Why would you compare with Apple, though, instead of other auto companies?
Tesla is worth like 700/share in 4 years if everything works out with their factories and expansion. If they hit the lottery and magically figure out self driving, then they will 2x-3x, because they can have better than software company margins.
I don't fault the crowd for thinking they will have self driving cars in a few years. I don't see it really happening outside of a few really well managed cities.
I don't think the bull case is very strong. But I do think the previous bear cases of "they cant run a factory", "they cant scale production", etc are all mostly disproven.
I would describe myself as bearish on their self-driving future as something I could trust to sleep or do work in. The recent videos are impressive and exciting. I hope they succeed.
Anyone can offer 10k aftermarket upgrade, but the real question is how many will buy it.
> But I do think the previous bear cases of "they cant run a factory", "they cant scale production", etc are all mostly disproven.
Yes, I'm very bullish on Tesla, mostly because I have great trust in Musk's ability to run business. However, my bullishness doesn't extend to valuing Tesla today more than next five of biggest auto makers combined.
Maybe, depending on what those features do. But all you are doing is moving the car into a higher market segment, with fewer potential buyers. Other manufacturers do this, too.
Also, Tesla sales growth is 40% annually over the last 3 years and will likely continue for 5-10 years. GM's might be 1%. Keep in mind, GM is fighting to retain market share. Tesla is taking it away from the incumbents. They really cannot be compared in this analysis. Apple is the closest as a proxy for future P/E.
If the legacy autos spun out their BEV business, that would be the closest comparable.
They have an awesome software experience, but they buy off the shelf parts and assemble them into cars, just like everyone else. Nothing about that makes it a supercomputer on wheels.
>Tesla is taking it away from the incumbents
Competitors are already taking EV share back in some markets. Won't be as easy as you seem to think.
https://heartbeat.fritz.ai/computer-vision-at-tesla-cd5e8807...
Moreover, the market cap of the biggest car companies have been relatively stable over last 10 years, as the market cap of Tesla was soaring. If the expectation is that the Tesla will eat the automotive market (as it well might), wouldn't you expect the market cap of other companies fall accordingly? As of right now, it seems like the market expects insane increase in revenues of entire industry, not just Tesla, which doesn't seem likely to me: Tesla's growth is almost certainly mostly predicated upon cannibalizing sales of its competitors.
I think Tesla is great company, and I think Elon Musk is exactly the kind of person we need more of, if we want to have bright future instead of stagnation or degeneration. My only point is that Tesla's market cap seems to be greatly inflated, by factor of at least 5x, and possibly even 20x.
The Enterprise Value of GM is $150B. There's <4X difference between the two, not >10X.
If Company A borrows $10 from the bank and then loans $10 to Joe, it's got $10 in assets and $10 in liabilities on its balance sheet.
A fair price for Company B to acquire Company A is $0 in cash changing hands. That's the market cap.
But on the books for Company B it will show a cost of $10 to acquire Company A. It had to assume a debt of $10 to gain assets worth $10. To company B, assuming a debt of $10 has no material difference from paying out $10 in cash. So $10 is the true value of the transaction.
Yes, it's equity hasn't changed. However, the debt on its balance sheet has, so the enterprise value formula of EV = market cap + debt - cash now has, because the loan asset won't be counted as cash, but the loan liability will be counted as debt.
That's why no one calculates enterprise value for bank/insurance companies. It doesn't provide any insight or meaning.
Yes, this is a large element of the reason that Tesla's stock price has grown quickly (though from here, who knows) while the incumbents have not.
A notable difference that plays into the discussion is the profitability of the business itself. Tesla should be able to achieve a ~30% gross margin. The legacy companies come in around 15%, once you expense their R&D spend (it's hard to find, I did it once. They amortize it over car sales on their P&L.). A significantly higher gross margin is a significant competitive advantage, but also enables higher net earnings. In principle, P/E is founded on 'anticipated net earnings'. Clearly, buyers today (whether they are aware of it or now) are anticipating Tesla to be greatly profitable in the future.
In my mind, there is no rational thesis that justifies the current trading levels. Buyers today couldn't possibly be thinking through the risk they are taking, unless they know they can hold for many years, and through stomach-churning gyrations. That said, if any NHers have a thesis that they've penciled out and which determines, 'yes, buy TSLA at $860 (1:40PM EST 1/8/21)'. I'd be very interested in seeing it.
Right. To justify the current trading levels, the expectations must be that it will capture significantly bigger part of its market than any of its competitor, and it will have better profit margins than them. I simply can't see that happening over long-terem horizon. I can definitely believe that Tesla will capture large part of the market, and in fact that it becomes number one automaker. I can also believe they will significantly enjoy higher profit margin than their competition. I just can't see any path to both at the same time: this would imply having some enormous advantage that none of its competitors can get even close to. Since the competitors are not bumbling morons, I think it's unlikely.
If e.g. only two companies in the world achieve it in a reasonable timeframe, those companies will be able to price it such as to capture a large portion of the value. This is a huge market, and Tesla would already have millions of vehicles deployed.
I'm not sure what exactly you mean by "infrastructure put in place", but I can't imagine running charge stations to be hugely profitable business: gas stations most certainly aren't. They might still be pretty good business, but they clearly are not so good to account for hundreds of billions in valuation.
Panasonic will now manufacture TSLA designed batteries, but TSLA will also be contracting other firms and build manufacturing facilities itself.
https://electrek.co/2020/12/27/tesla-tsla-4680-battery-cell-...
My bad for seeming like I was contradicting your argument, I have no opinion on that. I was just clarifying some of the facts.