Why I’m Still Excited About Tesla

I’ve been a big fan of Tesla for years. I first invested around $12,000 in Tesla between 2016 and 2017.  Since that time there has been some dilution and I have also acquired more shares. Overall Tesla has become by far my largest investment.  With a market cap of over $1 Trillion I believe Tesla has a lot of room to run and within a few years will be the largest company in the world by market cap…by far.

The Giga Factories:

The Giga factories ARE the product.  Elon has stated this many times.  Paraphrasing he states that many companies in the future will make compelling electric vehicles, but very few companies will be great at manufacturing.  Tesla will be extraordinary at manufacturing.  Everything about the Gigafactories is about maximizing total output and reducing Capex expense.

Giga Shanghai is approaching a run rate of 1 million vehicles per year and is still expanding in capacity.  Giga Berlin and Giga Austin will begin production in the next few days.  Each factory is far bigger than Giga Shanghai and lessons learned from those factories have been applied.

Once Giga Austin is open Tesla will likely pause production at Fremont and revamp the layout of the facility to incorporate mega castings and lessons learned from Gigafactory builds.  This will greatly expand production per square foot.

Tesla has plenty of cash to build more Gigafactories and with Berlin and Austin coming online I anticipate that new Gigafactories will be announced shortly.  I am speculating that Tesla will build vehicle Gigafactories in England and India next. Tesla will pause and revamp Fremont. At the same time construction will finally resume at Giga Nevada and it will reach its full size, dedicated to producing over 1,000 GWh of 4680 battery cells per year.

The Gigapress:

The Gigapress is a secret weapon.  For starters, no one else is doing this.  Going a step further, no one else can do this.  Tesla put a ton of Engineering power behind creating the alloys to be used with the Gigapresses.  You can’t just pour aluminum in and get your car bodies.  The Giga press reduced the rear body from 70 parts to 1.  This reduces robots, this reduces time, this reduces complexity and down time.  The front cast section will go the same way.  2 castings will then be connected by the structural body packs.

The 4680 Cells:

The 4680 cells are a major breakthrough.  All indications are that the challenges Tesla had with these cells have been resolved.  4680 lines have already been installed in Austin.  Semi Trucks are being build right now with 4680 cells in Nevada.  Why are 4680 cells so important?

For starters they have 5 times the capacity and can be built at a faster speed than the current 2170 cells.  This means that at a minimum, with NOTHING else being put into consideration, Tesla can produce 5 times the capacity with the same amount of factory space.

The layering of the battery allows for Tesla to not need to pause the line on every battery to weld on a cap.  This greatly speeds up production, the line never stops.  This layering also allows electrons to move much faster through the battery, which should result in faster charge times.

The cathode/anode production requires much less space and is a simpler process.

The 4680s allow for a structural battery pack.  The big problem with electric cars is that the batteries weigh a lot.  How do you fix this? Make the batteries have a negative weight.  By integrating the structural battery back the net weight of the batteries becomes negative.  This is the same logic applied to the fuel tanks on Airplanes.  The wings ARE the fuel tanks.

These cells will allow 1,000 GWh of battery production in a smaller factory than what Tesla thought 100GWh could be produced in with 2170 cells.  The cost per KWh gets reduced 56% with these batteries.

I know its long, but watch the battery day video for a full understanding of these cells.

The Megapacks:

The megapacks are often ignored.  These are the large grid level battery storage solutions Tesla makes.  These provide 3MWh of battery power to the grid and cost about $1.4 Million each.  These are great for grid stabilization and reduce the need for expensive gas peaker plants during high demand.  Because of how quickly they can deliver energy to the grid these batteries take great advantage of the difference in electricity prices throughout the day. They fill up when the price is low and sell when the price is high. Tesla developed a special software called Autobidder to manage this.

In September, Tesla to little fan fair announced they were breaking ground on a new Megapack factory in Lathrop, in the same block as their other Lathrop facilities.  What wasn’t mentioned in the article is that the ground breaking was on an existing building.  Tesla is repurposing an old JC Penney distribution center into their Megapack factory.  The factory is already built, they just need to add the machinery.  This Megapack factory will produce 40 GWh of Megapacks per year.  This amounts to 13,333 Megapacks.  Assuming some bulk discounts and a medial sales price of $1.2 million, this amounts to around $16 Billion dollars of revenue, from the sale of the Megapacks.  Tesla may not sell them all, because they will become money makers for Tesla.  Tesla has been growing their Megapack business, but last year delivered less than 10% of what this factory will build.

