Reason: Tesla sold about 900k cars in 2021. This is about 1-2% of the global car market. Even in electric vehicle sales, Tesla only represents about 1⁄7 of global sales. [1] And yet TSLA is valued at as much as the combined value of the next 5 car companies combined. [2] Musk has been claiming since 2015 that self-driving Teslas are a year or two away [3] so it’s hard to believe that they are particularly close now. It seems that Tesla’s current self-driving features are not particularly more advanced than those of competitors. [4]
Personal thoughts: I have low confidence that this would be a good trade over a 12 month timescale. Markets can stay irrational longer than you can stay solvent and all that. And TSLA trades high based on Musk’s personal appeal, which might have years left to run (see Matt Levine’s Money Stuff newsletters on the Elon Market Hypothesis). But longer-term, some trade structured to represent the relative values of TSLA vs. the next, say, 5-10 largest car makers, seems like it should pay off. Either TSLA is currently over-valued or the other car makers are currently under-valued. Unless Tesla can capture, say, 50%+ of car sales globally, either its value will have to fall substantially or other makers’ value will have to rise substantially, if investors realise that they have the same benefits as Tesla represents.
I appreciate you writing down your prediction, and that you included sources.
“Musk has been claiming since 2015 that self-driving Teslas are a year or two away [3] so it’s hard to believe that they are particularly close now.”
While I do agree that what Musk says is not a good indicator, the tech has been constantly improving.
“It seems that Tesla’s current self-driving features are not particularly more advanced than those of competitors. [4]”
There are sources that claim that Tesla is far ahead, and other sources that says they are not. I didn’t find any reasoning why they thought some other vehicle manufacturers had close or better driver assistance than Tesla.
What I find interesting, is that both of our statements could be true, and that the market overvalues the car/autonomous driving part, and undervalues the bot/chip part of Tesla.
My suggestion isn’t really aligned with your initial hypothesis, about the potential for LW to be more efficient than the efficient market because of comparative advantages at spotting niche things. I don’t know much about cars, about car manufacturers, or about investment. So I’m not using some expert niche knowledge that I would realistically expect to be more efficient than the market.
Really, my reasoning is just that it doesn’t seem that feasible that Tesla is worth more than car companies that are selling many, many times more vehicles than it.
From first principles, it seems high probability that most vehicles in the future are going to be electric vehicles. I suspect that incumbent car manufacturers forecast this too, and therefore expect that they are investing heavily in developing electric vehicles. These are large companies with very well-established dealership networks, large cashflows from sales of internal combustion engine vehicles, etc., so should have substantial capacity to pursue that development. I don’t know whether Tesla claims a technical advantage in electric vehicles, but if they do, I don’t see it as being likely to persist.
For the autonomous-driving parts of the technology, I could envisage there being more secret sauce than the electric vehicle parts. But for similar reasons I would expect the other vehicle companies to be investing heavily in it. And — this is really anecdote time now — I’ve seen some videos online that are suggestive of Tesla’s self-driving abilities seeming outright dangerous.
It might be worth to point out, that Tesla has had way smaller budgets for R&D than other manufacturers like Ford and GM. So if Tesla holds an advantage, it implies that simply investing more money won’t let other manufacturers catch up.
Checking about 2 years after my initial post, it looks like $TSLA has fallen by more than 50%: it looks like the split-adjusted price in early April 2022 was around $330 or $340, and today it’s around $145.
Eyeballing the chart, it looks like it’s always been lower than that in the subsequent period, and was down to around $185 at the 12 month mark that was initially the target of the competition. That last bit is the bit that was least clear to me at the time: it seemed high probability that Tesla stock would have to fall at some point, but I expressed uncertainty about when because I thought there was a fair probability the market could stay irrational for a longer period.
