Listen here or on the go via Apple Podcasts and Spotify
A bull (The Value Edge) and bear (Pacifica Yield) discuss Tesla. Brand damage and Q1 deliveries (0:55). Are TSLA’s plans for the future enough to be long-term bullish on the stock? (9:20) What data points will drive a turnaround? (17:10) How to fairly value Tesla (19:20). Tesla’s competitors (26:35). Tesla ecosystem as a whole (33:35)
Transcript
Rena Sherbill: Welcome to Investing Experts, Pacifica Yield and The Value Edge. We are getting into Tesla’s (NASDAQ:TSLA) (TSX:TSLA:CA) stock today. A perfect day, I think, to cover the stock given the delivery numbers they just announced and how the market is taking it.
Welcome to the show. First of all, it’s great to talk to you on Seeking Alpha. Maybe let’s start with a positive take given all the negativity hanging on in the world.
The Value Edge, talk to us about what you thought of Tesla’s numbers today and broadly speaking, how you see Tesla.
The Value Edge: So obviously the numbers today, they missed the market expectations a bit.
We saw it dipped down quite significantly before market open, and then it was sort of a mixed reaction as the market went. I think there’s been – you can’t really argue – there’s been some brand damage over the past few months.
Elon Musk, his involvement in politics has definitely, it’s obviously been a controversial topic. And I think he disenfranchised, and I wrote on this recently, I think he disenfranchised a big portion of his existing customer base. And so you probably didn’t see that in this report. You may see it in future production delivery reports.
But I think the important part is they’re producing, what is it, 362,000 vehicles in Q1. You look back, these are near record numbers, if not record numbers. I mean, five years ago, this was a very small company in terms of total production. So the production rate is growing.
Obviously, in ’23, we had some pretty material margin compression, but I think the unit economics are recovering again.
We’re seeing that in more recent reports. So it’s not great, and it definitely highlights the environment we’re in with sort of weakening EV demand, a weakening auto market, maybe a weakening consumer.
But from the fundamental perspective of the company, right, you’ve got over the course of five years, they’ve probably more than doubled production. I don’t know the exact metrics. I’m gonna pull it up on the site here, but they’re growing their production quite significantly. They’ve got a global manufacturing footprint.
They’ve changed how the auto manufacturing process works from their gigacasting to all the automation or the actual human touch they involve in there. So I think it’s still a fundamentally good story.
You’ve got growth, but it’s just, there are some weak points, and there’s quite a bit of brand damage, I think that the company is gonna be working through for quite a bit of time here. You can’t really avoid that with Elon’s activities and his extracurriculars.
So I don’t think it’s the end of the world. It obviously wasn’t what the market was looking for, but, I think you look five years out, that production number is gonna continue growing.
That production number the unit economics are probably going to continue improving at least, or stay flat. But this company has a very good track record of improving their unit economics.
So I think it’s sort of fine. I think you just look out a few years, and this will be the result of a weak macro environment and a somewhat weak consumer with a little bit of extracurriculars added in there.
Five years from now, it’s probably a distant memory.
RS: Let me ask you before I ask Pacifica Yield to share his bearish take on the stock. We saw those disappointing numbers, but then we saw the stock rise on the day.
Are you of the opinion that that has to do with the report that came out that ostensibly Elon Musk will be taking away from his DOGE role and putting more time into his Tesla role? Are you of the opinion that that’s the thing that pushed it up today, or what are your thoughts on why it’s up despite disappointing numbers?
TVE: Yeah. I would say you’re probably right. I would think less government involvement is a net positive, a net benefit for the stock because investors care about the business.
And if Elon’s extracurriculars are hurting the brand reputation, brand value, that’s going to have very real impacts on the business. We see people are going out in the real-world and damaging Teslas. They’re damaging dealerships.
None of this is good for a business. So I think that takes a big bit of uncertainty out of it, and it also will help it fade out of memory over time of Elon’s intense involvement in a very contentious administration. You’re sort of demonizing yourself to half of your population and making a hero out of yourself out to the other half.
But I think from a business perspective, yeah, there’s going to be more focus and a lot less news headlines, I’m hoping, from an investor standpoint.
