"Hello, friends!"
Tesla is the most valuable car company in the world now. Its market capitalization has crossed $1
trillion. "It is so valuable that
if I keep Tesla on one side," "and
look at the next 10 most valuable car companies," "Ford, Honda, Volkswagen," "Toyota, BMW," "the combined valuation of these 10
companies," would be equal to
Tesla's. What is so special about Tesla? What is Elon Musk's magic that has made this
company so valuable? "In today's Blog, let's understand Tesla's Business
Model." """The
market value of Tesla," "the
manufacturer of high-end electric cars,"
"has actually surpassed that of Ford and General
Motors.""" """The
electric-vehicle maker's stock speeding this year.""" """Musk's wealth skyrocketing
thanks to the surge in Tesla shares."
"Making him wealthier than Warren Buffet.""" """This summer, Tesla became
the most valuable auto company in the world.""" """It's just become one of the
most controversial names," "and
one of the most-watched names.""" This Blog is powered by Vested Finance.
"At first glance, you'd think" "that if Telsa is such a valuable
company," it must be selling a lot
of cars. "This isn't true,
friends." "Although it is
certainly true that the number of Tesla cars sold this year," is much more than last year. It has good growth. "But if you compare overall," "the number of Tesla cars sold in
2021," "or rather the number
of Tesla cars that will be sold by the end of 2021," it will be less than 1 million. Here we have all the cars sold by all the
companies worldwide. 75 million. "It is estimated that around 900,000
Teslas would be sold this year." The
overall market share of Tesla is only 1.2%.
"A meagre market share, but an enormous valuation."
"Come, let's look at the main Tesla products that are
being sold" that form the revenue
of Tesla. "Talking about
cars," "mainly, there are 4
very popular models of Tesla." "Models
S, 3, X, Y." The most expensive of
them is the Model X. "Around
$99,900 for this car." "Then,
Model S at $90,000." "Model Y
at $55,000." "And Model 3, the
most sold Tesla car," "it's
also the cheapest Tesla car," "at
$42,000." It's being expected that
Tesla would soon introduce the Model 3 in India. "But in India, it will cost around ₹7
million." It will be the cheapest
model of Tesla. "One thing is for
sure," that Tesla cars come in the
high-end luxury category. If you look at
this chart you'd know the volume of
sales of each model. "Generally,
the Tesla Model X and S are around 10,000." "And Tesla Model 3 at 90,000." This chart is for the quarterly deliveries. What is Tesla's profit margin in selling one
car? "To have a fair estimate, we
can look at the Automotive Gross Margin."
It is the overall sales minus the
manufacturing cost. "For Tesla,
this is at 30.5%." It is believed
to be a very high profit margin. "In
comparison, in the past, it used to be around 27%. " And now it has crossed 30%. It has seen good growth too. "And if you compare it to the other car
companies," it is more than in most
companies. Even BMW and Mercedes don't
get such a high profit margin. "For
most car companies, it is in the 15%-20% range. " "In fact, this margin of more than
30%," is only for the high-end
extreme luxury brands. Like Porsche or
Ferrari. Selling cars is the main source
of revenue for Tesla. "Most of the
revenue earned by Tesla," is from
the car sales. But it is not the only
source of revenue. So what other sources
of revenue does Tesla have? Its sources
of revenue can be divided into 3 main categories. First is the automotive. that includes the car sales. "Apart from it, the Sale of Regulatory
Credits is also included in it."
I'll explain the Sale of Regulatory Credits later in the Blog. The
second is Servicing. Servicing the cars
is also a source of revenue for the company.
And the third main source is the energy business of Tesla. You might already know that Tesla doesn't
sell cars only. It sells Solar Roof and
Power Wall as well. The concept of the
Solar Roof is quite simple. "If you
have to install solar panels in your home, you can get them from Tesla." The Power Wall has also been created with the
perspective of renewable energy. "If
you have solar panels in your home,"
"but if there isn't much sunshine," where would you get electricity from? You need a place to store energy. Their Power Wall is an energy-storing device. This Wall looks like this. "Additionally, Tesla has plans to launch
an electric truck." Cybertruck. They're already working on it. There are also plans to launch a low-cost car
model in the future. They haven't
disclosed its name yet. "It will
cost around $25,000." Even the
middle-class people of America would be able to afford it. "Combining all the revenue of
Tesla," in 2020 it was around $32
billion. "It is being estimated
that in 2021, it will be around $45 billion." "In this chart, you can see their
revenue growth." Revenue is the
amount of money that a company earns. The earnings of the company. "In the same chart, you can see the
future projections" of the
estimated revenue of Tesla. "In the
chart, you can also see the breakdown."
