A Tesla bull case summary

Source: Unsplash - Manny Becerra

Here is a summary and gathering of videos, interviews, podcasts, graphics and thoughts on the Tesla bull case. The aim of this post is to distill and aggregate thoughts and information I have come across into a dense post containing the core information pieces on why I have invested in Tesla. There is a lot of content included here, and it will probably take a few days to absorb all of it, but I think it will paint a somewhat clear picture of Tesla’s potential and why it’s such an exciting company.

This is heavily inspired by Dave Lee, Solving The Money Problem and Chicken Genius Singapore. Much of the content is recycled ideas and thoughts from these individuals, and I highly recommend checking them out if you are interested in Tesla or investing.

Disclaimer: This is not investment advice, nor should any content here be relied upon for any investment activities. Should you need such advice, consult a licensed financial or tax advisor. This is only an opinion and is for information purposes only. All views expressed are personal opinion as of date of publishing and are subject to change without responsibility to update views. No guarantee is given regarding the accuracy of information on this site.

Tesla the company

The world is transitioning to sustainable energy with Tesla at the helm. The company’s mission is to accelerate the world’s transition to sustainable energy. In which they have been rapidly executing towards and achieving their high growth targets of an average of 50% year-over-year (YoY) over a multiyear horizon. Targeting production of 20 million vehicles per year in 20301.

Infographic: Tesla's 2022 Deliveries Nearly Match Its 2012-2020 Total | Statista

Source: Statista

Tesla has a heavy technology and engineering focused ethos, attracts a lot of talent being the top employer along with SpaceX that newly graduated engineers want to work for the last 3+ years 2. This gives a competitive advantage since Tesla gets to pick the best talent and the competition has to fight for the rest.

Graph showing a steep increase in number of job applicants for Tesla between 2019 and 2021, with 2019 slightly below 1 million and 2021 having over 3 million applicants. From Annual Shareholder Meeting 2022.

Source: Tesla Annual Shareholder Meeting 2022

By always tackling the limiting factors and bottlenecks, such as bringing key production elements in-house when suppliers can’t keep up with Tesla’s high ambitions, and becoming highly vertically integrated, Tesla’s technology lead keeps increasing. Quote from Elon at the early days at Tesla seems to have come true:

Here is a good article on Tesla’s vertical integration and why it matters, Chasing Tesla: There is No Catalog.

Tesla also places a high importance on urgency which is in line with the company’s mission that the transition to sustainable energy need to take place as fast as possible. An example of Tesla’s ability to innovate and rapidly drive progress would be the Giga Press with their own invented aluminium alloy. Reducing hundreds of parts and processes into a single item that reduces cost and improves quality. As Elon Musk’s famous saying: “The best part is no part and the best process is no process”.

Image showing simplification of vehicle structure with a reduction of 171 pieces of metal from a Model 3 body structure to just 2 pieces of metal for a Model Y body structure, requiring at least 1600 fewer welds. From Tesla Annual Shareholder Meeting 2022.

Source: Tesla Annual Shareholder Meeting 2022

Here’s a clip of the evolution of Tesla bodies with Giga Castings.

A few other examples of this would be:

The key here is that this rapid innovation is continually happening across most if not all areas of the company and is deeply ingrained in the company’s underlying culture. For a deeper dive of Tesla’s way of working, see:

Tesla’s vehicles is arguably the best on the market and wins across features, functionality, performance, battery efficiency and safety.

The declining cost curve of lithium-ion batteries, which makes up the majority cost of an electric vehicle (EV), means that EV’s soon will reach price parity with a gasoline car and ultimately become much cheaper. Due to EVs being a new technology, has fewer parts needed, still has a lot of gain from economies of scale and new future innovations means that the cost will go down even further. The lifetime cost of an EV today is already cheaper than an internal combustion engine (ICE) vehicle.

A logarithmic graph showing the price decline of lithium-ion batteries per kWh from 1991 at 7523$ to 181$ in 2018. From OurWorldinData

Source: OurWorldinData

Ark invest has a great article on Wright’s Law, which states that for every cumulative doubling in production, prices are cut by a fixed percentage. Elon mentioned in the 2022 Q3 earnings call that the next vehicle platform is going to be half the cost of the current model 3/Y.