Tesla’s first massive battery installation in Australia paid for itself in 2.5 years.  I can see them wanting to deploy these themselves.

The Super Charger Network:

The super charger network is phenomenal. Can you imagine if Ford had owned all the gas stations in 1930? That’s what this is like. Tesla recently began the process of opening up the Super charger network to other models of vehicles.  This will become a profit center for those vehicles, and even for Tesla vehicles. Tesla will deploy Megapacks to Supercharger locations and fill up when prices are dirt cheap and sell power to the customers largely when prices are higher.  Tesla is tripling the size of its Super charger network in the next 2 years and already has 30,000 super chargers.

Tesla Grid Power:

Tesla has become a power provider in Texas.  The Texas market by itself is probably large enough, however I anticipate Tesla will move into becoming a power provider to other states as well.  Between solar power, Megapacks, and power walls in customers homes, I predict that Tesla will eventually earn more money from their grid solutions than from their vehicle sales.  No one is paying attention to Tesla Energy and most Wall Street Analysts fully dismiss this segment of Tesla.

The Tesla Autopilot network:

Full Self Driving: Full self driving has been stuck on “Elon Time” for years.  Delay after delay after delay.  It’s frustrating.  FSD is improving and I truly believe that Tesla will be the first to solve level 5 FSD.  Level 5 is where the vehicle does not need a steering while or a driver. I think it is likely this will be here in 2025.

At that point every Tesla on the road can instantly become FSD 5 via software update because the hardware is already in the vehicle.

People who own vehicles can join the network and while there are at work or sleeping, or just don’t need their car can have it be a Taxi for a set period of time.  It comes back and earned roughly $1 a mile while it was working.  Half of this dollar stays with the car owner and half goes to Tesla.  With 5 million cars participating in 2025 and each car doing an average of only 2 hours a day at 50 mph Avg (I think most will go FAR more), the average vehicle will earn $100 a day or $36,500 a year.  And Tesla takes half.  That’s $182 BILLION in profit because there is zero incremental cost.

When this happens Tesla stops selling cars to the public.  In 2025 Tesla hits a run rate of 5 million vehicles per year and keeps all of them to run as Taxis.  They deploy them across the world and on average earn 50 cents a mile (some countries have lower economies than the US) and the cars each average 200 paid miles per day. Still at $36,500 a year per car and $182 Billion from the cars MADE JUST IN THAT YEAR.  Economically for most people it is less expensive to use a Tesla rideshare than it is to own a car.

Autopilot also revolutionizes bulk transport.  Each truck that drives 500 miles a day will do it without a driver being paid $1 a mile.  It won’t need restroom breaks or food breaks.  Trucks without a driver will have similar economics to the car sharing network, but better because a truck driver on average is more expensive than the value of the rides the Taxi service is generating.  There are far more miles driven.  Tesla once again rather than selling the semis, puts them to work and keeps the revenue.  As Elon stated at the “launch” of the Semi (once again Elon time) in 2017, This is cheaper than RAIL.

Tesla Insurance:

Tesla entered the insurance market several years ago.  Do you know what the lifeblood of insurance is?  Data.  Every single Tesla is constantly sending back data.  Tesla’s data is a giant moat. This moat will grow as time goes on. Autopilot will be safer than the average human driver by a factor of 10. Tesla’s will be safer and therefore will cost less to insure. Insurance is already a major cash cow.  Warren Buffett wouldn’t own GEICO if it didn’t pay him a ton of cash.  The Tesla insurance revenue will grow at a faster clip than vehicle revenue.

Automotive Gross Margins:

Tesla is relentlessly increasing automotive gross margins. The reduction in CapEx per vehicle thanks to the efficiency of the gigafactories is a big part of this as well as

• the Gigapresses
• the 4680 cells and structural battery pack
• Model Y wiring harness
• Rolled steel for Cybertruck with no paint needed (also Model 2?)

Tesla already has automotive gross margins of over 30%.  Most likely this will continue to climb as demand outstrips supply and Tesla is raising prices.  As the above noted efficiencies come online Tesla’s costs will further lower and these margins will increase.

Future Products:

Vehicles:

The Tesla Cybertruck will start production this year in Austin Texas.  Not only is this a compelling vehicle, it will have a 50%+ margin, especially for the first quad engine models that are produced.  While Ford and GM will lose money on their electric trucks (if they can even get batteries to make them), Tesla will be making a killing on the Cybertruck.

Tesla can move into manufacturing other vehicles, included buses and vans.  The compelling $25,000 model 2 car will most likely be a $30,000 car.

