Tesla Has Technologies Legacy Auto Firms Do Not Possess
People who understand technology have noticed that the technology surrounding Tesla (NASDAQ:TSLA) BEVs is distinct and superior to the technologies provided by every other automaker. There are numerous things Tesla provides that other auto companies do not have. These include:
- A robust Supercharger Network with numerous charge points with >120kW power each and numerous charge points per Supercharger location.
- Charger locations positioned along major auto routes where people actually need them, not in towns at businesses where they are not needed.
- An operational Virtual Power Plant bidding software.
- Vehicle to Grid power sharing technology, nearing launch.
- Four BEVs selling well, 3 more on the way.
- A billion real world miles to help solve the AI Full Self Driving Problem.
- A fleet of 1 million BEVs on the road testing out and helping improve the AI software systems.
- High volume production of batteries, motors, inverters, and all components associated with Battery Electric Vehicles. Tesla is building 10 times more vehicles than any other automaker. This reduces COGS for Tesla.
- Customers tweeting the CEO with their vehicle improvement requests, and the CEO replying “Yes” or “That is worth looking into” or other appropriate replies, daily. Customers are helping Tesla improve their vehicles via direct Twitter communications.
- Customers proudly publishing images of their new vehicle purchases on YouTube etc. for friends and family to see (free PR for Tesla).
- YouTube talk shows dedicated to news about BEVs in general and Tesla BEVs in particular (PR for Tesla).
- Customers showing off their Tesla BEVs to friends and family and taking them for rides (more PR for Tesla vehicles).
- Customers and shareholders telling the story of their stock earnings to their friends (more PR for Tesla stock).
- Tesla bulls believe the stock price will grow to more than $5,000. As a result, few are willing to sell shares at the low price of $1,500. This dearth of shares contributes to the stock price moving upward. The share price may pass $2,000 on July 23rd after the Earnings Call.
- S&P inclusion after a Q2 profit looking likely.
- Rather than force S&P fund managers to buy shares on the open market, it seems logical for S&P to request that Tesla make a private share offering for the major funds. This will avoid absurd price run-ups if firms were forced to purchase around 26 million shares to balance the S&P 500 index funds. Tesla may therefore wind up selling 26M shares and raise around $50 Billion cash in August.
- This exceeds my $40 billion H2 2020 guess in my June 30 article.
Engineers and technology geeks, as well as others, understand these advantages. Most financial people see the Bolt, Taycan, e-tron, EQC, and others as equivalent to a Tesla, for example, the Model Y. Where the other brands of vehicles are indeed BEVs and the Model Y is also a BEV, the similarity ends there.
The Model Y comes with an entire ecosystem of technologies the other vehicle brands do not have. It’s comical to listen to Bob Lutz on CNBC trying to claim that Detroit has more technology than Tesla does. Sure, Detroit knows far better how to grind valves, hone cylinders, buy metals for fuel injectors and so on. But Detroit doesn’t know squat about building batteries, high power electric drive motors, inverters, or software systems to control the entire vehicle functionality.
Detroit is expert at building ICE vehicles. Detroit is a rookie, a beginner, at building BEVs. Tesla is the sole expert at this new vehicle type. Many legacy BEV offerings appear from the outside to be similar to a Tesla BEV offering. But when it comes to owning and operating the vehicle, Tesla is far and away superior from a functionality perspective.
Sure, legacy companies often do a better job with cosmetic appearance. But legacy companies fail to provide the same functionality. And from a customer perspective, it doesn’t matter if something is a pretty paper weight. If it doesn’t actually function, then it isn’t worth owning. This is why legacy BEV sales are so dismal. Legacy technologies pale in comparison to those of Tesla.
And that’s why every legacy automaker is headed toward bankruptcy. I don’t mean to put down legacy automakers or to sound trite like I’m making baseless claims. I say this because, as of today, every legacy automaker has failed to take the development of BEV technologies seriously. Several, like VW (OTCPK:VWAGY), have made impressive claims about what they are going to do. However, they haven’t done anything, yet. And I think that today is too late to start walking the walk.
