means the index companies all have to buy in. i.e. all those that brought in profited from the index money that has bought the stock and raised prices. This has come at an end. The only price rise from now on is profit from sales and profit from batteries & insurance. Given the competition is this likely?

    The next 5-10 years will be interesting.

  22. Families cannot operate the speed of business. Our tax structure allows Musk to hide income in the stock market and raise capital at artificially low rates to be a disruptor.

  23. Nissan and GM also have some very promising vehicles, but they match cars that will be available by tesla when they come out. All the arguments that appear here with regard to Tesla superiority add to very little and the big car companies are coming to their answer for them. What probably will make the difference in Tesla's favor in a big way is the $25,000 models. If the traditional car companies will not be able to match them in 2-3 years after Tesla, they are heading for some serious troubles. Other than VW and GM with the Bolt Menlo perhaps, which are working on something in this class in the making, it may be their fate if they haven't started the design process by now.

  24. Legacy auto makers are to big to fail. We’ve seen it before and will see it again.
    Government to the rescue of old antiquated business models that no longer work

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