Tesla: A Solid Year, But The Future Is Even Brighter
Feb. 02, 2020 10:42 PM ETTesla, Inc. (TSLA)152 Comments
Summary
Tesla reported a strong quarter and year with record cash, but the real potential lies in a comment about its autopilot program.
Its unique approach to AI learning might be the answer with the myriad of issues which autonomous driving faces in learning the "rules of the road".
The company's approach to deployment can also be a game changer with consumer trust and can help it leapfrog competitors when regulatory reforms are passed to allow for full-scale implementations.
I remain cautious on the company's year ahead but highly bullish on its long-term prospects.
Yesterday, Tesla (TSLA) reported a blowout quarter with 112,000 deliveries as well as a 136% increase in energy storage sales. The company managed to increase revenues even as lower ASP hit the annual average as it lowered the price of the basic Model 3, which has become a larger part of the sales mix.
Other news about the production of Tesla's newest vehicle, the Model Y, being ahead of schedule in its ahead-of-schedule Shanghai plant helped the company reach new high in recent days, reaching over $600 per share.
Even with all of these good top and bottom line numbers, which include a profitable quarter and a record pile of cash, not so hidden in the comments on autonomous technologies lies the true secret to why I believe Tesla will be at the forefront of autonomous technologies in the years to come.
Neural Network Based On Actual Driving
The theory behind other companies which are developing autonomous driving technologies and solutions is that they want to introduce a product which is ready from the get-go, and they're working with car companies and artificial intelligence resources to map out a network for autonomous driving. Alphabet's Google (GOOG, GOOGL), for example, has a bunch of its cars driving around a certain city learning the roads and networks of data associated with driving. However, that means they are constrained to those data sources, and are only set to learn from the set parameters in that particular area or data set.
Tesla, on the other hand, has taken the approach of using its hundreds of thousands of vehicles, which are driving on the roads as we speak, to learn and adapt in real time. In its most recent filing, the company mentioned that its vehicles have driven over 3 billion miles in autopilot mode, and billions more in normal driving data has been collected.
The company then uses this data to develop its neural network in real time to identify issues and new capabilities through billions of data sources instead of in a parking lot being forced into certain situations to learn to adapt. This means that Tesla is sitting on potentially trillions of scenarios where its Big Data AI learning algorithms are used to develop its autonomous capabilities and flag issues in real time, which will allow for a much quicker perfection of these capabilities.
The ultimate difference will mean that a vehicle like Google's prototype will rarely have encountered many situations which Tesla networks have and which have proven to be issues with these technologies, like identifying cones and continuing their autonomous capabilities if and when a network connection is lost or tunnels obstruct the camera's full capabilities. The future of autonomous driving is loaded with uncertainties, and Tesla's approach seems to be handling it in the best way with an eye towards the future and not simply running it through millions of scenarios in a lab, but having real-life accounts of issues and capabilities.
Gradual Deployment
A key factor to implementation, when looking back at the introduction of new technologies, is the fact that Tesla is gradually releasing these new autonomous features to the public. The mentality behind this approach means that if we wake up tomorrow and Google has released its fully-automated vehicle, you'd have natural hesitations in getting into it and taking it on the highway or a busy downtown LA street, however cool it may be and even if we assume regulatory reforms don't hurt the rollout.
With Tesla, however, customers have used its autopilot features for years in cruise control, lane switching, and now with the identification of street lights and signs, which is set to be released to the public in the next batch of upgrades. When you get comfortable using these technologies, it becomes easier to adapt to new ones which are less of a leap from the previous ones.
Even as more companies continue to work on similar technologies, I believe that both of these approaches by Tesla will prove to place the company at the top of the autonomous vehicle technology market for the foreseeable future, whenever that future may come.
Solid Performance, Continued Competitive Headwinds
As I've stated in several previous articles I've written about Tesla, I continue to believe that competitive pressures will continue to mount as more car companies begin releasing their versions of electric-powered vehicles with similar technological developments and range. This may hinder the company's next few years until autonomous technologies head on full-force into the market, but until then, it seems well-positioned.
Yesterday, Tesla report cash flow of $10.3 billion, ending the quarter with $6.3 billion in cash on hand, more than enough to sustain the company's ramp-up in development and deliveries of its Model 3 and newer versions of vehicles it plans on releasing over the course of the next few years.
