Tesla’s Technological Advantage Will Remain in Place as EV Adoption Grows

Strategist

Seth Goldstein

Model S/X

Model 3/Y

Vehicles Delivered

Revenue segments as reported by the company.

Auto

Energy

Service / Other

Revenue Segments

Revenue is the money generated from normal business operations. Gross Profit is revenue minus cost of goods sold. Operating Income is revenue minus cost of goods sold and other operating expenses.

Revenue

Gross Profit

Operating Income

Revenue & Operating Income

Net Income, also called net earnings, is calculated as revenue minus cost of goods sold, operating expenses, depreciation, interest, taxes, and other expenses.

Net Income

Gross Profit, Operating Income, and Net Income as a percentage of Revenue

Gross Margin

Operating Margin

Profit Margin

Margins

An operating expense is an expense a business incurs through its normal business operations. Often abbreviated as OPEX.

SG&A

Other OpEx

Operating Expenses

Year over year growth in Revenue and Operating Expenses.

Revenue Y/Y

OpEx Y/Y

Growth

Free Cash Flow is the cash generated by a company from its normal business operations after subtracting any money spent on capital expenditures (CapEx).

Operating Cash Flow

Capital Expenditures

Free Cash Flow

Cash Flow

Cash

Shares outstanding refer to a company's stock currently held by all its shareholders, including share blocks held by institutional investors and restricted shares owned by the company's officers and insiders.

Outstanding Shares

Market Cap

Also known as Price/Sales Ratio. Calculated using Average market cap for the quarter / Annualized quarterly revenue.

Revenue Multiple

Energy Storage MWh

Energy Storage Deployed

Energy Generation MW

Energy Generation Deployed

Supercharger Stations

Tesla is one of the largest battery electric vehicle automakers in the world. In less than a decade, the company went from a startup to a globally recognized luxury automaker with its Model S and Model X vehicles. The company also competes in the entry-level luxury midsize car and crossover SUV markets with its Model 3 and Model Y vehicles. Tesla also plans to sell new vehicles over the next several years, including a light truck, a semi truck, a sports car, and an affordable sedan and SUV.

Tesla aims to maintain its market leader status as EVs grow from a niche market to reaching mass consumer adoption. We forecast EVs will reach 40% of global auto sales by 2030. To meet growing demand, Tesla opened two new factories in 2022, which increased its production capacity. Tesla also invests around 4% of its sales in research and development, focusing on improving its market-leading technology and reducing its manufacturing costs. For EVs to see mass adoption, they need to reach cost and function parity with internal combustion engines. To reduce costs, Tesla focuses on automation and efficiency in its manufacturing process, such as reducing the total number of parts that need to be assembled in a vehicle. The company also began designing its own batteries. Tesla's goal is to reduce costs by over 50%.

To reach functional parity, EVs will need to have adequate range, reduced charging times, and availability of charging infrastructure. Tesla’s extended-range EVs are already at range parity with ICE vehicles. The company also continues to expand its supercharging network, which consists of fast chargers built along highways and in cities throughout the U.S., EU, and China. The range and supercharger network help eliminate road trip anxiety, or the functional barrier to mass market EV adoption.

Tesla is also attempting to take a larger share of its customers’ auto-related spending, which includes selling insurance and offering paid services such as autonomous driving software.

Tesla also sells solar panels and batteries used for energy storage to consumers and utilities. As the solar generation and battery storage market expands, Tesla is well positioned to grow accordingly.

Business Strategy & Outlook

We award Tesla a narrow moat rating. Tesla’s moat stems from two of our five moat sources: intangible assets and cost advantage. The company’s strong brand cachet as a luxury automaker commands premium pricing, while its EV manufacturing expertise allows the company to make its vehicles cheaper than its competitors.

