Tesla: Changing Automobile Manufacturing
Recently I worked a different pricing model for Tesla using another formula.
As many on here know, I lightened my load in this company towards the end of last year, taking profits. 2020 was obviously an extraordinary year.
My thinking was that a pullback would be in order. While that did happen to some degree, the stock ran up a bit more after I sold, so it is just slightly below where I sold it.
Nevertheless, I am in position where I need to improve my position in this company. For that reason I did do a bit of buying on Friday and my buy order was hit today.
Why am I doing this especially since the market is not in the best of positions from a risk/reward ratio.
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Quite simply, this is one of those stocks that one can get rich from. In other words, if you are looking for something long term, while not financial advice, delve into this one.
Briefly I will go through some of my model, in general terms, to show where my thinking is.
To start, this presumes that autonomous capability will be realized in the next couple of years. That will give the company time to garner enough data to present to the regulators. I figure it is going to take at least a full year from the time the capability is realized before it even gets a hind of approval. To be safe, my timeline is about 2025.
The automobile manufacturing industry is rather simple. It is a model that has not changed in a century.
Here it is: build cars, sell cars.
That is it. For more than 100 years, that is exactly what automobile manufacturers, including Tesla, have done. However, it is safe to say that is about to change.
Tesla is going to be implementing an autonomous driving taxi service. Musk calls it "robo-taxis". Whatever the name, the idea is simple: have autonomous vehicles carting people around all day long charging them for the trip just like Uber and taxi companies do.
Presently, when manufacturers sell a car, they operate on a particular profit margin. Hence, a $40,000 vehicle might make a company $8,000 in profit on the vehicle. Tesla has fluctuated over the last few years but, of late, their margins are going higher.
Here is where the entire system is upended. Tesla is likely going to stop selling cars at some point. Instead, they will simply build them and put them in their robo-taxi fleet.
Why would they do that? The easy answer is enormous amounts of money. A car used for taxi purposes is a great deal more profitable than one that is sold to a consumer.
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Another assumption with the model I ran is each car is good for 700K miles. Many are claiming that they will last 1 million but I decided to hack some off. At 700K miles, how much could the company make per mile?
Could the company make $100,000 per vehicle? Remember, at 700K, a $20K vehicle amortized is less than 3 cents a mile. The $20K is considering that by 2025 the model 2 will be out, a car Tesla said will cost $25,000 to buy. Thus we can figure roughly a 20% GP on the vehicle.
Could 50 cents is also quite possible? It is said that the cost of a car, when owned, is about 70 cents per mile. Thus it is likely that Tesla's service will cost less than owning one outright.
Obviously, 50 cents comes out to a lot more than $100K per vehicle. Actually to do that, the profit only needs to be 14 cents per mile. In light of what vehicle ownership costs, this is not an aggressive profit margin.
Next comes the production. Elon has stated that he believes they can achieve 50% annual growth for the foreseeable future. Consider the number of factories going up already, with another being discussed in Britain, this should be no problem. I actually have them seeing a 100% production increase in 2021.
Tesla produced 500K cars in 2020. Using Elon's numbers, they will produce 3.8 million by the middle of the decade. That is in one calendar year. Now consider the profit margin per car, per year, including what was produced in years leading up to it and you will see how crazy this gets.
However, that is the tip of the iceberg. If they keep that run rate up into the end of the decade, they will be producing close to 20 million cars a year. Remember, there are an estimated 1.4 billion cars on the road globally, this still is a drop in the total.
As you can see, by the end of the decade, the numbers get insane. At the same time, if the company can earn 25 cents a mile, the total profit also shifts upward at an astronomical rate.
Quite simply, sharing the spreadsheet with the numbers will simply make it seem too unrealistic. However, if this model even is remotely true, Tesla will be the largest company in the world, and it won't even be close.
Maybe the old build and sell model is about to be crushed.
This is the benefit of disruptive technologies, they can be very lucrative if you can find them.
