Tesla [SGO 10 – 5 June 2021]

In Episode 10 of Stock Geekout, we geek out on electric vehicle company Tesla with resident stock geek Thomas Thio.

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podcast Transcript

Reggie: Today in TFC Stock Geekout, we’re going to explore a company that has been making the media circuit. I believe you’re not unfamiliar with it and many people have probably made quite a fortune just owning this company but how many of us actually understand what are they doing in their business? 

They have created a whole network of charging stations around the US, building a backbone for an electrical vehicle revolution. They are even claiming that by participating in this electrical revolution, people can make money gathering energy from the sun and selling it back to the US power grid. All this crazy claims and ideas from this company and its founder, but do they actually have the technology capabilities to fulfill all these crazy claims. Will Cathie Wood actually be right that this company is worth $3,000 a share?

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Joining me today to geek out on this crazy company will be Thomas Thio, our in-house stock and tech geek. We explore Tesla. I think you all know, I don’t need to say too much. They’re doing all sorts of stuff, building EVs (Electric Vehicles), solar panels, batteries. Essentially, it’s trying to change the way cars work and the way we interact with technology and energy. 

But elon Musk has all these extra stuff going on like SpaceX, Boring Company, Superloop. What is actually in Tesla Motors as a company? How are all these side hustles, site ventures coming along? Will that affect the company? There is so much to understand about this company and unpack all the media hype. Is this a worthy consideration at today’s price?

For your reference sake, this episode was recorded on the 5th of June, 2021 and released early to our community members. Our discussion today is solely for education and entertainment purposes only. It does not serve as any form of advice or recommendation. Thank you for loving what we do and empowering us financially to do more for you. Let’s geek out.

Welcome back to another TFC Stock Geekout and today we’re going to go into the super popular company. Quite popular, I would say. The founder of the company today wields so much influence on socials and he’s a great friend of Cathie Wood. More like Cathie Wood is his great friend? I don’t know who is who but either way, Ark want this company to be worth $3,000 per share. Today we’re going to talk about it. Welcome back, together with Thomas. Thomas, what is this company that we’re going to talk about? 

Thomas: Yeah, this is Tesla FYI. Tesla is this huge, huge company that does a lot of things. Do we think it’s a car company? Is it like (an) electric company? Basically, there’s this one man that’s just chiong-ing (pushing) everything: Elon Musk. He’s also doing SpaceX stuff… satellites. He’s also doing drilling, Boring Company. He’s also doing SolarCity stuff with his cousin. Very, very big things that is surrounding him, and recently Bitcoin and Dogecoin. Many, many things that we can discuss about Tesla. It’s all intertwined with this guy. 

Reggie: What is within Tesla? Because Tesla feels like an extension of Elon Musk and Elon Musk is doing all of these different things but from a company standpoint, what is actually inside Tesla? Because in the beginning, SolarCity was a separate thing altogether and then it got put in together which is the Solarwall, the Powerwall, solar panel, whatever. Then it got put in together with Tesla. At this moment in time, what is actually inside this company, Tesla Motors? Not about Elon Musk per se, just for the company. 

Thomas: For Tesla, (the) primary operations is still automotive. They produce electric cars. They’re trying to do autonomous driving of those cars as well. Basically, that’s the crux of what they are focusing on. Only when they have the acquisition of SolarCity… which is basically Elon Musk’s cousin or one of his relatives also started it. They went heavily into energy generation and this has some kind of synergy with the electric vehicles because basically, you can get free power if it’s generated from solar. You can sell it back to the government or you can use it in your house. You can use it to charge your car and things like that. These are the primary things about Tesla.

Reggie: Give us some clarity in Tesla. Tesla Motors as a company, there’s primarily only two parts which is the SolarCity part which is a solar energy generating business and there’s the other side, which is Tesla Motors which is the one that’s essentially selling the EV cars and trying to build this whole EV future, autonomous driving, all the other stuff. It’s only these two parts. Is this what I’m hearing? 

Thomas: Yup. 

Reggie: So no SpaceX, no Boring Company, no Hyperloop. None of those things are inside this entity. So all the excitement out there, it’s not even a subsidiary. There’s no investments. Tesla is not investing in any of these companies?

Thomas: Elon Musk’s own personal capacity. You can call it his side hustles. Other than Bitcoin, which Tesla did buy a little bit and then it sold a little bit as well. Their primary operations is really automotive and power generation. 

Reggie: Is Elon Musk using Tesla as a company… Tesla’s shares to take loans for all these side hustles?

Thomas: This… I’m not sure man. Because the loans might not be actually through Tesla. It might be through Elon Musk’s own personal capacity. I think for most startup founders, they would actually do that. Sometimes, they finance their own house or they finance some other side businesses they are doing perhaps illegally. But this is not on the books of Tesla. You won’t find it in the public record because this is your own personal thing. 

Reggie: Interesting. That is something for everybody to go and dig. If you happen to know some insights, then hey, why not do share with us? At least on the books, we are not seeing exactly what is happening on Elon Musk’s private financial stuff. That is good to know. 

In that sense, if it’s only about the car company which is Tesla, and the power company which is the old SolarCity… do they even call it SolarCity these days? 

Thomas: No, no. 

Reggie: It’s just Tesla Electric or Tesla power source kind of… as a business. Is there a name for it?

Thomas: Yeah. The SolarCity kind of arm… the power generation side of thing for homes… and I think for certain states in the US, that’s still SolarCity. For the individual’s homes or the charging network and all that, that’s under Tesla. You hear things like Tesla Powerwall, Tesla super charging stations and stuff like that, but they still run off the same infrastructure as SolarCity.

What is Musk trying to build with Tesla? I know he is doing all sort of stuff and it’s always in the media circuit. As someone that is not in Tesla and I’ve not studied Tesla, I’m extremely curious. What is Tesla trying to do? We are trying to seperate Musk and Tesla in this discussion today. What is Tesla doing? What are the main things they’re trying to drive and what is the future that they’re painting for everybody? 

The grand vision of Tesla is to provide electrical transport at a low cost. That means the way that they manufacture their cars, it’s going to be extremely cheap. Their batteries, the way they make it is also very cheap but with very high efficiency rates. It means that your batteries last for really long. Your cars can go over a lot of different miles as compared to say, gasoline, and it’s also high performance and basically solving the part where we stop needing to rely on oil or burning fossil fuels in order to power mobility in general. 

Reggie: In that sense, it’s just an electric car company or am I oversimplifying it? There are all these other players coming in. They were the leaders but like as with any other space, as long as you are the leader and people start to see “hey, there’s something here”, the bigger guys that are in parallel fuse will start to come in. What is so unique about them and what is their proposition other than cheap electric car?

Thomas: I think it’s all about the growth story. Tesla… it’s very difficult to separate Elon Musk but let’s try. They are trying to sell the vision of… yes, once we solve that part about bringing the costs down of transport, high-performance and electrical, efficient transport… adding that autonomous driving component to it. That can be applied to logistics. That can be applied to your taxi services, your delivery networks and all that kind of stuff.

It can also be a way for you… if you own a Tesla, when you park it outside your office in the office hours, it’s not doing anything. Because of autonomous driving, it can just go out and be part of the fleet to give people other self-driving services. It can be like a GrabTaxi making you money while you actually work in office, things like that. 

