Had a chat with a mentor and friend about Tesla recently and he asked about the rising risk profile on Tesla and concerns about the stock and market overall. These were my thoughts:
The current risks (that he mentioned):
- Departing Board Members
- Outside looking view of change in Autonomous Driving (or “Robotaxis”)
- Slumping sales
- Federal Tax Credit Ending
- Increasing Competition
- Quality Issues
- Support Problems
- Logistic Issues
- Convertible Bonds raise of $2.7B
Other risks (I mention):
- Macro factors: recession looming
- Side effects on Automotive market due to Tesla effect
- Labor effects on Automotive market and negative sentiment effect
- No effect on global temp change due to Tesla push
- Resource crunch due to hindrance by negative forces
- China Gigafactory Completion in May
- Buffalo Gigafactory Ramp-up in Q2
- Reduced cost to operate for Automotive
- Increased sales of FSD (baked in to Automotive Sale)
- New paid software features
- Multiple quarters of positive new cash flow (thus, incorporation of Tesla into S&P 500)
- Is climate change real? If agreed upon yes, then entire entire energy consumption to usage lifecycle [ECUT Lifecycle] needs to be rethought towards renewables
- How much is Automotive and Energy Consumption+Usage Utility Market worth? Both are $3T markets (Tesla is tackling both)
- Is Tesla the primary leader in the new market? I’d say yes based on demand and execution.
- Will Tesla continue to be the primary leader going forward? I’d say yes because they have the best lead and they’re moving faster. With even better products likely to be built off of great design and data.
- What does a market leader generally comprise of in market share? Anywhere between 10-50%.
With all of those laid out (I’m sure I missed some), the simple investment question is, “do you believe climate change is real?”. I’ve believed yes since 2009 and wanted to see someone executing on fixing the problem. I’ve learned that it’s not just a problem to fix, but an innovation cycle that will make things better. Tesla is a safe bet, as long as it has cash, to become gigantic…anywhere from a $600B -> $3T market cap even though it’s sitting on ~$36.7B today. If you take a 5-10 year view out and look at the situation, I’d say Tesla is in the 3rd-4th inning of a fight to completely replace our ECUT Lifecycle against the incumbents that have spent the better part of 100+ years owning it and established companies, organizations, and national powers around it. This all likely affects practically everyone on the planet.
You’re, essentially, betting that Elon Musk and Tesla (and everyone that works and/or roots with/for them) is there in order to fix one question: is climate change real? If so, then that means the likelihood of the entire human civilization being wiped out is possible. It’s very …extraordinary and the stakes sound really dire and out of a comic book. Well, it’s been scientifically proven to be accurate even by Exxon/Mobil back in 1982. That’s the situation that we are in. From the risks outlined, the Tesla strategy seems to be to replace the world’s ECUT Lifecycle and to use the current lifecycle where the weather is increasingly working against them (e.g. Hurricane Maria and Puerto Rico).
So, slumping sales, volatility of board members, “quality issues”, and “support issues” can be put under a stress umbrella under an aggressive worldwide strategy and effort to ECUT products around the world from only a ~$36.7B company (e.g. Facebook is worth ~$529.2B today) right now. Also, this is starting to undercut sales of other very large companies in the same huge and important market as we see in US April auto sales (most unsold ever). As a leader, how do you deal with this situation other than keeping on pushing forward in the 3rd-4th inning rather than throwing up your hands and saying, “oh shit, this is too much and too many problems to deal with!”? I think that’s where Robotaxis have come in after Tesla’s announcement of them in their Autonomy Day.
Tesla’s well-communicated out vision since 2015 has incorporated this concept due to huge under-utilization of the concept of the car of 5% of time being used for anything other than a parked state. I believe Tesla’s going to find out just how much that utilization rate can be increased by deploying the Robotaxis (maybe 1st in Norway) and seeing how profit margins can increase. It’s incorporated into the design of the car/vehicle itself with 1M miles as a design constraint. Why not push the bar?
With every % increase in utilization, the less cars need to be sold (out of 97M+ annual vehicles global sales market). Thus, hopefully, more of a synthesis in transition with the current ECUT lifecycle. We’re in this massive innovation change and we’re (i.e. every human being on the planet) all a part of it at this point to make sure climate change is averted now that most of the world (and hopefully the entire world) understands that it’s scientifically proven for decades, known, and understood. Hope we figure it out in time.