RS: Pacifica Yield, what are your thoughts in general and given the numbers that came out today? What are your bearish thoughts predicated on?
Pacifica Yield: Thanks, Rena. So I think Tesla’s a great company. It’s a great American car company, and they’ve essentially, I’ve been following Elon since 2017. My first article on Tesla was back in 2017 when I actually recommended it as a buy.
I think since then, what we’ve seen is a huge divergence of value from fundamentals. So the current market cap, I think, has hugely diverged from its fundamental value.
And the numbers were, as Dan Ives said from Wedbush, it’s sort of very much catastrophic. It was a disaster, underperformed consensus by a huge margin, and it’s down from the previous two fiscal years.
And those kinds of numbers in a single period is very hard to recover from. And I think it’s very much a brand image problem.
And with Elon at Doge, I think the Politico article that came out around him leaving quite soon was, he mentioned that was fake news. He tweeted out that’s a few hours ago. So he’s very much still involved politically, and I think that it will be an albatross around Tesla’s neck for as long as we go through this period of political uncertainty.
And my view is a year from now, in terms of sales and demand, even though production has gone up, sales and demand probably will dip when you see the reciprocal tariffs being brought in, for example.
I think it’s on the EU, it’s 20%. In The UK, which is Tesla’s largest market in Europe, it’s 10%. There will be a response, not just from the consumers, but from the governments of these countries.
So on a global perspective, we will see a large retrenchment of sales in The EU, definitely in The UK, in Australia, and possibly in Asia as well, China and less so.
And in the US, it’s the core market. I think we will see a weaker consumer demand just from potential recession.
I think the Atlanta Fed has forecast a negative GDP growth of roughly 3.8%, and it’s just not the macro environment that people will go out to buy cars in the tens of thousands.
So I think from the macro side, Tesla does face some headwinds, and the valuation against these headwinds to me just doesn’t make sense.
It has a combined market cap in excess of the largest 10 automakers combined, and that will not hold in a recession if the US does fall in a recession, which I think JPMorgan and Goldman have ramped up the expectations in 2025.
So, definitely, I think we’ll see some headwinds for Tesla. It’s still a great company, but the valuation is just not at the right stage right now, and there’s a lot of room for that to come down.
RS: You mentioned Elon Musk denied that report. Do you think that we’re gonna see tomorrow and in the ensuing days it gets back to a lower valuation?
What’s your thinking on how the Elon Musk part of it affects things in the near term?
PY: I think in the near term it’s gonna be down. The S&P (SP500) will over the next few – from my perspective, I’ve started to position my portfolio for this. But I think the S&P will drop down on that broad market sell off on the back of the tariffs and what might be a trade war that he has sort of recommended.
It’s bazooka options to respond to Trump and that overall sentiment of stagflation is gonna ramp up in the market. So I think in the near term, we will see Tesla drop tomorrow when market opens and over the next few weeks.
And the only thing I can see is to reverse that as if we see it’s the last-minute deals that we saw delay the Canadian and the Mexico tariffs.
But I think definitely sentiment from the market is gonna be set, and we will see Tesla as a high-profile casualty of that just because of his closeness to the 47th President and to this current administration.
RS: And what would you say to The Value Edge’s point and many bullish perspectives that what they have coming down the pike is going to set them up for the long term, and long term, it’s still a bullish scenario.
And to add to that point, there’s much conversation around Tesla’s consumers. Maybe for the most part, those consumers are not necessarily affected by a recession even if we do get one?
PY: I think the core thing for Tesla is even though its production is I think at core, the dip we saw in the first quarter, a lot of it was because the model y was the downfall of refresh.
So we might see some demand return from there. But, really, it’s an image problem.
And a car isn’t just like – in 2024, there was the big boycott of, I think it was Bud Light. But Bud Light is $4, $10. A car is probably the second most expensive item someone will buy outside of their home.
So this demand simply will not return that easily. So even though we do have a huge amount of downstream production capacity expansion, the demand itself there I think Belgium, it’s down 70%.
In Denmark, it’s down more than 40%. In France, it’s down more than 40%. In The UK, which was probably their only positive market, it had – a trade war might affect those figures.
