Coolbreeze704

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My specialty is in investing in misunderstood companies, the three most obvious ones I can think of, were misunderstood because people and companies who felt threatened by them created false narratives. I would normally never invest in any auto company because they are famous for low average profit margins. That's because auto sales are strongly cyclical, during times of tight money and rising interest rates, auto companies often lose money or struggle to break even. But there are two glaring problems with applying this to Tesla and these reasons are the same reasons I invested in Tesla in 2019 in a big way and multiplied my capital fifteen times:

1) Tesla is not a normal auto company.
2) Tesla is not just an auto company.

Anyone who didn't understand this in 2019 (many said Tesla was certainly going bankrupt shortly), did not invest, and did not 15X their capital. Some of the biggest TSLAQ types actually invested in Ford and/or GM at the same time they were telling people Tesla was wildly over-valued at 1/15th the current value. That showed a profound misunderstanding of the company that is Tesla.

Looking at Tesla now as an investment, Tesla's falling profit margin per vehicle now is not the most pertinent metric with which to judge the company because it should be expected that auto margins fall during hard economic times. More relevant are two related factors:

1) The difference in margins between Tesla and the rest.
2) The fact that Tesla is able to maintain this difference as they grow production and sales while the rest have shrinking sales. Margins do not fall as far if you are willing to keep prices so high that sales fall (and that is exactly what legacy auto is doing).

Compounding the above two factors is the fact that Tesla is able to maintain their superior margins even with all of their other expensive initiatives like building a production facility to mass produce semi-trucks, expanding Giga Texas and Giga Berlin, developing Dojo AI supercomputer and FSD, accelerating the buildout of their Supercharger Network, developing humanoid robots (including custom servos to power them), developing a next generation vehicle (Cybertruck) with 48 V architecture and huge castings, ramping and automating Megapack energy storage products for grid deployment, developing auto-bidder software to trade electricity on the energy markets, building a new mega factory in Mexico, etc.

All of these initiatives cost money and yet Tesla is still cash flow positive and has a higher net profit margin than any other automakers, even though almost none of these expensive initiatives are contributing significantly to their profits yet. That's why traditional analysts ignore them. As auto sales recover, and Tesla energy products show impressive margins and growth rates, Tesla will be positioned such that it will become apparent just how undervalued they are at less than a trillion dollars. The strong possibility that FSD may also hit payday is just the frosting on the cake.

Anyone who waits until all of these things are proven will miss out on most of the profits, just like those who didn't buy TSLA in 2019 because their superior profits were still unproven, and thus Tesla was "overvalued" missed out. As I said, my specialty is investing in disruptive companies that are misunderstood, and thus undervalued. The people who can't see what is happening right before their eyes, the people who have to wait to see the profit margins materialize, cannot get a good deal on the stock and cannot multiply their capital in an excessive manner.

It's very short-sighted to look at current margins per car and think that is a static situation. Margins will return and production/sales volumes will continue to increase due to an inability of legacy auto to match the kind of value Tesla is capable of bringing to new car buyers. Tesla is not done driving down the cost of new cars, something that will be wildly popular as legacy auto continues to fail at doing the same thing. Working against them will be declining economies of scale.

And Tesla is not just an auto company, they are leveraging auto profits to propel them into other lucrative businesses like grid energy storage, applied AI and advanced computing, robotics and vehicle charging where others will find it impossible to do what Tesla can. Tesla is a generational company of the kind that doesn't come along often. That's why it looks perpetually "over-valued" to those who don't understand it. Very short-sighted. Traditional analysts always miss the biggest opportunities because they can't see outside their valuation bubble. Remember, their valuation techniques are built around average companies, not exceptional ones.
A lot of great posts have been shared here over the years. I put this one up there with them. Well said.

In ten years Tesla will be much more then an automotive company and most likely their least profitable part of the company. Yet as you said it is providing the capitol to grow Dojo, robitics, energy etc. Most importantly it is collecting the data it needs and the data each car collects is the new oil.
 

cvalue13

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A lot of great posts have been shared here over the years. I put this one up there with them. Well said.
I don’t understand it. He seems to just pull the various slights of hand every $TSLA xwitter poster does. Full of contradictory and cherry-picked “data” that fails to address relevant context.

