TSLA vs Cybertruck expectations

[Arctic_White]

I agree with most of what you wrote except, I have to say, there is almost zero chance of Tesla staying between $200 and $300 for 3-5 years from now. Past behavior of share price is not a good predictor of future share price. In fact, it has very little predictive value. There is a very good reason Tesla stayed relatively flat from 2013 to 2019 and that is because Tesla was not profitable. In 2019 it became apparent that Tesla was on the verge of profitability and the shares started rising. In 2020 Tesla reached annual profitability for the first time ever, and the rest is history.

I think we are talking about the same thing. However, I want to caution anyone who thinks TSLA will skyrocket next or in 2025. Just be patient.

I'm a huge Tesla bull and have a good chunk of my investments in TSLA because I believe Tesla will be the first to scale its robotaxi network. Ultimately, the patient investor will be rewarded.

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[HaulingAss]

If FSD isn't solved then the value for Tesla (given its P/E ratio) already anticipates all potential future growth. That is why TSLA stock yoyo's so much!

I mean I wouldn't touch TSLA if Tesla wasn't working on solving autonomy. In other words, if you're telling me that Tesla will only make EVs, battery packs, and energy then the value isn't there for me given the risk (of execution, volatility, etc.). Its current P/E ratio is very rich and is 2x to 3x what normal tech companies are assigned, and 10x to 20x what normal auto-car companies are assigned.

FSD is where it gets interesting. And it gets fascinating once you add robots!

So I still believe that stock won't go anywhere beyond $300 unless a major catalyst happens, like Model 2 announcement (or the next-gen platform is revealed). But again, when is that going to happen? Not next year. Maybe 2025? Definitely 2026.

It's a common misconception that Tesla is valued too richly for an auto company and even many analysts rely too much on p/e's to determine present value. I'm not going to go into a full-blown analysis of Tesla's value, but I will point out why so many are getting it so wrong:

1) An over-estimation of the risk of under-performing. Tesla is not like the rest (shockingly more efficient) which will result in higher margins and an ability to sell every car profitably, even in times of bad auto sales. Less risk = higher valuation

2) Thinking other automakers can replicate what Tesla has done. They are structurally incapable of fully replicating what Tesla is doing, as efficiently as Tesla is doing it. They cannot become Tesla, even though they want to.

3) An under-estimation of how quickly demand will shift to pure electric cars. Traditional analysts do not understand declining cost curves and technological disruption. That's why tech analysts said Microsoft was over-valued in 1992 while I was busy buying as much as I could and refusing to sell based on supossed "over-valuation". Analysts cannot wrap their heads around this kind of technological disruption which is why I made out like a bandit and those who sold it after it doubled or tripled cried all the way home. Faster transition to electric cars equals higher margins, faster growth and higher multiples.

4) The market for energy storage at high margins (above 20%) is virtually unlimited and will grow with the continual scaling of battery production.

I could add two or three more equally good points, but I'm out of time to share. Just know this: people get situations like this wrong ALL THE TIME. Tesla is not like legacy auto and should not be compared to legacy auto.

FSD is quite likely to supercharge TSLA valuations, but I don't know the exact odds or how long it will take to be valued in. This option on FSD profits is simply the frosting on the cake. Anyone who invests in TSLA because FSD is necessary to get good returns is a lot more risk tolerant than I am (even though I think it very likely to happen within two years, maybe one year).

I was able to retire at 37 years old and live very nicely for the last 23 years while contining to build my "retirement" fund because I avoid big losses. My largest positions are always companies that I believe have very low risk of losing my principle, while still having solid growth potential. In my 30 years of investing, I've never seen such a good risk/reward ratio as Tesla at the current valuation of $200. It's a screaming deal on a very fundemental level. You can play with P/E ratios all you want but it won't show you what is really happening beneath the covers.

The reason for this is precisely what I have explained above, it is misunderstood by Wall Street analysts who are literally incapable of thinking outside the box when it comes to major technological disruption. They do not understand exceptional companies and Tesla helps cover up their exceptionalism by reinvesting profits in growth and other initiatives like the Supercharger Network, Dojo, Optimus, and automating energy storage to high volume, to name a few. An auto company has no right to grow this fast while remaining so black on the bottom line and simultaneously taking on so many other initiatives that are not currently driving auto sales.

