Read Before Tesla Q1 Earnings: Elon Musk's New Strategy
This is the most important article I’ve ever made, we’re at a pivotal moment in many ways and after thinking deeply about my Tesla investment the past weekend, I came to some major conclusions.
Thoughts about selling did start to enter my mind recently.
I’ve been investing in Tesla since 2019 and if you look around right now, you find the worst sentiment around the stock I’ve seen in that time frame. Bulls are capitulating everywhere.
If you want to watch your money go straight up every year, buy an index fund like the S&P 500. If you want to earn outsized returns with a lot of volatility along the way, look at Tesla.
Over its 40 year history, Apple stock has gone up over 127,000%. Yet along the way, AAPL 0.00%↑ experienced several massive drops: it dropped 52%, in one day alone, on September 29, 2000. In fact it’s had multiple drops of over 50%, can you find them in the chart below? No, because they don’t matter and history does not even remember them. Apple has been public for 40 years and the huge returns didn’t come until the latter half. Elon Musk has been working on both Tesla and SpaceX and look at all they’ve done in only 20 years. If we look at Tesla on the same time span as Apple, Tesla is currently where the red arrow is below. From 1984 to 2004 Apple stock was only up 300%, most of that 127,000% gain came much later. Tesla appears to be on a similar trajectory and we are still in the early days.
Tesla has existed only 20 years, or for comparison, up to the red arrow in the Apple stock chart.
In Musk’s short tenure of 20 years he made reusable rockets at SpaceX, which the experts said was impossible. He started an electric car company, which the experts said was impossible. Imagine where we’ll be in another 20 years? I can guarantee you one thing: The so called experts of today will tell you it’s impossible.
There are periods Tesla goes up but also long periods of consolidation throughout its history where it does not. This is because they are doing real work and it takes time, as you can see in the largely flat period from 2010 to 2019, where the stock only went up 2000%. More on the topic of real work later.
Now there’s been a big mess the last few years as we navigate one crisis to the next and Elon has also been a little busy the last couple years with other endeavors. There’s been the whole buying Twitter, renaming it X, oh and ensuring we maintained our right to free speech while a frightening number of people seemed fine to applaud the demise of free speech, the first step in the end of our democracy.
I won’t get into it but I will, just one quick example before we return to scheduled programming. Remember that disease they literally locked down the entire world for and told you you couldn’t go to your grandparents’ funerals over, while simultaneously censoring any discourse on the subject?
You could not even talk about where it originated and then later it turned out it did originate where those labelled “conspiracy theorists” said all along - in a lab that was studying the disease… Who would’ve thought.
But you couldn’t even talk about it! Danger danger does this make anyones’ alarm bells go off?
Well, at least after all that fussing the truth has finally come out, that it was always akin to the common cold. We locked down the entire world for the common cold. But hey, at least someone benefitted, after all big pharma made all that money on forced vaccinations! It definitely had nothing to do with the billions of dollars big pharma pays the media in advertising.
The point is you couldn’t even talk about this stuff. Seems pretty un-American. So yes, maybe Elon Musk got distracted the last couple years giving us a platform that truly honors free speech, our first amendment, not second, not 15th, first and most important. Maybe the founding fathers said gee wiz that’s sort of important so they made it the first amendment. I digress.
Back to Tesla and why I’m not selling, it’s getting interesting. There will definitely be a lot more pain short term, but again, if you have a long time horizon I refer back to that Apple chart. Massive drops not even a blip on the radar compared with what followed.
Tesla is facing challenges. These recent layoffs seem more indicative of a couple things. Elon seems mad, he’s been off fighting the Matrix, getting pay packages from 6 years ago revoked for p*ssing off the wrong people, a whole other frightening topic for another day. I suspect he’s not happy Tesla has not made more progress, they’ve been doing great the past few years, but Elon level progress is a completely different playing field. So he’s righting the ship, you’ve seen a massive shake up with some big name executives leaving as well as layoffs of 10% of staff as they prepare for the next phase of this company’s future.
“Tesla’s broken promises” is a common criticism of the company, that they do not deliver WHAT they say they will. I think this is false, they do deliver what they say they will, just not WHEN they say they will. There’s an important difference here.
Have they broken promises? Or have they done everything they said they would, it just takes longer than expected? They have missed many of their timelines, full self driving and robotaxis were supposed to be here this year, for the past 5+ years. But it’s because they set the bar high and are the only company for a long time that was even attempting to do truly exciting innovative things.
Tesla is a real company doing real work and it takes years, things don’t just happen over night even with all the best people in a room. Tesla is a manufacturing company, they build complex cars with thousands of different parts, progress takes time, but Tesla moves faster than anyone else.
You’ve seen dozens of Internet and software companies become immensely successful in the past 2 decades. There’s a reason why you have hundreds of software companies but, during the same time frame, you have only ONE company that built reusable rockets and ONE company that started an electric vehicle revolution. Oh and they’re both run by Elon Musk.
Rockets and cars, the 2 worst businesses to start with historical guarantees of failure. Elon Musk made both succeed at the same time…
So now Tesla is going all in on the idea of FSD (full self driving) and it’s proving to be a much harder problem to solve than anticipated. But it’s not just some pie in the sky idea that is far out, they’ve made immense progress in a very small timespan, just a few years really. Take a test drive in any Tesla car with FSD v12 to see for yourself.
