TESLA is a HOLD
Before getting into my analysis of Tesla's fair value, I have to take a look at the company's competitive position. In a few paragraphs, I will make a revenue growth estimate for Tesla that is above EV industry averages. A company needs a solid competitive position in order to out-grow its industry, so we need to establish Tesla does have a superior market position.
Some of the companies Tesla competes with include:
Volkswagen (OTCPK:VWAGY) - Second place in deliveries after Tesla, with 452,000 BEVs sold in 2021.
BYD Motors (OTCPK:BYDDF) - Third place after Volkswagen, with 320,000 BEVs sold in 2021 (593,000 EVs total if you include hybrids).
NIO (NIO) and Lucid Motors (LCID) - very small players but noteworthy for their "head to head" competition with Tesla. As luxury EV makers, they are playing the exact same game that Tesla is; VW and BYD ship different kinds of vehicles.
Tesla is well ahead of the competition in pure-EV sedans. With 932,000 cars delivered in 2022, it sold more than double what VW did. Tesla's dominance of the EV industry is lesser if you include trucks, trains and buses. By that standard, BYD, with 593,000 deliveries, is not too far behind Tesla.
Can Tesla's edge in electric cars continue?
Right out of the gate, Tesla has an enormous competitive edge over its competitors in the form of free advertising. Elon Musk has one of the world's biggest Twitter (TWTR) accounts, and he is in the process of "locking in" that advantage by buying Twitter. With 80 million Twitter followers, Musk can reach a lot of people without having to spend a penny on advertising. He uses this advantage to the fullest, getting free publicity through Tweets, TED Talks and other unconventional channels. Generating "organic" publicity this way tends to produce superior margins, as it reduces the need for a marketing budget.
It isn't easy to explain exactly how valuable Tesla's ability to market itself without paying money for advertising is, but a few points are worth keeping in mind:
Tesla was named 2021's fastest growing brand by Visual Capitalist.
Tesla was the world's fastest growing automaker in 2020.
The company moved from 6th place to 3rd place in the list of world's most valuable automotive brands in 2022.
...And all of this was achieved with no marketing budget to speak of! By contrast, Ford (F) spent $468 on marketing per each car sold in 2021.
The advantage this provides Tesla is enormous. First of all, it empowers the company to spend way more money on R&D compared to the competition: at $2,984 per car sold, Tesla invests much more in research than the average car company. That can drive innovation over time.
Second, this edge provides the potential for superior earnings growth. With lower costs come higher profits, and costs compound just like stock prices do. Below, you will see a model of two nearly identical companies, A and B, growing revenue by 30% and operating costs by 20%. The only difference is that company B has a marketing budget that starts at 10% of sales and grows by 40% per year. In the table below, you will see how much more profit company A has by the end of five years
Some of the companies Tesla competes with include:
Volkswagen (OTCPK:VWAGY) - Second place in deliveries after Tesla, with 452,000 BEVs sold in 2021.
BYD Motors (OTCPK:BYDDF) - Third place after Volkswagen, with 320,000 BEVs sold in 2021 (593,000 EVs total if you include hybrids).
NIO (NIO) and Lucid Motors (LCID) - very small players but noteworthy for their "head to head" competition with Tesla. As luxury EV makers, they are playing the exact same game that Tesla is; VW and BYD ship different kinds of vehicles.
Tesla is well ahead of the competition in pure-EV sedans. With 932,000 cars delivered in 2022, it sold more than double what VW did. Tesla's dominance of the EV industry is lesser if you include trucks, trains and buses. By that standard, BYD, with 593,000 deliveries, is not too far behind Tesla.
Can Tesla's edge in electric cars continue?
Right out of the gate, Tesla has an enormous competitive edge over its competitors in the form of free advertising. Elon Musk has one of the world's biggest Twitter (TWTR) accounts, and he is in the process of "locking in" that advantage by buying Twitter. With 80 million Twitter followers, Musk can reach a lot of people without having to spend a penny on advertising. He uses this advantage to the fullest, getting free publicity through Tweets, TED Talks and other unconventional channels. Generating "organic" publicity this way tends to produce superior margins, as it reduces the need for a marketing budget.
It isn't easy to explain exactly how valuable Tesla's ability to market itself without paying money for advertising is, but a few points are worth keeping in mind:
Tesla was named 2021's fastest growing brand by Visual Capitalist.
Tesla was the world's fastest growing automaker in 2020.
The company moved from 6th place to 3rd place in the list of world's most valuable automotive brands in 2022.
...And all of this was achieved with no marketing budget to speak of! By contrast, Ford (F) spent $468 on marketing per each car sold in 2021.
The advantage this provides Tesla is enormous. First of all, it empowers the company to spend way more money on R&D compared to the competition: at $2,984 per car sold, Tesla invests much more in research than the average car company. That can drive innovation over time.
Second, this edge provides the potential for superior earnings growth. With lower costs come higher profits, and costs compound just like stock prices do. Below, you will see a model of two nearly identical companies, A and B, growing revenue by 30% and operating costs by 20%. The only difference is that company B has a marketing budget that starts at 10% of sales and grows by 40% per year. In the table below, you will see how much more profit company A has by the end of five years
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