Tesla Will Change The World And Waste All Your Money
Tesla will change the world. No, Tesla is changing the world. And faster than you can even comprehend.
Just so we’re clear, I’m about to drag Tesla across the coals. Same with Solar City and Space X.
Elon Musk’s multi-billion dollar empire is just a giant crony capitalist funded house of cards that could implode at any second.
Tesla, Solar City, and Space X have received billions of dollars in government subsidies and have numerous different government contracts that essentially make these companies bedfellows with US tax payers.
Do you like fancy rockets, roof tile solar panels, and luxurious electric cars? Well, if you live in the US, you’re paying for them whether you like it or not.
And if you do like electric vehicles, you can buy Tesla stock with it’s unbelievably inflated valuation, massive debt load, and ridiculous non-GAAP reporting.
(Generally Accepted Accounting Principles – GAAP – is the accounting standard adopted by the U.S. Securities and Exchange Commission. Basically, it keeps companies honest by comparing their finances on a level playing field. Lately, some companies, like Tesla, having been skewing their accounting practices to favor their outlooks. This completely augments the valuation of the company as it becomes nearly impossible to compare their finances to other companies. Hence, the reason why Tesla has outlandish valuations.)
Now… let’s hear the other side of the story…
I was in Colombia earlier this week for an investing trip (which turned out to be extremely successful with some great investment opportunities that I will be sharing in the near future). On my way back I flew from Cali, Colombia to LAX, which cost around $300.
The problem was that from LAX I needed to get to Palm Springs, which is about a 30 minute flight. That 30 minute one-way flight cost $400… more than flying from Colombia to the US. Crazy-stupid expensive.
So, I looked for other transportation options. I eventually found out about the company Tesloop, which is crazy-AMAZING.
(I have zero connections to Tesloop, so I have no incentive to talk so highly of this service. On top of that, I just told you about what I think of Tesla, so I clearly have no dog in this fight.)
The ride from LAX to Palm Springs cost me $29 in a brand new Tesla X. There was juice, coffee, water, snacks, noise cancelling earphones, neck pillows, wi-fi, and every amenity you could wish for in the car. It was literally like flying in first class… except I was in a Tesla.
Tesloop is a company that uses Teslas (they say they have no affiliation with Tesla) to transport people on pre-scheduled routes. Right now their routes are in California, but I’m sure they are expanding soon.
Here is the crazy part… Tesloop calls the drivers of these vehicles “Pilots.” 95% of the journey uses driverless technology and the Pilot just sits there in case something happens.
The “Pilot” may be sitting in the driver’s seat… but that’s about all he’s doing. Sitting.
Yes. You read that correctly. Think about that. The car drives itself 95% of the time.
It’s difficult to comprehend how this form of transportation will change the world… and this is just the beginning.
Imagine if you paid for a subscription service that allowed you to ride driverless Teslas anywhere you want. Imagine Uber combined with Amazon Prime combined with Tesla’s driverless technology.
This isn’t some sci-fi make-believe concept. This is happening. Right now in front of our eyes.
On the way to Palm Springs. Passing by the renewable energy wind turbines while riding in a self-driving electric vehicle. The future is here… at least in California.
Now remember all of those mean things I said about Tesla, Solar City, and Space X? Maybe it takes a fearless leader, like Elon Musk, to do whatever it takes to make these ideas happen.
Government subsidies, non-GAAP accounting, raising unlimited amounts of money from investors… maybe it’s all justifiable in the end?
What if the world really is changed by all of this incredible technology?
I hope it is.
But… I’m not going to put my hard earned money in these overvalued investments. Yes, there are enormous possible gains, but there is also enormous downside risk.
I’d rather invest in things that are trading for multi-year lows. I’d rather invest in assets with minimum downside risk and massive upside potential.
Don’t get me wrong. I enjoyed the Tesla ride. Hell, I might even buy one someday. But, when it comes to investing in the company, I’m going to steer clear. I’m going to invest in areas I know will make me money, because I’m going to need a lot to buy that Model X with a $100,000 price tag!
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What do you think of Tesla?
I’ve found there are only two opinions. Love or hate.
The people who love Tesla hate me for speaking down on the company.
The people who hate Tesla hate me for speaking highly of the company.
Either way I’m screwed… but I’d be interested in hearing what you have to say anyway!
Cody, I hope you read http://waitbutwhy.com/2015/05/elon-musk-the-worlds-raddest-man.html. Yes, Elon Musk’s companies are risky and should only be part of a risky portfolio, but at least Elon Musk is trying to change the world for the better, and sometimes all by himself. He’s a good guy, one of the few.
Cody, the analysis is spot on imo. Coincides with what my research led to as well. Was going to join you in Colombia but other commitments. Might do so on your next adventure. Cheers, Blaze
Hey Cody,
Tesla seems “hip”, and I understand that your approach is to invest in things that are the opposite of hip.
