Tesla [NYSE: TSLA] announced second quarter results last week, delivering a thin $100 million profit on $6 billion of revenue. Elon’s brainchild sports a hefty market cap of $270 billion, more than GM, Ford, Fiat-Chrysler, Volkswagen and Daimler combined. In 2019, Tesla sold 367,000 vehicles, while GM sold 2.8 million and Ford and Toyota delivered 2.4 million each. Tesla’s stock is up 500% in the last year, currently trading at 11 times revenue, while competitors like Ford (F) and General Motors (GM) trade at less than 1 times revenue. But investors are beginning to realize that Tesla is more than just a car company. On the leading edge of four separate industries, TSLA is: (1) the dominant global electric car company, (2) a trailblazer in autonomous driver technology, (3) the dominant producer of battery storage technology (4) a major residential solar provider. CEO Elon Musk: “There’s three elements of the sustainable energy future… sustainable energy generation, battery storage, and electric transport… the mission of Tesla is to accelerate sustainable energy.”
Autonomous Vehicle Technology. Musk: “Right now, by far, FSD [Full Self Driving] is just overwhelmingly the most important thing.” On the call, Musk said that FSD will be ready by the end of 2020 (although, he has previously missed the mark with such targets). Right now, Tesla’s vehicles have level 2 or “partial” autonomy; level 5 signifies “full” autonomy. Tesla’s over-the-air software upgrades will eventually allow owners of existing Teslas to bring their cars to level 5 autonomy. Musk claims FSD technology is already safer than a human driver. He said autonomous cars could produce $100,000 more in utility value than a traditional vehicle. The owner can put the car into service as an autonomous taxi when it would have otherwise been parked. Autonomous cars allow passengers to relax or work while in transit and improve roadway safety and could be part of Tesla’s Uber-like automated ride-hailing platform that is under development. Musk has also said he would be willing to license out various Tesla technologies to accelerate sustainable energy – which could generate revenues with very low associated expenses.
Solar & Batteries. Musk: “Long-term, Tesla Energy will be roughly the same size as Tesla Automotive.” Tesla offers residential renewable energy with its solar panels and Solar Roof (architectural shingles) in addition to battery storage with its Powerwall, Powerpack, and Megapack systems. Musk announced a price cut to Tesla’s residential solar panel product to only $1.49 per watt, 30% less than the industry average and down from $12.00/watt in 1998. Tesla’s energy business earned $370M this quarter compared to $5.2B automotive revenue, showing the massive revenue runway Elon sees for solar and storage.
Auto Insurance. Musk: “Where we want to get to with Tesla insurance is to be able to use the data that’s captured in the car… to assess a premium on a monthly basis for that customer.” Tesla is focused on real time “telematics” data to price insurance, which could be ready in some states by the end of 2020. Albeit with a touch of Big Brother, this would revolutionize the massive auto insurance market by setting rates on how often and how safely a vehicle is driven. The higher day one purchase prices for Tesla vehicles versus gas/diesel cars is already offset by sharply lower fuel and maintenance costs. Auto insurance may be next.
Manufacturing. Musk: “The long-term sustainable advantage of Tesla will be manufacturing.” Along with continued price declines for batteries, Musk has long emphasized the “machines that build the machines” in Tesla’s highly automated production process and vertically integrated supply chain. Tesla has brought its hard-core engineering/digital talents to bear on manufacturing, just as it has for car design, self-driving technology and battery technology. Electric vehicle drivetrains use only 20 parts, a fraction of the 2,000 parts used in internal combustion engine drivetrains. Tesla’s production process uses only half the labor regular car manufacturers need. Despite its manufacturing potential, however, Tesla’s Q2 operating margins were only 5.4%, lagging behind the 7-8% enjoyed by its auto competitors Toyota (TM) and Volkswagen (VWAGY). Delivering on his manufacturing targets would give Musk & Co massive operational leverage as its sales increase to the level of his competitors. To that point, Tesla also announced on the Q2 call a new Austin, TX Gigafactory, which with the Fremont, Shanghai and Berlin Gigafactories could take Tesla to 2 million cars annually within 2 years. That’s a lot of electric vehicles, but very soon Mr Musk is expecting Tesla to start delivering a lot more than that.