Think about a claim from a legacy company that they are directing $20B into BEV development. If Tesla had $20B to spend, it would build 4 new gigafactories and a year later begin shipping cars. Those factories would within 2 years be building about 1.2 million cars. The legacy company, in contrast, might come up with a BEV prototype model within the same 2 year time frame for $20 billion.
Tesla today has another advantage. The cost of goods needed to build the vehicle. When you purchase 1 million of something, you get a dramatically better price than when you purchase 10,000 of the same thing. This has for a century been the advantage the big legacy companies have enjoyed compared to the startups like Tucker.
Today, shockingly, we find the tables turned, and Tesla is the one buying magnets, batteries, wire, building motors and inverters by the millions. Detroit and all legacy car companies are the ones buying in low the thousands of part counts. This ironically gives Tesla the price advantage for mass producing battery electric vehicles over all legacy auto firms.
Tesla Price Reductions = Improved Profit Margin
For virtually every company in the world, whenever the company reduces the cost of a thing, they are facing a drop in demand. Why else would the company forego the increased earnings?
Every time Tesla has reduced the cost of its cars, bears quickly assert Tesla has a demand problem. Price cutting is assumed to mean demand loss. This is what Tesla shorts consistently believe to be the case. It isn’t.
Tesla’s prime objective is not to become the largest or most valuable auto company. It is to transition the world off of fossil fuels and onto renewable energy, as quickly as possible. This means the goal of Tesla is to kill the sale of ICE vehicles and to boost the sales of BEVs. Cutting BEV prices harms the sales numbers of ICE vehicles and forces the legacy auto industry to shift to BEV development.
This doesn’t make sense from a financial money earning perspective. But it does make sense from the overarching objective of the company.
Reducing the cost of vehicles increases the attractiveness of BEVs in the eyes of consumers. It perpetuates the backlog demand for Tesla vehicles. It speeds the market growth and in so doing, front loads demand so that Tesla can dramatically increase production capacity without burning through the demand.
Every time Tesla drops prices, we can presume that the profit margin just got better.
Dropping the price for Tesla vehicles makes it more difficult for legacy auto firms to transition to BEVs if they are going to continue to derive profits from their ICE vehicles. Dropping prices on BEVs is harming demand for ICE vehicles, and this is the more important goal.
When legacy companies can no longer generate profits from the sale of ICE vehicles, they will be forced, kicking and screaming, to go all in on BEVs or go bankrupt. This line in the sands of time is swiftly approaching. Tesla is squeezing legacy automakers. First, their ICE sales need to be killed. Second, they need to be saved. The world can shift from ICE to BEV faster if legacy auto firms help Tesla build and sell BEVs.
Today, however, every BEV developed by legacy auto companies pale in comparison to the offerings provided by Tesla. You see, the Model Y isn’t a “battery electric vehicle” like the Taycan or the new Nissan (OTCPK:NSANY) Ariya. The Model Y is an entire system of interconnected technologies transforming the world from gasoline to electricity. So far, legacy models are great for around the town driving. But they lack severely for long distance travel.
The Model Y comes with a global system of chargers. It comes with vehicle to grid power sharing (coming soon), it comes with driver assist features other brands can’t touch, and the list goes on.
Elon Musk and the Tesla team have been driving their vehicles since day one. Show me a CEO of another legacy auto company that is driving a Tesla or their own BEV to learn what BEV drivers need. When Tesla built the first vehicle, the original Roadster, all of the key Tesla people drove that car.
Mary Barra does NOT drive a Chevy Bolt (NYSE:GM) as her daily commuter car, let alone the car she takes on a long trip. She drives a Cadillac. Why? Because any BEV from GM sucks when you try to take it on a long trip and chargers are slow, few, and far between. How could she possibly appreciate how far her company is behind Tesla if she isn’t driving a Tesla and a Bolt to find out?
If Barra drove a Bolt as her daily vehicle, she would never have signed off on the engineering teams suggesting they build an electric version of the Hummer. She would already have sat at a slow 50kW charger for 45 minutes and know the Hummer would take far longer. The Hummer was a dumb gas guzzling ICE vehicle, and it will be a dumb energy hog of an electric vehicle that few will ever purchase. Given the choice of purchasing a Hummer or a Tri Motor Tesla Cyber Truck, the Cyber Truck will outsell the Hummer 20 to 1.