For 2020, analysts expect the company to report $32.2 billion in sales, which they expect to grow to $40.54 billion in 2021 - a slowdown from previous record-setting years, but nonetheless impressive. It is worth noting that Tesla is unlikely to include any adoption of the newer Model Y or the potential for its cybertruck deliveries when they become available.
For EPS, analysts expect Tesla to report $8.80 for 2020 and $14.08 for 2021 - a surge on account of a more steady profit mix as well as the introduction of higher-priced model vehicles. All in all, the company is well-positioned to maintain its operational efficiencies, even though competitive pressures may increase.
Thesis Conclusion
All in all, I do think that the current share price might be slightly overinflated and could come down some once competitor models come on-line later this year. However, from a technological standpoint, given all the advantages mentioned earlier, I continue to hold the stock as a bullish long-term choice. You can read my full thesis on the competitive pressures Tesla will be facing in my previous article.
I remain cautious on Tesla's year ahead but highly bullish on the company's long-term future.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Opinion, not investment advice.
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Comments (152)
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samdehne
Comments (1.80K)
Today, 10:10 AM
MUSK FOR PRESIDENT!!!
MUSK FOR POPE!!!
MUSK FOR GOD!!!!
eom
Reply
LegalizeMe
Comments (270)
Today, 10:10 AM
Fluctuating between $720 to $730 today. Holy cow.
Reply
SmartBetaCFA
Comments (298)
Today, 10:05 AM
730！！！
Shorts， COVER COVER COVER.
Reply
ruby_tuesday
Comments (88)
Today, 10:13 AM
Going for 800 today
Reply
CentralScrutinizer
Comments (2.03K)
Today, 9:58 AM
711!!!!!
Reply
SmartBetaCFA
Comments (298)
Today, 9:55 AM
Panasonic: We are catching up as Tesla is quickly expanding production...
Higher production volume is helping to push down materials costs...
Shorts, COVER yourself NOW!!!!
ReplyLike (1)
maggas
Comments (486)
Today, 9:53 AM
Maybe coffee is not working yet, but article written on 2/3, states yesterday tesla reported earnings, and I see car delievieries, 2-3 misreadings in one articles?
Reply
sr1952
Comments (1.22K)
Today, 9:40 AM
Tesla is in court dealing with lawsuits based on Elon Musk's merger with Solar City where he showed his fake solar roof tiles. Tesla is also in court with lawsuits over Elon Musk selling "full self driving" for years while never producing the product. The company is obligated to make positive comments about full self driving and solar shingles. How would it look in court if they just came out in public and admitted that neither one of these technologies is even close to being implemented?
Reply
ACBet
Comments (2.57K)
Today, 9:39 AM
Will the ahead of schedule Model Ys that are shooting out of the ahead of schedule China factory as we speak (didn't I hear something about some kind of flu-like sickness in the news there) be shipped to North America to meet the insatiable demand of this triumphant Model Y?
After all, the stock went up insanely; so what could possibly go wrong now?
Reply
SmartBetaCFA
Comments (298)
Today, 9:37 AM
Tesla will join SP500 in July this year. Stock price will be $1000 at that time... Shorts are doomed. Shorts are burned.
ReplyLike (1)
Micro Magic
Comments (353)
Today, 9:35 AM
@Pinxter Analytics I appreciate well thought out article. I am overweight TSLA and try to stay abreast. I see a problem with thesis and would hope you consider it in next update. To raise alarm or calm my fears.
I see so many similarities between TSLA/Elon/Cars to 10 years ago with AAPL/Jobs/phones. AAPLs biggest advantage was its ability to flood consumer demand before competitors could get there. Yes, we waited in line for next iteration, but we got one. If Iphone ipad, ipod had been as volume constrained as model y, semi, roadster, pickup; some of us would still have Blackberrys or Nokia. AAPL advertised like crazy, but fed the demand. TSLA hasn't even tried to advertise yet, and can't keep up with demand.
So I see TSLA's inability to produce volume needed as demand grows as biggest threat. JV with Panasonic was a fail. Attempt to merge with or buy Ford was a fail. But Elon needs to keep trying to get volume. Why didn't he buy NAV for semi production? Or farm out Roadster to someone like Shelby in Vegas? If everything has to go over Elon's desk (and he is only working part time for TSLA), we are going to be overtaken by competition on volume - even if they have substandard product.
Thx again for great article.
ReplyLike (1)
jimeditorial
Comments (4.21K)
Today, 10:11 AM
@Micro Magic
Manufacturing is key. The Japanese built poor quality, me too products and made money at it due to great manufacturing processes...then they made great cars. Tesla is doing it backwards...and competition is arriving every month., from better manufacturers. The argument that Tesla has some technological advantage appears to be untrue, as is the notion that battery supplies constrain ICE makers.
