Here Are My Five Key Takeaway From Tesla 2020 Battery Day
24 September 2020
Tesla is not a typical stock that investors like Warren Buffett buy for a reason.
Although I do feel that Elon Musk is a fantastic marketer and an innovative entrepreneur and I have been curious about the Tesla story for quite some time, it can be hard for certain people to justify it’s seemingly lofty valuations.
Nevertheless, as I try to understand Tesla better, here are my five key takeaway from Tesla 2020 battery day.
1. Elon Musk Expects $25,000 EV to Arrive in Three Years
Elon also said that the EV, which will be low-cost, will also have a full self-driving capability.
“About three years from now, we’re confident we can make a very compelling $25,000 electric vehicle that’s also fully autonomous,” – Elon Musk in 2020 Battery Day
It is also interesting to note that back in 2018, Elon also talked about a $25,000 EV coming in three years. Here’s a 2018 CNBC article on Elon Musk saying that Tesla could produce a $25,000 car in 3 years.
2. Tesla is Focusing on Making EV More Affordable
It is evident that even from 2018, Tesla’s goal has been to make EV more affordable.
However, by the time Tesla will be able to make EV more affordable, I think by then, there will also be a lot of competition from other car players in the EV space, such as from Volkswagen, Chevrolet, Nissan and many more.
Tesla aims for its battery to come in at $60 per kWh in 3 years’ time, which is five years in advance of industry prediction.
It is still a question mark whether this dream of Elon will become a reality or not 3 years from now. Or will it take longer?
3. An Energy and an Automotive Company
Elon often talked about the energy side of Tesla’s business.
In the battery day, he talked about solar energy – which in my view, is where of course, the future seems to be heading towards.
Tesla’s energy side of the business is something to look forward to in the future.
4. Many Improvements And Promises for The Future
Because of Elon’s goal to reduce the cost of EV, they will need to improve their battery technology and cost.
These improvements and promises are not something that we can possibly see this year or even the next year; we can only know whether they are able to achieve it in the next few years.
Tesla also said that they are targetting an eventual annual production of 20 million vehicles about twice as many as Volkswagen, which was last year’s best-selling auto company.
Last year, Tesla just sold 367,500 vehicles.
Suppose in the future when other auto companies are also able to make a compelling choice for EV, in that case, I think it will be hard for Tesla to achieve that target.
5. The Goal is To Beat Gasoline Cars
If EV can beat gasoline cars on the upfront cost on price, that will be the inflection point for EV.
EVs have been better than some traditional gasoline cars on their maintenance cost and also performance.
What is left now is to attract buyers via lower upfront price of buying EV cars.
Well, suppose in 3 years, Tesla can really make a $25,000 quality EV with autonomous vehicle capability. In that case, that is going to be something.
But again, it is far from a sure thing, in 2018 Elon Musk wants to have $25,000 EV in 3 years. We are nearing that deadline and Elon is pushing it for another 3 years.
In Conclusion: Can The Valuation Match The Realities?
Elon Musk is a great entrepreneur.
He successfully ran Paypal, SpaceX, and Tesla.
He is a great marketer and a very innovative person.
Maybe due to his charisma, the expectations for the company are high and it can be hard for their results to over-deliver – especially harder in this recessionary period.
I do think that Tesla has a great story that’s got it going for them into the future: sustainable energy, autonomous driving etc.
But at a PE ratio of close to 1,000, I just hope that they will indeed be better than competitors in the distant future where battery and EV will be more mainstream.
I am really not sure if the current valuation is too far from reality or not, even though that seems to be the case now for me personally.
But again, Elon has proven many shorts wrong in the past. So for me, Tesla is a case of too hard to be short and also hard for me to be long at current valuation.
I will definitely still be keeping an eye on Tesla to see how they will evolve in the future. And whether they can indeed be a sustainable company that will beat plenty of the other renewables energy and EV automakers.
Because currently based on the valuation, it is implied they can.
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Chris Lee Susanto
Founder of the value investing blog Re-ThinkWealth.com (if you type “value investing blog” in Google, his blog is likely the first one). Being a full-time investor himself, Chris knows that he did not beat the S&P 500 return so far (as of the time of this writing) by listening to stock tips. So, when he teaches, he also doesn’t believe in giving stock tips as it is not sustainable for you in the long run. He will teach you how to make your own intelligent decisions with his 4M1S framework. Feel free to also join his free investment telegram channel here.
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