The single way the Hummer might make sense is as a local car. The owners could drive the car around home rather than on long trips. Then, if GM developed a vehicle to utility grid energy sharing software and hardware to connect Hummer’s to the grid, then the large battery could be useful as essentially a stationary battery storage that utilities could use beneficially.
But I haven’t heard a peep out of GM about intentions to create V2G systems of their own. So, the Hummer will launch with fanfare to a consumer market of deaf ears. Barra and her executive team, none of whom are likely to drive either a Tesla or a Bolt, will be dumbfounded and confused as to what they did wrong.
When the lucky few that ever get a Hummer take it on a long trip with that huge 200kWh battery, they’ll find it will take them 4 hours to charge it up at the 50kW “Fast Charger” stations easily found across the US. Of course, that won’t do in the marketing literature so they tout that it only takes 30 minutes on the new Electrify America 250kW chargers.
What they won’t tell you is that Electrify America is only installing 250kW chargers 1 here and 1 there alongside Walmart stores in places you don’t need chargers to be when you’re going on a long vacation journey. They might install three 50kW chargers and one 250kW charger. This is why literature states “up to 250kW chargers” instead of stating that the Electrify America charge locations will have “250kW chargers”.
Of course, anyone with a “real” BEV like a Model S or a Hummer or a Taycan, will ONLY want to use that 1 charger at 250kW. But where the Model S will easily slide into any of the myriad Supercharger locations and plug into one of the many waiting cables, the Hummer or Taycan will frantically search their maps for a location where they can get some electrons and avoid being stranded and towed. The range anxiety for BEVs is a function of “brand” and Tesla owners don’t have that malady.
Electrify America is really only building about one quarter of the number of chargers it claims to be building. This is because the 50kW chargers are worthless to real BEVs like Tesla vehicles.
The charging network being built by VW and called Electrify America is intended to pay penance for cheating on Diesel emissions. It is not something the company desires to do. It is a pathetic system if you read the details. It has a tiny number of chargers in each location and typically only one of the 250kW chargers worth using. The system has a tiny number of locations compared to what’s needed. The Supercharger network is by far, superior to the entire rest of the charging industry offerings.
Tesla’s Positive Share Price Feedback Mechanism
There are a lot of technology geeks who understand these issues and like myself have bet heavily on Tesla. We don’t sharpen the pencil over past financial metrics. We sharpen our pencils over Tesla’s technology lead. Tesla bulls are being rewarded with absurd profits while bearish analysts studying past financials and typically ignorant of the technologies are being rewarded with enormous losses.
For the past years, the stock price was flat, the reason was a flood of bearish negative articles I’ve always assumed were being financed by the oil industry, which stands to lose $8 billion per day revenue when BEVs disrupt ICE. The recent price surge is simply the share price catching up to where it should already have been if that Tesla bashing had not taken place.
Even more interesting than everything above, to me, is that Tesla is completely different from any other company I can think of. I’ve tried to find a comparison, and cannot. Maybe the iPhone, but that cost far less than a Tesla BEV, so isn’t really equivalent to what’s happening today.
Tesla going forward will enjoy positive feedback in demand growth like no other company in history. Here’s why.
Tesla bulls are making a ton of money, right? They love Tesla vehicles but couldn’t afford one, until recently. Last year, I couldn’t afford to fix my shuddering transmission on my 2007, 180,000 mile Durango. I’ve just been driving it, and so far, it keeps moving, shudder and all. The value isn’t enough to fix the transmission given the 180,000 miles on the engine. So, I just keep driving it.
Today, I can afford to purchase any Tesla model I want thanks to my earnings from investing in Tesla stock and calls.
Lots of other bullish investors have also found their earnings are enough to purchase a Tesla for themselves. And so, the “demand” for Tesla vehicles is gapping upward due in significant part to bullish investors in Tesla making a lot of profits.
As these additional sales get tallied from month to month, Tesla is in fact selling more cars and the company’s financial reports are in fact getting better. Demand is coming from people who simply want a BEV. But demand is also growing from Tesla investors who are earning absurd sums of money. Here’s how the feedback works.