So I think in terms of its downstream pipeline, even though production will ramp up, Tesla will see a lot of its demand, especially in its sort of core European markets, and even in the US, sort of large Democratic states like California and New York, Massachusetts, we might see a dip there just because of the political ramifications of Elon.
So I do think we’ll see Tesla have to offer more exceptions, more discounts, more deals to boost that demand.
We’ve already seen it. So Tesla offers 0% financing, we will see more price cuts, and that will have a negative impact on margins.
Overall, the company will have to be very, very aggressive on discounting and bills and ad hoc policies they can implement to boost demand, but I just do not see demand returning to its levels that it had in 2023 and 2024.
RS: And The Value Edge, how would you answer those points?
TVE: I mean, I can’t disagree with anything. He’s bringing facts and numbers.
I guess what I’d say in terms of consumer behavior in a recession. Cars are a very unique product. If my car breaks down tomorrow, whether we are in the worst recession since ’08 or in a booming economy, I need a new car.
Right? I think a lot of that demand, it doesn’t disappear. It will shift towards used autos. And, actually, funny enough from the bullish perspective, used autos, the used Tesla market right now, I think, is plummeting.
It is not doing well, and I think a lot of that, again, ties back into the brand damage type conversation we’ve been having.
But I think in terms of the mind’s eye of the consumer, right, when you have these auto import tariffs that we’ve been hearing about and seeing all these headlines for, Tesla’s a bit more shielded from that because they’ve got a much more domestic manufacturing base for their US EVs than any other EV manufacturer producing cars locally here.
Not to mention, Tesla already has a profitable EV manufacturing footprint in the US. I don’t think there’s any other current automaker making electric vehicles profitably right now.
So you’re going to see car prices increase, but Tesla’s rate of increase will be less than their competitors.
I think that will influence some consumer purchasing decisions. But to Pacifica’s point, there’s going to be deals.
There’s going to probably be margin compression to bolster some demand. Right? Tesla has a little bit of room to eat some of that margin compression, but it’s not gonna be welcome news from the market and from investors.
We saw that in 2023. The market is very averse to margin compression. But this is where I think the conversation sort of shifts more to Tesla’s ecosystem as a whole.
You’ve got the supercharger network. So you’ve got a little bit of the inkling of a very durable revenue stream in the future. You’ve got autonomy, which is still several years, in my opinion, away from being a material contributor.
I think Elon is very, very ambitious on his goals. Right? I’d like to probably say three to five years; we start seeing some sort of meaningful contribution.
And then you’ve got all of these different projects happening internally between an US lithium refinery, US manufacturing footprint, the Dojo chip architecture.
You’ve got these humongous training clusters for AI. I think that may actually be owned by xAI, but I assume internally, things are pretty fluid, right, between Elon’s companies.
Not to mention, right, you’ve got sort of this whole wave of what do we think Optimus will be. That’s going to really impact the multiple of the stock over time.
Because if Optimus pans out in the way that Tesla the company has been saying it will, then it’s obviously not really priced into the stock, I think because Elon is saying this is something of a multitrillion dollar market, humanoid robots, and real-world AI.
How do you price that into a stock? It’s impossible. Right? So you just kinda guess. That’s what the market’s doing is, what do we think the likelihood is, and what do we think this could turn out to be?
I like to focus more on FSD progress and what the licensing of FSD might look like in the future. That’s sort of an NVIDIA (NVDA) competitor with NVIDIA’s drive platform.
You’ve got a whole internal chip team developing and designing chips, getting them manufactured by leading edge chip manufacturers and foundries.
And then you’ve just sort of have this full sail shift towards AI that the whole market has been obsessed with. And you can think of very few companies better positioned to fully benefit from that than Tesla.
They’ve got a fleet of vehicles that are software defined vehicles. They’re working on a humanoid robot, whether it’s five or ten years in the future. Who knows? They’re working on a semi-truck, which ties into FSD quite well. FSD licensing, you can have – superchargers can get smarter. You’ve got home energy solutions.
