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Comment by martindbp | Hacker News Reader

Tesla made more money last quarter than Ford, GM and Toyota. Toyota made 10x the number of cars as Tesla. Tesla is growing vehicle production 50% YoY, while growing profit even faster (having barely hit economies of scale yet). Tesla has a backlog of orders approaching a year in many regions. Everyone else is losing money on their EVs and can't make them in volume production, can't find the batteries for them, because they started 10 years too late. That's the reason for Tesla's valuation, it's pretty simple.

Whether you believe the competition will catch up, or Tesla will fail for some other reason is besides the point. I'm just trying to show that the current valuation is not "insane" given current trends, there's a very real logic to it and not (completely) FOMO.

Correction: Toyota's earnings were higher than Tesla, it was operating income that was higher (remembered it wrong).

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I'm not sure where you are getting those numbers from. Ford had $37b in revenue Q4. Tesla had $16b.

Tesla is an impressive company that's managed to finally be profitable. But currently their market cap is higher than all other auto manufacturers combined.

> Everyone else is losing money on their EVs and can't make them in volume production, can't find the batteries for them, you do the math.

That's the thing, this space is getting incredibly crowded this year. Kia/Hyundai, Ford, and VW are all putting out very impressive mass-market EVs that are selling like hotcakes.

Earnings, not revenue

What is your definition of earnings? Because Toyota's net income far exceeds Tesla's

Earnings are profit (i.e. revenue less costs).

https://www.investopedia.com/terms/e/earnings.asp

Yes, correct. Aka net income. I was asking because the original commenter was claiming Tesla earnings were higher than Toyota which is far from true.

Net income is profits, also known as earnings.

Gross income is just an intermediate-step in the way towards the bottom line (net and/or profits).

Its strange that the earlier poster wants to talk about gross instead of net on this point. You can almost always tell that someone is being a bit shady with their arguments when they say "income" or "profits" and then backtrack it to say "Oh, I meant gross income".

When you say "income" or "profits", everyone rightfully assumes you mean "net income", the bottom line. The most important number.

Back tracking or showing a total lack of understanding of the difference.

My bad, not earnings, it was operating income: https://twitter.com/SawyerMerritt/status/1524254013025357824

No worries, but I'm not sure what notion you're trying to craft with that stat. Toyota had far more revenue and profit. Operating income was lower... so what? Tells me Toyota has been spending money to carve a huge chunk out of the EV sector. Maybe they are late. Maybe Tesla will show that it's current valuation holds. I doubt it.

> Toyota's net income far exceeds Tesla's

Far exceeds? It is only 5% higher so that's a bit of a stretch ($22.4bn vs $21.4bn).

Plus Toyota had shrunk it's net income from 20/21 to 21/22, while it was a 116.86% increase for Tesla, so it would need an optimistic person to think that Tesla hasn't already overtaken in the last few months since 21/22 year end.

I was responding to a comment which was referencing Q1 2022. Not sure if you missed that or intentionally chose annual figures to shift the goalposts, but either way I agree Tesla is trending toward sector domination and has the potential to prove its valuation as valid. Alas, that has not happened yet, and the market is more complex than net income trajectories. If you firmly believe Tesla will be the EV king in 10 years then so be it, but don't hold your breath.

> I was responding to a comment which was referencing Q1 2022.

There is nothing referencing Q1 2022 on this thread.

> Alas, that has not happened yet, and the market is more complex than net income trajectories

The comment you replied to didn't state that the market is simply net income trajectories.

> I'm not sure where you are getting those numbers from. Ford had $37b in revenue Q4. Tesla had $16b.

Tesla makes a 27.4% gross margin on that revenue though, while Ford has a gross margin of 4.8%.

> Tesla is an impressive company that's managed to finally be profitable.

Although technically true, this is a little misleading as it implies that Tesla is barely profitable - in reality they have moved from 'finally becoming profitable' to now being the most profitable automaker (in terms of total profit).

They still need to 10x their profit to make their current PE of 130 to make sense.

I'm not saying they are worth their valuation, I'm just saying you can't exactly claim/imply that they aren't very profitable compared to others in the market they are operating in.

Also remember that they almost tripled profit in the last year, so that PE ratio will be 1/3 if they manage to do that again. Again, I'm not claiming that it is possible, or that that would be a sensible P/E ratio, or that they aren't overvalued, but P/E can change quickly.

I would be shocked if they were able to maintain those margins.

They’ve faced relatively little competition in the EV space until this point and benefited from a shortage juicing prices. As demand eases and more entrants come into the EV space, they will have to lose margin, market share, or both.

> I would be shocked if they were able to maintain those margins.

I wouldn't be. They have fundamental and very broad patents on important things like:

* Pre-heating the battery on the way to a charging stop (enables the battery to accept faster charging without damage on road trips)

* Using motor waste heat for battery heating (increases range while use the above strategy)

* Dynamically adjusting charge rates due to real-time battery conditions (enables charging faster)

Those patents don't expire until the mid/late 2030's. That allows Tesla to force competitors to either pay a licensing fee or use more-expensive workarounds, like different battery chemistries, to match the battery range and charging rate. Either way, it means Tesla is likely to have larger margins than competitors.