So this is… selling you this grand vision. Because you own a Tesla, it’s opening up so much more avenues. Then it becomes much more than just a automotive company.

Reggie: Under the best case scenario, it sounds not bad. You drive a car to your workplace. You have many hours that you’re not using. You can essentially lease it back to Tesla to do all the additional things that you want to do. That is the grand vision, the future of automotive. I know Musk for a period of time was saying “who wants to build train tracks these days? There’s no need to build high speed rail. We can already build this whole thing etc.” 

All that aside, just on this thing, can you paint us a little bit of colour? What is the difference between autonomous driving and self driving? Self-driving car feels like it’s already in the space. A lot of technology already have self-driving function within their cars, within their car ecosystem, but autonomous is like… honestly, seems like miles away. It’s like way further. What is the difference between these two? 

Thomas: I think this has a difference in the way that they’re worded. It’s just purely regulation reasons. Scientifically, technologically, they are almost the same. Regulation played a part in separating “you must reach Level 1, Level 2, Level 3, Level 4 of autonomy and then it’s able to be called ‘being able to drive without a driver'”. That’s the self-driving side of things whereas Google on the marketing side of things say “oh, I already have a self-driving car.”

The scope of where it is being applied to… it’s within a certain state. Based off that jurisdiction, you can call it a self-driving car. People’s understanding is “oh yah, it can drive itself already.” Under certain strict rules and under regulation, it can be called that. 

But Tesla operates on a worldwide basis. If they call it self driving in certain countries, they are not going to be okay with that because they either don’t have the way to monitor it or it’s just deemed too unsafe. For consumer to buy that kind of car, they expect “oh, it can drive by itself. I can just go to sleep” which is pretty dangerous. Based off the stats, it is safer than driving a car yourself. 

What level do you call it self driving? To what level do you call autonomous? In my view, it doesn’t matter, because both… whether say it’s Google’s self-driving Waymo or the other self-driving startups or Tesla’s autonomous driving capabilities, they’ve already hit certain levels, which is way beyond human. 

It doesn’t matter. What matters is the technology that’s driving behind it? What matters is that is it going to be scalable? For example, for Google self-driving capabilities, they use this concept called LiDAR (Light Detection and Ranging). LiDAR is almost like radar but they use some kind of different wavelengths to go and see the road in wavelengths. 

For Tesla’s autonomous capability, they are just using cameras and they can still achieve that same level. To what level? I think it depends on the country which they’re operating in and how they are actually doing it.

Reggie: In the sense, we’re comparing Waymo and Tesla. Is LiDAR superior as the technology or is it just different technology? Both can serve the same function. Must there be a monopoly, end tier… must someone win or can we have multiple function, multiple OS (Operating Systems), multiple technology that serve the same function in this space?

Thomas: I think we’re at a point where the technology… actually, it’s a mix. Tesla actually used to do it with LIDAR. That’s the fun fact but they have recently translated to just cameras because their AI, the model has been trained so strongly. They don’t need the level of detail that LIDAR gives. And it’s actually cheaper to just use the onboard cameras.

Reggie: Really? So Cathie Wood say $3,000. Is there a chance?

Thomas: I don’t know. Will you pay at the current valuations? That’s up to you. 

Reggie: That’s why we are here. That’s why we need to talk about it. I think we went through a few major things in this self-driving, autonomous driving… understanding what is in Tesla and what is not in Tesla as a company. What is the future that Musk is trying to paint? Of course, Musk has been painting it everywhere. We don’t need to go into… talk about what is his vision and all that. You can just go and listen to Musk to get his full vision. 

Just within the frame of Tesla Motors as a company, put aside all the other stuff… can you walk us through what are some of their major products as a company? What are they trying to do in more detail? 

Thomas: Sure. For electric car, you will need the batteries to power it. Ramping it up, that scale of producing the batteries was important. You have the Tesla Gigafactories. These are huge factories churning out batteries non-stop. At the same time, they are churning out the body of the Tesla, because it’s done in a certain way. It’s very lightweight. That’s how they achieve their ratios when they use these battery on this light chassis… really just scaling up the production of both the batteries as well as for chassis. 

They outsource part of this battery development to Panasonic but they’re working on the R&D for new types of battery technologies, as mentioned, the self-driving capabilities as well also. This is an ongoing thing. It’s all part of their product other than it being just a car, an electric car that is offering these kinds of services. The services is powered by your AI which you need to train. 

At the same time, you need a good internet connection. You also need a good processor. It’s onboard. Your AI is actually running on the car itself so it needs to be quite fast. Whatever you try to buy, let’s say a GPU out there, it’s not going to fit the job so they have to build their own. That’s R&D there. Finally, you have all these components, you need to assemble them and where they are going to be sold eventually. It’s best that you can assemble them inside the country which you are selling it most of the time depending on labour cost. if not, you’re importing cars and then suddenly import to China recently… oh, rejected. It’s a big issue. 

Reggie: For a lot of people that don’t know, the automotive industry is very, very taxed. If you build your car somewhere else and you tried to import it into any other country, the taxation is very high. A lot of people, whether is it Ford or Chrysler and BMW… everybody, depending on where are their major markets, they will set up factories over there that are close to the major markets or have some sort of tax arrangement with their major markets like Mexico then they can reduce their tax costs. I think that is still a very complicated international infrastructure that a lot of people need to be more aware of when they see car companies. Not unique to Tesla, all the car companies work this way because of taxes. 

Thomas: And where do you source your raw materials? Because they’re building their own frames. Maybe it’s not steel. It’s a special kind of carbon fiber. It’s a special kind of aluminum. Their batteries also, they get the lithium from specific places. Let’s say they get a contract with a mine. I want 90% of all your produced lithium to me for the next three years. How that’s going to affect them in their production, it matters because ultimately, where are they going to place these battery factories? 

Reggie: That’s good to know. I just want to ask about the whole Gigafactory and the battery thing. The battery has been this thing that they have been talking about for a long time. When Musk first started, he was talking about having the whole supply chain integrated because in the automotive space, many people are doing multiple parts. There’s a premium stacked to that because you’re crossing through multiple hands so he was thinking like put everything together in one. 

The battery was one of the biggest headache. Very hard to crack this thing and the reality is till today, people are still using lithium technology, lithium ion batteries till today. All the so-called improvement in lithium, in battery strength and whatever shit, is actually… most of the time is the other processors reducing the power needs, not so much the battery becoming more efficient and more power packed. 

What is the development of batteries at this moment in time? Is that the Achilles heel in their business? The reality is if you are doing a self-driving car and your battery is not big enough, it has a limit as to how much you can go. I do think that is a problem. 

Thomas: For some context… actually, Tesla was one of the pioneers to introduce this new battery technology. It already existed in some research papers out there. It’s just no one was bothered to implement it because of the current ways that automotive was going. It’s just like “just guzzle oil.” No one bothered. What Tesla did (was they) initiated a start. They cracked it, at least in the initial stage and they actually released their patent for everyone to see, like how they actually did it. 

This was a crazy thing. They just ignited a fire so that everyone else could see their designs of how to make this battery which in the hope… in my opinion is to bring down the cost of the battery making. That worked out in their favour but it also introduced lots and lots of competition. It’s not just China. You see Europe, Japan, Korea trying to introduce their own technology, different, different variant of lithium ion tech. 

