Date of Last Revision: January 16, 2018
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Don’t you think comparing these two based on “current” metrics is a bit disingenuous? I am not contesting your conclusion about either Tesla or Fiat’s valuation(actually i agree on both of them), but its very clear that Tesla is priced for the “future”, so for example in order to compare C02 emissions i would think that one should address how the grid will look like in the future: for example: let’s say if grid is 100% nat gas then due to higher efficiency of larger scale – a tesla would have less emissions than the fiat car(or something like that)
and similarly to address tesla valuation, it would be necessary to comment on what’s the probability whether electric is the future or not.
i understand that it would still be difficult to justify tesla valuation but its better than using “current” metrics, no?
Thanks for the observation. You are correct, that if Tesla continues to grow and the grid gets to where Obama wants it in 2050, the electric cars will be less carbon producing than a natural gas car. Furthermore, Teslas clearly have a lot more power than a Fiat Bravo! We just thought we’d make the point because no one is talking about it. We tried to help a lobbyist working for a hybrid auto manufacturer (we don’t have a position in it, nor have we ever, nor will be probably ever) to help elaborate on the carbon emissions of electric vehicles vs. hybrid and nat gas vehicles, and zero politicians understood the argument.
It seemed like a pretty meaningful argument to us. The state ended up pulling special electric vehicle tax credits recently and since then, electric vehicle sales in the state have gone down over 75%. The simple problem is that IC engines are substantially cheaper than batteries, even if Musk achieves his $125 / kWh price he is targeting (vs. over $250 kWh today). Otherwise, Musk can target the high-end of the market, and Leafs will go on selling because of heavy tax credits that artificially lower the price. CAFE requirements will start pushing up battery usage in IC engine vehicles, so we suppose in the 2020’s, A Ford Escape may end up starting in the $30-range anyway, and the differential may not be as large. We will no longer have our automotive investments well before then.
Our back of the envelope math suggests that for Tesla to be worth over $200 / share, it will need to build more vehicles than BMW does currently. It takes a very large leap of faith to get there. We suggest you take a look at what happens with Jeep when it introduces in China at one third to one quarter of the price point it has been selling vehicles recently. If sales sustainability go up more than 40x, then I suppose there’s a precedent for a Tesla rise to 2.2 million vehicles / year. Unfortunately for us FCA shareholders, they will likely not even go up 4-6x, in line with the increase in the total addressable market. TAM expansion may be a good indicator of TSLA’s future market potential. Even if he gets 125 kWh batteries and wants to earn a decent margin on the cars, we don’t think Tesla will ever have a vehicle priced below $32k.
Thanks for the prompt reply.
@CO2 emissions: makes sense, appreciate the additional color on this. Would be interested to know your thoughts on solar? I think that would be important to address in order to think about the potential environmental benefits of EVs.
Thats what it seems to me as well, tesla’s valuation would be very much dependent on either tax credits holding up or dramatic reduction in battery costs.
Thanks for the tip on the Jeep introduction in China, would be interesting to see.
We’ve been following solar, and find the cost parity in some regions of the world highly compelling and interesting. We’re not sure who’s going to get the benefit, but it’ll probably be something similar to the internet, where most of the net benefit thankfully gets transferred to society instead of companies.