TSLA Stock: Tesla: Not Your Ordinary Car Company, The ‘Tesla Economy’ Is Already Here

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Summary

Tesla is often compared to traditional automakers and is continuously criticized for having a lofty valuation.

But I’ve never seen an auto company engage in energy storage, solar solutions, software development, advanced AI development, or other segments that Tesla is involved in.

It appears that in addition to building cars Tesla is also creating a massive ecosystem designed to support and sustain its various businesses in the “Tesla Economy”

The “Tesla Economy”, or the “Future Economy” as it can also be called may already be here.

In this economy, betting against Tesla may be akin to going against Netflix when it launched streaming, Amazon when it entered online retail, or Apple when it introduced the iPhone.

Source: cartavern.com

Even though Tesla’s (TSLA) automotive unit is responsible for producing most of the company’s revenues, roughly 80%, Tesla is far from your typical automobile manufacturer. In fact, Tesla is doing something very unique in contrast to other automakers. In addition to producing cars, the company is also creating a massive ecosystem catered specifically to Tesla, capable of supporting its expanding operations in electric vehicle production, energy generation and storage, software development, as well as other solutions and services emblematic of the “Tesla Economy”.

Tesla recently reported Q4 deliveries. The report was split, as there were some positive elements as well as a slight miss in Model 3 deliveries. The company also reported a minor pushback of its Model 3 ramp up to full scale. This was portrayed as a major disappointment in the media, and numerous individuals expressed their frustration with the company. However, after an immediate kneejerk reaction the stock surged over the next couple of days by approximately 10%, from a price of $305 to $335, adding about $5 billion to Tesla’s market cap. So, what was the reason for the move higher? Why did the stock surge when by some conventional wisdom it should have tanked? Does Tesla’s stock defy all logic, or could there be a rational explanation for this move?

TSLA 1-Year Chart
Source: stockcharts.com

Judging by the stock’s sharp move higher it appears that many market participants concluded that the latest report provided by Tesla was a net positive for the company going forward. This was the same conclusion that I arrived at, as there were clear positive elements in the report. For instance, the fact that Tesla produced more Model 3s in the last 3 weeks of the year than it did in the 4 months prior to that period was a clear sign that the ramp up was beginning to generate significant results, in the amount of about 1,000 Model 3s per week. Thus, I wrote several articles outlining my thesis and stating that the stock would likely head higher in the immediate future, rather than fall on the news. Moreover, I think the stock is still going higher, significantly higher in 2018 and beyond, here is why.

Table of Contents

1. Model 3 Ramp Up: Significant Progress Evident
2. Model 3 Target Market: Much Deeper Than Perceived
3. Supercharger Network: No Other Car Company Has One
4. Gigafactory: No Other Car Company Has One of These Either
5. Energy Storage Segment: Part of the “Tesla Economy”
6. Solar Solutions Business: Another Part of the “Tesla Economy”
7. Tesla: The Car Company at the Cutting Edge of AI
8. The Market is Convinced Tesla is Not Just Another Car Company & So Am I
9. Tesla: Alleviating Concerns
10. The Future Economy is Already Here

Source: motortrend.com

1. Model 3 Ramp Up: Significant Progress Evident

Judging by the recent surge in Tesla’s stock price, market participants don’t seem to be very concerned with the recently reported slight miss in Model 3 deliveries. So, why not? Firstly, Model S and Model X deliveries were extremely strong. But more importantly Model 3 production experienced a significant ramp up in the last few weeks of the year, bringing production up to about 1,000 units per week. Another important point is that it is encouraging to see Tesla focusing on quality over quantity. It is crucial to get quality built Model 3s out to consumers, and production numbers will continue to rise. The continuation of the ramp up should yield 5,000 Model 3s per week by mid-year.

2. Model 3 Target Market: Much Deeper Than Perceived

Unlike the target market for most small sized luxury sedans like the Audi A4, BMW 3 Series, Mercedes C class and others, the Model 3s target audience is far more diverse.

For instance, the 3 German sedans mentioned along with most of their direct competitors are primarily targeted at young adults, entry level business executives, and young couples with no kids. This is understandable because the cars are relatively small, and don’t offer much room for kids, family supplies, or the family dog for that matter. Still, these cars have massive sales, with Audi’s A4 and BMW’s 3 series alone clocking in over 700,000 unit sales annually.

Is it possible that the Model 3 could eventually outsell the competition? I think yes, and here is why.

Model 3: The Family Sedan

Despite it’s relatively compact outside shell the Model 3 can be targeted at a much wider array of audiences. The car is significantly more practical than a typical entry luxury sedan.

First, it is a cross between a sedan and a hatchback. Meaning that its trunk doesn’t open all the way like the Model S’ does but the interior is shaped similarly, suggesting that Cujo the family dog can fit comfortably without feeling like he’s locked in the trunk. This extended trunk space also makes for a great roomy place to put groceries and other family oriented necessities.

Second, there is no traditional engine, transmission, or any bulky powertrain parts in the car. So, there is much more room for supplies and groceries, due to the roomy hatchback shaped trunk, and the additional trunk space. The total “trunk room” in a Model 3 is 15 cubic feet vs just 13 cubic feet in a BMW 3 series, same as in an Audi A4, and just 12.6 cubic feet in a Mercedes C class.

