Is There Anything That Can Stop Tesla? - 7investing
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A Tesla is plugged in at a charging station.

Is There Anything That Can Stop Tesla?

October 8, 2021

Tesla (NASDAQ: TSLA) has continued to deliver strong results despite the global chip shortage that has greatly impacted other automakers. That’s partly because the company sells fewer cars than its biggest rivals but the fact that it keeps growing despite the industry-wide challenges that have crippled many of its competitors deserves to be noted.

While the company has faced challenges and some deliveries have been delayed, Tesla reported another strong quarter when it comes to vehicle deliveries:

  • Tesla delivered 241,300 electric vehicles during the third quarter of 2021, the company said Saturday.
  • The company produced 237,823 cars in the period ending Sept. 30.

Those numbers are slightly ahead of expectations. Tesla should see even more growth as its manufacturing plants in Texas and Berlin, Germany come online. That does not mean the company won’t struggle to keep up its momentum over the next few quarters while supply chain issues remain an industry-wide concern, but it clearly has done better than most automakers.

Anirban Mahanti joined the Oct. 6 “7 investing Now” to discuss whether anything can slow Tesla down. The answer is “not many things,” but he did raise one major concern that investors should at least be aware of.

A full transcript follows the video.

 

Dan Kline: But let’s get to it with Tesla here. So what I want to talk about here is Tesla reported some good numbers but we know you own Tesla, we know you drive a Tesla. I want to talk about, you have a Tesla cup which is which is rare as well. Do you have a Tesla, is that a Tesla shirt as well.

Anirban Mahanti  2:00  This is this is a Tesla Cybertruck t-shirt or the Tesla plain t-shirt the one of those.

Dan Kline  2:06  Do you have the flame thrower or the limited edition boxer shorts? Do you have either of those?

Anirban Mahanti  2:10  No. So the boxer shorts were out. Or the short, shorts as they call it? They were out so I couldn’t get them. And the flame thrower they were not sending outside the US, how rude of them.

Dan Kline  2:22  Well, I now know what I’m getting a nearby for Australian Christmas, which I think happens the same time as our Christmas. Tesla delivered 241,300 electric vehicles during the third quarter of 2021. They delivered no gas vehicles because they don’t make any. So it’s weird that they say electric vehicles but they do. That is slightly ahead of analyst expectations, which means nothing. I could care less about analyst expectations. They produced slightly less than that 237,823 cars. How are they getting around the chip shortage? It feels like Ford made 46 cars and Tesla hit all its numbers. That’s not true. We’re gonna get to it later. But how are they getting around the chip shortage?

Anirban Mahanti  3:04  So again, Tesla is a very agile company. So the shortage, if you think about it, is really for the basic stuff, right? So the shortage is in finding the chip for your airbag, the shortage is for finding the chip that goes into your brake fluid levels or something like that. A lot of the basic cheap stuff, really cheap stuff, low end, integrated circuits that are really, hard to find. And Tesla being a newer company, more advanced technology uses a lot of newer chips that’s one. And it’s probably paying a premium price on those newer tech, right? So it would be in the front of the queue in terms of getting things, so that’s part of it.

The other part is in last earnings called Musk explained this and he said that look, we changed the chip, when we found an alternative chip, we changed the firmware that was necessary to make the boards work. So they changed the software, the former is basically think of that as software, they changed the software and the hardware when necessary to just work around with what was available. So just it’s more agile. And of course, I would also say that their volumes are high, but not as high as some of the other ones, but something a combination of factors

Dan Kline  4:33  We’ve seen, and I can appreciate this having run a factory, obviously nowhere near a Tesla factory, but if I got a big order, I would like borrow equipment and set up in the yard, or like an empty space, and we’d make what we had to make. Tesla has famously done that with its tents is this just the agility and the hunger of being a young company?

Anirban Mahanti  4:51  I think so, the older a company gets the more set in its ways, now this is not always true, this is generalization. But they get, it’s like us as human beings, right? The older we get, I have a set routine, I need my coffee at a certain time. And if I don’t get my coffee at a certain time, I mean, you’d appreciate this, Dan, I can get cranky. Right? Whereas, the younger person might be, if they’re young Maxx, he’s more adaptive.

