A lot lately is tesla overvalued. So before i give you the answer, you’re looking for let’s run through some scenarios of why tesla is not overvalued. I believe the consensus now is that tesla is a genuine tech company and not just some auto manufacturer. A tesla is a computer on wheels and is apparent. No other auto companies are able to replicate that. Why? Because they’re, auto companies and tesla is a tech company, it would be just as arbitrary as them trying to make a better search engine than google. Do you think ford could beat google at search, especially of all the search data google’s accumulated over the years for the ai algorithm? No, of course not. So why do you think they can beat tesla at a digital car or fsd, especially when tesla have all that data too people just confused? They think, because if it walks like a duck, swims like a duck and quacks like a duck, then it’s probably a duck. This is known as abductive reasoning, but tesla is not a duck or auto company it’s a computer tesla make computers, their computers just happen to have wheels and seats and transport you from a to b, which let’s face it it’s a pretty awesome type of computer, oh And they’ve been doing it for 18 years, with a ceo from silicon valley, with a string of technological successes behind him, along with his disposal, the best engineers in the world and a rocket company with the best rocket scientists in the world when he needs some extra Brain power and a pinch oh and the tired cliche of the competition are coming well, a competition came, they saw and they were conquered.
This narrative needs to die once and for all and now apple, an actual tech company. That also makes computers is coming, but at best they won’t have anything out for five years. By that time, the game is so over. Tesla will have a 25 000 model. Fsd will be working several times better than any human driver. Their robo taxis will be functional in many major cities and they should be producing at least 10 million cars a year and apple might come out with a hundred thousand cars, with a relatively obscene price for the comparative value and that’s being generous and it’s unlikely. At this stage, apple is really no concern. I mean look at what they did with apple tv plus netflix are hardly concerned, but i do see some of you bring it up. Still. I just don’t want to get into the weeds too much i’d, rather focus on tesla’s value, so we have established that tesla is a tech company, so how’s it valuation compared to some other tech companies related to the industries that they disrupted look at netflix compared to Blockbuster blockbuster reached about a 3 billion valuation at its peak netflix, currently sits at around a quarter trillion dollars so that’s almost 100 times the valuation. Yes, blockbuster is often paired with netflix as netflix disrupted the video rental industry. So much but perhaps that’s not a totally fair comparison as netflix also make unique content. So perhaps you can compare it to some of the other media companies like viacom cbs at 38 billion and fox at 20 billion.
And yes, i understand disney sony and comcast are a close evaluation, but they do much more than just media look at amazon’s valuation compared to whatever barnes, noble or borders ever reached, amazon’s stock price, dwarfed them, and that was still when amazon was just selling books. Nokia, at one stage, the largest mobile phone company reached 250 billion market cap at its peak that’s, enormous particularly back then, but even a market valuation of that magnitude is no competition for a real tech company when apple now sports a market valuation of nearly 10 times That and spotify 2 compared to sony universal or warner music just compared to the record label divisions, not the entire parent company. Again spotify is worth so much more. So the point i make here is it’s not unreasonable for a tech company to have a valuation of 10 times or more than the market cap of the competitors and the industries that they’re disrupting. So by this indication, tesla is not overvalued and in all other industries, they were usually oligopolies and the disruptor becomes more of a monopoly with a few other companies that tag along any way they can, whether through differentiation or brand power like netflix, has apple tv disney Plus and a few other smaller ones, but they aren’t really a threat. Just like tesla may have a few other niche players tag along, but likely only has evs no match for a tesla’s robo taxi network and yes sure there are a lot of substitutes to apple’s iphone.
But when you look at the market cap compared to the competition they dominate and all the competition are competing with much slimmer gross margins, so that in itself is enough to justify tesla’s stock price. If it were just a technological transportation company but don’t forget they have energy too, and there is a lot of money in energy. So what’s going to happen when tesla disrupts that space right now we’re seeing what’s happening in texas and there are houses that still have power thanks to their tesla power walls, we’ve barely seen the start of tesla’s disruption of energy, but we have seen how successful they’ve Been with the energy storage project so far in the likes of adelaide australia in 2017, it cost taxpayers 200 million dollars to install and supposedly save consumers, 116 million dollars just in 2019 alone, if you factor in how much more efficient and lower cost tesla’s 4680 batteries Would be then these returns are unfathomable, tesla also built huge solar energy plant in kauai. In case you didn’t know, electricity is very expensive in kauai. I stayed in airbnb there once and it didn’t even come with air conditioning. For that reason, which i assure you is somewhere, you would welcome it. Electricity is also expensive in australia and you’ll see a large number of homes with solar on their roofs. Already on battery day, i was actually expecting two types of batteries: a lightweight, more efficient battery for vehicles and a heavier cheaper one for energy storage, as they don’t need to be transported.
