Tesla ($TSLA) - Disrupting transportation and energy

Just all about Tesla.

Nowadays, It is one of the most popular stock, if not the most popular stock in the world. I suppose one reason is the meteoric rise of its stock price from a low of around $180 just a year ago, to a high of around $1,800 about a month ago - about 10x in just a year, if you were able to buy at its low and sell at its high.

What the stock price is right now:
https://finance.yahoo.com/quote/TSLA?p=TSLA

Of course, one can not discount the popularity of its visionary CEO, Elon Musk, also the CEO of Space X (which just recently successfully sent and brought back a manned starship to orbit). He has such a huge following - over 37 million followers on Twitter - that no other company CEO compares.

https://twitter.com/elonmusk

Tesla is still in its early days as it starts to execute on its plans. Aside from increasing/improving its car production over time, there are some events on the side that can possibly make its stock price soar outright to the moon:

  • Finally solving autonomous driving, or at least close to it
  • Big battery breakthrough
  • Manufacturing breakthrough
  • Energy business (generation and storage) breakthrough
  • Robotaxi rollout

What are your thoughts on Tesla? Or any information you want to share?

Disclosure: I own shares in TSLA.

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Elon Musk was recently interviewed @ Daily Drive Podcast

Elon: “I think it’s possible to improve manufacturing efficiency by at least 1,000% and possibly 10,000%.”

My thoughts: I believe Elon realizes that although Tesla’s SOFTWARE moat is safe from legacy auto manufacturers, it is not so from Tech companies. As a car, in a way, is just like a computer or a phone - a hardware that should be controlled by software. With Apple and Google both strong in software, have good cash flows, and huge cash balances (esp Apple), it is likely that they will also go into auto as they try to capture consumers at all touch points. In fact, Google has just recently rolled out their Google Auto OS through its partnership with Polestar/Volvo. And some evidences show that Apple might actually go into car manufacturing.

In this light, it would be best for Tesla to continuously innovate/improve auto manufacturing to hold other Tech companies at bay, as manufacturing is not their core competency, As software served as Tesla’s moat for legacy automakers, manufacturing will be its moat for tech companies.

I imagine the threat goes both ways, as Tesla now having its own OS, could also opt to extend its market by entering the tablet/phone space. Maybe when technology improves some more for Tesla to tap on Starlink (Space X’s product, which Musk also owns) for internet connectivity.

With Tesla’s recent positive 2nd quarter earnings result, it is now eligible to be included in the S&P 500 index. If this happens, Tesla would be the biggest company in terms of market cap (currently $276B) ever to enter the index. This matters as the S&P 500 index is weighted based on market cap, ie the higher the market cap, the higher its share on the index. And upon inclusion, passive funds (managing trillions of dollars) tracking the S&P 500 index would have no choice but to buy Tesla shares.

This could possibly push Tesla share price even higher considering the amount of shares needed by the passive funds, compounded by limited shares available in the market - Musk alone holds around 20% of the outstanding shares; add to that the holdings of insiders/employees, the institutional funds, and long term retail investors (?).

Retail investors, having seen the huge capital appreciation of an Amazon or an Apple for long term investors, would most likely, I believe, also hold for the long term.

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Saw this on Twitter:

“It’s business model in 3 words: printer and ink. Printer = car. Ink = FSD subscription and Robotaxi revenue cut”

I generally agree, except for FSD Subscription. I think it is still best for Tesla to sell FSD outright (or maybe in installment), like they do now, and do away with opt outs and/or intermittent subscriptions. Plus, the full FSD amount will be good for Tesla’s profit margin. And the cash it generates will go a long way to further Tesla’s mission, while ROBOTAXI business is being built on the side.

This business model complements their ambitious goal of selling 20 million cars by 2030. By moving Tesla’s business to SOFTWARE (the ink), it will allow them to sell more affordable CARS (the printer).

To put that 20m goal into perspective, VOLKSWAGEN, which sells the most cars, delivered only around 11 million units last 2019. Tesla’s target is almost double that.