Dan Kline  5:21  Actually, I think that’s not true, I think Maxx is a bad millennial. And I will point out that having been tied to a news cycle for the vast majority of my life, career wise, I’m actually pretty adaptable for an old guy. Because when your job, again, probably half my working life has been like, wait a minute, this happened at nine o’clock at night. And we see it now at 7investing. And I think this is relevant to Tesla, because it’s part of being a young company. Because I agree, when I worked at Microsoft, they weren’t great at adapting to something being different. Whereas at Tesla, it’s part of the romance. It’s like, it’s part of the fun of being at a startup. And for me, it’s always been part of the news business. And we do it in 7investing, something happens, and we’re all on Slack at like 11 o’clock at night chatting about it. And I’m figuring out how to make that content the next day.

Anirban Mahanti  6:08  Yeah, absolutely. Yeah. So I think it’s a combination of things. Again, Tesla’s just a very agile company. It’s very fast moving, which, they change things. So another way to think about this is if you look at the Model 3, I got my Model 3 in 2019, between 2019 and 2021, it’s only been two years, a lot of stuff has changed in the Model 3. Outward it looks the same. But if you look if you if you just think about the smaller things, the details, a lot of this continuous refinement going on. It’s just always moving. So yeah, I think part of that, it’s a combination of things. Volume is, of course, less than traditional auto, but it’s getting there. It’s getting there in terms of volume now.

Dan Kline  6:48  So let’s talk about that. Because the volume, I’ll remind you Tesla delivered 241,000 and change vehicles in the quarter. My next question is, how does this compare to how the traditional automakers are doing? But I’ll share some of those numbers. General Motors (NYSE: GM) delivered 446,000, almost 447,000 vehicles in the US in the third quarter, that’s down by 218,000. Ford (NYSE: F), down about a third in July and August, only about 18% in September, so Tesla’s numbers are up, and they’re getting closer to the big boys, right?

Anirban Mahanti  7:28  Yeah. So exactly as you read, right? So the numbers that we are quoting there are US numbers, whereas Tesla’s numbers are worldwide. So that is that difference there? But yeah, like I mean, if you just you could just assume the Tesla’s numbers, roughly about maybe 60% of them, is roughly US, US or Canada? I think that’s, I think most of those numbers are North America, for Ford and GM.

But ya the numbers are getting up there. And I think the critical thing to think about is this, what’s going to happen when Texas goes online, so when the Texas Gigafactory goes online, we yet don’t know what the capacity of that is. But my bet would be it’ll be somewhere in the million ballpark. Right? Once that is online well, Tesla might well be among the very big manufacturers, a US based manufacturer. Actually when I say US based that the company that’s actually making the vehicles in the US might be, the top two or top three, easily at that point. So that’s something very interesting to think about.

A last point I would make before I turn it back to you is, while you read the four, the GM numbers, right, the GM numbers for the US were down, like roughly 50%, let’s call it Give or take a bit. And Ford, 30%, 30%, and then 18%, somewhere around, maybe 25-30% down, right? I would bet the US numbers for Tesla are probably 60-70% because Tesla’s sales volume is up almost 100% year over year. Of course off a smaller base, but that’s still phenomenal, right? I mean, one company is growing really quickly, taking almost all the share in EV’s. The others are not.

Dan Kline  9:13  So I’ve asked this question before, but it baffles me so I’ll ask it again. The cheapest Tesla on a practical basis is in the $40,000. And that depends on tax rebates, there there might be some people who are getting a little cheaper, but most people are paying roughly $42,500 for the lowest end Tesla. That’s really, really expensive for a car. I’ve never spent more than $11,000 on a car, and I drive, relatively low end cars. I have an older Toyota (NYSE: TM) Prius at the moment, I had a Nissan Versa before that, I had a Hyundai Elantra and a Saturn. So I’m not driving BM, I had a BMW but it was an older one. I had a Mini Cooper it was an older one. I’m not driving nice cars. But if a Toyota Corolla is $299 a month, at some point, is there more market share for Tesla to take in the US at that? It just feels like a very high price point, but I get that I have not a typical car buyer.

Anirban Mahanti  10:13  Yes, that’s interesting point, Dan. Right. I mean, so I have been like you for essentially the entire life, until I got a Tesla. So I’ve had a Toyota Tercel which is basically the smaller than the Echo, or smaller than the Corolla, they don’t make that Tercel anymore.

Dan Kline  10:31  I had a Tercel at one point as well.

Anirban Mahanti  10:34  And it’s a great car, really reliable car had over 200,000 kilometers on it, or 220,000 kilometers when they got rid of it. Then I had a Hyundai Elantra just like you and I didn’t buy a Toyota Corolla largely because the Elantra gave me everything with slightly worse acceleration and crappy engine noises but it was very reliable, and I got that. We had a Toyota Corolla here in Australia. We have a Nissan Murano. So I’m typical, like many others, I don’t spend high money.

