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I hear very frequently that Tesla isn't a car company, it's a tech company. Mostly because they want to value Tesla stock like a tech company (very popular, high valuations, high profit margins), not a car company (cyclical sales, lower profit margins, heavily regulated).

But whatever Tesla is now, eventually if it sells cars it has to turn into a car company. It has to deal with things like logistics for spare parts, repair facilities, dealers (or whatever way they choose to sell cars). The fixed costs as Tesla goes on are only going to go up because of the legacy they are creating, as cars last a while (hopefully a long while), and need to be maintained/repaired, if only because of accidents.

Tech, on the other hand, usually means you don't have to worry about physical manufacturing. You don't have to worry so much about supply logistics, travel and transport costs, inventory, etc. Once you build the technology, at least with software it's easy to mass reproduce (especially with digital distribution and no physical media) at low overhead and sell at a reasonable price, sometimes direct to the user (higher profit %).

Now let's talk about another case study of a consumer discretionary company that uses tech a lot, Amazon. Amazon is leveraging tech to help the front end and the supply chain, to provide lower prices and easy shopping to people. By making a great website, they encourage people to find and buy more, attacking the "browsing at the supermarket" theory of impulse buying with their own impulse buys. They are using technology to do logistics cheaper, lowering prices to gain market share.

Tesla, and car companies in general, move a lot slower because people aren't buying cars every day. Do I think Tesla could turn into a great car maker? Sure.

But just because there's a new space (EVs) doesn't mean that current companies will own the space going forward, or even the leader today. Tesla is using its startup-ness to try to get there, but will they get over the hump of actually turning profitable while making cars? That's the big question, and if the futures earnings are in the stock price, that's a bet I'd rather pass. (but wouldn't short either)

> Tech, on the other hand, usually means you don't have to worry about physical manufacturing. You don't have to worry so much about supply logistics, travel and transport costs, inventory, etc.

Umm, Apple?

Apple is a great case to bring this up. Like I said, "usually".

In this case, you managed to pick the stock that is trading currently at a 16.85 P/E, which is about half of GOOG and MSFT. It's even less than the S&P average (25.73). And Apple has a huge amount of cash in reserve overseas.

If you look at tech hardware, such as Apple, Intel, TI, TSMC, QCOM, they are traded at a much lower P/E multiple than software companies. nVidia and AMD are the darlings of that sector now and are pushing valuations, but the whole semiconductor sector has had a huge run up in prices.

And yes, I'd say that is partially do to having a supply chain, and a lot of physical capital, such as semiconductor fabs. But that is the kind of capital that you can more easily sell off than software.

Tesla isn't making just electric cars. Most people don't realize how disrupting self driving cars can be. If they can get an Autonomous car before anyone, that enough makes a lot of people switch over.

Not only that, they can roll out a large fleet of cars and provide transportation on demand.

This means eating lunch from Uber, Lyft, UPS, Fedex, Food delivery, Hertz, Avis e.t.c

When iPhone came out, Blackberry and Nokia assumed it was an iPod (music player) that could make calls. In reality it was a computer that could fit in your pocket and do 100's of things.

Tesla is not just an electric car company. It's a personal computer on wheels. Their software is far ahead of any other car company. Their hardware is a lot simpler and efficient.

Thank You!

You did a fantastic job of illustrating the Tech vs Car yardstick!

>Tesla doesnt make a mass market car - even their basic sedan, starts at 35k - I can buy a nicely equipped Taurus, Fusion, Malibu , Impala, Camry or Avalon for less than that - and from a size perspective its far closer to a Prius or Volt (23k or 33k starting respectively).

I don't know if we're comparing apples to apples here. Volt and Prius are hybrid cars, meaning they don't have the same drive capability as a fully electric car.

Tesla's model 3 is a fully electric car for the same price as your average hybrid car and for less than you can get many hybrid models.

There are many electric cars out there like the Nissan leaf and chevy spark at a lower price point, but they don't have the performance of the Tesla and none of them have anywhere near the 346 km range that the Tesla model 3 is expected to have. They average out at around 150 km - which is good for most every day use, but not really useful for long trips. Tesla's long range combined with it's supercharger network makes it different.

A Tesla can really compete with and likely replace the average fuel powered car in range and performance. The average American family spends 1500 on fuel per year and keeps their car for about 11.5 years, that's 17, 250.00. Further a tesla will likely need less maintenance because you don't have things like coolants or radiators or oil changes. Things makes Tesla a bargain compared to fuel powered cars.

Yes Tesla has been positioning itself as a luxury brand and competing with luxury brands, but I don't think this was necessarily a choice but rather due to the fact that they can't currently make an EV cheap enough to compete with the mass market brands. Musk has always said his vision was a mass market car and I think in many ways the model 3 is what the companies real goal has always been.

> [...] you don't have things like coolants or radiators or oil changes

Surely they must still require radiators/coolant for the batteries?

Model 3 won't have a radiator, it does have a battery cooling fluid but it's not fair to think of that as automotive fluid because it doesn't have to be replenished.

