> They have a completely different sales model, so it's apples to oranges. Most OEMs wholesale cars to dealers, of course those margins will be smaller.
Well yes, but they've been successful with this sales model, and sell cars all the same, so that makes them more valuable in comparison.
There are a lot of costs to operating a service center and managing customer deliveries that aren't necessarily considered in gross margins for Tesla whereas they are considered in the case of a traditional automaker in a dealership model. I wouldn't be surprised if Tesla still has an advantage compared to manufacturer+dealer but we won't learn that from comparing vehicle margins directly.
There's also a lot of super weird dealer kickbacks behind the scenes that can make gross margin misleading for traditional autos, probably in Tesla's favor.
Anecdotally, we bought a Tesla a few years ago and it was awesome. Just buy it online, walk up, unlocks with your phone, and drive away. My spouse (a very socially anxious person who despises car dealerships) loved it and said if it made sense, she would never buy a car anywhere else. Granted, the same experience is rolling out for traditional cars (carvana, carmax, etc).
> >Their gross margin on cars is the highest in the industry.
> They have a completely different sales model, so it's apples to oranges. Most OEMs wholesale cars to dealers, of course those margins will be smaller.
This is the crux of the innovator dilemma - that their dealer sales model was a moat to prevent new entrants, and it could be their lodestone as well, preventing them from actually being able to compete with Tesla (since shifting from that will likely prove to be difficult/impossible).
Doesn't hurt Tesla that dealers are notoriously unpopular with customers.
I never got the impression that Big Car wanted to maintain the dealer franchise laws. I thought that was something the dealers themselves buy from state representatives.
You know that this whole game is about profits, right? If "of course" TSLA's margins are higher, "of course" their market cap will be higher.
And yes, investors are aware that this is a function of market segment. It's also a function of vertical integration, manufacturing prowess, unions, and retirees.
> debt because they run huge financing departments
Debt isn't the right metric to focus on, but the fundamental point is that if legacy auto perfectly executes a pivot, they get to keep their cash flows, while if TSLA keeps up the status quo, they expand their cash flows.
There will be a lot of stranded assets and failures to pivot in the legacy auto sector. Investors know it and the market caps got carpet bombed to reflect it. TSLA's didn't.
> Base rate fallacy, extrapolated into infinity
> Tesla, since they are still a rounding error
Do you not see the connection? Not only can we extrapolate, we can extrapolate far more precisely than usual because we already know the size and shape of the market they are expanding into. Usually these models take the form "TSLA grows 50% yoy until they top out at 1/3 of non-China auto sales" or something, and these are the models that back the current valuations. Optimistic? Sure, but not nearly as optimistic as "base rate fallacy, extrapolated to infinity." Lol.
> Base rate fallacy, extrapolated into infinity, sure.
You only need to extrapolate Tesla's existing revenue and growth out for five years to make them the biggest automaker in history, though.
Clearly, yes, it's going to stop somewhere. But a first principles argument like yours is running out of room. It made sense a few years back when they were still popular-but-tiny. At this point, the median expectation pretty much has to be that Tesla will be the dominant vehicle manufacturer globally for the next decade or three.
They delivered ~925,000 cars in 2021 with just two factories. That is about 2% of global sales. Maybe a small player (wouldn't say tiny, tiny at this point) in 2021 but they are ramping up production at two factories completed this year and building a large expansion to the Shanghai plant. They will likely produce ~1.4 million cars in 2022 and north of 2 million in 2023. Where they peak out is not clear of course but at least 6 million cars per year from existing sites can be expected.
They have huge amounts of debt because they run huge financing departments and therefore also have a huge number of assets on the balance sheet.
>Their gross margin on cars is the highest in the industry.
They have a completely different sales model, so it's apples to oranges. Most OEMs wholesale cars to dealers, of course those margins will be smaller.
>Tesla has been hitting their goal of growing at 50% per year for a decade and plans to continue until they are making 20 million cars a year in 2030.
Base rate fallacy, extrapolated into infinity, sure.
>The next 5 years are critical for the existing players and many will shrink dramatically or go bankrupt.
Some will disappear or merge, of course. But the next 5 years is also crucial for Tesla, since they are still a rounding error in global market share.