So you have this whole ecosystem of businesses that are not currently meaningful contributors, but five, ten years from now, the financial statements and the lines on the income statement might look a lot different in terms of your revenue share between different business lines within the company.
So I think we’re – and rightfully so for right now – because the auto business is a huge segment of Tesla overall. But I think we’re very hyper focused on the auto segment, and that’s what analysts typically are very, very hyper focused on this.
Because right now, it’s a major contributor to their revenue. But then you see Tesla Energy just exceeded 10% for the first time in Q1, I believe. And then all of the sort of the potential of the AI use cases that you’ve got in terms of real-world AI, I think it’s coming, it’s just a matter of when.
RS: So FSD, for those that don’t know, stands for full self-drive.
I’m curious what your thoughts are near term. Are you also of the opinion that Tesla’s gonna go down in the very near term?
And what are the, I mean, you mentioned a few of them just now, but what are the data points that you think will help turn it around on the long term, or what should investors be paying attention to along the way?
Like, what would be a good data point, and when would those be coming?
TVE: Yeah. That’s a great question. So, I mean, frankly, I don’t really know what’s gonna happen tomorrow or next month.
I think it was a much easier call up at $450 with over a PE exceeding a 100x. This stock is not gonna remain that high for that long. I think I wrote a sell article, a sell rated article at $436. Felt pretty stupid as it was going up to $470, but now we’re sitting back towards $250, 260.
In hindsight, it was pretty obvious. Whether we have further to fall, maybe. I think Tesla’s a very high beta stock. And if the market continues falling, Tesla will most likely continue falling along with it, and probably more severely.
And then to your second part of the question, which is what data points are gonna drive a turnaround, some sort of positive news out of auto demand and EV demand would help.
I don’t think that’s coming in the next year. I think the auto market is in a pretty dismal point right now.
But this stock has always traded on the story and the potential, and what do we think is going to happen? I think it’s much more based on subjective, just sentiment. What is the story, and how is the market feeling?
When we’re trading at $450, and I write a celebrated article, everybody’s telling me, no. The stock is just going to continue going up. There’s no way. Right? It’s so sentiment-driven.
So I think as soon as that sort of brand damage starts to fade back into distant memory as Elon gets further away from politics and more focused on driving product delivery and engineering improvements, I think it will show through over time.
I just don’t know how long that takes. It might take a year. It might take two years. So if you’re not patient enough, this is definitely not the stock for you.
It’s going to be very volatile. But if you’re willing to play it out, I think 10 years from now, we’re looking at still one of the largest companies in the world and one of the most influential companies in the world.
RS: Being fairly valued, does that apply here? How do you navigate the price targets?
TVE: That’s a great question as well. It’s very hard to value a company like this.
It’s almost a fool’s game because everything is driven by sentiment, really. I think over time, you look five, ten years back in the past. You see phenomenal business growth and the stock follows that.
But right now, to Pacifica’s point, we’re at a very elevated multiple, especially relative to other automakers if that’s how you’re pricing Tesla.
So we’re not trading at fair value if you’re pricing Tesla as a car company. We’re probably trading beneath fair value or below fair value if you’re pricing Tesla as a pure real-world AI play.
So it’s just the uncertainty that’s inherent in the stock and the beta that the stock carries makes it almost impossible to do any sort of, like, reliable valuation analysis of it. So you just look at the multiples, and you say, well, based on our multiples, this is clearly an overvalued stock. But based on the potential of the business, well, it might not be so overvalued.
I think you have to take a very nuanced perspective with it.
RS: Not much room for nuance, though, these days, is there?
TVE: No. Definitely not.
RS: But we’re all here to celebrate it. Pacifica Yield, I’d ask you the same question. What are your thoughts on the valuation, and how do you navigate that part of analyzing the stock?
PY: Matt has made a few great points around, especially around the non-automotive segments.
So, like I said, robotics and Optimus, energy storages, AI do have a lot of long-term potential, and that’s where the difficulty of Tesla comes from.
It’s not just valued as an automotive stock. It’s valued as a play on, I guess, Elon’s genius because he used it – look at his wider portfolio of companies, SpaceX (SPACE), Starlink (STRLK), Neuralink, Boring Company. And you do see a man who is probably, in a sense, generational, and investors do wanna pay for that exposure.
