Just in case we need some clarification, there’s BMW, Daimler AG (Mercedes), Toyota, Honda, and Volkswagen (subsidiaries are Porsche, Audi, Bentley, Lamborghini), Ford, Fiat-Chrysler, Ferrari, Hyundai and General Motors.
As of August 18, 2020, Tesla stands at a valuation of just under $400 billion.
“Nothing sedates rationality like large doses of unearned money.”— Warren Buffet, 2000 Berkshire Hathaway annual report.
If we go from the second largest, Tesla is worth more than Toyota, Volkswagen, Daimler, Ferrari, and BMW combined.
Just between Toyota Motor Company and Volkswagen Group, the companies sold over 20 million cars in 2019 alone. Tesla sold 367,500. Yes, Tesla is new to the automotive world. Yes, Tesla is basically a start-up that only has a little under a decade developing cars. Tesla is also valued higher than everything it is competing against. And it’s valued higher than every single one of them, combined.
If we add Daimler, Ferrari, and BMW, the total number of cars sold in 2019 is awfully close to 30 million.
Tesla barely managed to sell 1% of those cars but is equal to 100% of their cumulative valuation.
If we take out the biggest player, Toyota, the comparison gets far more interesting. Toyota is a $200 billion dollar auto company.
The next largest companies after Toyota would be Volkswagen, Daimler, Ferrari, BMW, Honda, General Motors, Hyundai, Ford, Fiat-Chrysler, and Suzuki.
Tesla is larger than all of those, combined. That’s 10 auto companies.
This valuation above has only started to accelerate within the last 365 days. Midway through 2019, Tesla had a valuation of around $35 billion. This would rival Honda, which most would still claim as a stretch. As a company, Tesla hasn’t fundamentally changed anything other than a slight bump in Model 3 production to a more realistic place.
Tesla could be the future.
The realistic future has diverged from the fantasy created in markets, however.
One of the more interesting points is that the Model X didn’t impact their production count until Q1 2016. Their unit sales for the Model S and X in the first quarter of 2020 have been lower than the first quarter of 2015. And that’s comparing both S and X sales today to just the Model S sales then.
Yes, my numbers are biased and bad and omitting a few things.
Namely, a few things to consider:
- Tesla didn’t really start their international deliveries yet. This is important, as most other automakers basically have factories all around the world where market demand exists.
- The Model S and X will naturally be lower than the 3 and Y. What number it will sit at, that is to be determined in the next few years.
- The Model Y deliveries haven’t really begun yet (Some people have gotten them, most still haven’t).
But when we delve into these points further, the justification for the valuation becomes less clear, not more. Better phrased, is the internal combustion vehicle dead? The answer is a definite no.
A study done by AlixPartners finds that the cost of a powertrain for a battery-electric vehicle runs at about “two-and-a-half times the cost of conventional powertrains, or about $16,000 per vehicle versus about $6,500 per vehicle [for an IC powertrain]”.
This isn’t all bad news, as the battery-pack cost will likely continue falling 4–5% annually due to technological improvements and a few percentage points higher annually due to economics of scale. But that ramp-up seems slow — very slow — in comparison to the valuation of Tesla today. AlixPartners also notes that the global auto market will be slow to grow for the next few years. They predict that the market will grow annually at 1.6% through 2026. This study was done in June of 2019. The global pandemic today is likely to dampen that growth, and probably turn it upside down moving forward.
The cost of ownership of a Tesla is non-existent.
Or, at least, it seems. There are less moving parts, and the fact that you can supercharge — sometimes for free — for really cheap adds to that incentive.
If that was all she wrote, it would definitely be the case. So let’s talk about the insurance.
Over 5 years, the cost to insure a Model S will be $25,000. A Model 3 will run $12,360. By comparison, a Honda Accord would be approximately $9,735 and a BMW 6 Series would be approximately $15,020.
And so, we should be asking ourselves, “Why?”.
With less moving parts, better safety features, lower center of mass, and a self-improving auto-pilot system, you’d think that insurance companies would love Teslas. They don’t. In fact, it isn’t the insurance companies that are at fault at all. It’s Tesla. There are many stories about the insurance nightmare, but Rich tells it best on his YouTube channel. For anyone looking to fix a salvaged Tesla, you’ll be out of luck. Tesla claims that the only people with the knowledge and expertise to fix Teslas are themselves. This, naturally, leaves Teslas on salvage lots with nobody willing to take on the risk to buy them out. If you do purchase one, as Rich did, you’d have to scavenge for parts from other broken Teslas or off eBay. This is because Tesla refuses to sell people parts.
While this is likely to be highly illegal, due to the Motor Vehicle Owners’ Right to Repair Act, Tesla seems to circumvent it because the law specifically cites dealerships whereas Tesla doesn’t have any.
And this, ultimately, leaves insurance companies in a weird situation where the money for a totaled Tesla will likely not be recovered through a purchase at a salvage auction. Nobody will want to take on the risk of rebuilding a Tesla knowing that Tesla refuses to sell people parts. Thus, Tesla’s decision to ignore Right to Repair pushes that excess cost back onto the very consumers it is trying to help — In the form of higher insurance premiums as you see above.
Federal Tax Credit phase-out.
Tesla has had its fair share of bad criticisms when it comes to subsidies. Especially when many of the other auto-makers have received far more in subsidies and never paid them back. For the most part, Tesla’s subsidies are insignificant in comparison.
A more interesting point is the $7,500 tax credit that buyers receive when they took order of a Tesla before December 31, 2018.
When an electric company hits its 200,000th qualifying vehicle sale, that subsidy begins to phase out. Of course, the tax credit doesn’t go toward Tesla, but the net effect is the same. The car costs $7,500 less because of the taxpayer, and that’s definitely a benefit for Tesla. For 200,000 cars, that’s a $1.5 billion benefit.
And that tax credit is beginning to phase away, with the credit dwindling to $3,750 per car in the first half of 2019 and then diminishing down to $1,875 for the final half of the year.
Final thoughts: Is all of this realistic?
Whether we are talking about some combination of auto-pilot sales, over the air sales, or just pure automobile transactions (and charging), the value proposition for Tesla seems to have gotten lost along the way. Tesla has become a behemoth on paper. Their message and their innovation is nothing short of amazing.
Their valuation, on the other hand, is everything short of reasonable.