Our view on Tesla after “Investor Day”
The resounding theme from Tesla’s recent Investor Day was that the company can drive growth by lowering costs and driving profits to fund expansion plans and subsequently offer products at more affordable prices.
Many were hoping for more specifics on when a third-generation vehicle could be shipping, but all they got was an assurance from Tesla that they’re working as fast as they can, and it could be sometime in the next couple of years.
Our key takeaways from the event:
“Master Plan 3” has the modest goal of saving Earth:
Here’s the breakdown of how the company envisions 100% of fossil fuel usage can be repalced:
- Renewably powering the existing grid: 35%
- Switching to electric vehicles: 21%
- Switching to heat pumps: 22%
- Using high temperature heat delivery and hydrogen: 17%
- Sustainably fueling planes and boats: 5%
Don’t bother, I’ve done the math. It adds up to 100%.
“Our process is better than those other guys”
The company believes that its unique process of combining its design, engineering, manufacturing, and automation abilities positions it to automate and scale more effectively than competitors.
Tesla believes its next drive unit will be even more scalable with a 75% reduction in silicon carbide (the most expensive part) while also reducing the rare earth materials required to zero.
Tesla aims to make components cheaper and better. For example Tesla internally designed components are expected to increase from just 20% with the Model S to 85% for Cybertruck, and a target of 100% with its next generation vehicle platform.
In addition, Tesla specifically highlighted an 87% reduction in mass achieved from transitioning from a lead-acid low-voltage battery to lithium ion low-voltage battery (Pay us money and we’ll tell you which Lithium company we’re invested in).
Full Self Driving
Tesla believes it has a significant competitive advantage given its data collection, labelling and AI training capabilities. The main focus of improvement is on the software side such as path planning/lane selection rather than new hardware.
Tesla highlighted its leadership position in the EV charging ecosystem where it has dominant market share. It believes it has the industry’s lowest deployment cost which can be ~50-80% less expensive than the industry average in certain major US markets (California and New York).
Supply Chain and logistics
Tesla manages many of the production processes in house that allows them to deal with its suppliers directly thus giving the company closer insights and more flexibility. Furthermore, its vertical integration allows for better cost controls that many of its competitors lack.
Tesla highlighted its growing vehicle manufacturing footprint with over 65k employees, 4 vehicle facilities, and approximately 2 mn units of installed capacity. More importantly, the company highlighted its capacity to scale and apply its learning across its factories by reducing the time it took to produce each subsequent million vehicles (it took 12 years to produce the first million vehicles and 7 months for the fourth million).
Megapack has deployed 16GW across 16 countries with best-in-class energy density and lowest cost to install. It can connect to any grid globally and is the most energy dense solution in the market.
The company claimed it would be able to bring its robot to market at scale faster than anyone else. Elon Musk ended with a bold estimate that there will be more than 1 humanoid for every human on the Planet and his view that Optimus could one day be worth more than all of Tesla!
Wall Street Reaction
“Tesla is aiming to grow significantly both in vehicle sales and in non-auto endeavours (i.e battery storage). While there is still a significant question ahead on execution on the incredibly ambitious growth strategy, we nevertheless believe the investor day demonstrated why Tesla is ahead of legacy automakers in the path to global adoption of EVs and software-defined vehicles. We reaffirm Overweight Rating with a $275 price target.” –Barclays
“We don’t expect the event to have a meaningful near-term impact on the stock and maintain our Neutral Rating with a $225 price target”.
-Bank of America
“We came away from the event more confident in the company’s ability to drive cost reductions and product improvements with the numerous examples Tesla Provided across the organisation. This reinforces our positive view of the company’s long-term competitive positioning. We believe this is especially important when considering that the automotive market can be a long cycle industry, and Tesla already has a leading position. In addition, we believe that Tesla’s ability to provide a well integrated full solution across all of clean transportation including with software will be key to its long-term success. We maintain a buy rating with a $200 12-month price target.”
“Tesla’s audacious efforts on vertical integration are about to pay off. EVs are far too expensive today. Tesla gave a number of drivers for a 50% cost reduction for its next-gen platform. In a race to the bottom, we seriously question how the competition can keep up. Should Tesla be able to hit the cost targets laid out today, when coupled with its opex discipline, we find it hard to see a way in which legacy automakers could compete with Tesla in terms of EV profitability. Stock rating is Overweight with a $220 price target.”
PIF’s Tesla Target Price
[Log in to your PIF account to see our Buy and Sell Prices for Tesla and many other stocks and cryptos]
Potential Tesla Catalysts
- Macro pressures ease: The Federal Reserve stops raising interest rates.
- A sharp and sustained rise in gasoline prices.
- A breakthrough in advanced battery technology.
- Increase in federal or state incentives.
- Short covering: Tesla is the most shorted stock in S&P 500 by hedge funds.
- Better execution of strategies and further cost containment.
- New product announcements related to next-gen vehicles.
Key Downside Risks
- Macro pressures worsen: The Federal Reserve continues raising interest rates increasing the cost of capital to fund business ventures or a global recession leads to weaker demand.
- Setbacks in battery technology.
- Fierce competition from incumbent car manufacturers.
- Low gasoline prices.
- Management fails to execute on strategies.
- Slow rate of adoption of EVs.
- Heavy reliance on the CEO a.k.a. “Key man Risk”
Tesla’s recent investor day may not have been flashy, but it successfully crystallized the company’s vision.
With an exciting product lineup and ambitious plans, Tesla stands out as a company with enormous potential.
Given its history of impressive execution, the sky is the limit for what Tesla can achieve. For these reasons, we are keeping it as a heavyweight in the PIF Growth Portfolio.