Tesla just reported it’s fourth consecutive profitable quarter. This transforms them from “start up” to “established”.
Yes, I know Tesla will be the largest car company in the world. In fact, I will go one step further. They will be the largest company mankind has ever seen.
I have been watching a lot of coverage in the electric vehicle industry for a while. Many channels are reporting news but many are failing to read into what any of it means. Stock analysts show speculations. But short term stock trading is something all, except for the very very few, lose money at.
What is the big picture? What does all this mean? What the hell is going to happen?
The answer is Tesla. They are the future. I can see the forest through the trees. I know some of you do as well.
Tesla is not just established but a dominant force in an exploding niche that will one day replace 95% of the entire auto industry. They will dominate many major industries and simply destroy the competition.
Tesla knows this. I know this. And only time will show us all their genius. Tesla has been quietly creating products and features that align with improving their main product, the electric vehicle:
- Cell service – They will use Starlink to transmit updates to their cars, while competitively providing 10x 4g speeds to most of the world.
- Solar power – Supercharger locations will be abundant being powered by mostly free energy from the sun. They have the potential to sell to utility companies this always available power at scale with a much cheaper price than coal, nuclear, or other renewables. Or they may absorb a utility company themselves.
- Car insurance – Teslas are always recording. They will have video evidence of almost all their car crashes. This will prevent future accidents on autopilot, reduce fraudulent claims, assess more accurate payouts, and in turn offer more affordable coverage. It is said in the insurance industry, “he with the best data, wins.”
- Manufacturing capabilities – Tesla will sell their technology in the form of drivetrains and full self driving to other car makers. I believe this will be a short term income stream or not a sustainable major source of income. I see most car makers will not be able to compete on a large scale. Though, Tesla will have to provide means to prevent any anti-trust lawsuits that will eventually come up.
- Domestic travel – Travel under, say, 500 miles will be dominated by Tesla. Personal vehicles have the ability to transport people quicker and cheaper than the average commute times by regional airlines and give a better experience.
Let’s stop for a minute. I’m from southern California. And the most popular regional flight here is a roundtrip ticket from Los Angeles Airport or to Las Vegas Airport costs an average of $80 with Spirit Air.
The distance is just under 300 miles. Let’s break this down.
For argument let’s say you live close to the airport. You can take an Uber and it will cost $15 and 30 minutes. You check in 1.5 hours early, stand in line, go through security, and wait at the terminal. Plane taxi, flight time, and taxing after landing is about 1.45 hours. 3.45 hours. Get off the airplane, hail a taxi or wait for an Uber and check-in to your hotel all within 1 hour if you are lucky. In total if all goes perfect you are looking at almost 5 hours door to door.
Compare this to an average travel time of 3 hours 49 minutes according to Google maps in comfort of a luxury automobile. No $5 beers, no fighting over an arm rest, no random cavity searches from a man with large hands. Baggage fees? What are those?
Now, you wouldn’t get the great view of the strip welcoming you to sin city upon landing but you would get the view of the lights coming up over the horizon as well as a chance to stop and take a photo at the Las Vegas welcome sign. Tomato:tomáto.
Tesla is already trying to hedge their anti-trust lawsuits in the future by opening their patent technology to any car company that follows in line with their mission statement.
The Tesla Q2 2020 earnings report shows they have over $8 billion in cash. Speculation on stock price shows more potential cash, and a lot of it.
Tesla is no longer strapped for cash. It currently has more cash than they can spend. Tesla growth is only limited by raw materials and brain power, as Elon Musk states. He wants to throw as much money at Nickel as he can. And he wants more engineers that can increase efficiency and output.
In 2020, Tesla is delivering cars as fast as they can make them. If you buy a new Tesla current wait times are 3-7 weeks. For the Cybertruck we’re most likely looking at the beginning of 2022. The semi will be delivered sometime in 2021 (I would buy a semi if I could afford it. I have been looking for an electric RV for a while and they’re still a ways off).
But Tesla wasn’t always like this, pulling in profits while other industries are struggling. Tesla for years was operating in the red, selling few cars, and slowly developing it’s technology and refining operations. Overnight successes are, a lot of times, built from years of unnoticed hard work.
So how did Tesla get here? How are they the only car company that can do so much with little competition. How are they able to change the landscape of multiple billion dollar industries?
Before we understand where Tesla is headed we can look at some other market disruptors we have seen completely change industries all within the last few generations:
- The iPhone is more powerful than a personal computer was from only a few years ago. We no longer need watches, lights, cameras, computers, typing skills, music players, cash, credit cards, TVs, school, brain memory, etc. It spawned completely new industries and retired old ones.
- Amazon has made us think that paying for shipping is a joke. Getting our product in two days? What kind of rinky dink operation would that be? I have to go to the store to try on some shoes? It’s raining outside. I don’t think so. We forget a few years ago this was not the case.
- Around the turn of the century we started getting a taste for paying for things online. Paypal made it possible for companies to sell products online as well as individuals to send and receive money. Think if Amazon had to accept checks in the mail. If you had to wait for your check to get delivered and cleared before the product would be shipped. 1 day prime shipping? More like 1 week.. The eventual purchase of Paypal by eBay gave Elon Musk, one of the Paypal mafia, the capital to start Tesla.