So it’s hard, and I would recommend people not to short Tesla because the valuation can detach very quickly based on whatever news comes.
But from a fundamental perspective, the company probably is overvalued to the extent of 100% if I had to give a specific figure, just on the automated segment still being by far the largest driver of revenues. I think it’s in excess of 80%.
And Tesla’s great story, especially around the cash flows it’s received from the auto segment, has been a huge driver of its value gain since the pandemic. So once we see that start to reverse, and we possibly see free cash flow start to come in negative, which would be a huge jump from where it currently is now, then the market would be less willing to pay for that’s the great premium or the Elon premium, and we will see some of that valuation start to pull back and Tesla be more valued as it is to the car company than it currently is now.
But, yeah, long term, definitely FSD, which is still three, five years away, possibly longer in European countries with a lot more stringent regulations. Optimus would be an incredible product if it does actually come in the market.
And the storage is very interesting because it’s been a huge driver of revenues historically. I think, like Matt said, it’s roughly 10% of revenue for the last quarter.
But with uncertainty around the Inflation Reduction Act, which broadly speaking, and I’m very much invested in utilities and green energy. There’ve been quite a few retrenchments in the area.
So Trump is looking at boosting production of coal. So if that does happen and there’s a reduction in demand for solar and wind, we’ll see energy storage in the US for that segment specifically start to go down.
So for Tesla, its core, most near term revenue generating segments in autos and energy storage do have more near term headwind than they do tailwinds.
Over the next decade plus, AI, robotics, FSD, then the valuation, I think, is a lot harder to pin down.
The market will be more harsh in the near term just because we’re entering a huge risk off period, which will reflect what it was when the Fed started raising rates in 2022.
Because in 2021, when there was a SPAC bubble, any company in any industry could go public, and it would go up to 300 percent within a week because that risk off sentiment just didn’t exist.
And if we do go back to that, where there’s talk of the Fed possibly raising rates, inflation starts to go up again, we will see Tesla’s valuation more heavily retrenched.
So that is my base case for the company, really. In the next two years, medium term and in short term, next six months, we will see more downward volatility.
But that valuation is a lot harder to pin down over the next five plus years.
RS: Is there something that would turn you bullish or some things that would turn you bullish at this point?
PY: I think it would be hard for me to join the bullish camp, just because the brand damage is very difficult to recover from.
And it might be that in the next two years, the politics become a lot less prevalent, especially as DOGE is set to terminate before the next midterm elections.
But just because if we do see an entrenched level of trade wars, countries possibly fall into recession, I think there are projections for Canada to fall into recession. It’ll be hard for people to go back to the overall demand that Tesla saw in 2024 because the brand will be permanently associated with that sort of destruction of value and destruction of jobs.
In Canada specifically, there’s been thousands of jobs already lost in this industry. And if that trade war does ramp up, then again, it’s just hard to see how the brand recovers in the country. It’s definitely that. Tesla isn’t just an American.
It doesn’t just sell to the US. I know the US is the largest market. It sells to China. It sells to The UK. And I think from that global perspective, especially as Trump has ramped up the trade war against China, there will be global brand damage, and those tariffs are not just gonna go away.
It’s very much a central part of the Trump administration for the next four years or maybe two years until they lose in the midterms if they do.
So it’s just that I think we have a permanent trade war for the next four years. And Tesla within that scope will be definitely in the near term always associated with that.
I just don’t see that brand really recovering. And the same thing happened to a few brands in the past, you look at Bud Light and the issue it had last year. The brand still hasn’t recovered.
And a car being a huge investment for most people. I just do not see how in the near term how Tesla really overcomes the current headwinds and overcomes the current damage to its brand, especially within its core demographics.
RS: Do you have any thoughts on Tesla’s competitors, and who may pick up the slack, I guess, especially pertaining to the car angle?
PY: Yes, so it will definitely depend on the specific markets.
We will see a rise in – I think what we’ve seen in Canada where it was by Canadian ramp up or Canada doesn’t really have its own domestic car manufacturing company. But from a global perspective, we will see my base bearish case is that we will see essentially the same as it happened in other countries by Germany or by China or by The UK.