 

[Arctic_White]

It's a common misconception that Tesla is valued too richly for an auto company and even many analysts rely too much on p/e's to determine present value. I'm not going to go into a full-blown analysis of Tesla's value, but I will point out why so many are getting it so wrong:

1) An over-estimation of the risk of under-performing. Tesla is not like the rest (shockingly more efficient) which will result in higher margins and an ability to sell every car profitably, even in times of bad auto sales. Less risk = higher valuation

2) Thinking other automakers can replicate what Tesla has done. They are structurally incapable of fully replicating what Tesla is doing, as efficiently as Tesla is doing it. They cannot become Tesla, even though they want to.

3) An under-estimation of how quickly demand will shift to pure electric cars. Traditional analysts do not understand declining cost curves and technological disruption. That's why tech analysts said Microsoft was over-valued in 1992 while I was busy buying as much as I could and refusing to sell based on supossed "over-valuation". Analysts cannot wrap their heads around this kind of technological disruption which is why I made out like a bandit and those who sold it after it doubled or tripled cried all the way home. Faster transition to electric cars equals higher margins, faster growth and higher multiples.

4) The market for energy storage at high margins (above 20%) is virtually unlimited and will grow with the continual scaling of battery production.

I could add two or three more equally good points, but I'm out of time to share. Just know this: people get situations like this wrong ALL THE TIME. Tesla is not like legacy auto and should not be compared to legacy auto.

FSD is quite likely to supercharge TSLA valuations, but I don't know the exact odds or how long it will take to be valued in. This option on FSD profits is simply the frosting on the cake. Anyone who invests in TSLA because FSD is necessary to get good returns is a lot more risk tolerant than I am (even though I think it very likely to happen within two years, maybe one year).

I was able to retire at 37 years old and live very nicely for the last 23 years while contining to build my "retirement" fund because I avoid big losses. My largest positions are always companies that I believe have very low risk of losing my principle, while still having solid growth potential. In my 30 years of investing, I've never seen such a good risk/reward ratio as Tesla at the current valuation of $200. It's a screaming deal on a very fundemental level. You can play with P/E ratios all you want but it won't show you what is really happening beneath the covers.

The reason for this is precisely what I have explained above, it is misunderstood by Wall Street analysts who are literally incapable of thinking outside the box when it comes to major technological disruption. They do not understand exceptional companies and Tesla helps cover up their exceptionalism by reinvesting profits in growth and other initiatives like the Supercharger Network, Dojo, Optimus, and automating energy storage to high volume, to name a few. An auto company has no right to grow this fast while remaining so black on the bottom line and simultaneously taking on so many other initiatives that are not currently driving auto sales.

Wow! You have done very well for yourself. I'm not in the same league as you but I am very passionate about Tesla as a company.

So let's set aside FSD for now. Just looking at Tesla's EV and Energy, how do you valuate how much it is worth? How do you determine that its current $600B market cap is justified given that Tesla's profits right now are $14B per year (but granted, are expected to grow significantly over the next decade)?

 

[HaulingAss]

Wow! You have done very well for yourself. I'm not in the same league as you but I am very passionate about Tesla as a company.

So let's set aside FSD for now. Just looking at Tesla's EV and Energy, how do you valuate how much it is worth? How do you determine that its current $600B market cap is justified given that Tesla's profits right now are $14B per year (but granted, are expected to grow significantly over the next decade)?

I don't value companies in the manner used by traditional analysts because that method has proven to have lower returns than throwing darts at S&P 500 companies. You heard me right, fund managers following traditional techniques to value companies fail spectacularly to add any value, they are a net negative.

Instead, I identify companies that traditional analysts have gotten wrong. I don't quantify how much their valuation is wrong by, merely that their mis-valuation has created a favorable risk/reward situation. The more wrong their narritive, the better the opportunity. In this case, analysts have failed to understand Tesla's advantage in efficiency of manufacturing and efficiency of corporate governance. Elon is far smarter than his detractors can even imagine. He gets it. He has superior vision. He has created a company that would continue to have a huge advantage for years to come, even if one of his deputies had to take over due to death or illness.