- There are many more as well:
- The spawn of social media, Myspace, Facebook, Twitter, Youtube
- High speed internet/cellular service
What did these companies do:
- They started with a MVP. Niche down. Reach a critical mass. Then expand.
- Apple sold the iPod. Store music. Look cool. Next iPod touch, then iPhone, ipad, Applewatch. And those expensive airpods.
- Amazon sold books online. Then expanded it’s categories little by little.
- Facebook was a social media for Harvard students, then college kids, then everyone and their grandparents.
- Provide 10x better value
- The iphone was the iphone. It was a computer in your hand.
- Amazon gave you access to the most comprehensive database of books delivered in days for cheap.
- Facebook let you show the world how much better you had it than anybody else.
- With Paypal you could move money around instantly.
- Pull marketing. Created something to talk about. Word of mouth. Viral marketing
- Where did you hear about the iPod first? Did you see those white headphones on everyone’s head? Was someone bragging at the office they just got the new 10gb version? Or did you see it in a commercial?
- The news coverage on Amazon was big. They would illustrate Jeff Bezos’ frugality of using doors as desk tops. Or when he was worth billions he still drove his Toyota POS.
- Stalk your old crush on Facebook. Or see if your classmate is on Facebook so you can stalk them. You can show off to the world instantly.
- A raving fan base. You can’t successfully pull off pull marketing if you don’t have a raving fan base. They are the early adopters. They advertise for you. They buy the merch. They drink the kool-aid.
- Who has friends or spouses that prefer to buy toothpaste on Amazon rather than go to the store? Who has neighbors that constantly have prime boxes stacking up on their front door? How many viral videos have you seen of people getting revenge on package thieves.
- Facebook and Instagram spawned the IG model. Instafamous. Once you saw friends on Facebook you had to jump on.
- Everyone knows someone that is an Apple fanboy or fangirl (yes I will use both gender terms as derogatory) and will never change. They’re always raving about the newest features are ahead of their time while ignoring the competition. They are at the apple store more than some employees.
- Continue to improve. Don’t let the competition catch up.
- Amazon started offering little by little, more categories at a competitive price. Then with Amazon Prime and FBA (fulfillment By Amazon), offering free 2 day shipping the competition could not keep up. Now it’s rare not to get your package next day or same day. Amazon also has AWS. It’s annual sales pale in comparison to Amazon’s physical products sales, but AWS’ profits are about equal. Amazon Fresh, Merch, streaming services, Audible…
- Facebook is always testing new features. Remember the Wall, wall to wall posting, Notes, Poking? Instagram added stories almost stopping Snapchat’s growth, filters, tags, and MORE ADS!!
- The iphone is always debuting the newest technology. In 2020, they have the most cutting edge technology that is only seen in competitor’s phones in 2018. This is obviously an exception. In reality the iPhone debuts tried and true technology sometimes seasons after competitors roll it out when it’s still glitchy.
Tesla understands the above and fits in to a T:
- MVP – Tesla started with the Roadster. It appealed to the rich that wanted something quirky and different. Then they added the Model S and X that the middle class could afford (“afford”). Then the Model 3, Cybertruck, and in the future most likely a model 2 (or theta like “Model T”) and van (Cybervan???).
- Provide 10x value – The fastest production cars currently are as follows:
- Porsche 918
- Tesla Model S P100
- Lamborghini Huracán
- Porsche 911 Turbo S
- Porsche Taycan
They each have a 0-60 speed under 2.5 seconds. And all but one cost $212,000 Nissan GT-R Nismo. Of all the cars that can go 0-60 in under 3 seconds the Dodge Challenger SRT Demon is the only other car on the list not named Tesla that costs under 200k. Multiple Model S trims and the Model 3 Performance also make the list. Throw in advanced auto driving features, all wheel drive, a cost per mile of $0.03~, and improving performance and you have unmatched value.
- Pull Marketing – Tesla spends little to no money on marketing. The “build a product so good they can’t stop talking about it” approach has been working in recent years. Many are looking for them to fail, see why they sold “short shorts” after the Q2 earnings call. Since it’s release people can’t stop talking about the Cybertruck.
- Raving fans – When Tesla debuted the Cybertruck, that was all people interested talked about for months. “That’s the ugliest truck I have ever seen.” “I kind of like it”. “Shut up and take my money”. You would hear it all. The thing was newsworthy in and of itself. It’s arguably the most dramatically different looking production vehicle ever. It was a viral hit waiting to happen. We all want to watch it fail or succeed. Whatever happens, we are watching and waiting.
All news is good news.
- Always improving – Tesla owners are the only car owners that have experienced improved range, better performance, increased features, improved UX, decreased cost of ownership, and higher levels of satisfaction. Try looking or a cheap used Tesla. They don’t really exist. What other car gets BETTER with age.
Let’s take a minute here. Think if, 2 years ago, you bought a 2018 Ford F-150, the best selling vehicle in the US for $50,000. In 2020, it’s value has dropped only $5,000 while you’ve put on 25,000 miles. When you bought it, it got 20 MPG. Today it gets 22 MPG. It went from 0-60 in 6 seconds and now it gets there in 5.8 seconds.
