Tesla's Profits Are Not from Selling Cars

https://www.fool.com/investing/2021/01/30/teslas-profits-are-not-from-selling-cars/

by jmartrican • 5 years ago

38 16 5 years ago

fool.com

rexelhoff• 5 years ago

Probably the one time I'd agree with anything I read on the Fool.

mft_• 5 years ago

/shrugs

Elon had a history of cutting things fine, and Tesla are throwing lots of money into R&D and expansion. Those gigafactories have to come from somewhere.

nickik• 5 years ago

This story is repeated so often and is never given any context.

The story with Tesla is funny to me, the anti-Tesla crowed is just running down the field with goal post as fast as they possibly can. The TSLAQ crowd basically has two last bunkers they are defending, profit from regulatory credits and Tesla cars are literal trash when the come out of the factory. Both are vastly blown out of proportion.

When Model 3 started to come out people said Tesla could never bring a mass market car to market. Prediction over prediction how it would kill the company. When that was accomplished people said, well but you can never make a mass market EV and be profitable, and the rules and regulation around regulatory credits have not changed since then.

Now Tesla is making a profit for 6 quarters, now even in a pandemic year its not enough profit, because some revenue might go away in 2-3 years.

What they ignore is the progression of both growth and margin, even excluding credits. Tesla grew automotive deliveries by 36% in a pandemic year and improved overall operational margin from basically less then 0% to among the best of any car company. During 2020 they have innovated technologically in many ways, most uniquely literally turning into a battery company that makes not only its own cell but also its own cell manufacturing equipment. Guidance for next year, and Tesla has been conservative with guidance since 2017 disaster, is another year of growth of around 50% and with operational margin that are as good or better then 2020.

During 2020 they have massively expanded, more the doubled, Shanghai factory, they have begun billing truly huge factories in both Europe (Berlin) and the US (Austin). This required huge amounts of capital and will only real start to really make them money in 2022, but its massive operational leverage that is being generated here.

Even when taking this into account, what many still ignore is that Tesla has to make massive investments in things they don't get a return for yes. Massive expansion of the supercharger network, service centres and stores. Basically every existing car company is making a huge amount of money from service (essentially parts), this is because they are not growing and the have millions and millions of cars that are out of warranty on the road. Tesla because of its growth has way more cars under warranty in relation to those out of warranty and that, plus building up new locations, makes their service a huge drain on the company.

In the long run, both the super chargers and service will be making lots of cash for Tesla but you never hear this mentioned, specially in the sites that cater to the TSLAQ. There is just a large market out there for negative prediction on Tesla. The Fool is one of those pages who has been writing negative Tesla articles, for many years now. They have completely gotten the story wrong so many times and the often had known short seller write articles for them.

The 'Tesla can not make money without credits' storyline will hold up maybe a 1-2 more quarters.

chii• 5 years ago

what many still ignore is that Tesla has to make massive investments in things they don't get a return for yes

a lot of people mistakenly value only based on the cash returns, and don't value reinvestments in capital plant and equipment. These investors who don't value those things tend to underestimate the growth potential (of course, it's uncertain how much the capital/equipment is worth, but it's not nothing). They only see value in dividends, and pure profit margins.

bestnameever2• 5 years ago

The 'Tesla can not make money without credits' storyline will hold up maybe a 1-2 more quarters.

I don't think that is what the article is trying to say. I think what the article is trying to say is that with the valuation is so high, Tesla doing well might not equate to increased gains in the share price.

They print at the bottom also says that fool.com both owns and recommends tesla stock.

pedalpete• 5 years ago

Yup, they're in growth. Just like Amazon didn't have it's first profitable year until 2004. Tesla is in growth phase. They are investing investing investing. This is the right thing to be doing at this stage. Other automakers need to invest as well, but they have the legacy profits to write-down, Tesla doesn't.

bestnameever2• 5 years ago

Well, if they are turning a profit it, wouldn't it also mean they could be investing more than they are?

wodenokoto• 5 years ago

The argument in the first half of this article seems kinda reasonable: Tesla is vastly overrated, because they are not making money on selling cars and great performance will not cause the stock to move even more.

That’s a somewhat reasonable argument. I mean, you can have an argument around that point.

The second half has an absolutely absurd argument: “This company says there are 10 stocks that are better than Tesla.”

So what? That’s not an argument for Tesla not being able to give you return on your investment. That there exists 10 stocks that are the best investment doesn’t mean that everything else is negative ROI.

iamleppert• 5 years ago

I also do not understand the valuation. Cars are not platforms and do not have network effects. Every few years a consumer is back on the market for a new car. It's not like they need to keep buying Tesla because all their apps or data or way of doing things is tied to the platform. People are more likely to switch car manufactures with absolute no loyalty than they are to switch between Google and Android.

gyanamo• 5 years ago

in my experience, Tesla owners are extremely loyal. although I agree that it's not network effect

saargrin2• 5 years ago

it is ,to an extent

the more teslas there are ,the more supercharging stations you can afford to deploy,making teslas even more valuable

the more there are,the more miles you collect for your FSD AI

the more there are,the bigger the scale of battery production,thus the batteries are cheaper (and i imagine the rest of supply chain gets cheaper with scale too)

Traster2• 5 years ago

On each of those points there’s a very strong counter argument though- firstly there only needs to be enough charging stations, no one is buying a Ford because there are more Ford gas stations.

It’s yet to be proven Tesla’s sensor arrangement will ever achieve FSD and they don’t get data for sensors they haven’t added yet.

Finally, they probably have leadership in battery technology but that isn’t a network effect, there’s a limit to how much you get economies of scale in manufacturing.

ketamine__• 5 years ago

Every few years a consumer is back on the market for a new car.

Who buys a new car every few years? Jesus, you guys are so rich.

kgin• 5 years ago

It it both an awesome company and a company whose stock price has outstripped any normal method of valuation. There’s no law that says those two conditions can’t coexist.

Tesla's Profits Are Not from Selling Cars

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