So we will see demand increase for BYD products in China, for example, and possibly more near term softness for Tesla in the EU more. German and French car companies will see a boost. I think they’ve seen in the first quarter, there was a rise in sales, essentially, for those car companies compared to Tesla.
And from a global perspective, yes, there will be more competition within the US. Tesla has done an incredible job basing its domestic manufacturing base in the US and in America. So that’s something I will actually commend Tesla for. That’s a great position to be in with Trump’s tariffs.
But from an international perspective, I think we will see a lot of weakness and how that translates to within a trade war, how that weakness evolves or retraces would be I think it would be interesting to see.
But from an international perspective, I think we’ve seen Tesla, the best days of it are very much over, and I don’t think we’ll see sales ever recover to how they were in 2024 or 2023 in basically every single international market. That means something for the company.
TVE: A lot of great points made, hitting the nail on the head.
From a domestic standpoint, in the US market, I think it’s indisputable. Tesla is the clear leader in EVs. The model y is one of the best-selling, I think, if not the best-selling car in the world. You’ve got these fundamental tailwinds from just the adoption of EVs.
All your other automakers are at a steady state growth rate for decades. And then you’ve got a new market with EVs, and it’s taking share from traditional internal combustion vehicles.
And then you’ve got the clear market leader. So that’s a great position to be in.
But then to Pacifica’s point, right, Tesla’s not just a domestic company. They’re not just a US company. It’s an international brand. They’ve got huge production in China, which if that Shanghai gigafactory is used as a sort of negotiating factor, that would turn me bearish almost immediately.
If we saw some rhetoric out of Xi Jinping and the CCP that American business is not as welcome anymore as a result of the very protectionist trade policy that the US is turning towards. That could have a significant impact on this stock. There’s no there’s no avoiding that. That’s just a reality.
And, again, in Europe, I believe it’s, again, to Pacifica’s point, Tesla sales are not doing all that well. Right? You’ve got Gigafactory Berlin has been experiencing some outages last year. This year, it’s experienced some between protests and other planned outages.
So from an international standpoint and looking at the auto market as a whole, it doesn’t look great for the next year. And I think looking at any sort of political sort of backlash from any international country where Tesla has major production facilities, that for me would be China and Germany, that would be very bad.
So there’s really no avoiding that. And if you’re a bull, there’s no point in trying to shield yourself from that reality. I think it just returns back to this conversation of what does the product pipeline looks like.
And if you’ve got the best EV in the US, which I think Tesla has, a lot of Chinese competitors are cost competitive and performance competitive with Tesla at this point. But in the US, that’s a different story.
And then you add on to it these ancillary products like energy storage and home charging and a supercharger network. I think over time, you see people want that Tesla ecosystem, not just the Tesla product.
So another thing that is going to be a huge focus for me this year is trying to quantify in whatever way possible what this brand image is doing to the company’s demand profile because that’s bar none. I think the most important thing to monitor over 2025 is really what is the extent of how much, I think, there’s no avoiding it, mostly people on the Democratic side, mostly people with Democratic political beliefs. How much do they hate Tesla now? I think finding the answer to that question, there’s gonna be some discovery in the market this year.
But once we’re really able to pin that down and, is this a temporary sort of headwind that we’re gonna make it through, and it’s sort of a just to use everyone’s favorite word, is it transitory? Is demand gonna recover next year? As we get a clearer picture, and we’ll get that in the future production and delivery reports throughout this year.
As we get that picture more clearly, I think you can take a much more concrete stance. I’m being very nuanced here purposely because there’s so much uncertainty right now.
But, looking to specifically that brand damage and the reputational sort of considerations here is going to be very important for everybody for the next year.
RS: Your last article on the stock, you had a strong buy. Is that still your take? Strong buy, not just a buy?
TVE: I mean, I’m very, very bullish long term. And now I think the reader base on Seeking Alpha, they wanna make money and they wanna make money now. And you have some people that are very long term focused.