I’m not intimately familiar with teslas patent strategy, but to my knowledge they aren’t enforcing any of those patents at all. Every single one of those features are present on competitor vehicles already.

https://www.tesla.com/blog/all-our-patent-are-belong-you

Good. The fact that very specific mechanisms that anyone could have thought of for something everyone understands is beneficial (keeping your battery warm) is patentable to begin with is... not great.

I feel like that’s not unreasonable over a decently long period of time?

tesla does not need to advertise, does not need dealerships

this also why Elon wants to buy twitter, besides the issue of free speech. it means PR for his companies.

> tesla does not need to advertise

What do you think Elon's shenanigans are exactly?

Tesla pulls all sorts of accounting tricks to make gross margin appear higher than it actually is. Warranty repairs are apparently done by pixies for free, so is R&D, factory amortization, or service centers

A like-to-like comparison would have Tesla's gross margin at ~18%, which is decent, bu not all that unusual for a premium car brand. Ford and GM tend to have much lower gross margins than VW or Toyota. The latter two are usually in the mid-to-high-teens, while competing in a cutthroat mass-market

Tesla as a product is a status symbol though. It's naturally going to be a high margin product but the cost means that the market is smaller. For example, the cheapest Tesla currently sells for $61,980 before tax in Canada. The number of people who can drop $62,000 on a car are a lot fewer than those than can spend $30,000.

profit != revenue

Agreed.

I for one am very happy with the wider EV push, because I will never need to buy a Tesla. I am sure many other people have similar sentiments. Obviously they are valued for their batteries and solar as well, but their business model and product offerings there are far from a fit for everybody either. It all does not add up to current value, although it is hard to see where the mad dash to buy "the future^TM" runs out of cash to throw at it.

Solar is race to bottom, very low margin competition with Chinese manufactures. Batteries will follow as well. And if that was really going great why did SolarCity get bailed out by Tesla money? I would have expected it to be a massive company as well.

Also, I never really understood robotaxis as something magical high margin business. It is also race to bottom operating with very thing margins. And probably only after huge waste of VC capital.

The way i can see robotaxis getting out of the thin-margin category is to ensure they have proprietary AI etc for the nagivation and safety.

This way, there would be a huge barrier for entry to any competition, and they can keep the price high.

And thus, i would want to see the gov't set legislation to prevent this from happening - the AI and navigation software must be made open (ostensibly for audit purposes...but it would be something that is hard to prove you've copied it?). After all, the thin margins of such a business means benefits to society at large.

Don't confuse market cap and enterprise value, the amount of debt on non tesla manufacturers' books is staggering and strangling the business in other ways

Looking at a single quarter is not a great way to compare large companies. Even looking at just a single year is not a great way, but for comparison, in 2021 Tesla had revenue of $54 billion and net income of $5.5 billion. In 2021 Ford had revenue of $136 billion and net income of $17.9 billion. Toyota had similar net income as Ford in 2021.

Yes, in the most recently reported quarter Ford lost money. And in previous years Ford has also lost money. But so has Tesla.

Looking at Tesla as a traditional automaker is not fair to Tesla. They don't want to be a traditional automaker, I get the impression they want to be more like General Electric was back 50-100 years ago, making all kinds of things and being rather innovative.

For Tesla it makes way more sense to use the annualized Q4 numbers vs Ford total 2021 because Tesla grows like crazy, that's the whole point. It doesn't matter that Tesla lost money in the past if they're printing it like there's no tomorrow now, with nothing stopping them (except lock downs). Traditional autos ICE sales have been decreasing and will continue to do so, and they're trying to replace it with EV sales they lose money on, and can't make fast enough to replace their lost ICE sales.

Either way, I get it that you can look at the same data and come to another conclusion, but clearly, for a lot of investors they look at the growth, the barrier to entry, the overall trends and that's why Tesla is valued as it is.

> with nothing stopping them (except lock downs)

And maybe competition? The market is booming but other automakers are starting to have competitive lines.

I want to see what Tesla could have in their sleeve to ever become as desirable as they were the past years... I'm not sure if all this hope in eternal growth of Tesla will hold.

Tesla has nothing on the market for smaller, cheaper european markets, and smaller, cheaper cars like Renault Zoe are getting more and more common sight on the streets. There is no premium pricing on those, but the numbers of cars sold is quite huge.

All of those things can be true and Tesla's stock can also be over-valued. A rapidly growing and popular company doesn't justify any arbitrary valuation.

Indeed, which also begs the question; How much of that growth is driven by the over-valuation?

Particularly as Musk is no stranger to using creative accounting techniques, and sheer speculation, to make his companies suddenly look more profitable [0]

There's also him leveraging his other companies to create growth among each other. Like Starlink being a major customer for SpaceX.