Going back to your point, right now, are there actually improvements to the batteries? Yeah, minimal. There are some very unique ways to optimize it to the point where it can give 20% or 30% more capacity, but this isn’t the main issue that should be solved anymore. What should be the main issue is how far can a car go to the next charging point? 

In a city, if you are intending to just take one battery and you don’t even have to charge it for the rest of the month, your battery improvements has to be so significant. You might as well just buy two or three batteries and then just bring them wherever you go. When you need… it’s like your iPhone or whichever phone, you have a power pack. 

Reggie: Portable batteries. 

Thomas: Portable batteries, and some of the other car companies have gone down that route. There’s different ways to design the car. They just say “oh, I outsource my whole battery. You can just put whichever battery you want in it. My car will run it.” Some Chinese companies are going in that route whereas for Tesla, they are very adamant. Just build the charging network. Yeah, but who knows? That might work, that might not work. 

Reggie: Fair, fair. It’s an early stage of a whole infrastructure being built. That is like… the whole discussion that can go on, and on, and on. All the imagination stuff. What are the major processes that Tesla is part of at this moment in time other than building the cars? I know they do direct sales to the community. They are one of the only guys that can literally sell online. People just buy and just… deliver the car to your house. I was like “Huh, is it even possible?” What are some of the major processes that Tesla is part of at this moment?

Thomas: I think it’s also the customer support. Tesla being electric and all, it sounds very fancy and all that but another key strength that they have… it works like software. Imagine you download an app on your phone and the app is gathering data about your phone, how you’re using it, certain statistics and all that. If there’s any issues, they can fix issues on the fly. You just download the update. 

Same for Tesla. The hardware is already good to go, but how the software is tuning the hardware being used? Imagine your suspension, you want to change, the software is controlling it. The gearing ratio or the amount of energy that’s being used is also being tracked. If there’s any issues, there are technicians who are giving you live support, not in person but over the internet and they are able to diagnose any issues on the fly. You don’t have to come down to a warehouse to fix a problem unless it’s a hardware issue. 

The software is going to pick this up anyway. It’s going to alert a technician and they say “hey, let’s bring it in for maintenance. You’re covered under this program. Just bring it down.” Most of the time, this is prevented because the software is doing its job. This is an advantage that none of the other companies have yet.

Reggie: Crazy right, you don’t need to drive the car to somewhere to fix. They can come to your house and fix it or if it’s just something that they can do online, they will do it… 

Thomas: Just let it update. 

Reggie: … online for you. Pretty wild. Any other things that they’re doing? How is their progress in building charging network at this moment in time? I know for a long period of time, they were investing a lot in this whole charging network idea which is exactly what you pointed out. You don’t need the most crazy efficient battery if you have a very big charging network. What is the reality now?

Thomas: They began building the charging network in the US. That’s where they started out with but they have some challenges because again, it’s a state by state basis. You need to get certain regulation approval. Some… they were pushed back from the existing gas stations, like “hey, you’re just going to build a charging station next to mine.” Indirect competition in that sense. They look at it as you build a charging station, you’re going to build a convenience store with it. You’re going to slap some hot dogs there or whichever. It’s going to take away business. There are these kinds of weird things going on. 

There’s the question of which parts, which areas and not just of jurisdiction, but in terms of distance. For all your Tesla drivers, where they are going from point to point? This information is important because some people are used to long distance travel and for fuel, for gas powered vehicles, that’s not an issue. Gas or diesel. But for electric cars, if they are not able to reach that kind of mileage, you’re going to need to place these superchargers at certain points where people can refuel in that aspect and continue on to your journey.

At the same time, you have people that just drives within the city. No issue, but if they drive around the city, after two weeks, where are you going to refuel? You can’t. Refuel at home? If you refuel at home, then do you have the right kind of tools to help you do that? You can’t just charge it with your adapter. It doesn’t work like that. 

The voltage is much higher. The way that its being charged because it’s tuned to that kind of battery that Tesla uses. Superchargers are very, very, very fast in charging. I think within 30 minutes, you’ve got a full charge for a car. I think that’s quite unique because it powers the entire car. It’s not like iPhone.

Reggie: That’s why you need a cafe. That’s why you need a cafe in their charging station… 30 minute, read a book and then you can continue. 

Thomas: Actually, Tesla has recently trademarked for a Tesla restaurant, so that might be in the works actually. Not kidding. They just did it.

Reggie: Oh, okay. 赢了 (win already), they are doing everything. They’re building a whole ecosystem. 

Thomas: This is in the US. They understand that there’s issues, whether it’s… you need to charge at home because you drive your car back home, you charge it at the office or you charge it along the way. Let’s say it’s a long distance journey or it’s a short distance journey. Your charging point needs to be optimized based off where your Tesla drivers are. 

There comes SolarCity, there comes Powerwall, there comes the whole solar generation thing, which is attached to the electric grid. Sometimes for solar… let’s say at the beginning, you don’t have enough solar panels. You’re going to buy from the grid first to support your charging network. Eventually, once you roll out enough of these solar panels, it’s going to generate the electricity on its own. There’s already a sunken cost but you’re not relying on the grid anymore. There’ll be certain times where you can actually sell this electricity back to the grid. That’s where SolarCity component is pretty interesting, and it lends a good dynamic to the owners of a Tesla or a Tesla Powerwall. This is in the US. In China, it’s a little bit different. In China…

Reggie: Same as everything else, China is always a little bit different. 

Thomas: It seems that… there are two really different modes for drivers. When they are working… let’s say just work and holiday. In work time, I’m just going to drive within the city or I’m going to drive into a city. Let’s say from Tier 3 to Tier 2 to Tier 1 City, I’m coming in and there’s always traffic jams. There’s two modes. There’s that kind of journey. 

And then there’s holiday, which is like extreme, long journey. They might take an airplane instead or they might take a car, but if you take a car it’s going to be extremely long haul. Can Tesla actually support those use cases? 

There are two modes. The first mode, probably it’s okay, but from Tier 3 to Tier 2 to Tier 1 cities, they are not able to support all cities at once because you don’t have that charging network across all cities. It’s not possible for you to do that. Let’s say you start from Shanghai or Beijing and you expand outwards in a circle, because that’s how the Chinese city was designed. It’s in a circle. It’s really different from the way that US states are designed. US, you can rather…the path from here to here, from path here to here, there are some common points. 

For China, it’s in a circle. Are you going to build the charging network this way, outwards? You know how many charging points you need to do? That’s ridiculous, right? The cost is going to be extremely high if US is going to use the same strategy as they did in the US as with China. The approach, they may have to think it differently. 

If not, they just have to settle. They’re only going to get the customers that’s willing to use the Tesla within the cityand then I’ll just build my supercharging network there but that invites competition. For the other EV cars in China, it’s super cheap. You can replace with any battery. I don’t need to use a supercharging network. I can just use any generic Chinese one. Is Tesla going to go in that direction? This is the big question mark. 

Reggie: I never thought of it from a city building standpoint. That’s pretty cool. In that sense, trying to understand this company that has a very big bulk in building the cars, but the whole charging infrastructure with electric and solar, and all that stuff. What are some things that we need to understand, when we’re looking at… trying to evaluate this company? What are some metrics that we should know? 