Red shows the revenue from car sales and automotive.
Orange is for the revenue from selling energy products. Products like Tesla Solar Roof and Power
Walls. And Yellow shows the revenue from
Servicing. Around 80% of the company's
revenue is from the sales of Tesla cars.
If we compare this with a company like General Motors. "The revenue of General Motors," "in this chart, you can see that Tesla
is lagging." "In terms of
revenue generation, Tesla is yet to reach the levels" at which it can compete with the other car
companies. But you can see it grow on
the chart. Tesla is catching up with
them fast. "In the future, it's
possible that Tesla would overtake companies like GM and Ford." "Interestingly, friends," the money earned by Tesla is less than the money spent by Tesla. You'd wonder how this could be possible. Tesla has a nice profit margin. "The cost to manufacture one car," allows it to get profit on sale at a 30%
profit margin. On what is the money
spent? "Friends, the simple answer
to it is" on Research and Development. Tesla is spending billions of dollars on researching and developing good
technology. "For this exact
reason," "Tesla had been a
loss-making company for many years, up till 2019." 2020 was the first year when Tesla made a net
profit. "And do you know what's
more interesting, friends?" While
the other car manufacturing companies spend
a lot of money on advertising. "On
marketing and promoting the cars," Tesla's
advertising spending is $0. $0! Tesla doesn't spend any money advertising its
cars. Look at this chart. It has shown a good comparison of different
car companies the per car expenditure on
R&D and the per car expenditure on
Advertising. "For Tesla, the
advertising spending is 0." But
R&D expenses is almost thrice than that of the other car companies. You'd wonder how this could be possible. How could a company sell its products without
using ads? The simple answer is Elon Musk's popularity. "Elon Musk is such a popular
personality," "with only one
tweet, he can impact the price of Dogecoin." "So you can imagine, such a popular
person" doesn't need to spend on
advertising for the promotion of his company.
"There is so much hype built up for Tesla," that it gets automatic media coverage from
all the companies. "There are so
many new exciting features in their car,"
"they present so many new and unique things," "that people get curious about it and
write on social media," "discuss
them," "the media companies
publish articles about it," news
channels talk about it on TV. "In
marketing, this is known as Word of Mouth Marketing."
"If you like
something so much that you tell your friends and family about it," "and they like it immensely as
well," "and they tell their
friends," this leads to the
promotion of the thing. "In a way,
you can say that the promotion of my YouTube Blogs is also by Word of Mouth." "When you like it," "you tell your friends and family
members," "they watch these Blogs,"
"and through them, more people watch these Blogs."
And I don't need to spend on advertising either. "Other than this, there are so many
unique things about Tesla," "in
comparison to the other car companies,"
that makes it unique in itself. That
makes it special. "Another example
of this is," their car dealership
model. Other car companies often sell
their cars through car dealers. A third
party is involved in between. "You
would've seen that when you go to buy a car," there is some dealership involved. Tesla doesn't do so. "If you want to buy a car from
Tesla," you can order it from their
website directly. Or you can go to their
showroom and buy a car from Tesla directly.
So there are no middlemen. No
need for negotiations. And Tesla doesn't
lose money on commission either. The
disadvantage of this model is that "for
Tesla, this increases their costs."
They need to have their delivery centres. "Hire staff there," carry out maintenance. Train the staff.
The other car companies do not have to bear these costs. But the advantage is that Tesla has total control of the process from
start to end. You can compare this with
the Apple company. Apple does the same. Apple tries to control as many things as it can. "Whether it is the Operating
System," "software of the
phone, or the chip manufacturing." Tesla's
direct sales method is banned in some US States. Like in Texas. That's why Tesla can't legally sell any cars
directly in Texas. People living in
Texas have to go to other states to buy Tesla cars. Another special thing about Tesla is their giga-factories. The gigantic factories they have established to establish the principle of Economies of
Scale. "In economics, there's a concept" Economies of Scale. "The larger the scale of production of
something," it reduces the cost per
unit of it. "In electric cars, over
several years there was a problem that"
the cost of batteries was very high.
"So Tesla introduced the concept of Gigafactories," wherein they set up gigantic factories for manufacturing the batteries for their
cars in order to reduce their cost. "Presently, there are 6 Gigafactories
worldwide." 4 of them are
functional. And 2 under-construction. "Apart from these, perhaps the most
special thing about Tesla is" the
technologies that they use in their cars.