Tesla also seems overvalued rather than undervalued.
Here are a couple of reasons why this perception might be wrong:
1. Their product is amazing. Everyone loves it. I recently toured Europe in a rented Model S (instead of buying one, I rather rent for a trip, and put my money into stock). I get approached by people all the time. Their eyes gleam like those of children on Christmas. And when you switch back to a normal car, you feel like you’re driving a lawnmower. The product is a gamechanger. It changes what you believe a car should be, just as Amazon changed what we believed mail order should be. That alone doesn’t make for a valuable business just yet. But it is certainly the conditio sine qua non.
2. The shorters say Tesla loses money on each car they sell. That is B.S.. They actually have one of the highest margins in the industry. They make 22 to 28 % on the Model S. For comparison: VW makes 2 %. Audi 8%. Porsche 19 %. The reason the company itself loses money is that they are re-investing their earnings like crazy. Think Amazon before 2014.
Now for the ways Tesla holds the competition at bay:
3. They have superior distribution. They sell directly. Other carmakers need to make their dealers happy. And dealers hate electric cars because they don’t require maintenance. With a normal car, the guarantee is conditional upon adherence to a service plan that the manufacturer dictates. With Tesla, service is optional, and you do it like once a year. There’s no oil change or anything. Any traditional carmaker has to share the lifetime value of his customers with dealers and service centers. Tesla doesn’t need to.
4. Tesla’s autopilot (the one you saw) is their beta version. Someone did a test of all “driver assistance systems” out there today. Hyundai, Mercedes and Tesla. Proportion of times where driver had to intervene were 28 % for the Hyundai, 29 % for the Mercedes, and 0.5 % for the Tesla.
5. Tesla’s new autopilot is based on artificial intelligence. The car learns how to drive from thousands of Tesla drivers who are out there on the roads right now. Each car has cameras and radar, and it also senses all of the drivers actions. The car senses when the driver brakes, accelerates or moves the wheel. So essentially each Tesla driver right now teaches Tesla’s central supercomputer how to drive. And these “teachers” are distributed wordwide, in different countries, different climate zones, on dirt roads and on the Autobahn. From my knowledge, there is no other manufacturer out there who currently gets such massive amounts of driving data – not even Google.
6. Listen to what Elon says about “the machine that builds the machine”. Elon sees the factory for the Model 3 as a product in itself. He says that, in production, too, software will be the game changer. And if Tesla becomes a leader in artificial intelligence, then their robots will outproduce any traditional industrial robots. If that sounds grandiose, bear in mind that, even today, there is no electric car where you get as much range for the money you pay. And, also bear in mind that Elon Musk has done other things that others deemed impossible. For instance, re-using rockets in spaceflight. That doesn’t mean he is infallible. But, from what I can see, pretty much everything he has promised in the past he and his team have made a reality.
7. Tesla has many elements of what Nassim Taleb calls “antifragile”. Their cars learn from each mistake. If a problem turns up, Tesla can often fix it with a software update – no recall necessary. Their company went almost broke in 2008 – and boy did they fight to survive. Also, watch how Elon openly admits mistakes. Compare that to other companies.
8. Tesla is being valued as a carmaker. But they actually have other ambitions. I can’t know for sure, of course, but it seems to me that most of their plans regarding solar roof tiles, energy storage and autonomous ridesharing are not yet “baked in the cake”. Instead, everybody is just focussed on the upcoming Model 3 launch.
9. So far, Tesla doesn’t even advertise. Some 300,000 people paid a $1,000 deposit to reserve the Model 3 without Tesla having spent any money on advertising. And many of those people hadn’t even seen the car when they reserved.
10. Tesla currently has a 30 % market share in the category of luxury sedans. Nothing one would have expected a couple of years ago. Premium sedans make up only 0.1 % of cars in the U.S.. Imagine what will happen if your neighbor has a shiny new Model 3. It’s silent. It has ridiculous acceleration. It drives out of the garage by itself, like magic. Oh, and it has Autopilot, too. And it costs less to operate – no gas, and almost no service needed. Right now, you have to be a nerd or live in a rich neighborhood to “get” what a Tesla is. But with an entry price of $35,000, the Model 3 will be much more visible. Many people will know someone who drives one. They’ll become interested. And they’ll want one, too. And they’ll realize that they can afford one.
History will tell.
Damn Leo! You [almost] convinced me!!!
I agree with you in that a lot of people don’t understand the bigger picture of what Tesla is doing. The temptation is to directly compare to another car company, when in reality they are doing so much more.
I guess from an American perspective, it’s frustrating to see a company get so much assistance from tax payers dollars. It begs the question, “What happens when these subsidies dry up?” Or, “What happens when we see an economic downturn?” Tesla’s success may eventually be huge, but their coorelation to the current market cycle seems very connected.