Thomas: For a car company, the production capability is important. You want to see how many cars are being churned out. It’s just really… their management, are they actually executing on those goals? They say “I want to churn out now 200,000 cars” and then I only churn out 50,000. I think it’s a big issue. That’s not happening. In 2019 for example, they produced 104,000 cars. They delivered 112,000. There were some spare inventory from last time, which is sold more.

This has grown tremendously. In 2020, they produce 509,000 and they delivered about 500,000 or so. It’s on par, if not increasing. But seriously, their production capacity has just scaled by almost five times in just one year. How many were produced… 

Reggie: Especially, compared to before, when they were missing production targets. I think we cannot forget those times. They were missing production targets for years and every quarter they come out and say then fail. That’s something that as an entrepreneur, I can understand but if you want to be an investor, I’m not sure I’m comfortable that way. But definitely, things have changed and they are more consistent in terms of their production capacity. So that is very cool.

Thomas: You can say the engineering side of things, the technicals, they’ve got it pat down. Now it’s looking at how many it’s actually selling. They are starting to make some profits but again, it’s the sales. It’s the same thing. US, China, worldwide and all that, how are they doing? 

The next metric you can look at is their deliveries. How many is actually delivered to the customer? Basically, sales. You also have the number of vehicles worldwide. You can call that cumulative Tesla vehicles worldwide. I think you can read this in their report.

In 2019, it was 367,000. In 2020, it’s almost 500,000. Again, it’s a lot. There’s at least 500,000 vehicles out there in the world. Your total fleet will also represent how many people is going to use your supercharging network. You can know how to scale up your super charging network, depending on the location.

Important is you break down this number into quarterly aspect. You can see some patterns. There’s some seasonality to it. There’s a tendency to actually deliver more in Q3 and Q4. I’m not sure why. There’s probably a reason. 

Reggie: Christmas! 

Thomas: There’s probably a reason why. If you compare from Q1 this year compared to Q1 last year, it’s really exceeding the target by at least two times on a quarterly basis. If you extrapolate this, every quart… it’s only Q1 and their sales are expected to ramp up in Q3 and Q4, then you can expect a lot more Tesla vehicles by the end of the year. That’s a big if, if they meet it. If they don’t, then something happened. That’s important to look at.

Reggie: Fair. Why is cumulative Tesla vehicles so important when understanding Tesla as a company? I don’t see this in other car company. It’s not important, nobody say cumulative like Ford. It does not matter. Why is this important when we are understanding Tesla as a company? 

Thomas: It’s a fleet. Imagine Tesla as a global taxi company. Would this metric make more sense? 

Yeah, fair. I cannot make sense that it will become a global taxi company, but I get it if it’s a global autonomous driving. The same story that we were talking about in front which they are preaching is you drive to where you want to get then all your extra capacity, you can lease it out to other people. Then yes, this makes sense. Whether or not that will become a reality, that is a question mark. Of course, that is probably why you should look at this metrics, because that is essentially what it is. 

It’s also market share. Some industry analysts, they look at total EV vehicles as a percentage of total number of vehicles. But that number, is it including hybrid? Is it including what level of EV? If you’re just tracking EVs in general, that might not be representative. 

Let’s assume Tesla is at the forefront of EV, of this autonomous driving and all that. These are the number of percentage or the take up rate as a percentage of all the EV vehicles worldwide, what’s the market share? You can truly gauge whether Tesla is something that people are willing to get because of the advancement in technology, or do people just want a regular EV or do they just want hybrid right now? It doesn’t matter. 

Reggie: Okay, cool. That’s good to know. 

Thomas: The next one we can look at is the automotive industries’ gross margin. We can compare against Tesla. For industry, that’s between 13% to 21% gross margin. For Tesla, it’s close to 30%. 

Reggie: Very high. 

Thomas: Super efficient. 

Reggie: It’s very high. Very, very efficient. Exactly the part about him saying… from the very beginning, they want to integrate the supply chain and build end to end on their own. That translates into the margin and you can see it from the cost margin at this moment in time. That’s very powerful.

Thomas: Right… and a few others. There’s also the number of solar storage deployed. Storage grew by 71%. Total Powerwalls worldwide, it’s at 200,000… again, with the number of cars on the road and the number of Powerwalls worldwide. Now, start to imagine Tesla as an energy production company or energy storage company and you’re starting to realize oh, maybe this valuation makes sense after all. It’s going to go to $3,000. 

Reggie: Oh! We’re not price dropping! We’re not… 

Thomas: No lah, no lah. For some people, this metric kinda make sense. Tesla is not just an automotive company. It’s going to be “everything” company. It’s going to be energy company and also… All that is in some sense, priced in. People’s expectations is that this number continues to grow. After it reaches a certain point, like a tipping point, then Tesla is going to announce it’s going to become a global solar production company. You’ve got Tesla going around as a taxi company. You’ve got people going around each other’s Powerwalls to charge then you don’t need superchargers anymore. 

There’s a lot of ways to play around this. If you look at Tesla, there’s a lot of optionality but there’s a lot of risk. How you want to interpret this is really up to you, but there’s a lot of these metrics which you can just play with and see… does it actually makes sense?

One thing I think that makes sense for me at least is the number of blackouts in certain states in the US. Say there was a snowstorm in Texas. You think “Texas… got snowstorm?” Global warming guys. Texas did and will have frequent snowstorms. Let’s say blackouts in general. Whether it’s some extreme weather event or just electricity grid fail… let’s say in California, same thing. These number of solar storage deployed is important per state because they were able to supply the electricity when the state needed it most. That means they have more say in what they want in a certain state. 

Same thing, if you check out Tesla, you can just Google them. They’ve been involved in certain initiatives like Pacific Islands or something like that. They’re hit by natural disasters and they were able to restore the energy production in a matter of weeks.

Imagine a total blackout, total electrical failure. With their technology, they’re able to do it. This kind of story or this angle being an energy production company that can be deployed across the world is actually quite possible. Technology already exist, it’s whether they want to execute or not.

Reggie: Not as wild as what people think it is.

Thomas: There’s the product related stats. If you’re a car owner, this matters. What’s the cost per mile? If you really like OCD, you calculate the total with the tax, maintenance, COE, depreciation and repairs, number of trips, gasoline, and all kinds of stuff…. then total (divided) by the number of miles that you can possibly drive, that’s your cost per mile. For Tesla… 

Reggie: But I do think that it’s not fundamentally very important for most average consumers that are buying cars. There’s always a subset of consumers that are super geeky. Trying to look at the whole… everything about it. I think there is a very big part of consumers that are just emotional, buying it for a few like “oh, Tesla”… like cool vibes. I do think that is the bulk of the consumers. What is the kind of advantage in terms of mileage for Tesla at this moment in time? 

Thomas: Mileage? Wait… Sorry. Do you mean mileage by how far I can go without a charge? 

Reggie: No, like the costs. How efficient are they? 

Thomas: It’s US$0.44 per mile and this hasn’t yet counted the energy production side of things. In the US, this is heavily used. Why? They usually try to pack it together with a Powerwall, so your cost per mile actually decreases by a lot. After certain years, it actually becomes productive. It’s no longer an expense. Your light bulb goes off because your energy production is more than what you consume. It’s basically… it is making me money already. After a certain point, they can even plot for you. It’s paying… It’s paid off your Tesla after five years or three years. 