Tesla Battery Products:

The batteries Tesla is making are the best in the world.  Once Tesla is no longer battery constrained, most likely after building at least 3 full scale Terafactories for batteries, then Tesla can use its batteries in other products.  Things like power tools. Tesla recently released a kids version of the cyberquad for $1,900 and it sold out in under 24 hours.  It was/is made by Radio Flyer.  The Tesla brand name can add substantial value to products.

Tesla Pi Phone:

There’s been a Youtube rumor of a Tesla phone for months.  Tesla has not announced work on a phone, however I think it is less crazy for Tesla to make a phone than for Apple to make a car.  Now Tesla only has around $15 billion sitting in the bank, while Apple has $200 billion.  Apple has also hired extensively for a vehicle project.  The Apple car will happen,  will the Tesla phone happen?  Can you imagine the revenue if Tesla created a phone that was in every way superior to an iPhone and sold it at the same price?  The iPhone makes up almost half of Apple’s revenue. With Tesla’s belief in vertical integration Tesla would produce the phone themselves, unlike Apple, and therefore end up with higher margins than Apple.

Tesla Bots:

OK we all got a good laugh at the Tesla bot idea, but is it really crazy?  Consider this:

• Tesla is a leading manufacturer
• Tesla’s work on the Dojo super computer coupled with Neuralink AI can easily serve as the brains.  Autopilot is building the sight of the future Tesla bots.
• Tesla is generating billions in cash
• Tesla attracts brilliant Engineers

The robots have tons of applications.  Most notably, I believe, on Mars.  Mars will need manual labor and robots are the best fit, especially for early missions.  I’m sure there will be some people, but a handful of people and hundreds of robots makes more sense than a handful of leaders and hundreds of laborers.  They don’t breathe air, they don’t get cold, they don’t need food, they don’t need water, and higher levels of radiation won’t harm them.  By the time Tesla is producing bots, SpaceX will be ready to buy every one they can make.

On Earth the Tesla bots will have many practical purposes too.  Humanoid robots can take over repetitive physically demanding tasks of humans and free those humans up for different jobs.  These robots can work 24/7, don’t get tired, don’t steal, don’t have emotions, and most importantly, are expendable.  So much of our industrial work is predicated on eliminating risk for workers.  If the result of an accident is losing a $100,000 machine vs. losing a person, then the acceptable risk tolerance for projects will increase and production can speed up.

Nuclear Power:

Tesla is already a power provider in Texas.  Tesla generates power. While I think Tesla will continue with solar heavily and the solar roof will become common, especially for new builds, Tesla will get into nuclear power because it has the potential to more quickly transition the world to renewable energy.  Elon Musk is a fan of Nuclear power and thinks existing plants should certainly not be shut down for administrative reasons.  Elon highly believes in first principles thinking and has stated that the folly of most Engineers is to optimize something that shouldn’t exist.  While Tesla has demonstrated massive project management ability with the Gigafactory builds, I can not see them building full scale 1,000+ MWh plants like the AP 1000s.  These plants are very complicated and have massive execution risk in building.  Units 3 and 4 at Vogtle have taken over a decade and are Billions over budget.

What I can see is Tesla designing, building, and operating SMRs; Small Modular Reactors.  SMRs range in size from 1MWh up to 300MWhs.  They are / will be designed to be modular and easy to construct.  Tesla will build a Gigafactory that produces these reactors on an assembly line. Tesla will build something similar to the already NRC approved 60 to 77 MWh NuScale SMR.  Nuscale says up to 12 can be connected together, making a 924 MWh plant, about 7% smaller than a single unit full scale nuclear reactor.  NuScale states that their plant can be build in under 36 months.  It’s possible rather than Tesla designing their own reactor they could just license this reactor design and build several of these themselves. This would speed up the time to deployment.

Is there money in operating nuclear power plants?  It depends.  If these SMRs can be built in under 36 months and are as maintenance free as they are being sold, then yes.  However the AP1000s were supposed to be able to be built in 36 months, and “maintenance free” systems often require maintenance, my career is predicated on maintenance of a nuclear power system that Westinghouse sold as “maintenance free” in the 70s. I honestly believe Tesla can and will lead the way with a new nuclear power revolution starting in the next few years based around SMRs.

I was at Vogtle in 2009 when they started moving dirt for the AP1000 units 3 and 4.  Construction officially began in 2013 and Westinghouse went bankrupt due to the construction over runs. The units aren’t expected to come online until 2023.  This is still better than the other AP1000 project at VC Summer which also started in 2013. The project was abandoned in 2017 due also to major cost over runs and delays.