I can give you no formula for identifying these favorable situations, I can only say that it works (for me) far better than broad diversification. There is a theory called "The efficient market theory", that I think is basically wrong, but I use a variation of it to supercharge my returns. Specifically, identifying situations in which the market is not efficient. This is almost always due to widespread misinformation that the market is susceptible to. In other words, a situation in which the market is not being efficient due to misinformation or misunderstandings. And Tesla is one of the most misunderstood companies I've ever witnessed. The bigger the disparity between narritive and reality, the bigger the potential returns. This is really the only way to consistently beat the market.

The closest I've come to TSLA, in terms of misinformation that created such big misunderstandings netted me huge profits at very low risk as the last century came to a close. Specifically, Motorolla, Nokia, Ericsson and others were talking down the CDMA wireless technology developed by Qualcomm (because it was a direct threat to their hugely profitable but inefficient TDMA technology). CDMA is the basis for most cellular transmissions today, even if not called always called CDMA. These entrenched interests had a huge misinformation campaign to talk down Q's techology, they said it didn't work, the battery life was too short, it was too complicated and would crash under load, that Qualcomm's patents were not actually valid, and on and on. Any rational person could look into each of these claims and see they were false, in fact, the technology was already deployed in South Korea and had millions of users, right in Seoul, S. Korea. It was not crashing, battery life was good, etc. Qualcomm was founded and run by a brilliant and under-stated engineer that I could judge about as far from a con artist as humanly possible. You have to trust management. BTW, Microsoft was run by a software engineer and so is Tesla (even though Elon doesn't have an actual engineering degree).

These situations of misuderstanding and misinformation are like gold mines, as long as the misinformation and misunderstandings persist, because they cause the efficient market theory to fall apart. That's what any rational investor should be looking for. Because the efficient market theory states that all companies are fairly valued. But I know they are not, and it would be hard for a rational person to believe otherwise, at least to the way I see the world.

Here's the problem though; if you think like traditional analysts, then you will never see the disparities to begin with. These analysts have believed for many years that legacy auto was always a couple years away from catching up to Tesla and crushing them. But that was never even a possibility after early 2019 because the legacy manufacturers are structurally incapable of doing so. They have the wrong corporate DNA. I'm not cheerleading, or I would be broke by now, I'm calling it how I see it, and I'm always ready to change my mind on a dime. But I need a real reason to change my mind, not a fake one, like the current one, that consumer acceptance of EV's has plateaued. Because it hasn't, that's not how technological disruptions happen.

In 2022, Tesla was tied for the second largest grid storage provider globally. Tesla has spent the last several years developing an efficient manufacturing platform for grid storage solutions. They know how to offer huge value to their customers and the prices are now low enough that they sell themselves. Grid operaters will not be able to get enough of them. The more they buy, the more money they will make. Just like gravity causes a ball to roll downhill, Tesla will move ever increasing volumes of grid storage solutions. We are leaving the fossil fuel powered industrial age and entering into the age of electricity. Just like the ball rolling downhill, it cannot be stopped.

A long-term investment mindset is far more profitable than trying to skim a few percent here and there. Just make sure you are not investing in loser companies because their valuations look enticing. Invest in the best, pay the high prices, and watch them outperform over time. Most importantly, don't be swayed by fake narratives, then you can't profit from them! Remember, the bigger the disparity, the more profit potential!

 

[Arctic_White]

I don't value companies in the manner used by traditional analysts because that method has proven to have lower returns than throwing darts at S&P 500 companies. You heard me right, fund managers following traditional techniques to value companies fail spectacularly to add any value, they are a net negative.

Instead, I identify companies that traditional analysts have gotten wrong. I don't quantify how much their valuation is wrong by, merely that their mis-valuation has created a favorable risk/reward situation. The more wrong their narritive, the better the opportunity. In this case, analysts have failed to understand Tesla's advantage in efficiency of manufacturing and efficiency of corporate governance. Elon is far smarter than his detractors can even imagine. He gets it. He has superior vision. He has created a company that would continue to have a huge advantage for years to come, even if one of his deputies had to take over due to death or illness.