Towing has increased 500 lbs. You haven’t spent any money on maintenance. No $100 oil changes twice a year. And when you’re stuck in bumper to bumper traffic on the freeway after working 8 hours you can read a book or watch something on Netflix.
That’s what Tesla owners experience. And these improvements are not a one time thing. Teslas’ sometimes experience performance based updates multiple times per year.
Not to mention Tesla just lowered the price of their cars. In May of 2020 Tesla lowered the price of most trims on the Model S and X by $5,000 and all Model 3’s by $2,000.
Some speculate this was to increase demand in this extreme global situation and reach their 4th consecutive profitable quarter, but time will tell if this is a gimmick or a habit in line with their mission statement.
Now if by now you still aren’t convinced Tesla will rule the world in the coming years. Let’s see what we can expect in just the next few years.
Currently and moving forward, Tesla has the product. They are years ahead of the competition. They are constantly improving their product where companies such as VW and Ford are where Tesla was years ago.
In 2021 and 2022, Tesla will see it’s first taste of competition. Startups like Rivian and Bollinger will start production of their all electric trucks and Ford will debut it’s all electric F-150. Various legacy car manufacturers have stated they will debut all electric plug ins to their lineups in the coming years and some are already started selling in Europe.
This competition will slow Tesla’s growth. And with the debut of several compact and subcompact all electric vehicles under $20,000 Tesla may come out with the Model 2 and Van to compete in this market, only once they can meet the demand of their existing lineup.
This is really the only opportunity to compete; Establish a compact hatchback that gets 200 miles + per charge, provide an effective charging network, and sell it for under $20,000.
Let’s not forget what China can do. Ripping off companies and coming out with cheaper products has been their modus operandi for decades.
But when the market matures there will be like most industries only a handful (or only 2) main competitors and the rest get absorbed by the two.
Starting next year, Rivian will be able to offer a competitive product. But a side by side look shows it could be the next Fisker. The Rivians specs pail in comparison to the cybertruck. The only spec Rivian beats the Tesla is the lowest trim’s 0-60 time. ALL other specs are the same or much worse than the Tesla. Speculation is that Tesla will debut FSD in the next year where Rivian is hoping to simply start delivery in the same timeframe. Not to mention the Rivian starts at the same price as the Cybertruck’s top of the line trim level at $70k.
But really the ace up Tesla’s sleeve is FSD.
Full Self Driving.
This, I believe, will be the beginning of the end for most legacy auto makers.
This is the game changer.
This is the single asset that will transform industries. Yes, I said industries. It will start in the auto industry. It will spill into car insurance, personal transportation, logistics, commerce, entrepreneurship, real estate, entertainment, travel, medical, food service, the list will go on and on.
Simply put, a Tesla with FSD will change your vehicle from a depreciating asset into a profit generator.
Look at how other industries have changed and innovation has killed off legacy companies: cell phones, shopping, cameras, finance…
Buying a Tesla means you are buying a business.
People will buy 2-3 Teslas. Use 1 as a personal vehicle. Use the other 2 to generate revenue to pay for vehicle cost and increase their income.
Elon Musk has stated that a Tesla with FSD can bring in up to $30,000 of revenue per year.
Let’s stop for a minute. Imagine buying 3 Teslas.
One is parked at your house. It is your personal driver. It debut being at least 10x safer than any other human on the road and will become safer and safer with time. When you’re in the office working it is out generating cash ride sharing or while parked it is selling electricity back to the grid at a profit. Their operating costs are less than $15,000 per year and decreasing each year.
By purchasing 3 Teslas:
- You have now increased your annual income by $40,000 in exchange for doing very little
- You don’t have a car payment. Your car pays you.
- You pay less in auto insurance
- You’re more productive
- You get more sleep
- You have more free time to read or learn something new
- You take more vacations
- You can grow your savings
- You can live in a rural area with a larger house and a lower mortgage payment
This is only what we understand right now. There will be more industries that pop up. There will be more features that are added.
Did you envision the iPhone X from the iPod?
That’s not to say the road will be easy.
Possible Tesla killers. Tesla is a market disruptor. But what would kill Tesla? Another disruptor. Think one magnitude more advanced than Tesla. Instant transportation? Free, readily available, and abundant energy? Human flight.
This is beyond my brain power now.
The legacy automakers will slow their death. But their death is inevitable. Currently, most automakers are paying Tesla for their carbon credits. In fact, this is the major reason Tesla has been profitable over the last 4 quarters.
Legacy automakers are, or should be, asking themselves, “how do we compete with an automaker that:
- Has a better product that is improving much faster than us
- Soon will have better margins and more cash than us
- Has fewer weaknesses with vertical integration
- Currently has a higher market cap
- Is one we are currently giving cash to
- And one we will soon have to license technology from just to stay in business?
That is the 100 trillion dollar question
This is only the beginning. I have not touched on everything that shows Tesla’s potential. Disagree with how “pie in the sky” I am with Tesla? The future will tell.