Tesla is a manufacturing juggernaut. Thinking in terms of that the factory is the product, always looking for the bottlenecks that can improve their efficiency by orders of magnitude. Applying a variation of the rocket equation and thinking in terms of volumetric efficiency and velocity of the factory. Taking inspiration and designing it more like a computer chip. Placing the highest importance on being leaps and bounds ahead on manufacturing and building the machine that builds the machine.

Below are a couple of examples of this, taken from the annual shareholder meeting 2022 and Cyber Rodeo at Giga Texas.

Graph showing that castings reduce robot count by body shop robot count per unit of manufacturing capacity. From Tesla Annual Shareholder Meeting 2022.

Source: Tesla Annual Shareholder Meeting 2022

Image showing a factory design improvement of 17% energy reduction per Model 3 produced in Gigafactory Shanghai compared to the factory in Fremont, CA. From Tesla Annual Shareholder Meeting 2022.

Source: Tesla Annual Shareholder Meeting 2022

Image showing how a factory is split up in different buildings producing various elements such as body shop, paint shop, castings, stampings etc with additional inputs arriving at the factory such as battery cells, seats and plastics. From Tesla Cyber Rodeo at Giga Texas.

Source: Tesla Cyber Rodeo at Giga Texas

Image showing new factory design where everything is integrated more like a computer chip and everything is in the same building. From Tesla Cyber Rodeo at Giga Texas.

Source: Tesla Cyber Rodeo at Giga Texas

Tesla Energy (small and large scale battery storage, solar panels and energy arbitrage software) is also growing exponentially with the goal to match the car business long-term, aiming for 1.5 TWh of energy storage deployments per year in 20301. Tesla is essentially creating a decentralized virtual power plant that has the potential to disrupt a lot of the current energy sector (which is worth several trillions).

Graph showing energy storage deployment growth from less than 1 GWh in 2015 to 6.5 GWh in 2022. From Tesla 2022 Q4 Report.

Source: Tesla 2022 Q4 Report

Tesla has also become the leader in real world AI, having built a data fly-wheel feedback loop for training its Full Self-Driving (FSD) AI. This has given Tesla a tremendous data lead and it will be extremely difficult for competitors to catch up. Designing their own chip and building a super computer that is the world’s fastest AI training computer and also has the potential to become a service similar to AWS but for machine learning. Creating their own simulation software for generating training data and simulating a lot of improbable edge case scenarios. A lot of this AI tech stack will also carryover to the humanoid robot project, Optimus, with the goal of mass-producing these robots. Both FSD and Optimus project will have a profound impact if successful. I highly recommend doing some napkin math regarding this.

Graph showing the exponential growth of cumulative miles driven (in millions) with FSD beta from barely being seen in March 2021 to over 90 million miles in December 2022. From Tesla 2022 Q4 Report.

Source: Tesla 2022 Q4 Report

Graph showing the exponential growth of Tesla's vehicle fleet, from barely any cars in Q1 2012 to close to 3 million in Q2 2022. From Tesla Annual Shareholder Meeting 2022.

Source: Tesla Annual Shareholder Meeting 2022

Dave Lee’s AI playlist with James Douma is an excellent resource to gain a better understanding of Tesla’s AI efforts. Lex Fridman podcast with Andrej Karpathy (former Director of AI at Tesla) is also worth listening to. I highly recommend going on YouTube and watch several FSD Beta videos to see how far the technology has come and how rapidly it’s progressing.

Here’s a good graphic of Tesla’s current ecosystem:

Image showing Tesla's connected ecosystem with solar panels, energy storage, battery cells, vehicles, Autobidder software and FSD software. From Tesla Twitter.

Source: Tesla Twitter

If all of this wasn’t enough, Elon also mentioned at the Cyber Rodeo at Giga Texas event that Tesla is going for massive scale, that no company have achieved in the history of humanity. This has also been hinted at for Master plan 3 which is currently in the works.

