Tesla's Prospects

Yesterday we had a few clients asking what we thought of Tesla. Given that the stock is down 70% from its high, this is understandable. Elon Musk's Twitter purchase hasn't been good for the stock because he has had to sell billions of dollars worth of Tesla shares to finance the deal, and now he seems more focused on Twitter than Tesla. Elon's brand and reputation has taken a hit due to his management style at the social media company. Tesla's brand is closely linked to him, so it hurts demand for cars when he falls out of favour.

Even with the 70% drop in value, Tesla is still worth more than VW, Ford and Toyota combined - companies representing about a quarter of the global automobile market. Toyota is the largest producer in the world, with about 10% market share, at about 10 million cars sold a year. Tesla only sold 1.3 million cars in 2022, but is growing incredibly quickly, more than tripling the number sold in 2019. The other advantage that Tesla has is that their profit margins are significantly better than the rest of the industry. They can sell fewer cars to have the same profitability.

A massive tailwind for Tesla is that most of the developed world has already passed laws banning combustion engines and hybrids after 2035. The EV market will continue to surge, so Tesla isn't going to have any problem selling their cars. What market share do you think Tesla will have in 2035? Given that Toyota, the current leader, has 10% market share, I think in a bullish case Tesla will land with between 10 - 15% of the global car market. Looking at Tesla just as a car company, you would say that it is fairly valued.

If you buy Tesla, you aren't buying it for the EV division, you are buying it for all the other things it could do. You are banking on Elon Musk using his ability to create whole new industries from nothing. Given that these ideas are not money-making now, with unknown futures, their value is very speculative. When the market feels buoyant, it ascribes a huge value to it. When things are down, like now, investors don't give speculative bets much value.

The first venture to make money will be their solar division, selling batteries and solar roof tiles. Tesla has already unveiled a humanoid robot, which could be a hit. If they are the first company to crack the code for fully autonomous vehicles, imagine the potential. What else will Musk dream up? Maybe a self-driving Mars mining robot?