Whoever is around me noticed that I’m quite bullish on Tesla (Disclaimer: I’m currently long on Tesla). So, why I’m so bullish about this particular company?
1. Technology Company with a strong mission and execution
First of all, many analysts have issues understanding Tesla because they look at it only as an automotive company like other traditional automakers e.g. GM or Ford. This is not a fair assessment of the company.
Just to make it clear: Tesla is not a car company! They are a tech company where their computers just happen to have wheels.
Already their mission statement reveals that they strive for something greater than just building cars: “Tesla’s mission is to accelerate the world’s transition to sustainable energy”.
This ambitious mission statement could be easily seen as just a mere promise of a better future. But they backed their mission will mindblowing execution. Already in 2006, Elon Musk revealed Tesla’s “Secret Master Plan”, in which he described how Tesla would get started and increase its market share by the following four steps:
“Build sports car
Use that money to build an affordable car
Use that money to build an even more affordable car
While doing above, also provide zero emission electric power generation options” (Elon Musk, 2006)
They have kept their promise and launched, in the beginning, the all-electric sports car “Roadster” in 2008, then the sedan “Model S” in 2012 following the SUV “Model X” in 2015 and finally the affordable sedan “Model 3” in 2017. During that time they scaled the production from delivering 1,000 vehicles in 2009 to delivering around 367,000 in 2019. In March 2016, Tesla acquired SolarCity in order to manufactures and installs residential and commercial solar panels and energy storage options. In 2012, Tesla entered into an agreement with CEO Elon Musk that specified 20 separate performance benchmarks to be satisfied within 10 years. He has achieved 19 of them until 2018 and has followed his master plan vigorously.
Until now, Tesla has shown unbelievable growth as they are ramping up their production to meet their high demand. Already a long and famous critic of Tesla Andrew Left from Citron Research has noticed in 2018 that Tesla’s story has changed:
“It transitions Tesla from a “proof of concept” story to a “TAM / how much can this grow” story, attracting a whole new growth-oriented investor base.”
Right now, Tesla is the fastest-growing automaker in the world. Tesla did exceed its low guidance of 360,000 deliveries in 2019, and has an impressive growth of 53.6% year over year (5 YR AVG)— a notable achievement considering total deliveries soared 138% in 2018. Tesla creates highly demanded products and they bring their products faster to market than anybody else.
Just like in China: Tesla is the fist outside car manufacturer to produce vehicles without a local partner in China. They started to build their Gigafactory in January 2018 and one year later they will deliver their first cars to customers on January 7th.
But the shareholders and Elon Musk believe that there is potential for further growth. Shareholders have approved one of the largest compensation plans for any CEO of a public company: The compensation plan consists of 20.3 million stock option awards — each broken up into 12 tranches of 1.69 million shares, or 1% of Tesla’s outstanding shares. These options will vest in 12 increments if certain financial goals on market cap, revenue, and adjusted earnings (excluding certain charges) are met. For Musk to truly cash in to a tune of $50 billion, Tesla’s market value must reach $650 billion. Tesla’s current market cap is nearly $80 billion.
3. Destroying the Competition
One of the major concerns is that Tesla will eventually face fierce competition from the legacy automakers. Until now, there is any substantial competition from the other carmakers. Andrew Left, one of the biggest Tesla short-seller, claimed in 2013 that: “[b]y the time this product [Model 3] is even approaching market, there will be multiple other 200-mile range plug-ins that have been out for years” (Andrew Left). He dramatically changed his critical position towards Tesla, when he released his research note at the end of 2018, stating that “rumors of the Tesla killers have been as constant and unfounded as Bob Lutz’s call for Tesla’s bankruptcy” (Andrew Left). He offers four charts illustrating how Tesla is destroying the competition in the United States:
Chart 1: 10 Top Luxury Cars in USA (Jan-Sept 2018)
Chart 2: Tesla Quarterly Deliveries
Chart 3: Large Luxury Car Sales (Q3 2018, USA)
Chart 4: US Electric Car Sales (Q3 2018)
In addition to that, Ark Invest sees two competitive advantages of Tesla over other car manufacturers:
- Lithium-Ion Battery development in the Gigafactory
- Software-powered vehicles that might be transformed into autonomous cars
What’s in for the future? Elon revealed his second Master Plan on Tesla’s blog stating the following:
“Create stunning solar roofs with seamlessly integrated battery storage
Expand the electric vehicle product line to address all major segments
Develop a self-driving capability that is 10X safer than manual via massive fleet learning
Enable your car to make money for you when you aren’t using it” (Elon Musk, 2016)
It will be interesting to follow the further development of Tesla. As Peter Thiel says “I would never bet against Elon”.