The type of self-driving technology they've used has never been seen before in a car. "In their autopilot mode," a driver could drive the car almost without
doing anything. The car can drive
itself. The safety features in their car are one of the best in the world.
"The credit to popularise electric cars globally," goes to Tesla. "For these reasons," many people have confidence in Tesla. And feel proud to invest in its stocks. "They're certain that in the future,
this company" would bring a
revolution to the world. "So many
people have invested in Tesla's stock,"
that it is the most popular stock in the US now. "If you want to invest in Tesla's stock
too," "or in the stocks of any
major global company," from India. You can easily do so through the Vested app. Vested is a Zero Commission US Investing
platform for Indian investors. "It
was started in 2018," "and if
you had to invest in the US stocks then,"
there was a very lengthy process.
Many paperwork had to be signed. "But
now, the process has shifted online."
And has become very simple. It is
registered with the Securities Exchange Commission and Registered Investment Advisor. It is a credible platform. The link to the app is in the description
below. Do check it out. "And for the sake of transparency, I'd
like to tell you that" I have also
invested in Tesla's stock. "But I
have one tip for you," "whenever
you invest in the stock market," don't
invest a lot of money in one stock. Diversify
your portfolio. It reduces the risk "in case one company goes under," all your money wouldn't disappear. "Obviously, investing in global
companies as well as Indian companies is a good way" to diversity your investment portfolio. "Anyway, let's get back to our
topic." "In the last 2 years,
Tesla's share price has increased to 15 times." "If you had invested ₹100,000 in Tesla's
stock in December 2019," "today,
that ₹100,000 would have been around ₹1.5 million." "So many people investing in Tesla's
stock," is the reason why Tesla has become the most valuable car company
in the world. But there is another
aspect of it. Many people believe that Tesla's stock is currently overvalued. They think that it doesn't have any reason to
be so valuable if the data and
statistics are looked into realistically.
What are the reasons why some people believe Tesla to be overvalued? Let's look at them. "First, other car companies have entered
the electric vehicle market too." And
the market share of Tesla is starting to fall.
"The total electric vehicle registrations in the first 6 months of
2020," "in the US," "In it, Tesla's market share was
79%." "But in the first 6
months of 2021," this market share
fell to 66%. The other car companies'
market share has started increasing. Audi's
market share has increased to 3.3%. Ford's
to 5.2% Chevrolet's has also increased.
And almost all of the companies have introduced models of
their electric cars. "And in many
cases, they are much cheaper than Tesla's model." The second important reason here is the Regulatory Credits. I mentioned them earlier in the Blog. Regulatory
Credits are a very important source because
of which Tesla can now be profitable. "For
Tesla, it is a revenue source." What
are Regulatory Credits? "In America,
there is a Point or Credit System."
"The companies that do not cause pollution," "or those that meet the maximum
pollution emissions standards," the
US government would give them credits or points. These are known as Regulatory Credits. Companies have 2 options now. They can either manufacture such vehicles that doesn't cause pollution. "Or if they are producing vehicles
causing pollution," those companies
need to purchase Regulatory Credits from
either the government or other companies.
And Tesla has earned many such Regulatory credits "because they manufacture electric
vehicles that do not cause any pollution,"
"So the other car companies,"
have to buy these Regulatory Credits from Tesla. They pay Tesla in exchange. And thus it is a major revenue source for
Tesla. "According to the 2020
annual report," almost $500 million
of Tesla's revenue were from the Sale of
Regulatory Credits.
"In fact, if Tesla had no revenue from the Sale of
Regulatory Credits," "in
2020," Tesla wouldn't have been a
profitable company. It would've been in
a net loss that year. "In this
chart, you can see the impact on Tesla's net profit" if Tesla did not have any revenue from the
Sale of Regulatory Credits. Many experts
believe that "in the next few
years, Tesla wouldn't have this revenue source any longer." "Because the other car companies would
ramp up the production of electric cars,"
or they would switch almost completely to electric vehicles. So they would no longer need to buy Regulatory
Credits from Tesla. And so Tesla would
lose this revenue source. Will Tesla
continue to remain a successful company in the upcoming years? Or will it fail? Time will tell. But I've told you both sides of the argument. What's your opinion? Comment below. I would like to tell you one thing when you invest in Tesla's stock "or in the stock of any company," "through the Vested app or any other
apps," "remember one
thing," you need to have a basic
knowledge of these companies. How are these
companies performing? What are its
revenue sources? How profitable is it? What are the future predictions? Listen to both sides of the argument. "And only after you've understood the
risks, invest in the company." Do
check it out. Let's meet in the next
blog. Thank you very much.