Again, I hope he pulls is off. We need this type of disruption…
Cody
As a former nasa engineer – I agree with you. Space x and tesla and solar city – all will be gone one day – they are hype and using government money to bilk the investors. Space x landing and using modules has been done by NASA – we landed on moon and Mars – we got astronauts back real astronauts. The module coming back can have lot of issues like cracks fatigue cracks. Same with tesla car scary because of battery weight and fire – lightweight body is a killer if somebody hits you and now we have driverless cars crazy ate best. Solar city went bankrupt – money is gone where not sure – may be in some where in or vanished in thin air.
I’m a huge fan of Tesla and Elon Musk who is pretty darn brilliant. Yes, he’s a risk taker and has a myriad of ideas/solutions that are geared towards green energy and saving our planet which he is passionate about. Passion is a key word here, he has an enormous passion for what he is doing and working on which is extremely important and necessary for a truly great product. I’m all about the green energy movement so Tesla is a no-brainer for me, I have driven the Model S which is dreamy ride but I’m not one to spend that much for a vehicle (plus I don’t drive all that much). That being said, I sighed up for the Model 3 within the first week of the introduction and I’m now waiting. It will likely be a year or so before my car is ready but I’m not in a rush and have a nice, reliable car i my garage. Tesla outshines any other electric cars, at least thus far, and Musk has kept his vision open-source which is quite generous. I also own the stock, wanted to purchase 4-5 years ago when it was $90/share but my financial adviser kept harping on how they’re not making any money. I had a gut feeling that it was going to do well regardless and eventually purchased anyway, but at a much higher price and could kick myself for not going with my gut in the first place. We need more innovators and risk takers like Elon Musk for the good of our country and planet.
Agree, but too dangerous to short it and can’t find any option prices that I would sell either! (For the record, in my opinion options should only be sold). I doubt that the other major car manufacturers and even companies like AAPL and GOOL are going to just lay over dead and give TSLA the whole market in electric cars and driverless cars! My two biggest holders are AAPL and FB both in my opinion are a combination the very best value and growth stocks in the market now! Just wish I could buy Airbnb and Uber while they are still growing as they are as private companies.
This electrical drive renewal (Tesla is just one of them) is supported by govmint subsidies and emission regulations becoming more stringent. Wait till you have to replace the built-in electric car battery at a huge cost, and the mass whining starts to erupt on facebook and co. A lithium battery last 5 to 10 years and then it is dead in the water, no drive range anymore. You then either fork over a load of money to have it replaced (you keep your car), or you buy a new electric vehicle, again at $35 000 or more, after only 5-10 years in ownership. And a Lithium battery range (even new) collapse in frigid weather, so advertised ranges are only valid for temperate areas, and certainly not applicable in Canadian or Detroit winter weather, which lasts 6 months each year…. Yes, if you let yourself be brainwashed without doing you research, you may end up regretting you cheap diesel engine VW car that you purchased second hand for $8000 with 50 000 miles on the teller, that will attain 200 000 miles with ease, and has only a yearly maintenance fee of $500 if you don’t drive that much, meaning you will be able to drive it for 20 years if you want, thus using that appliance for a small monthly fee, monthly fee that decrease with each passing year that you keep that car.
Thanks Blaze! See you on the next trip…
‘Tesla is the perfect Conundrum. I wouldn’t invest in the stock if I had to, and certainly cant short it (The market can remain illiquid much longer than my money will last)
Since trump took office the stock price went from $187, to $370…even though the EPS “shows” they are losing $4.77 for each share right now.
All this without a REAL game changer that actually makes money. Sure they have new vehicles, sure they are going to change the future and I am ALL for that….but WTF happens to Elon Musk when the market takes a 40% correction? It’s all fluff, all blue sky, all FORWARD earnings….blah, blah, blah.
How can a company that is hemorrhaging cash continue to talk the “sheeple” into buying more.stock? (ETF’s.most likely)
So what happens in the future? the US govt “buys” the technology when he goes bankrupt – or just takes it.
Whatever the end result of Tesla the corporation – Insiders are the only ones who can make money on the corporation.
Will this company become “too big to fail”? Personally I hope so. Beats the shit out of saving a corrupt bank full of useless derivatives that produces nothing more than Board member “wealth”
My opinion only, but I will sit on the sidelines with this one – but what a glorious view of a true visionary in a really exciting time in the world.
Unfortunately, I think Elon is a pawn in a much larger game by the deep state.
Side note – Osage Beach, MO where I currently reside is a town of 4,000 people. (Tourist destination with lots of 2nd homes) We just got a Supercharger station at our local Hy-Vee grocery store. but thats another discussion