Reply
SmartBetaCFA
Comments (298)
Today, 9:25 AM
Porches and GMC made perfect commercials for Tesla and EV. Go Tesla. Shorts, COVER yourself ASAP. Listen to me. Otherwise, you will regret for your life. Tesla is NOT an automaker; it is a high-tech company.
Reply
jimeditorial
Comments (4.21K)
Today, 10:12 AM
@SmartBetaCFA
So is BlackBerry. My Motorola brick cellphone was the highest tech piece of hardware I'd ever seen...
Reply
fydo
Comments (1.19K)
Today, 9:23 AM
China's Mkt down 7.9% (or almost 8% as NO-ONE says)..and U.S. Mkt up. Does any young Bull remember when pre-Opening quotes were actually realistic, instead of trying to squeeze any negative opinion as hard as possible? This is a sick "free" trading Mkt (or would you say: "expired"?
Reply
1winner
Comments (2.24K)
Today, 9:19 AM
Long the best American innovation has to offer.
Nothing comparers.
Fundamentals pointing to $10,000/share in 2030.
Don’t short the inevitable future.
Long Tesla!
ReplyLike (1)
1winner
Comments (2.24K)
Today, 9:18 AM
Autonomous is just one of the cherries on the cake.
Myself and my friends and family buy Tesla primarily because the vehicles look amazing, we don’t like dealing with gas stations and oil changes, the acceleration is far better, and its essentially like an iphone or macbook on wheels.....
So yea, super long Tesla, even without autonomous.
Oh btw- no one in the US making real $$$$$ is going to want anything other than the Tesla v3 solar roof on their new construction home....
Reply
CentralScrutinizer
Comments (2.03K)
Today, 8:28 AM
it's a beautiful day when you wake up and see TSLA up ANOTHER 22 bucks to a NEW all time high.
Reply
Heiko who
Comments (106)
Today, 8:12 AM
Why is the stock price up so much pre-market?
ReplyLike (1)
cwDeici
Comments (1.41K)
Today, 9:06 AM
because most shorts deserve to suffer :)
Reply
uptick_rule_now
Comments (3.20K)
Today, 7:50 AM
Maybe for Tesla the company but the stock is a joke
ReplyLike (2)
CentralScrutinizer
Comments (2.03K)
Today, 8:25 AM
@uptick_rule_now you mad?
ReplyLike (1)
4r3e2w1q
Comments (1)
Today, 7:44 AM
A uniform sample of driving does just fine, without a need to over-engineer with billion of driven miles. Hard to call it a competitive advantage in autopilot.
ReplyLike (2)
asanga
Comments (5)
Today, 7:42 AM
In 1999, I made a quick few thousand dollars on an online bookseller called Amazon. Had I held my modest investment, it would be worth $2.5million today. Like Amazon, I see a very bright future for Tesla with much of it's innovation in technology likely to see as yet unknown new applications. It is not just a car company, as Amazon was never just a book seller.
ReplyLike (2)
Yambol-Musk isn't a genius, people are just stupid.
Comments (3.98K)
Today, 9:42 AM
@asanga
the problem is that you have no idea that Tesla does not innovate anything and it has nothing unique in it
Talk to real engineers of cars and they will tell you that BMWi3 is like a spaceship compared to Tesla.Tesla is a wheel rusty barrel
That is the truth but no Tesla fan wants to admit it or they are misled by the guru and his lies
Tesla's AP is dead last Cadillac has the best AP ever with a few other companies
Tesla is LAST.
ReplyLike (1)
CAD Eng
Comments (57)
Today, 9:49 AM
So what is Tesla? Because they sure aren't a battery manufacturer based on the deal announced today with Chinese battery supplier CATL.. Sounds to me like "their" technology is going to quickly become universal since the Chinese companies are well-known for "sharing" secrets and Panasonic is going to supply batteries to Toyota.. I thought one of Tesla's biggest moats was its battery tech?
Reply
Krypto
Comments (8.74K)
Today, 6:55 AM
Why do Tesla advocates always manage to brag about the future of Tesla Energy when many of the sales programs of the former Solar City have been declining and the Buffalo plant is still well below projections?