Suggestion: a short position on Tesla (TSLA)
Reason: Tesla sold about 900k cars in 2021. This is about 1-2% of the global car market. Even in electric vehicle sales, Tesla only represents about 1⁄7 of global sales. [1] And yet TSLA is valued at as much as the combined value of the next 5 car companies combined. [2] Musk has been claiming since 2015 that self-driving Teslas are a year or two away [3] so it’s hard to believe that they are particularly close now. It seems that Tesla’s current self-driving features are not particularly more advanced than those of competitors. [4]
Personal thoughts: I have low confidence that this would be a good trade over a 12 month timescale. Markets can stay irrational longer than you can stay solvent and all that. And TSLA trades high based on Musk’s personal appeal, which might have years left to run (see Matt Levine’s Money Stuff newsletters on the Elon Market Hypothesis). But longer-term, some trade structured to represent the relative values of TSLA vs. the next, say, 5-10 largest car makers, seems like it should pay off. Either TSLA is currently over-valued or the other car makers are currently under-valued. Unless Tesla can capture, say, 50%+ of car sales globally, either its value will have to fall substantially or other makers’ value will have to rise substantially, if investors realise that they have the same benefits as Tesla represents.
[1] https://www.iea.org/commentaries/electric-cars-fend-off-supply-challenges-to-more-than-double-global-sales
[2] https://www.reuters.com/business/autos-transportation/tesla-market-cap-eclipses-that-top-5-rival-carmakers-combined-2021-10-26/
[3] https://edition.cnn.com/2022/03/14/cars/tesla-cruise-control/index.html
[4] https://www.cars.com/articles/which-cars-have-autopilot-430356/
I appreciate you writing down your prediction, and that you included sources.
While I do agree that what Musk says is not a good indicator, the tech has been constantly improving.
There are sources that claim that Tesla is far ahead, and other sources that says they are not. I didn’t find any reasoning why they thought some other vehicle manufacturers had close or better driver assistance than Tesla.
What I find interesting, is that both of our statements could be true, and that the market overvalues the car/autonomous driving part, and undervalues the bot/chip part of Tesla.
My suggestion isn’t really aligned with your initial hypothesis, about the potential for LW to be more efficient than the efficient market because of comparative advantages at spotting niche things. I don’t know much about cars, about car manufacturers, or about investment. So I’m not using some expert niche knowledge that I would realistically expect to be more efficient than the market.
Really, my reasoning is just that it doesn’t seem that feasible that Tesla is worth more than car companies that are selling many, many times more vehicles than it.
From first principles, it seems high probability that most vehicles in the future are going to be electric vehicles. I suspect that incumbent car manufacturers forecast this too, and therefore expect that they are investing heavily in developing electric vehicles. These are large companies with very well-established dealership networks, large cashflows from sales of internal combustion engine vehicles, etc., so should have substantial capacity to pursue that development. I don’t know whether Tesla claims a technical advantage in electric vehicles, but if they do, I don’t see it as being likely to persist.
For the autonomous-driving parts of the technology, I could envisage there being more secret sauce than the electric vehicle parts. But for similar reasons I would expect the other vehicle companies to be investing heavily in it. And — this is really anecdote time now — I’ve seen some videos online that are suggestive of Tesla’s self-driving abilities seeming outright dangerous.
Those seem like reasonable arguments.
It might be worth to point out, that Tesla has had way smaller budgets for R&D than other manufacturers like Ford and GM. So if Tesla holds an advantage, it implies that simply investing more money won’t let other manufacturers catch up.
Checking about 2 years after my initial post, it looks like $TSLA has fallen by more than 50%: it looks like the split-adjusted price in early April 2022 was around $330 or $340, and today it’s around $145.
Eyeballing the chart, it looks like it’s always been lower than that in the subsequent period, and was down to around $185 at the 12 month mark that was initially the target of the competition. That last bit is the bit that was least clear to me at the time: it seemed high probability that Tesla stock would have to fall at some point, but I expressed uncertainty about when because I thought there was a fair probability the market could stay irrational for a longer period.