Tesla’s Market Cap:

But John, Tesla is Overvalued and already one of the largest companies!

In December of 2017 I wrote that I missed Bitcoin, Amazon, and Netflix. I truly believed the growth story for all of those was behind us.  At the time Bitcoin was at $16,000, Amazon was at $1,160, and Netflix was at $190. Today Bitcoin is at $42,500, Amazon is at $3,250 Netflix is at $541.

265%, 280%, 284%. These investments have almost tripled in 4 years and none of these had massive new innovations!  Amazon and Netflix continued doing what they were doing.  Tesla is innovating at a much faster rate. There is a ton of room for Tesla to grow.

Yes, the current PE ratio for Tesla is very high, but what Wall Street is overlooking the rapidly increasing margins of Tesla, especially for newly built factories.  Tesla’s profits are going to be skyrocketing while Tesla is growing at 50%+ each year.  Most analysts completely discount the Tesla energy business which is about to experience massive growth. Analysts are even estimating 1.3 million deliveries for 2022, when Tesla is already producing at a pace faster than that, without the 2 factories that are literally starting production right now.  Tesla’s vertical integration, ability to build factories, and demand growth make its current stock price under valued.

Just because the largest market cap company is only $3 Trillion, does not mean that there is some sort of cap on how large a company can grow.  That $3 Trillion company makes phones.  20 years ago GE had the largest market cap with around $380 Billion.  10 years from now Tesla can be a 10 Trillion + company.

How do we figure out market cap? It’s net earnings times a multiple people are willing to pay for it, which is the PE ratio.  Currently Tesla has a high PE ratio for its earnings at 343.  Apple is around 30. Typically higher PE ratios mean the company is expected to grow in the future.  If we assume that Tesla 8 years in the future will have the same PE ratio as Apple of 30, then to have a 10 Trillion valuation Tesla would need $333 billion of net earnings.  Tesla can get there.

Vehicle sales: At $10,000 profit per vehicle and 20 million sold = $200 Billion just from vehicle sales. The vehicles alone can justify an $8 Trillion market cap in 2030.  Can Tesla make 20 million vehicles a year within 8 years?  Giga Shanghai will produce over 1 million vehicles.  Berlin and Texas I think will eventually ramp to over 2 million each.  Fremont will get to a million once revamped.  This is 6 million.

It took a little over a year to build 2 factories simultaneously. Tesla has enough cash to do 4 factories at once.  4 factories that are all rated for 2 million cars. These 4 factories will take 2 to 3 years from ground breaking to full ramp.   Groundbreaking in 2023 and full ramp by the end of 2026.  This puts Tesla at 14 million.  Then in 2026 they break ground on 4 more factories at 2 million a piece and ramp to 22 million total vehicles in 2029.  This still gives a year buffer to reach 20 million production. This is not crazy.

Now can Tesla have net profits of $10,000 per vehicle?  With an average sell price of $40,000 this is 25%.  25% is above the gross margins for most vehicle producers.  Because of Tesla’s use of the Gigapresses, extremely low Capex per vehicle, no advertising, and 4680 Batteries Tesla will get to gross margins approaching 50% and net margins of 25%+.

Superchargers: With 100 million Tesla’s on the road (plus another 50 million electric vehicles from other manufactures) Super chargers will become faster and the average person will use Superchargers once a week for 50KWh on average. Let’s say Tesla will earn a margin of 10 cents per KWh.  We get $20 per car per month That’s $12 Billion a year.

RoboTaxi: If Tesla only makes 20 cents per mile off of their cut of the Robotaxi network, and in 2030 there are 100 million Tesla vehicles participating in the program, with each averaging 100 miles per day (which is a conservative measurement) would yield $146 Billion.  Also, if Robotaxi is happening Superchargers will now make at least 2X the revenue because they will be used by the Robotaxis.

Add in Tesla Energy, TeslaBots, and Licensed products and getting to $8 Trillion at a PE of 30 in 2030 is entirely probable.  What’s more likely is that in 2030 Tesla will still be growing rapidly and will have a higher PE, closer to 60 than to 30.

Of course this is not professional investment advice.  All I can do is tell you what I am doing.  I have a significant percentage of my net worth in Tesla and it is my single largest investment.  I also have all of my children investing in Tesla through their Roth IRAs and taxable accounts.

What do you think of the future for Tesla?  Is it going to become the largest company in the world, by far?