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by johnhartigun
1962 days ago
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Ok, that's a fair point, although it was not implied that Tesla will not improve efficiency, it was just a quick illustrative calculation. They've been cost-cutting very aggressively so I assume there are few low-hanging or middle-hanging fruits left. The big picture is that their business is currently not profitable without government money, which doesn't scale linearly with revenue. Sure, I guess they will slowly improve their margins in the future. But my point is that it's unlikely that their car manufacturing business will become a massive cash cow as the market seems to think. Batteries becoming cheaper won't directly translate to margins because of competition. |
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There are a few things you are not considering. Service for example is a huge negative right now, while every other car company is making money with service. Because most Tesla vehicles are new most vehicles are under warranty. This will continue to be a negative but importantly, if Tesla would stop growing, this would turn into positive pretty soon.
The CEO package was large because of the large growth in stock price, that alone is almost as much all all the credits. This will not be this high quarter-quarter and only has to be paid if the company continues to hit milestones.
Importantly however, their automotive margin is still very good, and is looking to improve further next year, its industry leading margin. At the same time they show 40% growth every year and positive cashflow. Automotive is a business of scale and Tesla is still relatively small.
They have been building 3 massive new factories this year, covering Europe, Eastern US and expatiation in China. This is operating leverage, things you pay now that will payoff later. Those factories will not only expand production but also CAPX efficiency.
This Q4 solar and storage were also a negative margin (somewhat surprisingly) but showed massive growth too, in this area to I expect margin to jump back up after this Q4. Tesla global leader in storage and will likely continue to grow that, and with their aggressive strategy they will also likely be market leader in solar.
Additionally, Tesla has multiple new products that will allow them to continue growing not just next year but the year after that. There is huge demand for the Tesla Semi. There is huge demand for the Cybertruck. Model Y has not even started being delivered in China/Europe.
I think if you do the calculation and you believe that gross margin is staying as is or growing, the profit Tesla will get quite large, even as they continue to grow. Very few companies can have high growth and very good profitability, and I believe it is likely Tesla will achieve this in the next year.
Just look at 2019 margin, to 2020 margin, -0.3% to 6.3%. That is in a pandemic year.
Now, the current stock price is high, and even what I just said, might not justify the stock price. To defend the current stock price, you need to believe in the FSD story, at least partially. If you do not believe that story, Tesla is over-valued.
I for one believed Tesla was very under-valued early this year and bought based on the assumption of growth and margin. I since covered most of my position but still have a lot of stock. I do think Tesla has the best FSD story so I'm holding the stock for upside.
I hope this at least gives you perspective on the way somebody would hold Tesla. I think the focus on credits, is mostly distraction. I have never in my analysis cared about credits, in fact I always use margin without credits.