Profits from bullish Tesla investments are making bulls a lot of money. With some of that money, bullish investors who like the company are purchasing Tesla cars. The sales and demand growth for Tesla cars are improving the financial reports. Improved financial reports are fueling optimism that BEVs are going to replace ICE vehicles. This expectation and optimism cause analysts to increase their price targets. Increasing price targets and improving financials increase the stock price even more. The increased stock price means even more bulls have enough money to buy a new Tesla BEV.
This upward spiral is accelerating. BEVs cost far more than an Intel (NASDAQ:INTC) chip or an Apple (NASDAQ:AAPL) iPhone so that the effect on Tesla company financials is larger than it has ever been for any company I know of.
The feedback will continue until everyone who likes Tesla has a Tesla BEV of their own. But the total installed base of ICE vehicles today is around 1 billion cars. In other words, at an ASP of $35k, there needs to be sold approximately $35 trillion.
This is 70 million times more vehicles than Tesla might sell this year. The upside potential is enormous. If you live out in the middle of nowhere, far from civilization, you need to drive into town and carry back gasoline to power your vehicles. When you own a BEV, you will simply be able to set up solar panels and become independent.
With an unlimited market to sell into, Tesla has an enormous upside potential. And with its customers also being shareholders who provide enormous volumes of marketing for free, Tesla sales are certain to continue to accelerate upward even if nothing else happened. But far more is on the verge of happening.
Tesla has numerous new technologies that no legacy companies have. And these will stay off all competition indefinitely. Tesla will launch these one at a time as needed. The most recent for which we expect to learn more will be million-mile batteries and vehicle to grid income for vehicle owners. I discussed these issues in my previous article here.
Tesla’s Free $5 Billion Marketing Advantage
Ford (NYSE:F) spent $2.33 billion in the US in 2019 on advertising. GM spent $3.1 billion in 2018. There is easily $10 billion spent each year advertising automobiles.
(Source: Auto News)
Tesla, in contrast, is in a different category and is enjoying free marketing from virtually everyone including new vehicle owners and bears alike. I suggest the marketing Tesla gets, ranging from tweets to YouTube videos to MSM news feeds and so on total up to a value greater than $10 billion. No other automaker has anything remotely like this consumer interest.
Even the shorts, hating on Tesla have been helping the company win. The following quotes come from Quote Investigator site linked below:
In 1750 the famous lexicographer Samuel Johnson penned a thematically related statement about the desirability of public recognition even if it is negative: 2
There is nothing more dreadful to an author than neglect; compared with which, reproach, hatred, and opposition, are names of happiness.
The modern version of which is often ascribed to P.T. Barnum as:
I don’t care what you say about me as long as you spell my name right.
(Source: Quote Investigator)
The point is that good bad or ugly, attention usually benefits the object of the attention in the long run. Negative attention may be harmful in the short run, but the negative aspects are soon forgotten, and what remains is the memory that the person or, in this case, Tesla, is for some reason important. When the future news sounds good, the negative comments are replaced with the current great news of the stock price or vehicle demand soaring.
People in China and around the world are focusing on Tesla stock prices. I watched a YouTube video from a Chinese channel. I can’t speak Chinese, but I am able to read body language. The Chinese love Tesla from what I have seen. I do speak French and have watched many videos by French talk show hosts praising Tesla vehicles just as is the case in America. Tesla is uniquely liked worldwide.
Tesla’s Expensive And Desirable Products Are Unique In Creating A Strong Positive Feedback Loop
All of these various factors taken as a whole constitute a classic positive feedback loop. This sort of positive feedback couldn’t happen with Coca-Cola (NYSE:KO). No single person could purchase enough Coca-Cola to significantly impact the bottom line of that company. If 500,000 consumers purchase a bottle of Coca-Cola because they like the stock, it would do nothing for total sales. But if 500,000 Tesla bulls purchase a Tesla BEV, the annual sales will double, and the stock price will go up dramatically.
This feedback couldn’t happen with Apple. It couldn’t happen for Boeing (NYSE:BA), or GE, or Bechtel, or Exxon (NYSE:XOM), or any other company I can think of. Maybe it happened for Intel or Microsoft (NASDAQ:MSFT) during the personal computer boom. And maybe I’m wrong and it did happen a bit for Apple. But none of those products are things most consumers purchase and cost as much as a Tesla vehicle costs.