Intangible Assets

Tesla’s brand cachet is not likely to be impaired anytime soon as other automakers move into the battery electric vehicle space because we expect the company to keep innovating to stay ahead of startup and established competitors. The Model S Plaid, the most upgraded version of Tesla’s luxury sedan, offers 390 miles of range, which is at the high end for electric vehicles. It does 0-60 mph in under 2 seconds and has 1,020 horsepower, putting the Model S Plaid in a rare class of performance among all autos, regardless of powertrain. By focusing on the luxury auto market first, Tesla was able to create tremendous media publicity for the company that reaches beyond its customers. This generated strong consumer demand for its subsequent vehicles at lower price points, such as the Model 3 and Model Y. As other new vehicles are launched, such as the Cybertruck or the platform that will produce the affordable sedan and SUV (known as the $25,000 vehicle), we expect the company’s strong brand will continue to generate consumer demand.

Tesla has a more high-tech vehicle with the ability to do drivetrain updates and other updates via Wi-Fi or a cellular connection, and customers do not have to visit a store for many service needs. Tesla will instead pick up the vehicle from home and often return it the same day, while providing a fully loaded loaner for no charge, or visit the customer's home or work and service the car there. This experience is much easier than many other automakers' service, which helps Tesla's brand equity. Further, this has been accomplished with little to no spending on advertising, which is rare for a consumer brand. This strong brand equity has carried over to Tesla’s energy generation and storage business, where the company can charge a premium for its fully integrated solar panel, inverter, and home battery storage systems sold to consumers.

Tesla’s proprietary technology contributes to its intangible asset-driven competitive advantage. This form of intangible assets applies to EVs due to their innovative, highly engineered nature and because patents for EV technologies hold somewhat less value due to the ability of competitors to create alternatively designed, but ultimately similar, products. Since launching the Model S in 2012, Tesla has been the industry leader in electric vehicles, producing the best EVs on the market. The company invests nearly 6% of sales in R&D to maintain its best-in-class range, which is well ahead of the competition on a miles per kilowatt-hour basis and continues to improve other vehicle specs such as power. Tesla is also investing heavily in its proprietary autonomous vehicle technology and building one of the world’s largest supercomputers to train self-driving artificial intelligence. With R&D spending in line with its peers, we think Tesla will be able to maintain its proprietary technological advantage.

Tesla will face increasing competition in the coming years. Automakers plan to electrify their fleets by adding EV versions of existing vehicles and creating new platforms. However, we see EVs becoming a greater proportion of auto sales, growing to 30% by 2030, up from 3% in 2020, which will expand the market as EVs rapidly take share from internal combustion engine vehicles. As new models are introduced, Tesla’s technological advantage and the strength of its brand will remain intact, which will allow the company to continue to charge a premium price for its EVs.

Cost Advantage

We think Tesla benefits from a cost advantage in electric vehicles production thanks to its manufacturing scale. Tesla’s total vehicle volume has grown from just over 100,000 in 2017 to over 1.3 million deliveries in 2022. During the same period, the company’s average cost of goods sold per vehicle has fallen over 50%, from $84,000 to under $39,000, and gross profit margins have expanded from 20% to 26% excluding the sale of regulatory credits. While some of this is due to manufacturing a greater proportion of midsize cars and SUVs versus luxury autos, the majority of the COGS decline has come from the company’s focus on reducing manufacturing costs due to scale. Legacy automakers are gradually transitioning to BEV production from internal combustion engines, but we expect they will be saddled with legacy ICE costs for a long time. Even as legacy automakers begin to produce more EVs, we expect Tesla will continue to have lower costs as it has outlined a plan to further reduce battery cell costs by 56% over the next several years. With Tesla’s cost per vehicle set to fall, incumbent automakers may take years to catch up to Tesla, if ever, as they won’t want to build many new factories from scratch like Tesla is doing.

We think Tesla’s combination of intangible assets and cost advantage will persist in the future and allow the firm to generate excess returns on capital. We see the potential for Tesla to outearn its cost of capital over at least the next 20 years, which is the measurement we use for a wide moat rating. However, the second 10-year period carries significant uncertainty for both Tesla and the broader automotive industry, given the rapid advancement of autonomous vehicle technologies that could transform how consumers use vehicles. As such, we view a narrow moat rating, which assumes a 10-year excess return duration, as more appropriate.

Narrow

Economic Moat

Tesla

SolarCity is a subsidiary of Tesla, Inc. that specializes in solar energy services. SolarCity markets, manufactures, and installs residential and commercial solar panels in the US. It has also provided other energy services. In 2016, the company merged with Tesla, Inc. and now offers energy storage services through Tesla, including a turnkey residential battery backup service that incorporates Tesla's Powerwall. The company, in partnership with Panasonic, operates the Tesla Gigafactory 2 in Buffalo, New York, where it manufactures solar module components.