For example, simultaneously asserting both:

(A): Tesla’s business is wildly different than other OEMs, while

(B)Taking OEMs and Tesla and comparing their [gross] profit margins

which slight of hand is one of the three things

(1) not understanding that gross profit margins can’t be meaningful compared between dissimilar businesses, or (2) intellectually dishonest, or (3) both (1)/(2)


Profit margins very dependent on sector, business model, and growth stage.

Let’s ignore sector for the moment, assuming at present all of Tesla’s gross profit comes from automobiles in a way comparable to other OEMs.

From there, Tesla’s auto business model is material different in obvious and fundamental ways: put simply, Tesla is a D2C manufacturer, while all other B2B. This is a fundamental difference that makes comparing profit margins … stupid. D2C had better f’n have better profit margins compared to B2B - that’s the entire thesis of D2C.

“We’ll, if D2C has higher profit margins, why would ANY business ever choose to go B2B?”

Set muting aside that until the last [10] years D2C was more challenging pre-internet, it’s because D2C trades those increased margins for (centrally) (i) increased risk to market (due to lower pricing lower), and (ii) increases risk and cost of distribution as growth scales. Again: McDonald’s (40k stores across the globe), vs In-and-Out (400 stores in 7 US states) - In-and-Out could never maintain both its growth and its business model. This is more true nowhere more than complicated manufacturing business requiring significant logistics and distribution of large, heavily regulated, assets. You can D2C your Etsy doilies across the globe on the backs of postal services, but automobiles?

All that said, despite these two nearly incomparable business models, what does Tesla’s D2C profit margin advantage over OEM’s look like?

Tesla Cybertruck Elon reveals Cybertruck details / production expectations on Q3 2023 call 6BB155FB-AE54-4D4D-9AEC-5396D11307EE
Tesla Cybertruck Elon reveals Cybertruck details / production expectations on Q3 2023 call 4AFDD034-ECDC-4D5B-B9E3-B1995029813B
Tesla Cybertruck Elon reveals Cybertruck details / production expectations on Q3 2023 call 270F8ECD-7097-411F-93EF-4A1B125433E0



I’ll pause on the above obvious inferences as relates to Tesla’s purportedly miraculous business margins compared to OEMs, despite its D2C advantages.

Because the other thing making comparing profit margins across businesses meaningful is growth stage. Late stage businesses (ignoring whether D2C/B2B) don’t compare well to early stage businesses. But adding the D2C/B2B model differences, an early stage D2C is incomparable to a late stage B2B precisely because of the scaling issues encountered by D2Cs vs B2Bs.

So now, the charts above reflect not only that Tesla’s profit margins are roughly comparable to OEM profit margins, this parity is despite Tesla’s doubly advantageous - for now - D2C early stage business. This is also despite Tesla’s historical margins having been materially floated not at all by cars, but by sales of carbon credits and Bitcoin.

All the other flourishes claimed above around this - eg despite investing in factories, etc. - are just seemingly equally valid (other companies spend MORE, proportionately, than Tesla - if anything Tesla’s advantage is the opposite of what’s claimed: they spend very little on R&D and infra).




Now, taking all the above together, let’s remember what these margins are relative to: market cap

Tesla’s market cap per vehicle sold is 25X that of Toyota, and close enough to that for Ford.

Viewed that way, one of two things is true:

(1) Tesla’s margins, on a market cap basis, are WILDLY lower than Toyota/Ford, relative to market cap, or

(2) Tesla’s market cap already reflects all the “things other people can’t see”


Either way, back to the entry to this post: I can’t understand one bit how that was a “hood” post, or how anyone could think that BOTH Tesla’s margins are better (relative to market cap) AND “it’s just that nobody knows it but those few market wiz’s who specialize in investing in misunderstood companies.”



It’s totally unclear what any of that claptrap actually means. far from sounding like being a wise market sage, sounds like someone with survivors bias and an overinflated sense of self, at least where it comes to Tesla.