Which could either be really smart, or the making of a really impressive house of cards.

[0] https://www.cnbc.com/2021/04/26/teslas-bitcoin-speculation-h...

It's not about revenue, it's about valuation. The revenue can be whatever you want, the valuation determines long run returns.

Tesla could be priced at 20x PE or 100x PE and be the same company. Your returns will be vastly different between the two scenarios.

OPs point, which is pretty obviously objectively true, is that valuations far exceeded future yields by any fundamental valuation metric. Tech has been valued as if every company will be a pseudo Monopoly like the FAANG companies, which is very unlikely to be true

I mostly agree, I just feel the need that valuation metrics rely on past values, which aren't as useful depending on the company you're talking about. If a company has net income X, but a new high margin product launching next month that could easily double or triple that, their P/E will look ridiculous but , in fact, be quite reasonable.

The reason to use past values is because they're known. Anything anticipating the future is speculation, and relies on many assumptions. Check analyst earnings estimates for S&P companies for 2008 and you may be surprised what you find.

I fully believe Tesla can be the number one auto maker, and get self driving working to a sufficient extent to be marketable. But what's the upside? A few X at most. To me that risk/reward is pretty awful... many more attractive companies selling at 1x PS and fast growth/smaller market cap that can go up 10x easily over a few years

Talk to a Tesla zealot and this is the story: Tesla masters self-driving and their robotaxis take over global transportation leading to complete and unending dominance.

It's almost as if none of them has ever run a business or even studied history. It's best not to try to reason with them at this point. Just smile and walk away. Over time they'll figure it out.

I don't know about Tesla production forecast and how its stock value can be interpreted but there is something interesting that Marques Brownlee said few days ago about pre ordering cars [1]. Basically, if people that put down the $250k for a Tesla Roadster founder edition to finance the company and for a product they still don't have into Tesla stock the would now have $4.5MM.

Not complaining about Tesla stock price as it has the price that people is willing to pay but to me this is definitely a redefinition on what people care when deciding where to invest.

[1] https://www.youtube.com/shorts/vCA79HTry0A?&ab_channel=Roast...

> Tesla made more money last quarter than Ford, GM and Toyota.

Net income was higher for Toyota - almost double that of Tesla.

Yes, my bad, it was operating income that was higher for Tesla.

Tesla's net income in 2021 was $5.5B, GM $8.8B, Ford $11.5B, Toyota $28B.

Tesla's PE ratio is 99.6, GM 5.6, Ford 10.4, Toyota 8.25.

Tesla's market cap is $1,061B, GM $85B, Ford's $83B, Toyota $254B.

The state of Tesla's stock is simply unreal, not based on fundamentals but on inertia and hype.

Take this logic and compare AAPL and RIMM in 2009. This is why people are buying TSLA.

If you think that GM is going to successfully pivot to EVs and that Tesla will not continue to grow 50% a year, that is a fine opinion to have, but if you look at CNBC clips from 2009 you will see very similar comparisons being made around AAPL and RIMM, to what you are saying today.

"Experts" have been telling us to sell $TSLA for over a decade..

That's just an extremely simplistic analysis, as if there is absolutely no change in the future. Tesla's forward P/E is currently 51. In a years time it might be 30-35. A year after that, well you can see where this is going. There are definitely a few years worth of growth baked in. But when you compare the valuation to the likes of GM, also consider the possibility that they will simply not survive the transition to EVs. They already went bankrupt once, and sales have declined every year since 2016, please have a look at this graph: https://www.statista.com/statistics/225326/amount-of-cars-so... For a great number of reasons, many traditional OEMs will find the next decade very difficult, and that's reflected in their current P/E.

Can you link a source for the Toyota vs Tesla claim? From what I saw on the reports it looks like Toyota had way more revenue and net income. Maybe I'm interpreting it incorrectly

Even if that all were true (it's not), Tesla could be the most important and revolutionary car company since Model-T era Ford and _still_ be insanely overvalued. Before their recent stock slide they were worth as much as every other major manufacturer _combined_. Their P/E ratio hovers around 300. Mercedes-Benz hovers around 5.

Teslas forward P/E, which is way more indicative of the future of the company, is 51: https://finbox.com/NASDAQGS:TSLA/explorer/pe_fwd#:~:text=Tes....

I admit Q2 will be lower than Q1, but Q4 this year will likely see an even lower forward P/E if price remains the same.

Sure, they could be overvalued, I'm just trying to explain why it's valued as it is for those that think it's "insane".

Mercedes hovers around 5 because many investors believe they could go bankrupt if they can't successfully transition to EVs. GM, for example, will very likely go bankrupt (again). Many others as well.

Tesla’s source of profit is mainly from 2 things: - they’re selling cars that have quality of $25k cars for $60k - they’re basically a first manufacturer that sells Chinese made cars to western world at scale (all their other operations are either not ramped up or unprofitable)

Power of their brand is insane. But they seem to be mainly raiding it and diminishing it. Music will likely stop one day.

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