SolarCity

Tesla, Inc. engages in the design, development, manufacture, and sale of fully electric vehicles and energy generation and storage systems. The company operates through the following segments: Automotive and Energy Generation and Storage. The Automotive segment includes the design, development, manufacture, sale, and lease of electric vehicles as well as sales of automotive regulatory credits. The Energy Generation and Storage segment includes the design, manufacture, installation, sale, and lease of stationary energy storage products and solar energy systems, and sale of solar energy systems incentives. The company was founded by Jeffrey B. Straubel, Elon Reeve Musk, Martin Eberhard, and Marc Tarpenning on July 1, 2003 and is headquartered in Austin, TX.

Earnings data Q2 2023

Cost of revenue

Gross profit

Operating expenses

Other

Operating income

EBITDA

Net income

Earnings per share

Total assets

Current assets

Cash & equivalents

Receivables

Inventory

Non-current assets

Net PPE

Intangibles

Total liabilities

Current liabilities

Short term debt

Income tax payable

Non-current liabilities

Long-term debt

Total equity

Stockholders equity

Minority interest

Total liabilities & equity

Total debt

Net debt

Book value per share

Cash from operations

Funds from operations

Change in working capital

Cash from investing

Capital expenditure

Purchase/sale of investments

Purchase/sale of business

Other sources

Cash from financing

Change in stock

Change in debt

Cash dividends paid

Cash from other sources

Net change in cash

Free cash flow

Tesla Inc has doubled discounts on some already made new Model 3 electric cars and offered discounts on the Model Y and others in its U.S. inventory to entice buyers amid economic uncertainty, rising competition and the upcoming redesign of its mainstay model.

Tesla doubles discounts on Model 3 cars in US inventory

Elon Musk's private jet is scheduled to leave Shanghai on Thursday morning and head to Austin, Texas, data from flight tracking provider Variflight show.

Elon Musk's private jet scheduled to leave China on Thursday -flight tracking data

UiPath

Catherine Wood (Trades, Portfolio) is the founder and chief investment officer of Ark Invest, an investment firm that has a range of active exchange-traded funds focused on disruptive innovation.

Cathie Wood Invests in 2 Overlooked AI Stocks

Tesla CEO Elon Musk reportedly will show off the upgraded Model 3 when he tours the Shanghai plant on Thursday. Tesla stock is near a buy point.

Elon Musk Reportedly Will Show Off New Model 3 With Tesla Stock Near Buy Point

Cathie Wood Loads Up on 2 Overlooked AI Stocks

Amazon

Amazon has improved its cost structure, and that should benefit earnings now and during easier times. Tesla is lowering the price of certain cars.

Prediction: These Stock Split Stocks Will Lead Gains in the Next Bull Market

Elon Musk is scheduled to travel to Tesla's Shanghai factory on Wednesday night to meet with staff there, two sources familiar with the matter said.

Elon Musk scheduled to visit Tesla's Shanghai plant on Weds night - sources

Tesla, Inc. plans to invest billions of dollars to increase its cell production to support the growing market for grid-scale energy storage systems. While lithium-based energy storage systems have proven to be cheaper than fossil-fuel peaker plants, this doesn't mean they're the best stationary storage solution. As cheaper energy storage systems gain traction, Tesla may be left with nothing to show for its massive investments in stationary storage manufacturing.

Tesla: Investments In Stationary Storage Set To Disappoint

C3.ai

JPMorgan Chase & Co

NVIDIA

Palantir Technologies

Major stock market indices are down on May 31 as investors await the fate of a debt ceiling deal hammered out by President Joe Biden and House Speaker Kevin McCarthy. An hour before trading began, the Dow Jones, Nasdaq and S&P 500 were all down by about 0.4%.

Why Are Stocks Down Today?

Tesla has never spent on advertising. Falling demand for Tesla vehicles may be a reason for this switch.