PS: “But, I hear about how Ford loses money on every BEV while tesla has amazing margins”

yeah, because $TSLA xwitter twirps don’t understand that Tesla also ‘lost money on every BEV’, except - now - for a brief period during 2020/2021 … despite it’s D2C/small distribution advantages

this idea that Tesla is importantly any different than OEMs in this respect stems entirely from people incorrectly (fraudulently?) comparing eg (A) Tesla’s per-vehicle margin to ((B) Ford’s corporate net income divided by number of units sold.
 

Coolbreeze704

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You must type really fast. Absolutely amazing what you can accomplish each day here and thanks for all the insight you provide.

I'll never be able to process at your level but my opinion forward looking is Tesla in ten years will be a different company from what it is today.

How many cars will Tesla produce vs sell to consumer?
Is D2C even part of automotive or is production for Robotaxi and lease?
Is Telsa more about building the machines that build the machines?
Is it producing for the OEM's as they realize they cannot produce at Tesla's efficiency?
Is 8/10/20 million cars annually as important to bottom-line if/when Tesla solves AGI and is producing many millions of Optimus robots?

Model S got them to Model 3 then Model Y which gets them to 25k car and then to robotaxi which gets them the data to use in DOJO which gets us to AGI and Optimus. The car isn't the thing that matters, it is what gets us to what changes everything.

As I said, you and JBee have a much higher compute ability then myself so I will not even pretend to think at that level. From my simple perspective I see Tesla pulling a way at quicker and quicker pace over the coming years and OEM's that will have to throw in the towel or ask for help much like they did with NACS
 
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cvalue13

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I'll never be able to process at your level
I highly doubt any of that, as instead there are just different things people do differently

there are universes of things I don’t get at all, those are just less apparent because I don’t comment on those threads/topics
 


Coolbreeze704

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I highly doubt any of that, as instead there are just different things people do differently

there are universes of things I don’t get at all, those are just less apparent because I don’t comment on those threads/topics
I have got to learn to stop commenting on politics it seems. :unsure:;):p
 

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How many cars will Tesla produce vs sell to consumer?
Is D2C even part of automotive or is production for Robotaxi and lease?
Is Telsa more about building the machines that build the machines?
Is it producing for the OEM's as they realize they cannot produce at Tesla's efficiency?
Is 8/10/20 million cars annually as important to bottom-line if/when Tesla solves AGI and is producing many millions of Optimus robots?
I agree that these are all GREAT questions

and I point out that the result in roughly the following conclusion: what could be incredible about Tesla has little to do with their having “better margins on auto manufacturing“

Hell, if you listen to Tesla, they tell you that what they’rE GOING to do is essentially make selling personal vehicles obsolete

At worst, that’s what’s so confusing about the high level summary of Tesla’s thesis: we’re going to both (A) sell 20M cars/year, and (B), increase both their longevity and utility in such a way that those 20M cars are equivalent to a number that is greater than the total number of new cars sold globally each year.

huh?

But at best, what it means is that I find really odd these sorts of assertions that “what what evidences Tesla is so good are it’s auto sales margins, and nobody gets what Tesla’s about”

it’s margins aren’t that remarkable, and enough people get what Tesla is about that it has a 25X market cap compared to Toyota on a car volume basis
 

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I agree that these are all GREAT questions

and I point out that the result in roughly the following conclusion: what could be incredible about Tesla has little to do with their having “better margins on auto manufacturing“

Hell, if you listen to Tesla, they tell you that what they’rE GOING to do is essentially make selling personal vehicles obsolete

At worst, that’s what’s so confusing about the high level summary of Tesla’s thesis: we’re going to both (A) sell 20M cars/year, and (B), increase both their longevity and utility in such a way that those 20M cars are equivalent to a number that is greater than the total number of new cars sold globally each year.

huh?