ReplyLike (4)
truwa
Comments (246)
Today, 7:43 AM
@Krypto
Yeah, I agree with you. Tesla solar panels, powerwalls, powerpacks, megapacks, and solar roofs are low quality, always problematic, way too expensive, hard to install, way behind the industry, cannot compete with the superior products from the competition both in quality and price. It is already a dead business and Buffalo plant will convert to the NY soon.
Musk says that all resources are taken from solar business during "production hell" of the Model 3 but now it is over and solar business will take of; eventually becoming be as big as the car business.
Musk is always selling dreams with no actual substance. There is no way in the known universe that Tesla's energy and solar business will take off. Absolutely not. Anyone believing this is conned by Musk. Mega-failure-pack.
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Krypto
Comments (8.74K)
Today, 8:08 AM
@truwa Anecdotal evidence of the hype: My neighbor spent one hundred thousand dollars on a complete Tesla Energy System last year, including three Powerwalls, a nice plug in for his Model X, and panels all over the roof to save $500 per month on electricity.
I know all about it because I'm on the architectural committee and I approved the plans, and he told me how much he paid and what his savings are per month.
His circumstances changed and he just sold his house.
He got the same price per square foot as all the comps in the neighborhood.
Not a compelling economic reason to think Tesla energy is going to wipe out the competition in that low margin business.
ReplyLike (2)
ACBet
Comments (2.57K)
Today, 9:40 AM
But the buyer of that home did very well with his new energy system. LOL
Reply
van.der.dim
Comments (6)
Today, 6:41 AM
Volkswagen targets 2025 to be No.1 on the EV market with at least 1.5M cars sold. they start always slowly ( f.e. as they did with SUV ), but accelerating really fast
ReplyLike (2)
truwa
Comments (246)
Today, 7:51 AM
@van.der.dim
Yeah, you are right. Personally I expect VW to be the #1 EV producer by the number of the units sold in the world by 2030 because they are the "most committed" legacy-auto brand about going fully electric if their CEO can keep his job.
Tesla will stay a "luxury car" manufacturer with a maximum production capacity between 2 to 2.5 million units a year; in other words Tesla will be the "Daimler" of the EV market. I think they will reach close to their maximum capacity by the end of 2025. By that time global EV sales should be well over 10million cars/year and luxury-ice vehicle sales should be absolutely collapsed worldwide.
ReplyLike (1)
ludicrous_display
Comments (121)
Today, 6:16 AM
2% YoY growth
blowout quarter
lol
ReplyLike (2)
cwDeici
Comments (1.41K)
Today, 9:12 AM
You're very smart, it's not like Tesla had to shift its prices down by 15% in a single year while still growing. You're so smart you probably went short last year and think your propaganda will help the situation!
Reply
Jons Thoughts
Comments (69)
Today, 6:00 AM
Thanks for the article. It is well written and appears well thought out. I agree the future for electric vehicles in general is quite good and even better than most prognosticators predict. BNEF publishes a revised forecast each year showing the rise in BEV sales as a percentage of total light vehicle sales out to the year 2040. The BNEF forecast has been increased each year as they become more optimistic about the pace of BEV adoption. This year they predict that 57% of all new sales in 2040 will be electric and that 30% of the global fleet will be electric by this time. Typically, the BNEF prediction is the most optimistic of the major forecasting organizations and yet I believe they are significantly underestimating what the actual figures will in fact be. I have come up with three scenarios which I believe would lead to a faster BEV uptake than currently predicted and I list them here, perhaps you have more.
1) I think that there is reasonable possibility that there will be an extended period of scarcity in oil reserves and this scarcity will lead to an unexpected surge in BEV purchases. To see the effect of an interruption in gasoline supply you can look back to oil crises occurring in the 1970s in the US. Large price increases, long lines and rationing at gas stations led to some radical changes in the sort of automobiles that consumers favored. High mpg model cars were suddenly in demand due both to consumer desires and government regulation. If this sort of oil shock were to happen today, it is certain that demand for electric vehicles would surge. How could such a shock occur? Probably the likeliest scenario would be a major conflict in the Middle East. Even though the US is much less dependent on foreign oil for the domestic market, any disruption in the flow would send prices spiraling up and push consumers to look for alternatives. While I think there is a significant possibility that this scenario will be realized, I believe it has the lowest probability of the three that I outline here.
