*Edit note: This article is contributed by member Jin38025 from the 42 community, and does not constitute investment advice. Please invest cautiously.
Background: I am a Model 3 owner currently living in the United States. I have been studying Tesla and holding Tesla stock for the long term since 2015. The following personal opinions are for reference only, and do not constitute investment advice. Please invest cautiously.
Two years ago, I wrote an article called Why should we hold Tesla for the long term?. At that time, the Tesla stock price was hovering around $300. Since then, it has undergone many ups and downs, dropping to $177 at one point. During the stock market crash, I added a lot more positions, and my current cost is slightly lower than it was at that time. On February 4th, 2020, the stock price broke through $900 for the first time. Let’s review the conclusions from that time (please read it in comparison, the previous content will not be repeated here), and look forward to the future.
What are Tesla’s advantages?
- The release of the Model Y
The Model Y launch event at the time was generally considered unsatisfactory. It was just a slightly modified Model 3 that wasted everyone’s time. This is exactly Tesla’s intention, because Tesla knows that the Model Y will have no trouble selling, and too much publicity will actually affect the sales of the Model 3, which is similar to the strategy when the Model 3 was first delivered.Recently, many real-life photos and videos of the Model Y have been circulating, and people were surprised to find that it is almost the same size as the Model X. Even I am considering buying one. The latest news is that the first wave of deliveries will begin in Q1 of 2020 and will cause a stir in the US SUV market once again.
- A Large Number of Potential Consumers
Tesla’s popularity and influence continue to soar. The Cybertruck launch event overshadowed the Model Y launch event and sparked a discussion among netizens about the “taste” of the Cybertruck. Various forums and microblogs were full of spoof articles hoping to attract attention. I will analyze the Cybertruck in detail later.
Due to tax incentives and price reductions, the domestic Model 3 has entered the psychological threshold of 300,000 yuan, and its popularity has rapidly increased. Tesla’s popularity is rising, its brand is strong, and its profit margin (price reduction space) is sufficient, so I am not worried about Tesla’s sales.
- Competitors Postponing
According to US reports, in December 2019, Porsche finally delivered the first batch of 130 Taycans in the US. However, most of them seem to have been included in dealer (4S store) inventory and it’s unclear how many have actually been delivered to customers.
It’s worth mentioning that TopGear did an episode in which they compared a long-range Tesla Model S P100D with the Taycan Turbo S in a 0-400 meter acceleration test. The data was inconsistent, and there is still no other video of the two cars competing on the same stage. This is likely due to Porsche’s request. However, according to the owner’s data, the Model S P100D is still slightly faster than the Taycan.
The Mercedes-Benz EQC, a car that switches from gasoline to electricity, hasn’t started large-scale deliveries yet, and it seems that only a few hundred have been delivered in Europe.
Audi e-tron’s sales are not bad, but production has been cut by 20% (https://www.carsuk.net/audi-e-tron-production-cut-due-to-battery-shortage-or-is-it-2021-co2-targets/). There is also a strange situation where this car has low sales in the US, but the market for used cars is surprisingly large. I did a search and found 89 new cars and 21 used cars within 200 miles of me. Remember, this model just started selling in 2019.
The Jaguar I-PACE is now on sale at a 40% discount.Someone exclaimed on Weibo that in 2020, Tesla’s competitors have not even been seen on the road. I have only seen one e-tron in the United States.
As of February 2020, Volkswagen’s ID.3 seems to be the only potential competitor for Model 3 and Model Y. However, the ID.3 is currently facing major software problems (https://insideevs.com/news/389129/volkswagen-id3-massive-software-problems/) and the delivery time is uncertain. In fact, I don’t think the ID.3 is really a competitor of Tesla. It is too cheap, with manual seats, a two-door design, large plastic parts, and not even an armrest. Can you believe it?
The domestic competitors are actually very strong, with a performance in battery life and intelligence that is close to Tesla. Currently, Tesla has no plans to enter the low-end market, and there is still great potential for domestic mid-to-low-end electric vehicles. Once it is established in the domestic market, it will be easier to export, and the country’s plan to overtake in the bend is quite successful.
- Model 3 Leasing
The Model 3 leasing currently only accounts for 6% of all sales (https://stockdividendscreener.com/auto-manufacturers/tesla-automotive-sales-vs-automotive-leasing/), but the leasing business has an astonishing gross profit margin of 45%-50%. The reason must be that the current leasing price is too high and there is plenty of room for price reduction. Less leasing is good for any car company because the cost of leasing is high and the cash flow is low.
- Model 3 Delivery to the European Market
It is surprising that Europeans are so crazy about Tesla (https://auto.gasgoo.com/news/201912/6I70144174C109.shtml), which is related to local policies. The weird policy in the Netherlands is that individuals can’t have cars (taxes are extremely high), and only employers buy them for employees, which is like providing benefits. Then, since you have received benefits, you have to pay taxes determined by the government. The tax for electric cars was very low in 2019. A Model 3 seems to cost less than a basic Golf, so everyone is brainlessly rushing to buy. This year, traditional electric vehicle giants such as Norway are expected to drive demand.
