TSLA: BYD of the USA (Part X)

LT US revenue by 2040 (15% CAGR) = US market share (5% CAGR) + US EV sector (14% CAGR) - norm. ASP (4% CAGR decline)

“Yes, TSLA is suffering. But so is everyone else. Much worse, in fact.”

In my preceding TSLA Part 0 report, I explored how the US EV industry and Tesla’s current position in it closely resembles Netflix’s position in the US Media industry in mid-2022. I’ll just reproduce below what I mentioned there:

TSLA ‘24 vs. NFLX ‘22 - More Similarities Than You’d Think 1. The Disruptor 2. Capital-intensive businesses 3. Enormous competition from global incumbents 4. Cleared "relevance window" by a whisker 5. Near-total commoditization of Auto & Media sectors 6. Top dogs of their newly disrupted industries

In this report:

• Why TSLA will likely hold onto its current EV industry-leading market share — Chinese EV threat notwithstanding.

• What informs Musk’s recent aggressive moves — e.g. deferral of Model 2 production, aggressive headcount cuts, etc.

• Fitting TSLA’s recent business developments around Howard Marks’ seminal investment philosophy of market cycles — and how Tesla is focusing on the real prize, total US Auto sector dominance.

• This series of TSLA reports is perfect for helping newcomers rapidly get up to speed with the company and its broader EV industry. Check out our past 3 reports linked below.

As we saw in last week’s TSLA Part S report, going concern risk isn’t really an issue for them for two reasons — 1) Tesla’s Net Cash position and 2) its traditional auto competitors being up to their eyeballs in debt.

As you go through this report, you will notice that I barely touch on most of the stuff that TSLA is currently making headlines for — e.g. Robotaxi, China FSD, etc. This is because over the long-term, the TSLA bears are correct that the wider EV industry is approaching commoditization — most of these fancy tech gizmos are unlikely to provide TSLA with structural moats going forward. This explains why its share price is collapsing as legacy tech investors flee for the exits — which happens to be the same ‘collapsing moat’ narrative surrounding NFLX in mid-2022.

And similar to Netflix then, TSLA currently benefits from having the largest economies of scale in a gradually commoditizing sector. This gives them the “bully power” to sustainably muscle their way through competition over the long-term, where they’re likely to come out of this industry downcycle stronger than ever. Again, similarly to Netflix today.

The commoditization of the EV sector also works in Tesla’s favor relative to its competitors — in much the same way that it did for Netflix. Given TSLA’s outstanding headstart in the USA (50% EV market share), it can employ its superior economies of scale to drive down unit costs faster than its traditional auto competitors can (e.g. GM, Ford, etc). This is especially significant in light of how having the lowest unit costs have come to the forefront of the EV industry.

While its US auto competitors are probably in a better cash flow position than Tesla, they will still need several years to ramp up to next-gen manufacturing processes like the Gigapress — which Tesla invented. And even at that point, Tesla’s US competitors are still looking at a gestation period of several years before they can get up to speed with Tesla’s assembly line processes today.

This means that broader sector commoditization actually provides TSLA with a greater profit/margin delta vis-a-vis competitors — alá Facebook vs Snap post-Apple’s ATT. This make it even less likely for legacy US Auto companies to match Tesla’s unit costs in producing EVs anytime before 2030 — plenty of time until the Model 2 is released.

Meanwhile on the international front, Tesla’s non-US global auto competitors (e.g. Toyota, BMW, Honda) who have greater exposure to China’s exceedingly hostile EV market are bleeding from all orifices via death by a thousand cuts. As TSLA is well familiar with, Chinese EV companies are not letting up on home ground — and are in fact already setting their sights on dominating non-Western markets. It is only by sheer luck that TSLA’s greatest growth opportunities lie in the USA — where protectionist government policy is highly likely to pass, for reasons which I shall dive deeper into below.

As I’ll explain below, the Chinese EV sector is basically the US EV sector fast forward 5 years — which makes it a great analogy for what the US EV sector could look like in 2030. Thus, BYD in China today (30% domestic market share) could also be a great analogy for what TSLA could look in 2030’s USA. Hence, the title of this report:

TSLA: BYD of the USA

TABLE OF CONTENTS:

1. AI summary of this report (160 words)

2. Superior Manufacturing Concentration = Lower Unit Costs

3. Tale of Three Countries: US, China, Europe
- USA: Tesla Exceptionalism in America (50% market share)
- China EV sector: 5 Years Ahead of US EV sector
- Europe: Between A Rock & Hard Place

4. Model 2: To 20 Million Cars Per Year By 2030

5. 📊 TSLA 3-Statement Model - 15 original charts (download at end of report)

Disclaimer: The contents of this document are NOT meant to serve as investment advice. Read our full disclaimers below.

TSLA (Part S): Financial Statement Analysis (FY16-23)

Accounting Proof: Leave Elon Musk Alone!

Could TSLA Be The Next NFLX? (Part 0)

In this article: 4,000 words (25 mins), TSLA 3-statement model.

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AI summary of this report (160 words)