A quick summary of Tesla’s current roadmap with some notes:

  • Robotics business
    • Car business - 20 million / year
      • One category killer per category
      • Supercharger network
      • Insurance
      • Industry leading margins
      • Operating leverage
      • FSD
      • Robotaxis
        • Profound impact if successful
    • Dojo
      • World’s fastest AI training computer
      • Potential for AWS like services
    • Optimus
      • Capital equipment enters the labor market
      • Profound impact on the economy if successful. What even is an economy when there’s no constraint on labor?
  • Energy business - 1.5 TWh / year
    • Battery storage
    • Solar panels
    • Virtual powerplant
    • Software (such as Autobidder)
    • Lithium refinery

Tesla has become a money printing machine and has industry leading margins.

Graph showing Tesla's operating margin compared to the Autos industry and S&P 500. Going from close to -2% in Q1 2019 to above 16% in Q4 2022. With the Autos industry going from roughly 5% to around 8%, and the S&P 500 going from roughly 13% to around 14%. From Tesla 2022 Q4 Report.

Source: Tesla 2022 Q4 Report

Graph showing Tesla's free cash flow generation, going from less than -3 billion in 2017 to 7 billion in the last 4 quarters at the date of the graph creation. From Tesla Annual Shareholder Meeting 2022.

Source: Tesla Annual Shareholder Meeting 2022

Here’s a couple of good videos by Dave Lee providing some interesting thoughts of Tesla’s financials:

In Tesla’s 2022 Q3 earnings call Musk mentions that he sees a path forward for Tesla to become more valuable than Apple + Saudi Aramco combined (the top 2 companies by market cap), which would be a market cap of 4.5T, excluding Optimus.

Here is a video with Dave providing some examples how this market cap could be achieved with some simple napkin math.

Ark invest’s articles on Tesla is also worth having a look at.

I will end this section with HyperChange’s 30min presentation which gives a great summary on Tesla and its future potential and why it’s such an exciting company.

Notable Tesla Events

Here are a few notable events that are worth watching in order to gain a deeper understanding of the company and its efforts.

Elon Musk

Elon Musk is arguably one of the world’s greatest innovator, leader and engineer (if not the greatest). Understanding who Elon is as a person, his story, drive and motivations, his physics mindset of first principles thinking and the culture he has built at Tesla is important to understand. Recommended watch: The Elon Musk Show

Here’s a big list of Elon interviews and Podcasts that should serve as a good starting point. I also recommend reading a biography of Elon Musk.

Market disruptions and S-Curves

The world is currently undergoing a transition to renewable energy sources. Market disruptions follows S-Curves and takes place over a much shorter timespan than most people realize. Even experts are often wrong and people generally have a hard time breaking out of thinking linearly. Here is a great video on market disruptions by Tony Seba.

Here we have a video by Dave Lee on the S-Curves Tesla is going after.

The competition and legacy auto

Legacy automakers are facing a difficult decade with the transition to EVs and many of them might not make it. Here’s a good video by Steven Mark Ryan discussing the end of legacy auto and the valley of death.

Here’s a great interview with Sandy Munro discussing Tesla and the competition.

The Tesla community

Tesla has an avid community of fans that are ranting and raving about how great its products are. As well as actively following the company’s journey on various platforms. Here’s an old video by Steven Mark Ryan that still rings true today.

Here are some more noteworthy individuals off the top of my head, apart from those already mentioned, following Tesla:

Final thoughts

At the writing of this post (19th Jan) TSLA is trading at around 125$ at a market cap of roughly 390B. I think there is a high probability that we will see at least a 10x from here to 2030.

Tesla is moving fast and there is a lot of aspects to take into consideration. It would be hard to provide an in depth view into all aspects and nuances without writing a whole book (and there are a lot of people that are more knowledgeable, smarter and better qualified than me that could do that), but I hope this post has provided a good entrypoint into the core parts and that I haven’t missed anything of significance. I also highly recommend that you do a deeper dive yourself to get a better grasp of all the nuances and numbers. If you managed to claw your way through all of it, leave a reaction and comment of what you think.

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  1. Tesla 2021 Impact Report, section “Our Goals”, slide 7 of 144. ↩︎ ↩︎

  2. https://universumglobal.com/rankings/united-states-of-america/2022/, Engineering section. ↩︎