- Possible Changes to the US Electric Vehicle Tax Rebate Policy
There is currently no change.
What will Tesla do in the next 2 years?
- Shanghai and Berlin factories
Tesla built its first foreign factory in Shanghai, and it took less than a year from the start of construction to delivery, which no one had ever dreamed of.The domestic Model 3 will definitely have a price reduction, but before that, it should be exported to countries with trade agreements with China, such as Thailand. Thailand has a high import tax on cars, even for foreign brands produced in Thailand. However, the import tax from China to Thailand is 0, and the electric car from MG is said to be selling well in Thailand because of this. The domestic Model 3 may be cheaper than the Civic in Thailand.
The production capacity of the Shanghai factory should have no problem with sales, even without a price reduction. There are rumors that other models of the Model 3 will also be produced domestically. After all, the standard range Model 3’s range is still a bit short.
It is generally believed that the Berlin factory is unlikely to be as smooth as the Shanghai factory. It is difficult to predict. Germans generally look down on Americans, especially their proudest auto industry. I expect that delivery will not be possible until 2021.
- Cybertruck
Anyway, I have ordered one, and the car is really cool. Looking back at Tesla’s car designs, it is a history of gradually letting go.
The Model S is basically a sedan, with fake air intakes on the exterior and basically just adding a big screen to the interior.
The Model X has already departed from the SUV shape on the exterior, no longer has fake air intakes, and has wings, basically letting go of itself.
The interior of the Model 3 has completely let go of itself, and the minimalist design has shocked the auto industry. The exterior has also gradually distanced itself from gasoline cars.
The design of the Cybertruck is already detached from the entire industry, taking a giant step into the aerospace field, and the pressure-boosted version will be used as the Mars vehicle.
I think the design concept is as follows:
- Why should a utility truck be painted? The paint surface is easily damaged and the cost of painting is high.
- If it is not painted, anti-rust materials must be used, and stainless steel is the cheapest and has high strength and is not afraid of wear and tear.
- Stainless steel is not easy to stamp, it is best to be flat, and the cost of stamping workshop is saved.
- Use the stainless steel exoskeleton to withstand impact instead of the bumper and ABC pillar.
- Use the money saved on the car body to reduce the selling price, increase the scale of production, and further reduce costs.
According to industry estimates, the equipment investment required to produce the Cybertruck may be only 1/7 of Ford’s pickup truck (https://www.cnet.com/roadshow/news/tesla-cybertruck-engineering-steel-production-sandy-munroe/).
If you are a competitor of Tesla and see such data, do you need to reconsider your future production plans?To know that the local pickup trucks in the United States are actually not competitive, there is only one reason why the US market is dominated by local pickup trucks: government protection (https://news.sina.com.cn/w/2018-11-29/doc-ihpevhcm3067381.shtml).
The US government imposes a protective tariff of 25% on imported pickup trucks. The US government’s intention is to let you Japanese and German companies dominate the car market, but leave the pickup trucks to us, otherwise all US car companies will go bankrupt. But facing a local competitor like Tesla, I don’t think Ford, GM, and Chrysler are ready, and Tesla may be able to create a gap in the pickup truck market.
From a practical point of view, Cybertruck also has great advantages, with built-in AC power output and an air compressor. You know that many people who work outside need to carry portable generators and air compressors with them, and if you drive a Cybertruck, you can save a lot of money on gas while also saving on generators and air compressors.
The low-speed torque advantage of electric vehicles is also very obvious. Cybertruck must be more agile than other pickup trucks. I don’t have a pickup truck, but I have used a pickup truck to carry things a few times. Between Cybertruck and Model Y at the same price, I will definitely choose Cybertruck.
- Full Self-Driving (FSD)
I was skeptical about the commercialization of full self-driving at that time, but now it seems that it is no longer far-fetched. Tesla pushed intelligent summoning, although it is still a semi-finished product, but intelligent summoning provides a reference for solving the automatic driving problem in parking lots, and I believe that with time, intelligent summoning can solve the automatic driving problem in parking lots perfectly.
For the past two years, I have spent a lot of time studying self-driving. At present, there are two biggest difficulties:
- First is the problem of left turns at multilane intersections. Because it is necessary to let the straight-going vehicles pass, and there are strict requirements on which lane to use after turning left.
- Second is the problem in parking lots. Because there are mixed personnel and vehicles in the parking lot, it poses a great challenge to the system’s computing power and error correction ability.