Two things that need to happen for Tesla to bring down car prices to mass market levels (maybe around $15k), and still be highly profitable.

Manufacturing Breakthrough

Manufacturing is key here. Elon has mentioned that he thinks he can improve manufacturing efficiency by 1,000%, or even 10,000%. If indeed Tesla is able to do this, it would mean less factory (thus, also less manpower) to reach their production goals. This leads to faster volume ramp up at an exponentially lower cost.

Tesla’s vertically integrated setup, I believe, will play an important role here as it allows them more control of its manufacturing process.

Solve Full Self Driving (FSD)

Essentially, this is what will allow Tesla to still be highly profitable even if it sells cars at cost or at low margins. Although they can offer many other revenue generating services, such as insurance, internet connectivity, OTA performance updates, app store, and more; none comes close to the value that FSD brings. Currently priced at $8k, my guess is FSD’s final price would be $12k, and can be purchased at $1k installment for 12 months. (With price increasing for every substantial improvement, we maybe closer to FSD than most people think)

Just by selling cars at break even point, and FSD going directly to the bottomline, by 2030 at 20m cars sold and 50% FSD take up, or 10m, equals $120B in profit! This does not even include ROBOTAXI and ENERGY. Tesla’s potential is unimaginable.

Pieces of the Tesla puzzle are now starting to fall into place.

Tesla declares a 5:1 stock split

" Tesla, Inc. (“Tesla”) announced today that the Board of Directors has approved and declared a five-for-one split of Tesla’s common stock in the form of a stock dividend to make stock ownership more accessible to employees and investors. "

Essentially, this means for every 1 share you have, you will now have 5 shares, but the dollar value remains the same.

For example, if pre-stock split you have 10 shares of Tesla and market price @ $1,500/share, on effectivity date of stock split, you will own 50 shares, but the share price will also go down in the same multiple to $300. Thus, there is no effect on the value of your holdings.

Correspondingly, stock split also does not have any fundamental effect on the underlying company - market cap remains the same, just with more number of outstanding shares as it divides its existing shares into multiple shares.

Companies normally do this to bring down their stock price to:

  1. make it more affordable to retail investors
  2. make it more tradable, ie improve its liquidity

"Human psychology being what it is, most investors are more comfortable purchasing, say, 100 shares of $10 stock as opposed to 10 shares of $100 stock. "

With the potential increase in demand at lower prices, it could push the stock price higher, And, like APPLE before it, Tesla stock price also increased with the stock split:

My thoughts: Tesla stock at $1500 levels is really pricey which many cannot afford. Although some US brokers offer fractional share ownership, it is still not the same as owning 1 full share where you get full shareholder rights - vote and attend stockholders’ meetings, (Not to mention possibly getting a stock certificate to frame.) Also, fractional shares are not available outside the US, and the stock split could lead Tesla to be an even more popular stock among foreign investors:

“In South Korea, where Tesla has become the latest craze among tech-savvy professionals, the company is the most-traded overseas stock, with Koreans buying $3.2 billion worth of Tesla shares so far this year, up nearly 13-fold from all of 2019.”

And, as Tesla tries to bring their cars to more markets around the world, who best to share the Tesla story and become brand ambassadors, but someone who has a stake in the company.

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Tesla’s meteoric rise

On Tesla’s first trading day yesterday post stock split, it closed at an all time high (ATH) price of $498.32 (or $2,491.60 pre split). Surging 12% over its close last Friday, Tesla’s market cap increased by $49 billion in a single day, when just a year ago Tesla’s market cap sits at only $45 billion. What a difference a year makes. Now, with a market cap of over $460 billion, it is now the 7th largest U.S. company.

And in case you missed it, Tesla has already overtaken Toyota as the most valuable car company in the world a few months back.

Elon Musk, founder and CEO of Tesla, has also surpassed Mark Zuckerberg (Facebook) to become the 3rd richest person in the world after Jeff Bezos (Amazon) and Bill Gates (Microsoft).