I can give you no formula for identifying these favorable situations, I can only say that it works (for me) far better than broad diversification. There is a theory called "The efficient market theory", that I think is basically wrong, but I use a variation of it to supercharge my returns. Specifically, identifying situations in which the market is not efficient. This is almost always due to widespread misinformation that the market is susceptible to. In other words, a situation in which the market is not being efficient due to misinformation or misunderstandings. And Tesla is one of the most misunderstood companies I've ever witnessed. The bigger the disparity between narritive and reality, the bigger the potential returns. This is really the only way to consistently beat the market.

The closest I've come to TSLA, in terms of misinformation that created such big misunderstandings netted me huge profits at very low risk as the last century came to a close. Specifically, Motorolla, Nokia, Ericsson and others were talking down the CDMA wireless technology developed by Qualcomm (because it was a direct threat to their hugely profitable but inefficient TDMA technology). CDMA is the basis for most cellular transmissions today, even if not called always called CDMA. These entrenched interests had a huge misinformation campaign to talk down Q's techology, they said it didn't work, the battery life was too short, it was too complicated and would crash under load, that Qualcomm's patents were not actually valid, and on and on. Any rational person could look into each of these claims and see they were false, in fact, the technology was already deployed in South Korea and had millions of users, right in Seoul, S. Korea. It was not crashing, battery life was good, etc. Qualcomm was founded and run by a brilliant and under-stated engineer that I could judge about as far from a con artist as humanly possible. You have to trust management. BTW, Microsoft was run by a software engineer and so is Tesla (even though Elon doesn't have an actual engineering degree).

These situations of misuderstanding and misinformation are like gold mines, as long as the misinformation and misunderstandings persist, because they cause the efficient market theory to fall apart. That's what any rational investor should be looking for. Because the efficient market theory states that all companies are fairly valued. But I know they are not, and it would be hard for a rational person to believe otherwise, at least to the way I see the world.

Here's the problem though; if you think like traditional analysts, then you will never see the disparities to begin with. These analysts have believed for many years that legacy auto was always a couple years away from catching up to Tesla and crushing them. But that was never even a possibility after early 2019 because the legacy manufacturers are structurally incapable of doing so. They have the wrong corporate DNA. I'm not cheerleading, or I would be broke by now, I'm calling it how I see it, and I'm always ready to change my mind on a dime. But I need a real reason to change my mind, not a fake one, like the current one, that consumer acceptance of EV's has plateaued. Because it hasn't, that's not how technological disruptions happen.

In 2022, Tesla was tied for the second largest grid storage provider globally. Tesla has spent the last several years developing an efficient manufacturing platform for grid storage solutions. They know how to offer huge value to their customers and the prices are now low enough that they sell themselves. Grid operaters will not be able to get enough of them. The more they buy, the more money they will make. Just like gravity causes a ball to roll downhill, Tesla will move ever increasing volumes of grid storage solutions. We are leaving the fossil fuel powered industrial age and entering into the age of electricity. Just like the ball rolling downhill, it cannot be stopped.

A long-term investment mindset is far more profitable than trying to skim a few percent here and there. Just make sure you are not investing in loser companies because their valuations look enticing. Invest in the best, pay the high prices, and watch them outperform over time. Most importantly, don't be swayed by fake narratives, then you can't profit from them! Remember, the bigger the disparity, the more profit potential!

Wow. Another very well-thought-out and incredible post!

The competition is coming meme is finally being put to stop, because the legacy automakers are actually scaling down their ramp for EVs.

Having owned four Teslas, I can wholeheartedly agree that what Tesla does can't easily be replicated by the legacy. The competition for EVs will come from China, however.

But there is no competition for FSD as far as I know.

Let's wait and see.

Thanks again for your incredible insights.

 

[Crissa]

US EV sales have been hit hard

EV sales haven't stalled

C'mon, man, don't disagree with yourself.

That's why tech analysts said Microsoft was over-valued in 1992 while I was busy buying as much as I could and refusing to sell based on supossed "over-valuation".

It was. They were heavy into vaporware and contractual shenanigans at the time. Any coder could have told you. It's why they pled no contest on being a monopoly to federal prosecutors in September 2001. Of course, those prosecutors had just been changed and their superiors made sure a sweetheart deal was made...