For example, one of the states in the US, they bought a police car that was a Tesla and they just plotted it. It’s going to pay off itself by two or three years, so they can do that kind of projection, which is pretty useful for companies.

Reggie: Damn. Pretty cool. I think there are a lot of things that we can look into, but there’s this one thing that I really want to talk a little bit about is the energy credits. At this moment in time, I think they’re saying that they’re already profitable and all that kind of stuff.

Actually, the reality is that most of the money that is really coming in are from energy credits. They’re investing a lot of their revenue back into growing their business and all that. The real infinite margin revenue that’s coming in is a hundred percent of taking everything is really the energy credit portion. Am I seeing it right?

Thomas: Not really, I think… because just take it as revenue, as percentage of revenues. These energy credits, it’s just 6%. Although the margins may be higher and what not, it just floats down to the bottom line, but the bulk of the business… what about the 94%?

The other 94% is through their core operations and this is not something that they actually relying on to make them the bulk of their money. If you think in terms of… just take this out of 6%. If you’re doing your valuation, just take this out altogether and you see your operating margins. You see your net profit, net income again, they’re actually growing. 

It doesn’t matter whether this just falls directly to the bottom line. That 94% still constitutes their core business. Energy credits shouldn’t be something that is… I know there’s a few discussions online. They argue, these investors… “oh, you’re just making money through energy credits” and all that. They have some agenda. 

Reggie: Exactly! That’s good to know. These are the core metrics that I think people should understand when trying to evaluate Tesla as a company. What are the numbers looking like? What are the financials based on all these metrics? Essentially, we’re running through the FS (financial statement). What are the… how is it looking from year to year? Where are we now? 

Thomas: Sure. Revenue wise, they had a 28% growth. It’s $31 billion from $24 billion. That’s 28% growth. The average selling prices for vehicle actually came down by 13% because they had… 

Reggie: another customer acquisition… strategy, trying to get market share. 

Thomas: At the end of the day, the first model they released was super high end to fund the operations, get the technology right. After that, bring it down to consumer level. Economy class, whichever class. Definitely, you have to bring it down to the price point where people are not afraid to make that purchase decision, especially if they’re fighting against China. For inside the market of China, they need to price as the same or lower. If they’re going on a quality angle, then it has to be a premium also but cannot be too high.

That has to be factored in. It’s part of their strategy to bring costs down because they are bringing other costs in producing the car down year by year. We can go into that a little bit later. Revenue by segment, just for clarity. Basically, automotive is $9 billion versus $5 billion. 

The energy segment, your production and all that is about $500 million versus $300 million, and there’s services which constitutes all sorts of other support services and all that. It’s close to $900 million as compared to $560 million last time. It’s all growing, nicely.

A bulk of it, you will see coming from the automotive side of things. That’s like $9 billion. This segment on a quarterly basis, if you look quarter on quarter, the number of sales per cars, as I’ve mentioned, the Q1 is already exceeding the targets extremely, extremely well. Let’s see for Q2, let’s see for the rest of the quarter also. 

For cost-wise, this will balloon definitely. Heavy CapEx and all that. $8 billion versus $4.7 billion. Pretty high but nothing much in terms of revenue. Revenue is far, far exceeding that. Operating margins wise, we actually do see some improvements. It’s not just CapEx heavy but they’re not doing anything about it. Are they actually being more efficient? Answer is I think so. 

Last time it was 0.33%. Marginal… what the heck is that? Now it’s 6.3%. Something is starting to come up already. 6.3% is pretty decent. From a gross margin perspective, they are already beating industry averages estimate by a far, far margin. One of the best, if not the best. Not sure for Toyota, but I think it’s up there.

Cashflow wise, it’s $2.4 billion as compared to $2.7 billion. A slight decrease, but still a lot. It’s just spitting out $2 billion every year. Not bad. Debt wise, it’s about $13 billion. Same as last time, but your earnings per share has actually increased 0.64 as compared to -0.84. I’m not sure the number of shares in the market. Maybe they reduce it or something, but from pure cashflow stand point, they are actually making money. 

Reggie: Fair. I also think it’s interesting to note that because they have such a thick margin in their hardware relative to all the other guys that it becomes a very interesting business from just selling the hardware itself.

In studying all the other car companies, they’re making most of their money from services. They are making most of their money from insurance, all the side things that they sell to support their car owners. This crazy company actually makes money from selling cars. It’s a serious thing. Their margin… close to 30% compared to other guys on the cost of the goods itself. That’s a pretty interesting thing to look at. 

Thomas: One small point, I do think Tesla has quite similar characteristics as Apple, strangely. Apple makes a bunch of money from iPhones. Hardware also. The real kicker actually comes from the ecosystem, which comes much later: their app store, their software. We see a very walled garden approach and Tesla is trying to take that walled garden approach but for cars.

Reggie: Walled garden meaning their own ecosystem. They’re blocking other people into this. 

Thomas: Right, right. You have a cult base of Tesla people, same like you have a cult base of people with Apple. They will only use the Apple apps. They will only use everything in that ecosystem. The laptop also Mac.

Same thing. Supercharger is like the best thing, the premium thing out there. If you want to go into ads… I hope Tesla doesn’t go into ads. For Apple, they go into ads. That whole walled garden means that there’s so many other users, there are so many other… a big audience within the whole of Apple itself, that it can capture so much attention. It’s a self-reinforcing thing. Everyone wants to be part of that. The demand is much, much higher in some way. 

Same thing for Tesla. I don’t know what comes out of this. Maybe it could be their taxi service. Maybe it could be some form of satellite thing with SpaceX .It can be through energy. Everyone wants to use a Tesla power generator or power storage instead of the generic ones bought by the state because it’s not reliable. Things like that. That’s why I see some commonality. 

Reggie: Interesting. I just want to clarify, do you have Tesla in your portfolio?

Thomas: No, I don’t.

Reggie: Okay, I get what you’re saying. I do understand what you mean by all these interesting, sexy things that can potentially come out of it, but the word is potential, right? At this moment in time, they’re still a little bit far but I get the whole momentum. They are building up. Maybe they are close to a tipping point of their cult following. You really see a cult following for this particular company, even for the investors. 

That’s good. It’s true, cult following for the investors is a very real thing when it comes to Tesla. Good stuff and all, but do they have the management to really execute the business? It seems like everything is revolving around Musk and Musk has so many things on his plate. I’m personally not a big fan when someone has so many things. Just look at Jack Dorsey. But anyway, I don’t like when the CEO has too many things ongoing. 

Sometimes, I get the beauty of having doing multiple things, and you know maybe you can complement or you can open up your minds doing multiple things and you can take best practices from other sectors in, but the other people in the team has to be very strong to keep this car going. Who are the management in this space, and do you think they have the ability to make this happen? 

Thomas: Yes, I think they do. Let’s start from Elon Musk. On that point where he is able to handle multiple things, he’s able to be both technical as well as handling the business side of things very well, I think he’s one of the rare CEOs who can. He really manages his time ruthlessly. How? He’s the CEO, product architect of Tesla. He is also the CEO and CTO of SpaceX. He is also the chairman of SolarCity. 

All these things, how do he manage his time? It’s back to his background and he’s engineering discipline. First and foremost, he did study physics. He picked up engineering. He’s a smart guy. So he just self read. He knows how to… you just give him the manual, he knows how to operate things already, basically building things from the ground up, looking at things, research papers, understanding the concepts, putting them together, bringing the right people. That’s something that he can do also. 