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https://twitter.com/taskmaster4450/status/1369130424669179904
Tesla is going ahead with their new features in cars. But still Electric cars are too expensive. The technology is also expensive. We have to wait a decade to be able to open the market for middle class.
The main problem with the Tesla is the Battery limit. It can’t be used for longer trips. Maybe in future, they will have something special that can drive us thousands of miles.
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I remember watching some interview about EV vehicles and it talked about Tesla as well but don't remember who it was from but it doesn't hit the sweet spot for mass adoption. The sweet spot is the cost and battery life being able to last long enough at a low enough cost. It's not really about the profit per mile but more about how there needs to be low-cost cars that the poorer people can afford with enough mileage per charging cycle. Also it requires the car to be charged at a fast enough speed otherwise there the delays affects customers choices.
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Tesla is going to be implementing an autonomous driving taxi service. Musk calls it "robo-taxis".
This sounds like a good innovation but at the same time I am very sceptical about its functionality. Since it is a "robo-taxis" maybe if I understand this better it means it is going be some kind of taxi that is programmed to function just like a robot.
Now my question is what happens if the programming goes gargar and what will the the date of the passenger?
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Never use Elon's numbers, they are usually 3 times more optimistic than possible and materialize 5 years after he says they will :)
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I remember reading that he wanted yr car to be out making money "while you sleep"
Electric vehicles are getting more attention because of increasing petrol prices and also to contribute for a green planet. Tesla is coming to India this year find it would be so exciting to have these amazing cars in the country. as of now electric cars are quite expensive but I hope that in coming years when they'll be more dim and then price will be coming down which will enable more people to buy Tesla cars.
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@taskmaster4450le this is actually a great time to invest with tesla inc because they are actually taking over the automobile industry and are changing the face of the industry,investing with them will be a great decision to make and it will be a kind of investment that will yield growth...
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I thought your post was going to be about automobile manufacturing. The article is about how they will market and provide services. Most car companies make more from their various financing schemes than they do from the actual vehicle.
As for actual vehicle manufacturing: I think that Aptera is developing a much more intriguing model.
Aptera started with the goal of making the most aerodynamic car possible. Their first car is a tear shaped unit. the intriguing thing is that the car body has only four parts. The parts snap together.
They put the engine in the wheels.
This design allows them to produce the cars in much smaller facilities. Using smaller factories means that the company can expand by adding new manufacturing facilities around the world.
It also means that they can expand using crowd funding techniques.
Shameless Plug: I put the Aptera launch video on my site. Yes, there are starting with a three wheeled vehicle as the market is a little less regulated.
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I listened to someone last week talking about TSLA. An interesting point they made was Telsa wasn't really even in the automobile business. If you look at all of their capex investments, its all in giga factories. Telsa made automobiles because it was much more palatable to then the true goal of energy storage. You can't flaunt a battery bank very well, but a car that looks and performs like a Tesla does, then you get insane valuations and venture capital.
If the trend of home energy storage - who else but TESLA dominates the market? They already have working systems, products, and storage production. Cars are almost a by product of the battery technology.
I could be wrong - it will be interesting to watch it unfold over the next 10 years.
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Yes, the real question for the robo taxis is how soon the government will allow them to start using them. The automakers in Detroit and around the country have a pretty solid lobby. Of course, Tesla is worth more than all of them combined so...there's that. While I agree with your overall premise of disruption, I'm not sure they can do it that fast.
As I was saying to someone the other day, when I sit in Hive for a couple days it feels like the world is rushing towards massive changes. But when I go outside and interact with people, everything still moves at the same slow pace it always does. For example, I probably have 500 people I interact with in some sort of personal way over the course of a year; golfing friends, reffing buddies, work people, customers, family, friends, etc. How many of them even know what Bitcoin is let alone crypto? A very small percentage. There might be a total of 5 that own any bitcoin, and I doubt any of them have delved in any further. We're still so very early on these disruptions taking place. Once the ball starts rolling it can happen quickly but, change does not come easily. Especially to the "older" generations, which is where the vast majority of the wealth is located.
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