Tesla Is Doing Something It Has Never Done Before

Apple

Global X Artificial Intelligence & Technology ETF

ARK Industrial Innovation ETF

Global X Robotics & Artificial Intelligence ETF

iShares Robotics & Artificial Intelligence Multisector ETF

Intuitive Surgical

iShares U.S. Technology ETF

Microsoft

ROBO Global Robotics and Automation ETF

Wisdomtree Artificial Intelligence And Innovation Fund

iShares Exponential Technologies ETF

Cathie Wood picks this stock for her AI play in the ARK Autonomous Technology & Robotics ETF (ARKQ).

These ETFs, Including A Cathie Wood Fund, Ride AI Rally

Bank of New York Mellon

Disney

Hedge funds continue to exert outsized influence over equity markets. The world's 20 largest hedge funds collectively hold $45 trillion of assets under management.

3 Stocks That Hedge Funds Have Ghosted Big-Time

Ark Invest CEO Cathie Wood said Tesla could be a big winner from artificial intelligence.  The investor also defended her support for Elon Musk's carmaker, saying its stock isn't overpriced.

Tech investor Cathie Wood says Elon Musk's Tesla could be a big AI winner – and its stock isn't overpriced

Elon Musk's visit to Beijing is spotlighting China's place in the global electric vehicle markets.

Elon Musk's visit underscores China's importance to global EV market, analysts say

TAIPEI, Taiwan--(BUSINESS WIRE)-- #BEV--TrendForce notes significant YoY growth in Q1 2023 New Energy Vehicle sales worldwide.

Global New Energy Vehicle Sales Reach 2.656 Million Units in Q1, Tesla Reclaim Market Share, Says TrendForce

Ford Motor Company

Ford and Tesla announced a partnership allowing Ford EV customers to access Tesla's fast-charger network, boosting the appeal of Ford's electric vehicle line-up. The deal integrates some of largest public fast-charging networks in North America and increases charge-point accessibility for Ford customers. Ford will also be the first major auto maker to adopt Tesla's North American Charging Standard.

Ford Hits A Homerun With Tesla Partnership

Tesla Inc CEO Elon Musk kicked off his second day in China with a visit to the country's commerce ministry on Wednesday morning.

Elon Musk visits China's commerce ministry

A lengthy investigation by the National Highway Traffic Safety Administration into a gaming feature Tesla had in some vehicles just recently came to an end.

Investigation into Tesla's passenger play comes to an end

China was the biggest market for Tesla's Model Y electric sport utility vehicles, helping it become the world's top selling vehicle in the first quarter of this year, according to data from market research firm JATO shared with Reuters.

China was top market for Tesla Model Y, world's best-selling car in Q1

Federal regulators have closed an investigation into Tesla for allowing in-dash gaming while its vehicles were moving. The U.S. National Highway Traffic Safety Administration launched the investigation in late 2021 after discovering video games could be seen and played on the center screen even while the vehicle was in motion.

Tesla cleared by NHTSA for in-car gaming feature

ARK Innovation ETF

Cathie Wood's ARK Innovation ETF was rising sharply Tuesday, as shares of its largest holding Tesla Inc. jumped and technology stocks rallied amid ongoing investor enthusiasm over artificial intelligence.

ARK Innovation ETF rises sharply, Cathie Wood views its top holding Tesla as ‘most obvious beneficiary' of recent AI breakthroughs

In a move that caught EV industry insiders off guard, Tesla and Ford last week announced a partnership to allow Ford electric vehicle owners to use the Tesla Supercharger networking, comprising over 12,000 charging stations.

Can Tesla's Supercharger Become the Industry Norm? Ford Says Yes

The foreign ministry quoted Musk as saying he was willing to expand business in China and opposed a decoupling of the US and China economies, adding he described the world's two largest economies "conjoined twins."

Elon Musk visits China for first time in 3 years, eyes Tesla expansion

Tesla CEO Elon Musk met with China's foreign minister Tuesday, and the billionaire reportedly said he was open to expanding the company's business in the country.

Tesla's Elon Musk meets China's foreign minister, says he is open to expanding business in country: official

Elon Musk is making a visit to China, and investors took notice. Tesla shares have made a 25% move higher in the last month.

News for Tesla Stock (TSLA)