They are attempting to do insanely hard things, unforeseen problems arise and it takes longer.
The difference is they are attempting extraordinary things, no one else is even trying. Do you want to invest in the innovator or the stagnator?
Tesla is going for it. This is not a bet the company moment in the sense that they’re desperate. It’s a bet the company moment based on the sheer magnitude of the opportunity, that pursuing anything else pales in comparison.
Even if Tesla were to keep increasing car volumes every year, it would not support their valuation. They have a market cap of $500 billion, Toyota’s is $373 billion, Ford and General Motors are around $50 billion. It’s not about how many cars they can sell as these companies sell way more cars and have much smaller market caps.
Tesla selling more vehicles is not going to change anything. This short term mentality and inability to delay gratification and think long term is a cancer and it’s how they constrained Henry Ford. He wanted to only have 1 vehicle model, but he was taken to court and forced into making multiple models. Why? Because it made more money short term, at the expense of long term vitality.
Let’s see how this works. Compare Tesla to BMW, their vehicles have a similar price point. Critics say Tesla needs more models in each category, they only have 5 vehicles: A pick up truck, an expensive sedan, a cheap sedan, an expensive SUV and a cheap SUV.
BMW has 10 different models only across sedans and SUVs. Then there’s all this further customization. BMW sold 2.2 million cars in 2023 globally. So you’re telling me they do all this extra work, with the inefficiencies that come with having to make so many variations, just to sell the same amount of cars that Tesla does?!
And Tesla is the one who should change their streamlined, hyper efficient process? How many iPhone variations does Apple make again?
It’s so obvious which business model is superior, yet the collective stupidity of pundits makes my brain ache.
Tesla could have done this. It would also mean they stop innovating, become a niche player, maybe it even elevates margins short term and they sell less cars. Going this route, long term they would have nowhere close to the same amount of market share.
Tesla is not playing for scraps, they don’t want a piece of the pie, they are playing for the whole pie. Their goal is on a level other automotive companies can’t even fathom in their wildest dreams.
The future lies in robotaxis and full self driving. The fact is FSD keeps getting better, it is already here and in many cases driving better than a human can the majority of the time. It doesn’t get distracted, it doesn’t check its cell phone. It just keeps improving.
Do you see this hockey stick forming for the number of miles being driven with FSD? Remember the following the next time the fake news tells you how unsafe Tesla’s FSD is:
Tesla vehicles using full self driving had .31 accidents per million miles driven, 5 times lower than the US national average. It’s already saving lives.
So, there you have it. Short term sentiment has gotten so bad I wouldn’t be surprised to see a contrarian bounce up in the stock price, but everyone is expecting further downside.
Why doesn’t Tesla do this? Why doesn’t Tesla do that? Because it all pales in comparison to the opportunity they choose to focus on. They are far in the lead and have been way ahead of the curve. Now you see everyone else try to catch up. It’s the same thing with the Tesla bot, they announced it in 2021. Now you see Figure AI, backed by several billionaires including Jeff Bezos. They basically put together the Billionaire real life Avengers to try and have any chance of competing with Elon and Tesla.
They see where the future is going before we all get it. Apple’s iPhone was laughed out of the room! Apple can’t compete with Motorola and Blackberry they said! It’s the same thing over and over.
The endless benefits of FSD and Robotaxis will become obvious in hindsight, this is how progress works.
“You can't connect the dots looking forward; you can only connect them looking backwards.” - Steve Jobs
Robotaxis will be cheaper, more efficient and more convenient than car ownership for many people, not all. Families with kids will still need to own cars for car seats, or workers with equipment etc. But not everyone will need their own car. Think Uber but way cheaper and Gen Z doesn’t have to get anxiety talking to anyone. Safety. Watch a movie or do work while stuck in traffic. Sleep on a road trip. There are endless benefits.
First there was the horse and buggy. Then the automobile. It will never work, they said. There’s no roads, infrastructure etc. And then one day there was. Then came Tesla with electric cars. It will never work they said, you can’t charge them. Then Tesla built a global super charging network. Next will come autonomous robotaxis. That’ll never work they’re saying!
Elon Musk made reusable rockets possible. Seriously, it’s a hard problem to solve, but a car that can use cameras to stay in a lane should be easy in comparison to figure out.
So, everyone is saying the stock will get killed after earnings tomorrow and it’s possible, the stock could keep going down significantly short term. But this is all short term noise. Let’s see what Tesla can do in 3 years not 1 quarter. Warren Buffett says to judge a company not based on quarterly results but based on what they’ve done in 5 years. Quarterly numbers can be finessed to manufacture growth and earnings, but long term numbers don’t lie.
I’d say Tesla has improved 100x in the last 5 years in every way from brand value, to company culture, talent, economy of scale, product offerings and the balance sheet. Tesla is still in its infancy and I’m in it for the long haul to see how they can stack up to Apple. Apple is great, but it’s been around 40 years. In 20 years Tesla brought us electric cars, autonomous driving, they’re working on humanoid autonomous robots, not to mention innovations across several other industries like energy and even car insurance. I’m keeping my shares to see how it all plays out, this is only the beginning.