-Crissa

 

[HaulingAss]

C'mon, man, don't disagree with yourself.

Naw, it's all a matter of context.

It was. They were heavy into vaporware and contractual shenanigans at the time. Any coder could have told you. It's why they pled no contest on being a monopoly to federal prosecutors in September 2001. Of course, those prosecutors had just been changed and their superiors made sure a sweetheart deal was made...

-Crissa

MSFT was not fully valued or over-valued in 1992. If it were, it only would have appreciated at the rate one could have got with the rest of the market. Instead, over the next 8 years it appreciated 30 fold over the next 8 years. That's life-changing returns. This was before the slap on the wrist they got in 2001 and immaterial to my point anyway.

Look, I get it that you hate MSFT, but my job as an investor is not to take sides, not to pick companies that I resonate with, but to identify the highest reward and lowest risk opportunities. The ability to find great stocks, not the ones that average 6-11% per year, you can get that with an index fund, but to find the ones that will 10X or 30X in just a few years.

 

[Crissa]

MSFT was not fully valued or over-valued in 1992. If it were, it only would have appreciated at the rate one could have got with the rest of the market. Instead, over the next 8 years it appreciated 30 fold over the next 8 years. That's life-changing returns. This was before the slap on the wrist they got in 2001 and immaterial to my point anyway.

They went from having multiple competitors considered 'the standard' to holding the monopoly on nearly the entire chain of software from firmware to Office.

They are life-changing returns. They also destroyed so many jobs, created so many security breeches, made so many misrepresentations and predatory contracts, and repeated so many mistakes that already had white papers and been solved in the open source and unix worlds...

I hate them, yes, because they lied, cheated, and then covered it up. Kids in the aughts were given Microsoft history of computing which taught them that Microsoft invented the graphical UI and basically every innovation.

I hate liars.

And then, when they'd built all that, they turned their predatory attitude towards their employees, requiring every department to turn over and fire some percentage of their workers every quarter. They defined toxicity at every level, and have repeated it over and over again.

-Crissa

 

[HaulingAss]

They went from having multiple competitors considered 'the standard' to holding the monopoly on nearly the entire chain of software from firmware to Office.

They are life-changing returns. They also destroyed so many jobs, created so many security breeches, made so many misrepresentations and predatory contracts, and repeated so many mistakes that already had white papers and been solved in the open source and unix worlds...

I hate them, yes, because they lied, cheated, and then covered it up. Kids in the aughts were given Microsoft history of computing which taught them that Microsoft invented the graphical UI and basically every innovation.

I hate liars.

And then, when they'd built all that, they turned their predatory attitude towards their employees, requiring every department to turn over and fire some percentage of their workers every quarter. They defined toxicity at every level, and have repeated it over and over again.

-Crissa

Again, my job was to identify and take advantage of investment opportunities, to reduce risk and increase gains, not make value judgements on whether MSFT was winning fairly. It's an economic analysis, not a moral stamp of approval.

 

[SparkChaser]

This is at the heart of what is wrong with capitalism.
If all you care about is maximum return on investment, then you get exactly to the "Greed is good" situation.

Again, my job was to identify and take advantage of investment opportunities, to reduce risk and increase gains, not make value judgements on whether MSFT was winning fairly. It's an economic analysis, not a moral stamp of approval.

 

[HaulingAss]

This is at the heart of what is wrong with capitalism.
If all you care about is maximum return on investment, then you get exactly to the "Greed is good" situation.

I think you have a misunderstanding about how investing in public companies works.

Investors buy the shares based upon which ones they think will be worth the most in the future. When you buy a stock, the money doesn't go to the company of the stock you are buying, it goes to the seller of the stock. In other words, it matters not at all to the company what the person who owns their stock thinks, except to the extent that shareholders can vote on corporate matters (like who runs the company, whether they operate based upon ESG principles, etc).

As you can see, by not becoming a shareholder in a company that you think needs improvement, you are giving up your right to have a say in how the company is run, however small that say really is.

As an individual investor who worked hard for his investment capital, I'm not about to limit myself to poorer performing companies simply for the false belief that I will be showing that company what I think of their governance. Too many people think simplistically like this. There is no correlation between a company's behavior and who owns them, beyond the fact that people who don't own them have no say.