If there are 50 million retail investors making profits on the stock, there will be several hundred thousand buying vehicles every year. The higher the stock price goes, the more Tesla bulls will purchase Tesla BEVs. This immediate feedback is, I think, unique in the history of the stock market.
“Tesla Inside” Trademark?
If Tesla has such enormous advantages and Legacy auto companies are doomed, where do we go from here? Just as “Intel Inside” is a well-known trademark, I expect that “Tesla Inside” or something comparable to it will also become well known by 2025.
Those few legacy auto companies that survive this disruption (like Kodak did not) will be the ones that cry “uncle” and surrender to Tesla. They will ask Tesla to build vehicle platforms for them, and they’ll build their cars on top, paying Tesla royalties on every vehicle they sell. Frankly, this isn’t really that different from what they do already. They already buy a lot of the components of their cars from other companies and just bolt them together.
Tesla inside will make their efforts easier. They’ll be able to purchase the entire power train fully assembled from a single entity, Tesla, and then just bolt their beautiful car with perfectly fitting panel gaps and paint jobs on top. Today, however, no legacy auto company is ready to admit defeat.
Mary Barra believes it will take decades for the transition to BEVs play out. That belief is causing GM’s actions to be lackluster at best. The same goes for the leadership at every legacy auto company. Even VW, claiming it’s all in on EVs, is failing to launch important new BEVs. Recently, they tried to get the German automakers to team up to develop software. Of course, the reason was because VW’s software for their new BEV model doesn’t work, and they’re parking tens of thousands of the vehicle in huge lots, waiting for software that works.
Every time I read that one legacy auto company is partnering with another legacy auto company, I re-write the announcement in my mind to read,
“Neither this legacy auto company nor that legacy auto company know how to do the thing(s) they’ve partnered to do. Therefore, I know they are both doomed because Tesla has already done it.”
In one or two years, as the sales of ICE vehicles collapse and legacy companies don’t have profits from the sales of their ICE vehicles to fund the development of BEVs, they will be forced to admit they can’t do it. We will begin to watch one legacy company after another collapse.
Being acquired isn’t a likely outcome. Every ICE manufacturer is going to be facing the same decline in sales of ICE vehicles. If a legacy auto company is already able to build more vehicles than it can sell, why would they want to acquire one of their peers when the peer is worse off than they? They won’t.
That is the same reason Tesla will not choose to acquire any legacy companies. They don’t have the things Tesla needs. It would cost more to gut an existing ICE factory and remodel it to build Tesla BEVs than it would cost to build a brand new factory purpose-built for Tesla production.
Acquiring bankrupt legacy auto companies would be a fool’s errand. The real question is which of the legacy auto companies will realize this first and ask Tesla to begin building platforms for them to build their cars on?
I expect Tesla is about to receive around $50 billion cash as a result of S&P inclusion. I’ll go into this in detail in my next article. But it seems to me unlikely that the index funds will be required to purchase Tesla shares from the open market. If that were to happen, the stock price would skyrocket unreasonably and harm the index funds and index fund shareholders.
The logical path is for Tesla to make a private equity offering of 25 million shares. However, that means that if the share price on inclusion is $2,000 per share, Tesla will receive around $50 billion for a 14% dilution. Tesla could use the cash to buy back shares, or more likely, to build new factories.
In my next article, I’ll explain in more detail why Tesla is likely about to receive around $50 Billion cash as a result of the S&P inclusion.
Tesla bullish investors have made a lot of money on the stock. They are purchasing vehicles, and that increases sales and ultimately stock price. This positive feedback appears to be unique to Tesla.
I expect the stock price to continue rising throughout this year. Logically, a very large jump will happen on Thursday, July 23rd, following the Earnings call, assuming a profit is announced.
Bears are, however, publishing a lot of FUD at the moment, so how the stock reacts after the Earnings Call is not certain. Without the FUD, the price should go up a few hundred dollars. We’ll see what it actually does.
I expect Tesla will receive around $50 Billion cash from S&P index funds in a private offering of equity and will write about this expectation in my next article. The cash infusion, combined with new technologies revealed on Battery Day, will deal a severe blow to legacy auto firms like GM once the technologies are contrasted.
Disclosure: I am/we are long TSLA. 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.