I am one of those people. So I’m sort of looking at the perspective of if I had to buy the stock today and hold it for ten years, twenty years, and never look at my portfolio again, of course, yes, I’m going to buy it.
The stock just fell 40% or 50% from its high, which the high was way too high, but I think you just have to tune out that noise and look, ten years from now, do I think this company is going to be one of the greatest companies and one of the largest companies in the world? Yes. So a significant material correction in stock, to me, represents a buying opportunity.
You accumulate some. I was trimming up at 400, 450. I trimmed, and then I buy on the way back down. So if we keep going down, it just becomes a stronger buy. Tesla’s not going to zero. Could it go to 200? Could it go to 175? It could. Right?
But then it’s just a constant accumulation opportunity in my mind.
RS: Do you have any direct questions for Pacifica Yield?
TVE: Yeah, I’d really like to hear your thoughts on the Tesla ecosystem as a whole. I think we’ve been focusing, and rightfully so, on the auto segment quite a bit.
But what do you think is the value overall of the ecosystem and sort of all of the products tying together between superchargers and home energy solutions and commercial energy solutions, and then, of course, the fleet of vehicles that they have.
PY: Yes. So I’m most bullish on Tesla’s energy storage and segments. So that, for me, is the core non-auto segment that I would, I personally, am a huge fan of. I’m a huge investor in the renewable energy.
So since just the Inflation Reduction Act, I’ve been massively invested in companies like Hannon Armstrong and Brookfield Renewable just because the growth of the industry has been intensive and huge.
And over the next decade, the US has to add hundreds of gigawatts and some extra energy. So there is gonna be lots of structural demand for Tesla energy storage. So that’s, to me, that’s one of the most standout broad segments of Tesla.
I think the other parts of it, so FSD, the Optimus robotics, those, to me, seem too much pie in the sky currently. I don’t see them contributing meaningfully to revenue in the next half a decade, especially robotics.
It’s very difficult, and I’m not an engineer, but just from research, it’s very difficult to create a robot with opposable thumbs that can actively complete tasks that people would pay thousands of dollars for. And I don’t think that’s been solved yet from a technical perspective.
So I just don’t see how Optimus is meaningful over the next decade, next five years at minimum. With that stuff, FSD, again, there’s a lot of contention around use of lidar versus use of cameras and AI.
I think a YouTuber, Matt Roberts, created this video a few weeks ago just showing some deficiencies in the Tesla system of just AI plus cameras. And, again, that’s a conversation that will have to be played out over the next three, four, five years in terms of whether lidar was the best choice or Tesla’s option of just cameras and AI was a better option.
But, again, FSD is not something that would just be easily rolled out. I don’t think it’s a very meaningful contributor, especially robotaxis over the next four, five years. Again, I might be proven wrong, but I just don’t see any of Tesla’s current segments outside of its energy storage really contributing meaningfully to revenue in the next half a decade.
So I haven’t placed a lot of emphasis on those divisions. The overall sentiment will be on its demand for its cars currently, and I just don’t think that is gonna be positive in the near to medium term.
But you made a great point around how transitory the negativity will be. And there’s a lot of, I think people who are chronically online do tend to be stuck in these online conversation and bubbles and think the real world reflects these conversations, and that’s not the case.
So there might be a situation where demand does pick back up when DOGE ends its mandate or when there’s less overall publicity because it’s not the first few months of the Trump admin anymore.
But I do think we’ll have seen some permanent demand destruction, and it’s just that growth that Tesla’s historically enjoyed, I think, will have disappeared essentially within that sort of garish outcome.
TVE: Yeah. Okay. I hear that. And I guess speaking anecdotally, my sister and my mother both, not to out their politics, but both of them are opposed to President Trump. Didn’t vote for him, yet both of them drive Teslas. They like the idea of renewable energy, and they like the idea of an EV. I don’t think the brand damage has gone so far as people are picking their keys up and trading their Tesla in for another car immediately.
But to your point, could it impact or influence their next purchase decision? Definitely. So it’s gonna take a few years for it to really play out and for us to get a clear picture.
But, yeah, I’d broadly agree with you that the demand destruction we’re seeing, whether it’s transitory or not, is going to have a major impact on the stock over the next year.