But that is, I think a couple of things are working. That is of course the new product, the new thing that drives people to upsize, right? Tesla has been stealing share from the luxury market like the BMW, the upper end, Camry. And the Tesla Model 3 is an interesting car because the Tesla Model 3 is larger than the Corolla. It’s probably in the Camry, because you think of the size overall, it’s in that sort of the Camry space. It’s not a small car, but it’s not a maybe a large vehicle either. And I think the Tesla Model S is also an odd vehicle. So it sits between the BMW 5 and a 7 in terms of sizing and spacing and things like that.

So the market is wide. And for its market, I think Tesla has priced its vehicles very intelligently, it’s intelligent pricing. The question you’re saying is, if Tesla went down market, what’s going to happen? Right? And I think at this point in time, if we look at how the BEV transition, the battery electric vehicle transition, is going for everybody else, if Tesla went downstream, gosh, I don’t know how the others are going to actually have, this is going to be survival issues for some of the other ones because Tesla’s already got really good margins. It can actually reduce the prices if you wanted to, if you want to take more share versus taking a lower margin, right, the margin is to some extent fungible.

And there is talk that Tesla is going to make the Tesla Q, which I think they should call it, the Tesla Q. So that’s the $25,000 vehicle they’re talking, thinking about, and that is already on the roadmap, apparently it’s gonna be made. It’s been designed in Shanghai, out of the Shanghai factory. And it would be a real big hit. I think that vehicle probably is not a US vehicle, right? It probably is more suitable for the Asian market and the European market. US has got big wide roads, at least many parts and so does Canada with large parts of the world have narrower roads, tighter parking spots and things like that, where this sort of vehicle would be really, really useful, but I think we’ve got some ways to go.

Dan Kline  13:16  To go downmarket in the U.S. wouldn’t they also have to do it in a very noticeable protect the brand way and I’ll point out like BMW, which owns Mini Cooper, and everyone knows that they make the Mini Cooper but they don’t call it a BMW. Or if you buy a BMW 1 Series, there is a notable snobiness at the dealer. It’s like you’re staying in a Junior Suite like it’s not quite a suite you don’t get to access the suite lounge. I feel like to protect the snootiness of owning a Tesla, which there’s plenty of that. And there certainly is a Peloton (NASDAQ: PTON) and other luxury brands or even Lululemon (NASDAQ: LULU) yoga pants would have that they’d have to protect that right?

Anirban Mahanti  13:54  Yeah, to some extent Yes. So I think the Tesla strategy resembles a little like the Apple (NASDAQ: AAPL) strategy right? So they have a small range of products and each product has a limited range of options. Right so you want the iPhone Pro or you want the Pro Max you can’t get like, you can choose I guess how many terabytes of storage you want, but that’s really it. Right? Tesla even doesn’t even offer you that choice. And the same thing with the Model 3, right? Basically Tesla Model 3 performance is no different from a Tesla Model 3 long range. One is just got faster acceleration. In fact, you can after the fact by the acceleration if you want as a software upgrade. And the Tesla Model 3 long range is very similar to the Tesla Model 3 standard range except it’s just a smaller battery.

So I think the smaller battery and the smaller form factor. I think it’s just a question of which vehicle appeals to which crowd right? If you want a daily running around car, then you might be happy with the Tesla Q. If you want a car that goes long distance, for your trips to the National Parks, then you probably have a Model 3, right? And if you want to show off a car, then you get the Tesla Model S Plaid version. Right? And you show off your acceleration. The other thing I’ll point out in terms of pricing is that, $299 versus $399. I think Tesla leases for around $399 in the US. That’s like a $100 difference, but you save a lot on servicing. Tesla’s really don’t need any servicing, right. So if you factor in the cost they’re probably already at parity. If you are thinking longer term, if you think of the overall cost of running the vehicle, then factoring energy costs, if you factor in servicing costs, you’re probably very close to parity. Actually a smaller Tesla would destroy the parity to the extent where it will become almost nonsensical to have a ICE age vehicle.

Dan Kline  15:50  I would go with the Tesla SE. If everything can be something Plus, there’s no reason why Tesla can’t steal the Apple naming construct and you get the shameful low end iPhone for your kid, the SE. Though my son is lucky because I get a new phone every year he has like a 10. Or he has a good one like because I forgot to return it and he needed a new phone. So that works out.