To appreciate better the rise of Tesla’s stock price: If you had bought 500 shares of Tesla @ $17/share back in 2010 when it made its initial public offering (IPO), your $8,500 investment (500 @ $17) would now be worth over $1.2 million! An increase of 15,000% (149x) in value in just 10 years.

APPLE is currently the largest company in the world in terms of market cap, and the only one with a market cap of over $2 trillion. My guess is (just a guess) by 2025, Tesla will overtake it to become #1 as more of its technology under development plays out.

Just for fun and not financial advice.

Disclosure: I own TSLA shares.

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Autonomous vehicle

Creating a fully autonomous self-driving car is vastly difficult. It is not just about teaching the computer to drive - to control the car, and to learn the rules of the road. It is also about having visual and cognitive abilities, as explained by Jitendra Malik on Computer Vision (10:07).

According to Mr. Malik it is easy for humans to learn to drive a car because we have mastery of vision. In fact, he says, most are already visual geniuses by age 2. At this age humans already know about objects from regular observation and interaction with different objects. This is re-enforced as they grow up that develops into a high level of cognitive understanding of the different objects, for example, distinguishing a walking pedestrian from a person on a bike or on a skateboard, and be able react and anticipate accordingly.

Thus, to solve the problem of autonomous vehicles, the computer system’s artificial intelligence (AI) needs to have these two abilities:

  1. Vision
  2. Cognition

Although easy for humans, it is unimaginably difficult to give an AI these abilities. Vision alone is daunting! Can you imagine the number of different objects you encounter on the road daily. All these objects, I imagine, would have to be encoded into the system for the AI to recognize it. And not just labeled, but also have its properties added (eg, paper is soft compared to a rock which is hard).

I cannot even begin to wrap my head around how this can be done. Thankfully, many companies are working to make this happen, such as Tesla, comma ai, Waymo (Google), Mobile Eye (Intel), among others. In fact, some have already achieved a certain level of self-driving, but not yet fully autonomous and still requires driver assistance.

It takes many years to capture all the possible objects and scenarios that can be encountered on the road. This is where Tesla is ahead. As the only car manufacturer with their own internally developed AI for self driving, it has now over 1 million cars on the road capturing edge cases, racking over 1 billion miles. This is more data than any of its competitors that Tesla can use to build and train its autonomous vehicle AI.

Exciting future ahead. Can’t wait for the day to see cars driving by itself, especially here in Manila.

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Battery Day - Tuesday, Sep 22, 2020 at 1:30PM Pacific Time
(Wed, Sep 23, 4:30AM Manila Time)

This week TESLA will live stream all around the world their very own battery technology and pilot production line. Since the start, they have always sourced their batteries from third party – Panasonic for Nevada factory; and recently, LG and CATL for Shanghai factory. If ever, this will be the first battery they will manufacture themselves, and is the culmination of their acquisitions of Maxwell Technologies and Hibar Systems.

With the battery unveil originally scheduled early this year, postponed many times, and now just two days away, many are waiting with bated breath to see what TESLA’s new battery technology brings.

In my opinion, keeping in mind TESLA’s mission – to accelerate the world’s transition to sustainable energy, – the most impactful breakthroughs would be significant improvements in:

  1. Battery cost: With battery being the most expensive component of an electric vehicle, bringing this cost down would allow Tesla to lower car prices, and thus be able reach a wider market.

  2. Battery production rate: Tesla has an ambitious car production targets, add to that the ramp up of their energy products, equals a very huge requirement for batteries. With their tight timeline, third party battery supplier might not be able to scale accordingly. Taking control of their own destiny, Tesla’s new and fully-owned production line should improve battery production rate significantly to meet these needs.

Other anticipated battery improvements:

  • longevity (or million mile battery, ie the car can last up to 1 million miles)
  • charging rate (to improve charging wait time)
  • energy density (especially important for semi)

The battery day unveil, although focussed on progress in battery technology, is in reality a road map – the start of our transition from an oil/coal run economy/world to a world run by renewables and battery.

Exciting times ahead, and we are just at the very beginning of the energy revolution.

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