Another point is that due to Tesla’s simplified drivetrain there is no bump in the middle of the back of the car, creating much more legroom, and making the backseat significantly more comfortable for 3 people. This is an additional element that is likely to make the Model 3 very attractive to families.

Model 3’s Cost Savings Advantage

Then there is the cost savings element. There has been some criticism mentioned regarding the Model 3s average selling price ASP being higher than the base sticker price of $35,000. Yes, it’s true that the ASP of a Model 3 vehicle will likely range from $45,000 – $48,000. However, one should consider the massive cost savings that come intertwined with the Model 3 vehicle.

On average U.S. drivers spend more than $2,000 a year on gas. Moreover, the Model 3 is much cheaper and easier to maintain than an ordinary ICE vehicle. There is no engine to maintain or fill up with oil, no brake pads to change, no transmission fluid to change and check, etc. Essentially, all you need to do with a Model 3 is change the tires when needed, bring the car in for an annual checkup, and enjoy the ride. Also, the annual checkup is recommended, but not mandatory, and while it costs about $800 for a Model S vehicle, it will presumably be less expensive for a Model 3. Some people report going through a checkup every other year with their Model S vehicles, which seems absolutely normal.

In general, the cost savings associated with significantly fewer parts to maintain and no need for costly gas fill-ups is staggering. Consumers who purchase Model 3 vehicles instead of similar ICE vehicles are likely to save $30,000 on average over a 10-year period. So, for consumers looking to purchase a new car and hold it for a number of years the perceived $45,000 or $48,000 sticker price of a Model 3 just dropped to around $15,000-$18,000 when compared to an ICE vehicle over a 10-year window.

Or perhaps a better way to look at this would be to take a new BMW 3 series, which has a sales price that ranges from about $40,000 – $55,000 and add the projected $30,000 in maintenance and fuel costs over a 10 year window. This would put the BMW in a price rang which is far higher than the Model 3. So, if we factor in about $10,000 in Tesla maintenance and charge up costs over a 10-year period, that would give us an average Model 3 cost range of about $55,000 – $58,000, vs an average BMW 3 series cost range of $70,000 – $85,000 for a 10-year window. Moreover, in addition to the cost savings Tesla’s Model 3 is superior to BMW’s vehicle in just about every respect. So, which one would you buy?

Tesla Longevity: Many Hundreds of Thousands of Miles

The reason I chose a $10,000 figure for maintenance and charge up costs is because A. it appears right, given all the evidence, perhaps a bit high even. I would imagine most drivers could get away with spending less than $1 thousand per year on charge ups and maintenance. And B. long time Model S drivers report that their maintenance costs are incredibly low throughout the lifetime of their vehicles. A driver of a Model S that has cruised over 300,000 miles recently reported that he has spent just $10,492 in maintenance on his vehicle. Moreover, $3,500 of that sum was spent to fix cosmetic damages after a slight fender bender, and much of the rest went towards regularly scheduled maintenance, zero was spent on charging.

Source: youtube.com

The amazing part of this story is that aside from saving about $60,000 in gas money over the extensive travels of this vehicles it is ready to run 300,000 more miles and very likely an additional 300,000 miles after that. In contrast, a traditional ICE vehicle would likely be towards the end of its road after the first 300,000 miles.

This provides consumers with another value proposition. Tesla cars don’t only save consumers significant amounts of money over the lifetime of the vehicle, but last far longer, and therefore, retain far better resale value. Who would buy an ICE vehicle with 300,000 miles when it’s evident that the car is likely near the end of its road. Whereas, a Tesla car is likely to easily run that 300,000 with little trouble and few maintenance costs.

The Model 3 is a Lot Faster Than Advertised

As new developments reveal, the Model 3 is quite a bit faster than previously reported. Companies sometimes downplay their car’s performance capabilities. Tesla originally reported that the Long-Range battery pack Model 3 would run the 0-60 in 5.1 seconds, which is just slightly faster than similarly priced competition. However, it has now been confirmed that the car achieves a time of 4.6 seconds for this range, significantly quicker than previously thought, and well ahead of similarly priced performance sedans. The time is very close to the 4.2 seconds achieved by the Model S 75 D, a dual motor, all wheel drive automobile with the same 75kwh battery. A question on the minds of car enthusiasts now is if the rear wheel single motor Model 3 can go 0-60 in 4.6 seconds how fast is the dual motor all-wheel drive version of the Model 3 going to be?

Source: Tesla.com

It’s going to be fast, ludicrously fast, and it’s going to attract massive demand because a lot of car buyers are spec/car enthusiasts. Model S and Model X offer superior performance to their counterparts, the Model 3 offers superior performance in its proposed price range, and the dual motor version of the Model 3 is likely to leave its adversaries in the dust performance wise. This phenomenon is likely to drive significant demand from the performance conscious crowd, as consumers will be getting supercar like performance at a fraction of the price.

3. Supercharger Network: No Other Car Company Has One

Tesla has a vast network of over 1,100 superchargers in the world. This provides Tesla with a significant advantage over its adversaries and is indicative of the self-sustaining ecosystem the company is assembling. No car companies have comparable charging networks. However, there are various third-party charging networks around the world that EV owners can use. But there is only one Supercharger network that only Tesla owners can use.

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