But a couple more questions here then we’re going to talk about Rivian the upcoming IPO. And that actually leads into this question. “Do you think that there’s any company be it an old line vehicle maker or an EV rival like Rivian, or Lucid that can compete that can pose a risk for Tesla”?  I would argue that the only automaker I really like, not as an investment, but as just a company is Toyota, for all the reasons you just talked about, like the cars are really reliable. It’s a car that, my Prius feels small, but it’s actually big when it comes to storage. That was something I really liked about my tiny little Nissan, as well. But can any of these companies become real rivals? And I guess in the, in the old school way it’s, can they survive in order to become a rival?

Anirban Mahanti  16:58  So that’s a great question Dan. Here’s my way of thinking about this. So if we backtrack a bit, the usual Tesla bear cases, well Tesla can’t manufacture, look at those panel gaps, well, Tesla just showing through the pandemic, that it can not only manufacture, it is very adaptive, and it can manufacture at pace and you guys can’t keep up. But that’s number one. Its factories are coming up at record speed time, and they’re very efficient. So and Tesla’s return on invested capital is, like, is basically completely another level, it’s like going to the Apple level where the other guys are stuck at like the 10% level. So it has just shown that Tesla is not just a clever, hardware software manufacturer, manufacturing company, it’s actually a great manufacturing company, too. So I think that’s one. The other thing is. The other myth that has been going around is Oh, well, just stick a battery in and it works, well look at what happened to the Chevy Bolt.

Dan Kline  17:56  As long as you don’t park within 50 feet of another car, you’re totally fine. And that’s not a problem. As you know, here in cities in the US, we have nothing but space available for parking.

Anirban Mahanti  18:06  Well, I guess you just don’t park it in your garage. That’s probably okay. Just park it in your neighbor’s garage, a neighbor, you don’t like

Dan Kline  18:14  There’s no place within 30 miles of my house where you could get a 50 foot clearance for parking.

Anirban Mahanti  18:21  So I mean that’s the other myth, right? It’s not that simple. If it was just a question of taking the chassis and removing, just putting a battery in. Well, the Bolt, or the Nissan, or sorry, or the Ford Mach E. It’s sold a grand total of 18,000 vehicles year to date. There’s just not enough traction, because I think they’re still very compliance oriented, which is basically making the same thing as an ICE age vehicle, just trying to put a battery in it.

So that’s part the problem, can survive. Right? And that’s a great question. The company that I admire most, as for vehicles would be Toyota. And I think that’s the company that’s dragging its feet the most. It has been talking hydrogen, hydrogen, hydrogen, hydrogen and hybrids. It’s actually done the least amount of work to get to EV. Which is like, very, very strange for a company like Toyota. And I just don’t know what to say about that. Volkswagen, I think is the company that I would say is, is ahead in the game. It really thinks that if it doesn’t do electric vehicles, it will not exist. Volkswagen, I think is doing the right thing among the big guys. But gosh, Toyota, I don’t know. I would be worried.

Dan Kline  19:41  I think Toyota has maybe put its eggs in the Apple basket. And whether that actually happens or not is very debatable. Because like when I bought my my Prius I had no predisposition. Other than I knew I was going to buy a hybrid or an electric vehicle used and I got the Consumer Reports. The Annual Addition about used cars. And it had like a three page article on batteries. And it basically said, like, yeah, the Prius battery works forever, and it has very little degradation and all the other ones. So it’s like, wait, I’m gonna spend this money and I’m gonna buy a Ford electric vehicle, and in six years from now going to be giving me the same problems a traditional gas engine would. That to me is is a deal breaker.

And again, your past experience matters. The fact that I had a Corolla, or a Camry that my business partner at the time had given me that had like 300,000 miles on it. And I drove it from Connecticut to Florida, and kept it in the hot sun and used it once a month when I was here, before we lived here permanently, and it worked great. That speaks really well to me about Toyota. And I think that’s part of the Tesla loyalty.

The manufacturing process. I’m going to get to another question. A final question in a second. I think the manufacturing issues are a little bit what I’ve talked about with some of the retail stores as they figure out the balance between self-checkout and auto checkout and clerks. They might not get that balance right for a while, like you walk into a lot of places, you’re like, wait, they’re herding me towards self-checkout, but there’s only four of them, and it doesn’t work that well, and I’m buying wine and someone’s gonna need to sign that in anyway. Or I’m buying masks which are tax free, and that requires a person.