An electric car driven 15,000 miles a year would still cost about 540 dollars per year to fuel, so that'd come out to a difference of about 11k - you're correct there about oil changes - but I wouldnt consider cooling systems - most cooling systems go 100,000 miles without maintenance, that also goes for most other major systems in the car - the exception being brakes and oil changes.

I fully acknowledge that electric cars appear cheaper to run - I'm expecting additional taxation to appear to null out some of the fuel cost differential however.

Bear in mind, I'm not bullish on electric cars - I think once the battery issues have been solved, and the charging network is fully deployed - and once the issue of charging for non-homeowners has been solved - Electric is clearly cleaner and better. I still think Tesla is overvalued for the market it's in (making automobiles), because of its limited potential to capture market share in that (very crowded) market.

>Tesla is a technology company that also happens to make cars. Ford is an automotive company, that also happens to make technology.

From 2007: "Apple is a technology company that happens to make a phone. Motorola/Nokia/Palm/Blackberry are phone companies that can easily copy Apple's technology and execute better than Apple since they know all about making phones."

Apple was an established technology company with a wallet fat enough to see the iPhone through.

Cars aren't a new product line, they're Tesla's only product line. If they fail, Tesla fails. History is littered with good ideas that didn't get off the ground the first time and then got bought for pennies on the dollar by an established player in the industry.

The scenarios you described sound like straight from "The Innovators Dilemma". Except the companies thinking this way were disrupted out of business.

What is truly disrupting about Tesla?

The biggest disruption is the quality of the electric drivetrain. We are quickly finding that a "mediocre" electric drivetrain feels better to the average driver than a very good gasoline drivetrain.

That isn't what people intuitively expect, but once that expectation changes, the market is going to see major disruption. Gasoline based powertrains will not be seen as the superior choice by most people 5 years from now.

I have no doubt that this is a factor is why Tesla is going somewhere - I don't know that this is enough to 'render all that came before obsolete'.

I'm hopeful yet though - I think a transition to electric power for cars would be wonderful - there are currently many drawbacks to electric power, mostly relating to batteries yet still to be overcome.

Yeah -- and you don't lose half your fuel economy by getting the one that goes 0-60 in 4 seconds.

> We are quickly finding that a "mediocre" electric drivetrain feels better to the average driver than a very good gasoline drivetrain.

At first glance, that seems like more of a reason for low-end electric cars to disrupt Tesla.

I'd fully expect that challenge to come from one of the established manufacturers.

We're still early-days yet on electric car technology - there are still many hurdles to overcome yet to make the technology practical for most drivers - so its really hard to say what the future will hold yet - I'm excited for the potential, but I'd like to think I see the realities of it.

Yes, but some of us motorheads like that vibration and noise of a gas engine :-)

Everyone keeps talking about the cars... when it's really about the car factory:

> Ford has 23 global assembly plants that built 6,651,000 cars and trucks in 2016. [...] Elon Musk can imagine a single Tesla factory producing 5.25 million cars per year per assembly line [...].

> If this becomes the way to go for global car makers then Ford has 22 assembly plants it needs to scrap. I wrote scrap rather than sell because if every one of Ford’s competitors is doing the same thing there won’t be any buyers for those old factories.

[1] http://www.cringely.com/2017/06/05/the-robots-are-coming/

Consider for a moment the logistics of moving 14,383 cars per day out of a single factory, nevermind all the parts needed to build them. (assuming a 15 foot long car, its (ballpark number) 43 miles of cars parked end to end.. per day).

The logistics and storage of both material and finished goods are part of why Ford has 22 factories to produce 6.5 million cars.

Well one thing Tesla has going for them is that they have way less parts per car when compared against traditional ICE based drive trains.

as well as the cars can drive themselves out of the factory

And one factory that's not gonna do too well when the Pacific plate decides it's had enough of SV's BS and shakes things up.

Total parts, perhaps, total assemblies - not really.

> 43 miles of cars parked end to end.. per day

So two miles per hour? That doesn't actually sound too bad.

around 560 cars per hour - consider that a normal auto plant runs at 60-100 cars per hour - so what was proposed by the linked post was a 600-1000% increase in production - its largely a impossibility - because imagine for a moment of parking 10 cars per minute (or so) of operation.

So you hire more people to do the parking...? What's impossible there?

That's if we assume they don't just self-park.

The hard parts by far are actual production and getting in enough materials. If you can get in a thousand each of every single part, it's easy in comparison to get a thousand assembled cars back out.

Thinking just a little further, once the autonomy of the vehicle is good enough, there's no need to park the vehicle at all - you just tell it to start driving to a dealership or an owner's home.

There'd be some additional logistics to figure out how to recharge the vehicle as necessary on route, but that's a very different problem, and probably also amenable to automation.

its the space to store the cars, as well as the logistics of shipping them out - 14,000 cars comes out (optimistically) about 650 autoracks (railcars) per day - each one of those autoracks is 145 feet long. The scale of what is being discussed is near impossible, as it would mean an plant several orders of magnitude larger then any other ever constructed.. and I'm just focusing on the output - the logistics for the inputs for manufacturing are just as daunting.