2) Outright bans of ICE vehicle are put into place at an accelerating pace. Many regions in the world have discussed banning ice vehicles altogether. Mostly aspirational at this point and only to take effect by 2035 to 2040 at the earliest, these efforts would not appear to be a serious threat to ICE vehicles today. Already though, California has introduced a bill (it was defeated) to ban ICE and these efforts will become more frequent and more successful in this decade. For ICE lovers the trend is not your friend. Demographic trends show that voters that are in favor of taking action to limit global warming are in the majority and will be increasing with time. A tipping point should occur in the 2023 to 2028 timeframe with bans of new ICE vehicle registrations becoming effective in the mid to late 2030s.
3) I believe BNEF is underestimating the effect that superior pricing and convenience of electric vehicles will have on consumer behavior later in this decade. By around 2025, the purchase price of electric vehicles will be comparable to that of their ICE competitors. Combined with a lower lifetime cost, budget conscious buyer sentiment will swing toward an electric option. Convenience of electric vehicles will be enhanced by this time with longer ranges being standard and wireless charging offered for both garage chargers and street parking. Conversely, the decreasing share of ICE vehicles will cause gas stations to disappear, making it difficult to find a convenient place to fill up. The conquest by electric vehicles will be geographically lumpy. Those areas where early adoption is high will make it especially difficult for gas stations to survive and closures will be rapid and chaotic. Even ICE lovers in these areas will find it hard to hang on. These areas will grow rapidly as those living on the margins of these regions start to lose filling stations. Interestingly, as the radius of these areas increases linearly, the area encompassed by the boundary increases quadratically, thus affecting people much more quickly than might otherwise be expected. Because people are not uniformly distributed geographically, the expansion of these EV-rich regions will be slowed in some directions, but ICE loving areas will soon become surrounded and squeezed out. This lumpy, viral nature of EV adoption will result in a much more rapid adoption rate than that seen in current BNEF predictions.
ReplyLike (2)
maximnl
Comments (37)
Today, 4:52 AM
I am a bit disappointed with built quality of tesla. Model 3 is noisy and has factory leaks. Autonomous drivings is a big bluff of Musk. All people who bought advanced autopilot know what i am talking about. A friend just damaged his car while changing lanes. No warning fro tesla. Watch out tesla owners. My target is 300 , nothing changed since that price. It is just a hype already. In europe you can buy ev opel for much much less with same range and full lane assist. So tesla is still a good car and i like to drive it but still more and more good alternatives for much less.
ReplyLike (5)
truwa
Comments (246)
Today, 7:47 AM
@maximnl "My target is 300".
You are way too optimistic. It is going under $100 and it is actual value is around $15. Yeah, $15 is the most fair value.
Model 3 is not a good car. It is a way too expensive, dangerous, killer-pilot death machine. I have never seen a Model 3 owner happy with autopilot or the purchase experience or with the car itself. 99% of the owners would not buy it if they can go back. Customer satisfaction ratio is the worst of "any consumer product" ever, less than 1%.
And TSLA is bigger than VW; it is insanity. Sell all your TSLA and save yourself. If you don't own it, short it all the way. It is going down big this year.
ReplyLike (1)
nckadams
Comments (2.42K)
Today, 4:26 AM
Losing hundreds of millions of dollars is NOT a solid year. It's better than last year, when even musk admitted the company came close to bankruptcy, but it's definitely not a "solid" year.
ReplyLike (5)
SimonR2
Comments (2.22K)
Today, 5:15 AM
@nckadams Specially if you compare H2 or Q3 or Q4 numbers YoY, revenue growth is stagnant and apart from the warranty manipulation blip so is GM.
Some 2019 achievements v guidance
Total year sales were below mid point of guidance (that was the guidance from the responsible adults, not Elon's gaffed numbers which they were well behind)
FSD wasn't feature ready and coast to coast demo still wasn't completed
No snake chargers yet available to facilitate that
Total Supercharger count didn't get to 18,000
Solar roofs didn't spool to 1000/week
Tesla didn't make a profit for the year
Cars are not yet autocalling tow trucks when they break down
Tesla's still can't read parking signs
Sparks factory is not fully solar powered
Semi didn't get into production
Yep an other year of solidly missing targets, that's the only thing solid about it!
ReplyLike (4)
seth_
Comments (196)
Today, 6:03 AM
can you cry more silently please?
ReplyLike (4)
Davewmart
Comments (40.32K)
Today, 6:07 AM
@SimonR2
'Cars are not yet autocalling tow trucks when they break down'
That is interesting, and shows the nature of Tesla's 'lead'
Peugeot cars have been automatically calling the emergency services when they have a crash since 2003!
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