PY: Absolutely. And I think that’ll be the most interesting thing to see play out in the next quarter of delivery reports if there is that sort of brand destruction and how sticky it stays.
So I’d be interested to see if there is that consistent destruction of demand and if there’s anything Tesla can do to reverse that.
TVE: Yeah. And I guess my only point of maybe it’s not so bad, again, is going back to what I was referencing earlier.
If Tesla’s rate of price increases is lower than the overall rate of price increases in the auto market as a whole, you might not see as much demand destruction because people might just want the cheaper car or relatively cheaper car or the car that hasn’t gone up in price so much.
That could help a little bit. Quantifying the demand destruction is going to be very important for the market, and I think we’ll drive a lot of the price returns from here.
PY: Absolutely. Yeah. And that’s one of the for the best points that you need to be on the watch-out for as a bear because the domestic manufacturing base is a huge plus for Tesla.
And if there is this constant ramp in tariffs and trade wars, then it will be a like you said, that’s the comparative increases in price of a Tesla versus a competing Toyota (TM) or any other car company.
It would be a benefit. But how much the dip in brand cancels that is something that we’ll still have to see in the next few, over the next few months and quarters.
RS: Perhaps a great addendum to this episode would be a conversation around the bumper stick makers where I see a lot of people like your mom and your sister, Value Edge, who put a bumper sticker on their Tesla that says something to the effect of I bought this before Elon went crazy. Maybe we should look into those companies.
TVE: Yeah. Maybe I should get into, selling bumper stickers. I can see some demand for that.
RS: A worth endeavor. No doubt. Pacifica Yield, do you have anything else to bring up or questions for Value Edge?
PY: Yes. I think the core one is, just in terms of what non-auto segment would you ascribe the most of the value to? Would that be energy storage or FSD or robotics?
TVE: I would say right now, based on the data we have and what we know, it would be energy storage for sure.
You look at what you said earlier. AI energy demand is very real.
Even very recently, with the recent launch of OpenAI’s new image model and this mega viral trend of Studio Ghibli style photos, they’re saying, hey. We’ve had to throttle this model down because we simply don’t have enough capacity.
And when you’re running these major GPU focused data centers that are running at full capacity all the time, I mean, the energy demand is incredible. So that energy has to come from somewhere, and Tesla has a scaled manufacturing footprint. And it’s a pretty good proof of concept, I’d say.
I think even Elon used, well, not Elon, but the whole team used Tesla Energy mega packs for the stand-up of the xAI data center, which I believe at the time, if not currently still, was the largest data center project, at least for GPU focused data centers ever.
So there’s a very real product-market fit here, and I’m very bullish on that. And I think it’s going to grow to be a much more significant share of revenue even throughout the rest of this year. I can say that with a high degree of certainty.
I love hearing the viewpoint that is contrary to my own. So yeah. Thank you so much. I really appreciate the discussion, and we stayed very, very nuanced, and balanced, I think, which is great for a conversation on Tesla because it can very quickly become the opposite of those two things.
PY: Yeah. Absolutely. And the same for myself. It’s very great to have this conversation with someone on the opposite side, and I definitely see a longer-term viewpoint on Tesla.
I was a bull now a bear, but, who knows in the future if I go back to the bullish camp. But yeah. Thanks. I really appreciate this.
RS: And, again, for listeners and for readers, The Value Edge is the profile that took the bullish opinion on Tesla, and Pacifica Yield on Seeking Alpha as the bearish approach. I encourage you to go to both those profiles. They write about a lot more stocks with all the nuance and thoughtfulness that was evident today.
Happy to leave you each with the last word if you have anything else to mention in terms of where readers can find out more about you, or if Seeking Alpha is the place. Anything else you’d care to share, happy for you to do that now. Otherwise, I really, really appreciate both your time and how much you, you committed to this episode. So thank you.
TVE: Thanks Rena. Thanks to the Seeking Alpha team. I’ve been loving all the enhancements to the platform over the past year or two years. I use it every single day. It’s an indispensable tool for me now. I’m also on x under the same tag, @value_edge7, but I’m most active on Seeking Alpha.
Read the full article here