But at best, what it means is that I find really odd these sorts of assertions that “what what evidences Tesla is so good are it’s auto sales margins, and nobody gets what Tesla’s about”

it’s margins aren’t that remarkable, and enough people get what Tesla is about that it has a 25X market cap compared to Toyota on a car volume basis
Is it sell 20 million or produce 20 million? Which leads to your observation of

"Hell, if you listen to Tesla, they tell you that what they’rE GOING to do is essentially make selling personal vehicles obsolete"
 

cvalue13

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Is it sell 20 million or produce 20 million? Which leads to your observation of

"Hell, if you listen to Tesla, they tell you that what they’rE GOING to do is essentially make selling personal vehicles obsolete"
well, exactly. But that’s just a single year. The question then becomes. What do they do the year after that, or the year after that…
 

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well, exactly. But that’s just a single year. The question then becomes. What do they do the year after that, or the year after that…
Well that is why Elon is so worried about population decline. He is trying his best too add as many he can personally. If we all tried as hard as he is we would plenty of butts to put in seats.
 


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I agree that these are all GREAT questions

and I point out that the result in roughly the following conclusion: what could be incredible about Tesla has little to do with their having “better margins on auto manufacturing“

Hell, if you listen to Tesla, they tell you that what they’rE GOING to do is essentially make selling personal vehicles obsolete

At worst, that’s what’s so confusing about the high level summary of Tesla’s thesis: we’re going to both (A) sell 20M cars/year, and (B), increase both their longevity and utility in such a way that those 20M cars are equivalent to a number that is greater than the total number of new cars sold globally each year.

huh?

But at best, what it means is that I find really odd these sorts of assertions that “what what evidences Tesla is so good are it’s auto sales margins, and nobody gets what Tesla’s about”

it’s margins aren’t that remarkable, and enough people get what Tesla is about that it has a 25X market cap compared to Toyota on a car volume basis
I don't think Tesla will sell 20M annual vehicles because they will start licensing both FSD as well as the internals of the vehicle to other OEM.

We can then talk about gross and net profit margins. Give me about 10 to 15 years, though. Will you wait around?

Regarding annual vehicle sales, we are at ~80M annual sales worldwide and on pace to get to 100M vehicles per year. India is a massive market.

When FSD is solved and it's half the cost to take a Robotaxi than it is to take an Uber, do you think that the demand for vehicles will not go up?
 

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well, exactly. But that’s just a single year. The question then becomes. What do they do the year after that, or the year after that…
Vehicles don't last forever. Not all vehicles will be Robotaxis for decades and some will crash/get into an accident, or be neglected.

I don't see how annual vehicle sales drop once all vehicles are EVs and many are Robotaxis.
 

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I don't see how annual vehicle sales drop once all vehicles are EVs and many are Robotaxis.
Elon has pointed out that cars sit around most of the time, and as robotaxis they can be 10x more utilized.

That's great, but it also means we'll need 10x less cars to do the same amount of driving.

Will they need replacement sooner? Sure, but not 10x sooner.
 

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Vehicles don't last forever. Not all vehicles will be Robotaxis for decades and some will crash/get into an accident, or be neglected.

I don't see how annual vehicle sales drop once all vehicles are EVs and many are Robotaxis.
I think here are the factors for future car sales.

1. There will fewer cars. If one RT can take 3 people to work and home, and each house has two cars today, then you have a 40% car savings (3 still at home, plus the RT)

2. BEVs need far less maintenance then an ICE car does.

3. BEVs last longer than do most ICE vehicles.

4. As there becomes more and more FSD, the accident rate reduces.

5. The RTs will stack up miles faster. so they may need replacement earlier.

6. With more people going in and out, and knowing that people in general don't take care of thing as well when they aren't their's, interiors will take the brunt of the abuse.

7. There will still be human drivers and they will cause all sorts of accidents that cause units to get totaled and replaced.

8. RTs will wear out and need to be replaced.

So fewer individual sales, and the cars are more reliable, But they'll wear out faster, due to the higher mileage. Hard to predict the future...
 

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interesring turn of events.

it’s legit, >2,100 listed, links go straight to Tesla sales website



9F33DC58-0A84-4A9B-B6BB-A595948ED603.jpeg
Well, considering the listings just redirect the customer to the Tesla website, cars.com is technically not "selling" the vehicle as "CarDealershipGuy" alludes. Tesla is still selling the car. If anything, cars.com is getting some type of referral credit.
Sponsored

 
 




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