MrKnoot @MrKnoot: "🚘 𝗛𝗼𝘄 𝗶𝘀 𝗧𝗲𝘀𝗹𝗮 𝘁𝗿𝗮𝗱𝗶𝗻𝗴..."

United Kingdom

🚘 𝗛𝗼𝘄 𝗶𝘀 𝗧𝗲𝘀𝗹𝗮 𝘁𝗿𝗮𝗱𝗶𝗻𝗴 𝗮𝘁 𝟭𝟲𝟬 𝗣/𝗘? Back in 2018, $TSLA (Tesla Motors, Inc.) was ranking as the 15th automaker with more units shipped. Despite that, it had a higher market cap than the top 5 combined. This alone was the main thesis behind the many, many shorts on Tesla. The counter argument was rather easy: “The market is not pricing Tesla for what it is, but for what it will become in the future”. And that future seemed pretty bright, if only a couple assumptions were satisfied: → The future of transportation is electric cars and self-driving cars → Tesla is very far ahead in both electric and self-driving cars The argued consequences of these two assumptions being correct were that they’d kinda follow the $AAPL (Apple) success story: → Tesla will swamp the market. Achieving Apple-like market shares → This overwhelming market superiority will make intensive vertical integration profitable → This vertical integration will expand margins and guarantee a better product → The company will use the market and product superiority to actually expand the market How were they supposed to expand the market? By going where no other car manufacturer had gone. Nor $F (Ford Motor Co) or anyone has had the capacity, appetite and purchasing power to own nation-wide gas station networks. But Tesla claimed they could do it, by leveraging their extreme market share with propietary chargers. The higher the market share, the higher the profitability of the network and the harder it is for consumers to buy from the competition who would be out of the charging network. Remember, lack of access to convenient and quick charging is still the very first reason why many people buy ICE cars instead of EVs. Provided all this worked, Tesla also claimed there would be even more markets to be expanded to. For example, the software business. Self-driving cars were supposed to be an inevitability that’s just a couple of years away, and if Tesla is the only player in town that’s another huge market you just created. With similar virtuous cycles that feed on each other. More Tesla owners means more data to train the AI. Better AI means Tesla cars are a better product. That data could also be used to negotiate with insurance companies, which would kill for a piece of it. Which could mean lower insurance premiums for Tesla owners. This is the story Tesla investors have been telling each other to justify why an automaker ranking 15th in sales should be more valuable than the rest of the competition combined. But consider for a moment, that this whole house of cards of an investment thesis is built upon two basic assumptions that need to be satisfied or the whole thing comes crashing down: → Electric cars and self-driving cars are the immediate future of transportation → Tesla is so far ahead in both that they’ll reach +80% market share, kindling the virtuous cycles I will argue that EVs are, in fact, the immediate future of many forms of transportation. Most importantly, personal cars. But that’s pretty much all I can give the bulls at this point. We’re in 2025. Almost 7 years since the hype train took off. A combination of market shifts, regulatory changes and individual mistakes from the company have prevented the rest of the thesis from materialising. And at this point I don’t think it ever will. What has happened? → It has happened that 𝗧𝗲𝘀𝗹𝗮 𝗶𝘀 𝗻𝗼𝘁 𝘁𝗵𝗲 𝗼𝗻𝗹𝘆 𝗽𝗹𝗮𝘆𝗲𝗿 𝗶𝗻 𝘁𝗼𝘄𝗻 𝗮𝗻𝘆𝗺𝗼𝗿𝗲. We need to be real here. You can argue a Model 3 is more ergonomic than a Polestar 2 - who has $VOLV-A.ST (Volvo AB ser. A) behind. Or that the interiors are more luxurious than the IONIC 5’s. But such differences do not guarantee a +80% market share. Consumers do have a realistic choice outside of Tesla. You could argue the product is better, but you can’t say it’s overwhelmingly better to the point that there’s no real competition. There is competition. → It has happened that 𝗿𝗲𝗴𝘂𝗹𝗮𝘁𝗶𝗼𝗻 𝗵𝗮𝘀 𝗺𝗮𝗱𝗲 𝗲𝘀𝘀𝗲𝗻𝘁𝗶𝗮𝗹𝗹𝘆 𝗶𝗺𝗽𝗼𝘀𝘀𝗶𝗯𝗹𝗲 𝗮 𝗺𝗼𝗻𝗼𝗽𝗼𝗹𝘆 𝗼𝗳 𝘁𝗵𝗲 𝗰𝗵𝗮𝗿𝗴𝗶𝗻𝗴 𝗻𝗲𝘁𝘄𝗼𝗿𝗸. Without even considering the lack of market share superiority that would be needed to pull it off, which is not the case anyway. Regulators in Europe, China and the US have laid out rules that impede a single manufacturer from owning a charging network with propietary chargers that locks out competition. → It has happened that 𝘀𝗲𝗹𝗳-𝗱𝗿𝗶𝘃𝗶𝗻𝗴 𝗰𝗮𝗿𝘀 𝗮𝗿𝗲 𝗻𝗼𝘁 𝗵𝗲𝗿𝗲 𝘆𝗲𝘁. Perhaps is Tesla not living up to the hype and failing to deliver on their promises. Perhaps the technology is simply not here just yet. Whatever the case, self-driving cars have been “one year away” for a decade already. Maybe this year will be the year, but I don’t think it’s sound judgement to assume this will be the case when making investment decisions. I continue in the comments...

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