Very rare but this is a risk because everything is relying on him to drive multiple companies. If he’s not there, very, very difficult. Imagine if there was no Elon Musk, will you see SpaceX today? Will you see Tesla? Will you see SolarCity? Maybe SolarCity, but all these wouldn’t come together. There’s no synergy. No one is there to understand these threads, different technologies and coming together to form a whole. Very, very difficult. 

What was his background? PayPal. It’s a software company. So random but he’s proven that he is able to develop…

Reggie: PayPal was a legend during its time.

Thomas: Yep. 

Reggie: PayPal was a legend. Nowadays, people judge PayPal. “So old school, so expensive. People already P2P, you still doing this kind of card processing or digital processing.” They also got Venmo. There’s a whole different discussion. We can do PayPal another time. PayPal during its time when eBay was a thing, they were revolutionary because back then, digital payments was a shit show. PayPal was the legend team. Peter Thiel, him and a few others. I can’t remember who, but it was a thing back then. 

Thomas: It was a pretty hard problem. He was one of the programmers for Paypal before he decided to remove himself from the programming team because he’s better in the planning. That’s what he understood for himself and he brought better engineers. He’s able to scale up the system. He worked together with Peter Thiel to build this rather than compete together and built up PayPal for [indiscernible]… sold the company. 

With his proceeds, he decided “I’m bored. Do a space company.” At the same time, someone was asking around “hey, why can’t we do or upend the car industry? We can be much more efficient.” So he decided to put some money into Tesla. SpaceX was kind of okay… no launches yet but Tesla was barely surviving, so he pumped all his savings into Tesla. That’s the story but if you read his background, actually he comes from quite a well-to-do family. Start-up story and what not, just take it with a pinch of salt. 

After that, Tesla more or less settled properly, then SpaceX start to cause some issue. There’s only a limited number of launches that you can do and he also pumped all his savings there. Commitment wise, time wise, he’s willing to put in that effort and commitment to see things through. This is one crazy guy. His risk reward is crazy. He doesn’t see the risk. He would just get it done. 

Reggie: It’s true. He’s very eccentric. He suan siao (made fun of) Jack Ma on stage. Weird, eccentric people but eccentric people do crazy things. That’s the reality. 

Thomas: That’s the CEO. Let’s talk about the CFO: Zack Kirkhorn. He previously held some finance positions in Tesla since 2010. VP of finance, financial planning, business ops. He’s got a double degree in econs and mechanical engineering from UPenn. MBA, Harvard. Fun stuff: Elon Musk also graduated from UPenn. Alumni, maybe some kind of connection… probably. He’s been at the company for quite some time. That’s the CFO. 

Let’s talk about the different aspects of Tesla. We talked about the production side of things. There’s different components in a car. There’s specialized people handling those. We have Jerome Guillen, I’m not sure whether I’m pronouncing the name right… 

Reggie: It’s okay, we’re always butchering ang moh (foreign) names. 

Thomas: He is president of automotive. He is at Tesla since 2007, very long time. He was previously the VP for the trucks and others programs. Trucks and others… basically, they don’t just sell cars. They also sell their trucking kind of… for the trucking use cases, long haul use cases. He was also the worldwide sales and service and the model S program director. He’s been in the company for a very, very long time. He’s got a PhD in mechanical engineering from university of Michigan and dual degree in energy technology and mechanical engineering. Technical wise, yes he’s able to link these together. It’s not totally Elon Musk. For this aspect of getting these different components of a car together, to build it up, I think he’s got the background. 

We’ve got the SVP for the Powertrain and energy engineering. Powertrain is to do with a little bit about how the motor actually drives the car forward. That’s the Powertrain. The energy engineering is the part about the battery. This component is split out into one role. His name is Andrew Baglino. He’s been at Tesla since March 2006. He’s got electrical engineering background from Stanford. 

In a senior advisor role but he was actually previously the CTO of Tesla and the member of the founding team is Jeffrey Strobel. He was a previous CTO of Tesla. Now he’s the senior advisor. He’s overseeing the R&D, evaluating new tech designs, making sure that this runs well from an advisory standpoint. But important thing to note is that he didn’t jump to any other car company. He could have done it but he’s staying on with the company. 

Reggie: He essentially left the executional role and went into an advisory role, but still within the company. He didn’t take the whole thing somewhere else or take his brains somewhere else. That’s a good thing to know. 

Thomas: As for the AI part, there’s a few people that left, but these are not the senior managers. These are the engineers themselves. There’s some accusations. They copied the code into iCloud and there’s a few litigations going on but these are on the ground level, not your management. 

Reggie: It always happens. Apple poach Tesla, Tesla poach Uber, Uber poach Apple. They’re all poaching each other’s people. It’s extremely normal. You just want to make sure that there’s no super high profile people that leave. Because at the top level, if someone leaves, then it does show some sort of very big dissonance within the management and it may not always be the best thing… may not always be the worst but it’s just a sign that something is happening. 

If you’re talking about like mid-management, technical and below, usually it’s okay because people are always poaching in and out unless there are amazing unique geniuses around which is not impossible. That’s too much detail, I don’t think most of us will understand that. In your view, the management of Tesla is very technical and have the ability to create this dream. Is that what I’m hearing from you? 

Thomas: Yes. These people are not random. They have been specifically selected because of their background or their research in that particular area.

Reggie: With this team and how far they’ve come, are there certain moats that they have already created? Because they are relatively… they’re not young already. It’s an old company but only recently, we are really seeing them balloon up. It’s the hockey stick idea. For many, many years… and “Boom!” Now you’re seeing them balloon up. Have they gathered some sort of moats in their business? 

Thomas: The first one is the brand. Last time people didn’t believe that this could be done. Now, this is common. Back then when it started up… very reliable already. They were already beating Supercars. That’s crazy. The battery tech… and it’s based off battery, it’s not gas. The reliability, the market leadership in terms of technology, this is a brand thing that everyone is just associating with electric vehicles. Maybe not the same for China, but the rest of the world. The brand is an important moat. 

If they want to buy other cars, they are going to seriously consider other than just the brand of Tesla, the support and all these things, they will look at the hard numbers. Previously, we shared a few metrics and all that, cost per mile. No brainer, pick Tesla. Why? I think this is important. 

Another moat that they have is the autonomous driving aspect. They have one of the largest data sets in the world for driving. That’s not something that they release. They didn’t release the model either but this has been copied over into other countries but the model is nothing without the data.

Miles and miles and miles, millions of miles of driving data to train this onto your AI. The metric of cumulative Tesla vehicles on the road is also important. Why? Because this is the number of cars that’s on the road that’s recording for this data set and it’s being sent on the fly… training the models to become even stronger. The bigger your network, the bigger your model. This is what I missed out. In order to achieve that… 

Reggie: Wait. Are you concerned that they… where I’m coming from is Blackberry QNX is an operating software that is “the highest, most safe OS for autonomous driving”… all these cars and whatnot. Are you concerned that Tesla is not on it, that they are developing their own OS, and recently, there’re a little bit of kinks here and there, like people are hacking into their systems and all that… is that a cause for concern? 

