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The Bad Views vs. The Good News

The Bad Views vs. The Good News
by Gill D on October 16, 2020

Trefis, a research and data company published a “what-if” downside scenario on how Tesla might lose its lead in the EV industry. A lot of this is based on the assumption that the other companies will shift into gear and catch up to Tesla rather quickly, which also seems unlikely. Much of the data has not taken into account the advancements of the Boring Company, potential output from its'German Gigafactory, or Tesla’s move in the solar energy market.

So, if we just look at the electric vehicle stance, it’s a narrowed look when assessing Tesla. However, for interesting reading, the Trefis data is summarized here:

Tesla continues to improve on all fronts with margins and deliveries trending higher. With Tesla being the frontrunner in the EV industry, it’s bound to shape the future of transportation. However, amongst all the good news, analysts have looked at a worst case scenario.

Tesla’s deliveries have grown on average about 65% per year over the last 4 years. Must of this was driven by the launch of the Model 3, but there are several factors that could impact the company’s growth going forward.

  • The barriers to enter the EV market are not high. Mainstream and luxury auto companies that have the engineering and manufacturing capabilities in place could partner with technology majors for assisted driving technologies that could reduce the interest in Tesla’s cars.
  • Tesla’s business in China has been a massive driver in its growth but could come under threat if relations sour between the U.S. and China.
  • There is a possibility that Tesla’s new vehicles such as the Cybertruck may not be as well received. When the Model Y was launched earlier, sales were disappointing and Tesla reduced its price a few months later.

Tesla’s Margins are likely to rise to about 6% in 2020, which will be an increase from 2019 and investors are expecting the company to post industry-leading Net Margins in the near future, which will be mostly driven by its autonomous driving software sales, and battery advancements.

  • If Tesla’s lead in self-driving is challenged by the major tech players such as Google which could eventually follow a model similar to Android to license out its system
  • Or other tech majors who have the capital and expertise in the areas of AI could become an obstacle for Tesla’s to drive software sales and margins.
  • If other manufacturers can work on cutting down battery costs to levels similar to Tesla, it could also limit the EV car marker’s ability to boost margins.

Investors could sour on Tesla’s story if growth slows. If Tesla’s growth slows and investors see proof points that mainstream automakers and technology giants can challenge, it could significantly impact Tesla’s valuation.

That’s the “what-if” downside.

THE GOOD NEWS

Then in other news, another person has quite the opposite to say. Billionaire, Ron Baron from Baron Capital, there’s still a lot more growth to come from Tesla. In an interview this week, Baron spoke out on bullishness on Tesla stock and he continues to cheer the EV automaker on.

While Baron said he couldn’t say what’s going to happen in the short term, he does think that over the long-term, Tesla's market cap will eventually be worth $1 to $2 trillion.  Baron thinks that Tesla will compound its sales at about 50% annually over the next few years leading to an automotive business with sales between $500 billion and $700 billion in annual sales in 10 years.

And Ron Baron emphasized, “and that’s just the cars”.

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