But, to my surprise, they only created one. I still wonder if they might bring out a new energy storage battery later on when they decide to really expand that side of the business. I think tesla is still moving relatively slow in battery energy storage because they want the batteries for their cars. The cars are likely more profitable per battery sold. Think about it due to the fact that batteries are scarce, tesla needs to decide on the best place, to allocate every kilowatt hour. If, for example, the end product on a power wall might only profit hundred dollars per kilowatt hour, whereas the same batteries placed in the car, they might profit 200 per kilowatt hour. This is particularly true when we look at the tesla semi elon has said that the semi takes about five times as many batteries as a car, well, it’s, simply more profitable to sell five more cars instead of one semi, which is the main factor holding back the Semi track, i say this again and again: tesla is all about battery production at this stage, it’s the main thing holding them back on their product offerings and they’re. Obviously, well aware of this and it’s been all hands on deck for some time in getting these batteries up and running they’re not messing around and, i believe, they’re ahead of schedule already. I mean the fact that the new model y’s in berlin are going to use 4680. Batteries already shows a tremendous advance and supposedly the german model wise should be rolling off the production line around july, with 4680 batteries likely made in a factory next to the model y factory showing huge advancements.
Of course, the model y will start production slowly and it will take some time to ramp up but it’s a huge step in the right direction and it won’t take much time to be the number one selling ev in europe, the renault zoe and volkswagen id3 are The top selling evs in europe of around 10 000 cars or so a month well in the shanghai model, 3 factory tesla were doing around 10 000 cars within their third month for production and that included a shutdown due to koved it’s, also a significantly smaller factory. Tesla have learned a lot since then and introduced a lot of their new, faster, more efficient manufacturing techniques like the gigapress and cell to vehicle technology. So it really won’t take that long until the model y isn’t just the best selling ev in europe, but sells more than all the other evs combined most likely before the end of the year. Anyway. I digress. So the other factor of why tesla is not overvalued. Is that it’s a growth company, so you have to completely ignore the pe ratio for valuation purposes. The closest equivalent to measuring p for a growth company, in my opinion, would be their free cash flow to market valuation and by the time all their current factories are ramped up. Tesla’S current valuation will be around 30 years of their current free cash flow and that does not include their factory in india. So if, in five years time, tests were making five times as many cars and the energy business didn’t grow, robo taxis, didn’t work.
They made no more advances on manufacturing and they stopped making any more investments. Then tesla would have a p e ratio of about six and sure you can argue that more competition will come in and reduce their margins, but will they, though, so is tesla actually undervalued? Well, possibly, to be honest, it really comes down to fsd. More than anything, it is inevitable that fsd will be a thing and it’s clear that tesla is so far ahead of the game. So there is a very good chance. Tess will have first mover advantage of fsd, which means they can dominate the robo taxi network. Their chances are good in statistics. There is something called probability: distribution which is an equation that links the outcome of a statistical experiment with its probability of occurrence. So if we say that there’s just even a 50 chance that tests are our first, the robo taxi network, in my opinion, it’s, probably more like 95, but let’s, be conservative. And then the outcome is 5 trillion extra valuation if they achieve it again. Being super conservative it’s, probably closer to 20 trillion or more then, if we multiply 50 by 5 trillion, then we get a valuation of 2.5 trillion in addition to the other businesses. Now some of that has already been calculated into the current price but minimal, but as tesla get closer and closer to achieving it, we will start seeing more believers. Do some back of the envelope math and realize the potential of robo taxis.
This is also how asymmetric investing works. You assign a probability of a certain occurrence that might happen. You calculate the return the occurrence might generate and decide whether it’s worth it. For example, you might say there’s a 25. The us dollar might go into a hyperinflation and, if that occurs, bitcoin might go up 10 times. Therefore, you have a 1 in 4 chance of making 10 times your money. You may lose this one, but if you keep making bets like that weighted heavily on a positive return, eventually, you do win so it’s up to you to decide whether tesla is overvalued or not. But in my opinion there appear to be plenty of reasons that it’s not thanks for listening.