Thomas: No, I don’t think that is a cause for concern. At the end of the day, the security of this software is down to how Tesla is going to secure the connection. If someone really wants to hack the car itself, then they’ve probably got some personal agenda against the person. It’s not exactly the car. If they are wanting to hack Tesla, it’s going to be a little bit difficult because they are working on some ways to address it. 

Like your iPhone, your encryption. You lock it, you don’t have the fingerprint or the facial recognition, you can’t get it already. It’s going to get erased. Same kind of technology… I think Tesla is able to replicate this as well. The other concern that I do have is what if the regulations per state or per country forces Tesla to take ownership of the security of the driver? That is a concern. It’s got to be from end to end. The internet connection which used to be nothing related to Tesla, the hardwares itself, the chip that they’re producing… all these has to be factored in and that’s going to be extra cost for Tesla. 

Other than this data (which) they are just gathering daily… if you consent, then the data is being shot up to a master model. Basically, more and more data you gather, the moat is getting bigger, the model gets stronger, the faster they achieve a Level 5 autonomous driving and they can open up a lot more use cases after that. Self-driving taxis is really not that far off. 

Reggie: Interesting. 

Thomas: We talked about it briefly in Nvidia. Nvidia actually covers GPUs (Graphic Processing Units). Tesla does not use Nvidia’s GPUs. They use their own processors. You wouldn’t call it graphic processors anymore, but their own compute… to actually power this. They have some form of H-compute already, which we only start to see in other places, just trying out, just in R&D stage. Tesla has already put this into production. They are really, really far ahead of the curve in that aspect. 

AMD recently announced “oh, we are in Tesla cars” but that is not powering the AI. AMD is only powering the graphics display. The screen when you buy a Tesla… 

Reggie: The very low level one, the 没有用 (no use) one, it’s not the core. 

Thomas: When they tried to upsell that “yeah, we are in Tesla cars”, please go and dig deeper. It’s not powering the AI. It’s powering the screen, the entertainment system.

Reggie: Exactly, there are multiple microchips and hardware facility within a lot of these modern day items. All your semicon and chip makers are trying to sell you… You want to go dig down and try to find out where they are in this business chain. So yes, that’s good to know.

Thomas: Another stat which I think is very, very powerful negotiating power they have with the states is their accidents per mile driven. For normal stats, let’s say human drivers, let’s call it human drivers. The number of accidents per crash is 1 to 484,000 miles. For Tesla, it’s 1 per 4.2 million miles. It’s at least eight times difference. 

Reggie: Wow! 

Thomas: That’s at the current state of its autonomous driving capability. This is very powerful negotiating power. If anyone tries to come along, let’s say a competitor say “oh, we also got self driving. Implement ours.” I say down to this stat, who is better? 

Reggie: Fair. 

Thomas: There’s going to be anti-competition laws and that kind of stuff. They can just fight back. Ours is way better.

Reggie: Essentially, what I’m hearing is their hardware, it’s more advanced then other people. Their software integration, their whole AI is more trained. From a technical level, they are leaps ahead of their competitors. They still have the brand. Essentially, that is the moats that we’re seeing. Whether or not they can continue to grow the business and spin off peripheral things and peripheral services to make the business as a whole… powerful and has a lot of moats around the business and not just technology and the car itself, that is still something to be seen. Essentially, that’s what I’m hearing. 

At the core itself… technology, they are way ahead of their competitors and the brand identity definitely is way more powerful than a lot of the old car brands. Is that what I’m hearing from you? 

Thomas: Yes. Business wise, I think the key metric you want to see… just boil down Tesla to just a car company. Are they actually increasing their market share? In the US, yes they are. In China, it’s still a fight there but technology, they have the ability to scale, then just see what comes next.

Reggie: Cool. With that in mind, let’s sum up today with some of the headwinds and tailwinds and what are the growth opportunities that you see in Tesla? Maybe share a little bit of… you say until so good, why you don’t own Tesla? I think people will have this idea.

Thomas: I think can address the second point first. Why I don’t own Tesla? It’s really priced very expensively. it’s at least 300 times if I’m not wrong, the last time I checked. You want to go price to sales or price to earnings, EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)… it’s super high! It’s like you expect this company to rocket to the moon, in Tesla, in Elon Musk’s words. 

As a company, it’s a fantastic place to work. Fantastic place for your growth. As an investment vehicle, I think there’s other better opportunities. Just wait for the price. If it comes down to a good price, yeah, sure. There’s a lot of expectations in place based off the price premium right now that I don’t feel comfortable in owning Tesla. Owning a Tesla car, maybe I might. Owning a Tesla vehicle is okay. As an investment… 

Reggie: I get what you mean. Sometimes, I do buy some products, but I will not own the company. Yes, I totally get what you mean. 

Thomas: There’s some discussion, would you prefer to buy Apple iPhone or the Apple stock? 

Reggie: What do you call that? Outcome bias.. Cannot use this kind of… Microsoft, all these are outcome biases. Who will know what is going to happen? There are some key things that we look out for and trying to determine whether a growth company will become a giant into the future. What is the churn rate? What is the traction? How strong is the management? How far they want to go? What is the addressable market? All those kinds of things. 

They are quantitative, yes, but there’s the qualitative aspect. A little bit of dreaming, a little bit of thinking whether it gets there. That’s the element of luck. Cannot lie to yourselves, but too many people use that whole “do you want to buy Apple share or do you want to buy Apple phone?” Honestly, at that point in time, I probably just buy Apple phone because it’s a good thing to use. Who knew that it would become this big? That is my base understanding. 

Thomas: Thank you for contributing to Apple’s revenue to six decimal place. 

Reggie: I do own Apple share and I owned it for quite a while already. That’s a story for another day. 

Thomas: That’s the reason why, but growth opportunities, I do think there’s a lot of paths Tesla can grow. Electric vehicles. It’s only 2.5% of the total addressable market so far. It’s producing new products every time. The innovation is always there at cheaper and higher mileage. Very, very competitive as compared to other competitors.

I did have a small table of the same class of cars. Tesla is beating all of them by price point, by stats, by a lot of different things so there’s definitely room to grow based off their core product. The next one. Something in the mid to long-term, maybe 1 to 3 years time is the autonomous driving aspect. I really keep harping on this self-driving taxi thing because it’s really not that far. It’s very possible. It’s just whether governments want to implement or not, but there’s also issues with that. Once you implement, imagine all your truckers in the US. That’s one of the highest employment sectors in the US. It’s a very big change. They just need to introduce this… 

Reggie: There’s a lot of lobbying power in the US. I think for a lot of people that are not in the US, they don’t understand. When you have a very big union and there are a lot of lives at stake and they transcend a lot of states, it’s not so easy to execute from… You have all the technology, yes. From a technology standpoint, you can execute, but from a legal standpoint and from deciding whether the states and the country want to take this path, it’s a lot more complicated. There’s some sort of beauty in it. It cannot… everything just be on a tech basis, but yeah, that’s a good point to note. 

Thomas: If you recall Trump and him appealing a lot to all the states that had steel mills, although steel wasn’t as productive as before in the US, but he appealed so much to the masses. Politics… a little bit into it is that these kinds of leaders will appeal more to those who has been left out. If the state politicians, they suddenly just implement “oh, no need truck drivers anymore”, it’s going to have these kinds of Trump-esque politicians that’s going to start appearing. It’s going to be a big issue. It’s going to be a lot of unhappy people. You might see another Capitol Hill again, so there’s a lot of consideration about this.