By your idealistic (but wrong) way of thinking, I should only buy the stock of greedy companies, so I can vote for candidates who I think will run the company in a less greedy manner.

 

[Crissa]

I think you have a misunderstanding about how investing in public companies works.

No.

You shouldn't buy companies that participate in misrepresentation. Not only because maybe they'll get slapped by the SEC. But because if you don't take the moral look at what you're doing, you're investing in what are basically con artists.

And con artists will steal from you, too.

-Crissa

 

[HaulingAss]

No.

You shouldn't buy companies that participate in misrepresentation. Not only because maybe they'll get slapped by the SEC. But because if you don't take the moral look at what you're doing, you're investing in what are basically con artists.

And con artists will steal from you, too.

-Crissa

I'm not sure what you are taking issue with. I was saying the goal of an investor is to minimize the risk and increase the potential reward by buying the companies you judge to have the best odds. Obviously, if they are con artists that are operating fraudulently, that does not bode well for the future of the company. But we don't live in a black and white world. Some thought Microsoft had crossed the line, others thought they were merely very competitive, wthin the law. You could find seriously competent legal scholars weighing in on both sides of the issue.

When I invested in MSFT, at some point it became known that SEC actions were a potential risk. But an investor has to weigh the risk/reward ratio. It turned out to be mostly a big nothingburger, and the stock continued to soar, right up until I sold the last share in 1998 (I only sold MSFT due to finding a company with an even better risk/reward ratio). As a side note, I didn't buy MSFT again until 17 or 18 years later, 2015 or 2016, and it's performed very well for me, even better than I expected.

I'm not sure what your point is, no company is perfect, a successful investor must focus on growing their capital by investing where the odds are the best. And yes, that includes accounting for the possibility of fraud or other government action.

Always remember this; if you think a company is doing something wrong, there is no better way to fix it than being a shareholder, because non-shareholders hold no sway with the company, and cannot vote out directors or make shareholder proposals. Typically, you get one vote for every share you hold.

 

[FarAway]

Thank you, Mike, for some very well thought out posts. I enjoyed reading them. Hard to add to that.

I will say, with the stock market one is dealing with reality and perception. The problem is a person's perception IS their reality, truth and facts be damned. When idiots like Jim Kramer, who doesn't even understand the properties of stainless steel, tells millions of his viewers the CT (and TSLA) are losers... that becomes their reality.

I am long TSLA, too many potential upsides to not be... many have already been mentioned, FSD, energy storage, Optimus, etc. There are others. Given geopolitical tensions, it is not difficult to think of more than a few scenarios where the price of oil would drastically inflate. That would necessarily push more money into EV and solar infrastructure, benefiting TSLA. Also, Space X and Tesla are hiring the best and brightest from our colleges. That is an investment in their companies' future. Imagine what a technology breakthrough in battery storage would do to the EV industry. It will happen.

There is also anecdotical evidence of Tesla dominance present. I live in a relatively rural part of VA. Even six months ago I rarely saw a Tesla car and if I did it was sporting out of state plates and just passing through. Even rarer yet, was seeing a public EV charger at a service station. That is all changing.

Remember when the public was told no more incandescent light bulbs? Oh, the hand wringing and anxiety that created. I had friends rush out and buy cases of the old 75-watt light bulbs. Maybe because of a distrust of the government or a resistance to being told what to do? Everyone thought it would take decades to switch over and gain widespread acceptance. It however, happened quickly and was a nonevent; the LED bulb is superior in practically every way. That is what needs to (and i believe will) happen in the EV industry.

What keeps me up at night about TSLA? While the CT development and launch comes with a significant cost, it is not quite a bet the company move. Certainly, any major problems with the CT would do damage to Tesla's reputation in particular and to EV adaption in general.... but Tesla would adapt and survive. No, I worry about Elon.... for the time being Tesla still needs his vision and drive. I would like to see ELON develop a succent succession plan.

In spite of all the evidence contrary, Americans are not stupid. I think this is how EV car adoption will happen "very slowly and then all at once." I too am buying TSLA, DYODD.

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