Regarding the first problem, the solution is actually very simple, just don’t turn left…
One left turn becomes three right turns, no big deal? Just avoid left turns when navigating. To supplement, according to UPS research, only turning right and not left can save money on fuel (https://finance.yahoo.com/news/why-ups-drivers-don-t-make-left-turns-172032872.html).
For the second problem, intelligent summoning has already provided direction.In summary, I believe fully autonomous driving is no longer an unreachable goal, and Tesla has an unparalleled advantage in data collection (nearly 1 million vehicles collecting data at all times), coupled with Elon Musk’s powerful attraction to AI talent, I am confident that Tesla will defeat other competitors (led by Google) and be the first to achieve commercialization of fully autonomous driving.
- Robotaxi self-driving taxi
I don’t think there is currently a reason to consider Robotaxi in the valuation. It can be compared to Uber’s current market value of 63 billion US dollars, and once Robotaxi becomes a reality, its value will certainly be several times that of Uber (with costs infinitely lower than drivers).
- Semi tractor-trailer
I don’t know much about the truck market, so I won’t go into details here. Tesla says it will deliver a small amount in the first half of 2020.
- Tesla Energy and Solar Energy
According to the financial report, Tesla’s energy and solar businesses will grow at least 50% in 2020. I believe that energy storage and solar businesses have the potential to become a significant source of profit for Tesla, just like AirPods for Apple.
Energy storage can largely replace energy storage stations and solve the problem of handling discarded car batteries. South-Fu Battery has an advertisement that even batteries used in toy cars can be put into remote controls for continued use. The same applies to electric cars. The batteries may only have 70%-80% of their original design capacity when they are phased out on the car. The energy density is too low to continue to be used on the car, but if they are placed in an energy storage station, they can still play a residual heat. No one cares about the energy density of the energy storage battery, as long as it is cheap.
Recently, Tesla’s solar tiles have done well in terms of sales due to the significant price reduction. And Tesla’s solar tiles solve the fatal problem of unsightly roof solar panels. I believe that after large-scale production, they may provide good profits. And due to the Tesla brand effect, it is difficult for other solar brands to challenge Tesla in the high-end market.
- Battery Investor Day
Currently, it is rumored that an Investor Day event will be held in April 2020, and the theme will be batteries. The currently known information includes:
- A 100 kWh Model 3/Y, which is information that hackers dug out of the Tesla system and should be more reliable. The current rumors are that it will only be installed in the Performance version. By then, the 0-100 km/h of the Model 3 may be compressed to the level of the Model S P100D.- Model S/X Plaid, reportedly equipped with a 130 kWh battery, should be the same type as Model 3/Y with 100 kWh, with only different capacities. Musk said the Plaid version will be put into production in the first half of 2020, indicating a relatively reasonable timeline.
There is currently no confirmed date for Tesla’s production of its own batteries, but it is likely to be revealed at the Investor Day. It can be expected that once Tesla starts producing its own batteries, the new batteries will definitely be better than the current Panasonic batteries (Panasonic batteries are the benchmark for all lithium batteries in terms of cost, density, and consistency).
- Model S/X Plaid
Another heavyweight this year, with the same power as the Roadster, it can easily beat all four-door cars, not just in a straight line, but also on the track. Expectations of the production version’s track performance will have a greater impact on the Tesla brand than on the company’s performance.
About recent stock prices
Tesla’s stock price hit $969 on February 4, 2020, a price that even fans like me find difficult to accept. I definitely won’t buy at this price, but I won’t sell it either. I believe the biggest difference between long-term investors and short-term traders is that decisions cannot be made based on specific events.
All Tesla investors may want to answer these two questions:
- Does Tesla still have great potential in the long run?
- How can you ensure that you can buy it back later after selling it today?
For the first question, I believe the answer is yes. I don’t set a target stock price for Tesla. The company has tremendous potential and everything is just beginning.
As for the second question, I think the answer is uncertain. In January 2020, when Tesla was still around $400, it had already risen by more than 100% compared to the previous low point. Do people who sold their stocks at that time still have a chance to buy them back during that month?
The answer is no, because there was no correction; it kept rising.
I believe that some people who sold their stocks at that time also believed in Tesla’s bright future, but sold their stocks temporarily for short-term gains.
The fact is that you can never predict what will happen tomorrow. Tesla may adjust or skyrocket, and there may be no opportunity to buy it back when you want to, causing you to miss the opportunity for long-term profit. It’s difficult to find another stock like Tesla. That’s why I won’t sell it unless I need cash urgently. This investment philosophy applies to all long-term investment stocks.
Lastly,I still firmly believe that Tesla has a lot of room for growth. Its profitability has been proven in the past few quarters, and it currently has sufficient cash reserves without liquidity risks. Its technology, products, supply chain, talent, future, industry structure, and leadership all have advantages that competitors cannot match. It is difficult to find a stock that is more suitable for long-term bullishness than Tesla.
This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.