Teslasay (NASDAQ: TSLA) ‘s inventory is an incredible 695% higher in 2020, making it one of the most valuable companies in the world with a valuation of $ 630 billion. Investors bought into Elon Musk’s product range, growth story, self-management technology and manufacturing expansion plans. Yet there are questions with which the stock will start in 2021.
By any traditional measure, Tesla’s valuation looks crazy. The company is valued 24 times more than sales and the price-to-earnings ratio is 1,332, despite generating hundreds of millions of non-core credit sales. So is the stock going to keep rising, or is the valuation more than investors should be biting off at the moment?
Image source: Tesla.
Tesla’s model works
Elon Musk has always argued that Tesla can deliver better margins than traditional car manufacturers by cutting dealers out of the equation and having lower production costs through simple electric vehicle designs. So far, the model is correct.
Tesla’s revenue has risen over the past five years, regularly yielding a gross margin of more than 20%, which is almost at the top of the automotive industry.
TSLA Revenue (TTM) Data by YCharts
What is even more impressive is that Tesla maintained strong margins because it lowered its average selling price of vehicles. The company clearly has a cost structure that the competitors have not caught up with, and with the rise in self-management that is now on the market, there may be opportunities to increase margins even higher.
Is Tesla built too big, too fast?
Tesla’s production is expected to reach around 500,000 units in 2020 and could increase rapidly over the next few years. Giga Shanghai is already underway, and Giga Berlin is expected to launch by mid-2021, bringing Tesla’s production capacity to more than 1 million vehicles a year.
Tersla is expanding at the same time, and competitors are building their own EV capacity. Nine (NYSE: NIO) expects to increase its own production capacity from approximately 60,000 vehicles per year to 150,000 by the end of 2021. Volkswagen has the capacity to build 300,000 electric vehicles at its new plant in China and says it will be able to build 1.5 million EVs annually by 2023. General Motors (NYSE: GM) has not set production targets in the short term, but plans to invest $ 27 billion in EVs and autonomous management between now and 2025. Nissan, BYD, Hyundai, Rivian, Fisherman, BMW and many others have invested in electric vehicles that were not yet on the market. While doing so, Tesla will face competition like never before seen, which could affect volume and pricing.
Competition could be a problem for Tesla, as he has struggled to make money despite selling every vehicle he can possibly manufacture. The automotive business has a lot of industry tree financing, so a decrease in utilization or price reduction will have a big impact on the core. At the moment, investors expect sales volume to grow rapidly and prices (ie the margin) to remain high – so any change in the dissertation could crater the stock.
Autonomy is a strength that can become a weakness
Tesla today looks like a leader in autonomous driving. He charges an extra $ 10,000 per vehicle for his “self-driving” Autopilot software, which actually has limited self-driving ability. Investors who think that Tesla will be able to generate software-like margins from such products may think that the price may be higher. But there is reason to think that Tesla is getting an easy cash from early adopters while considering the real disruption in autonomous driving.
The most advanced autonomous management technology is built by companies such as GM and Cruise Alphabetsay (NASDAQ: GOOG) (NASDAQ: GOOGL) Waymo, who has been on the road for millions of miles in autonomous mode. And they create business models that enable cheap autonomous ride participation in cities around the world.
As Tesla builds capacity, Cruise and Waymo build business models that completely enhance the idea of vehicle ownership. No matter how you look at it, autonomous driving is coming, but that may not be good news for Tesla as its software-as-a-service business model is overwhelmed by autonomous driving part that has a much lower pre-cost does not offer. ‘transport as a service’ business model.
Is Tesla’s share a buy today?
I can not get behind Tesla at this price. The growth of the company is impressive and it has proven that electric vehicles can be a viable product in the long run. But without regulatory credits, the company is still not profitable.
Meanwhile, more than a dozen competitors are building compelling EV offerings that will hit the market over the next few years. This competition will be more attractive than anything Tesla has faced in the past, and could not only mean less demand for Tesla’s cars, but also less regulatory credits needed by competitors.
Given all the pressure Tesla is putting forward, I do not think next year will be a good one for the stock. This is definitely not a car stock I would buy after the incredible 2020 race.