So like, those are the little glitches that I think are just operational that you have to overlook. And sure if I bought a Tesla and something was not right in it, and it took me six months to get it repaired. Like that would be a niche.

But let me ask a last question here. Before we segue to Rivian, we’re gonna do one little thing before that before we fully say to Rivian. If you had to worry about something, what would you worry about when it comes to Tesla? What could go wrong? Because we always like to say, we love these companies, but there is a bear case. For Chipotle remember it was, oh my god, what if they run out of avocados as if you’re not going to go get Chipotle just because there’s no guacamole. But what is the guacamole scenario for Tesla?

Anirban Mahanti  21:55  So the guacamole scenario, I think, for Tesla right now is. I think the product roadmap is fine. The manufacturing roadmap is fine. I think the demand roadmap is fine. Those are not the problems. The customer fanfare is also fine, right? I think actually, the biggest problem is that they have their dependency on one man. Externally it’s huge. Right? Now, of course, this one person Elon Musk didn’t actually, while he might have single handedly played a huge role in the company. We need to understand that there are many other people in the company that play important roles, and that, he brings in talent and things like that.

What is right now missing, though is just this bench strength. Now, even during the Steve Jobs, and I’m just bringing an Apple analogy because it’s useful because again, larger than life figure, Steve Jobs. He always had a number of number two’s, a huge slate of number two’s, whether it’s, the Phil Schiller is Craig Federighi or Johnny Ive there were a number of huge big ticket people around Steve Jobs. I think that’s sort of missing to some extent.

Tesla’s done that a few times with various, battery day and autonomy day where they’ve showcased a number of people. But what they have showcased though, is that they’ve shown technical people, they’ve shown that these technical people are super smart, and they are really ahead of the game. What you want is not just a technical person, you want a technical person who is also, you don’t need somebody who’s super technical, you need somebody who understands at a high level, the techniques and the or the technicality, but it’s also good marketer is a good presenter is a good showman, right? And that’s kind of sort of missing right now at Tesla. I think that’s Tesla’s biggest weakness.

Dan Kline  23:50  If Elon Musk dies in a rocket race next month, because there’s lots of ways Elon Musk could die. Yeah, it’s not always the safest behavior. But like, I know, this is gonna sound like a ridiculous name to throw out there. But couldn’t they just bring in a really good operator, like a John Legere? Or, or one of the 20 different number two’s at Microsoft who we’ve seen, present? Can’t you just have someone who’s like really good at operations and find the right people below them? Does it have to be a CEO who, like every decision is coming from?

Anirban Mahanti  24:24  I don’t think Tesla is at that position yet. Tesla doesn’t have like an Apple like ecosystem. Right? And it doesn’t have yet, I think it’s just too young, a company at this point. And it’s still very early in that S curve, right? So I think that Elon Musk, single person risk is still very high, that’ll dissipate maybe in the next five years. And next five years probably become clearer who are these people., To this point though, and maybe this is more relevant because this is a consumer discretionary consumer products company, right? This doesn’t matter that much if you’re an enterprise company, like it didn’t matter for Microsoft that Bill Gates left and then we had Steve Ballmer and then, nobody knew Satya Nadella. Really right. And it doesn’t matter.

Dan Kline  25:12  No, it was a shocking pick and I worked there right around that time.

Anirban Mahanti  25:18  Like who’s Satya Nadella? Right? And the same thing with Sundar Pichai, right? It doesn’t matter for enterprise or business focused, business to business companies, it does matter for business to business, consumer facing businesses, who the person is who the leader is, right. So I think that that in my mind is, and of course, as you said, Elon Musk is not the least risky type of individual, right, he could decide that I’m going to go to space or something or, build a space module and go and live there for some time.

Dan Kline  25:49  He challenged Bezos to a duel, like, there definitely, there are definitely some risks involved here. And the reason I threw out John Legere is because there aren’t that many larger than life CEOs right now that would certainly be available in in the market. But yeah, look, Tim Cook is the right CEO for Apple now, I’m not sure he would have been the right CEO. And I’m not sure in a few years as we pivot into whatever is next because I don’t think the iPhone is forever a dominant product. At some point there’s going to be head holograms or whatever new technology it is. I’m not sure he’s the guy at that point.

That’s the challenge that any company has is sort of figuring it out. I’m not a big fan of like the Disney (NYSE: DIS) mandatory retirement age issues. But would you be happier if Bob Iger was in charge or Bob Chapek? The answer is Bob Iger. So Elon Musk, we’re going to be sending you some bubble wrap, and maybe a helmet be a little bit more careful.