That being said, Tesla can just do it like this. They can just switch on or push down all my autonomous driving updates through the software that I have on Tesla. Very easy. It’s just up to the government to actually do it. As it is, they are offering it in some states. You can just summon your car or you can have it parked by itself and stuff like that. It’s small use cases. I think that’s fine. 

The next thing that can grow… I already mentioned is about trucks. Trucks as a product, not just for cars, trucks hauling stuff across long distances or those kinds of semi trucks [indiscernible] In the US, the percentage of vehicles that are trucks is about 60%.

Wow. 

60%… you don’t talk about just cities. We talk about all the outback areas. (That) constitutes a lot of these kinds of vehicles so that’s a big market that they can enter into. Never mind the autonomous driving, but just for trucks, they can already address this. 

The next growth is their supercharger network. Other than it supporting just Tesla vehicles, can they actually make improvements to the superchargers such that it can also support charging of other electric vehicles? This is about the storage and capacity which I think they have already solved, but how about it being used for other cars instead? 

This, I think, is more important for China than for US, because US is just the number and where they place. China is a different story because of the certain restrictions and certain battery types are not the same, battery fire and that kind of stuff. It’s a big issue. So how do you actually have some kind of converter for the voltage, ampere, the rate of charging? All these matters. Do you actually want to support this as a company and is the government actually going to help you on this? Or are they going to say “oh, you build this technology for me already? Okay, bye bye. I kick Tesla out.” That could happen also. 

Now, if China says okay, this can be a very good thing for Tesla, because they might have some kind of energy credit scheme or so with the government. You produce this much energy. Thanks, you can sell it back to the grid. That will be a very, very big thing for Tesla. The long-term aspect of it, say 4 or 5 years out, it’s really SolarCity’s full integration with Tesla. Now imagine that SolarCity aspect, which is… the core product is basically selling solar production capabilities for both enterprise, as well as for homes. 

Now let’s look at the homes portion. If they don’t need to be powered by the grid anymore and they can be just be powered by SolarCity tech or Tesla tech, you don’t need to actually buy electricity from the grid. You are gathering them from the sun for free and you’re selling it back to the government and there’s going to be a lot of excess capacity which you can just use for whichever. If everyone starts [indiscernible], then it’s like energy revolution. 

Basically, this has a lot of synergy with the existing supercharger network because you no longer need to tap on the government any more for electricity. Tesla truly becomes an energy production company from the sun. This is crazy. You don’t need to build oil rig. You don’t need to hunt for this one. You just solar… so this is very, very big, but it’s quite long-term, say 4 to 5 years, not that far fetched. Again, it’s waiting for regulation Do they actually want to allow it?

And again, as you mentioned, Reggie, the lobbyists, there’s a lot of oil companies. There’s a lot of existing or production companies with lots of deep pockets and influence. That’s definitely one thing to block this. This is their rice bowl. You see BP, Shell… recently they’ve been mandated to actually do carbon reductions or to go and invest very heavily into green technology.

This is something that they are looking at. Why should I go to Tesla? I want to build my own network. I want to build my own SolarCities. So this is, again, something that Tesla doesn’t say like they have the most fanciest technology. It doesn’t mean that they are going to be the market leader.

Reggie: Yes. They need to call a lot of these guys to come in and share the pie if they want to be a dominant player in the space. So I get it, there are a lot of great growth opportunities that are possible. Potentially, you can get there and from a technical standpoint, from your view, it does not seem too far, but there’s a lot of other lobbying things and executional realities that you know, it’s not just a product, but it’s a lot about the business and a lot about the politics that are involved to do some of these fundamental changes. So then what are some of the core risk factors?

Thomas: For the risk, there are tons with every opportunity in this long-term growth. It’s a big market. That’s a lot of competitors. The competitors are definitely going to want to have a piece of the pie, especially for China. You release the battery technology, that’s it, man. They’re just going to mass produce lithium batteries like no tomorrow. The price is going to go down but you’re going to have a lot of car competitors which you see now. 

That’s on the basic products that they’re already selling in China. You got Neo, you got XPeng. You’ve got other car companies, SAIC… producing all sorts of EV. Let’s say for Honda, Mercedes-Benz and all that, they’re working with other providers to try to include this idea in a hybrid model or full electric and they are also trying to go for autonomous driving but they’re not there yet. We see a lot of competition increasing. So I think that’s the basic one. 

The second one in the current climate, I think it’s a supply chip shortage. So yes, they build their own chips. But they still need the supply of the mini microchips at the same time. This affects how many cars they can produce because it’s definitely going to get affected. You will see that the production numbers are actually declining, even though… I won’t say declining, it doesn’t meet their estimates even though it is high. 

Reggie: They’re scaling slower. 

Thomas: They are scaling slower. 

Reggie: They are not meeting their growth targets. 

Thomas: Right, and how long this supply chip shortage? It might be prolonged until the end of the year. It might be for three years. Unknown. So it really depends on how much stockpiling is going on for all the other firms who are buying microchips. If everyones going to go back to winner.. I won’t say winner takes all. It’s more like every man for himself, that angle. 

I’m gonna buy three times my original inventory while this problem is going to be prolonged. For the companies… the competitors in China, they are able to source out these microchips faster or cheaper than Tesla, they will have an advantage for sure. That’s why it doesn’t mean the technology is so great… if you don’t have that raw material to produce those technologies in the first place, you are at a disadvantage. Your fleet numbers, you see… within the space of two or three years, the capacity increase in China is going to increase by a lot, not just for semicon, but for cars also. There’s just a lot of government money that’s flowing into this area. 

Reggie: Shit. That is a good reality, which once again, brings back to the idea that yes, you may have a technology superior product. You may have… so-called a better product, but executionally, what is the reality and how is it going to be like? I think that is a great discussion that we had. I’ve never studied Tesla ever and I’ve always only hear news from the side. There’s a lot of commentary here and there. 

Everybody has their own view, but I think after talking to you today, there is some base case to it. But I think it’s very pricey in today’s price. Of course, this is not a buy sell recommendation. But from today’s price, it is price for… I think some people say it’s a price for perfection, I think they are priced for perfect perfection. It’s like beyond perfection already. Because even some of the biggest growth stories out there today are not priced at such a price.

Of course, people are saying that it may become the next Amazon or if you listen to Cathie, she say it’s $3,000. There’s a lot of future being priced into it and it does not help that Musk has a cult following and having a cult following, it adds to the premium of the shares.

Essentially, that’s kinda the way it is and I hope you guys learnt some good juices today and let’s continue to have a discussion and comment in the comments section so that we can discuss further about different specifics. Because you realize that a lot of companies that we talk about, especially those that are not just doing one business vertical or they are in the newer style of businesses, there are multiple elements to talk about. It’s very hard to cover everything in one go. So if somehow there are specific things that you want to know pertaining to Tesla or pertaining to every other company that we’ve covered, always just comment on the comment section and then we can take it from there.

Okay. Thank you, Thomas. Thank you everyone. Appreciate your time.

Hey Coconuts! So I hope you learnt something useful today and definitely recognize that investing is a personal decision. We’re not giving you any recommendations here but we are always happy to geek out with you about different, interesting companies and trends for the future. 

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