Investors who bought Tesla (TSLA) a year ago or at the start of this year are annoyed with its performance. Those who bought about six weeks ago feel different. The stock is polarizing - people love it or hate it, the same way they love or hate Elon Musk.
The valuation question
What is Tesla (TSLA)? If it is a car company, it is very overvalued. Its price-to-earnings ratio sits orders of magnitude above its competitors. Almost no one values it as a carmaker anymore. The upside they see comes from AI applications. Most AI runs on your desktop, handling files and doing office work. Tesla (TSLA) puts AI into the real world through full self-driving, autonomous driving, and the coming Optimus robot. This is one of the best companies at putting AI to use.
The demand data is strong and happiness numbers are very high - consumers love the product, though skeptics hate it. On the car business itself there is some hesitation: good delivery numbers a while back, then weaker numbers more recently.
Robotaxi and the fleet gap
The robotaxi service is rolling out in Austin. The fleet has about 45 Cybercabs and roughly 600 Model 3s. The Model 3s are not true Cybercabs - the Cybercab has no steering wheel and is the future of the program. Compared with Waymo, Tesla (TSLA) is far behind on fleet size; Waymo holds a huge lead in number of vehicles. Growth is where Tesla (TSLA) wins. Waymo vehicles cost roughly $150,000 to $200,000 each to build. Cybercabs cost about $30,000, so Tesla (TSLA) can push them out much faster.
The bigger edge is miles driven. Full self-driving has over 14 billion miles logged. Every mile feeds the AI engine, teaching it to drive in a more human-like and safer way than people. That lead keeps growing and is the key advantage over Waymo.
Threat to ride-hailing
In cities where autonomous driving is available, the number of Ubers and Lyfts being used is dropping sharply. You can hail an autonomous ride for about half the cost of an Uber (UBER) or Lyft (LYFT). Trust builds after one ride that goes fine. Stepping into a car with no steering wheel and no driver feels strange at first - you might grip the sides - but as confidence grows it becomes normal. This is a serious problem for Uber (UBER) and Lyft (LYFT), and the Cybercab robotaxi platform should be a major warning to their shareholders. Tesla (TSLA) could take most of that market share.
Optimus and the energy business
The energy side is strong and growing significantly. The Optimus robot program, which is further out, is the biggest reason to be bullish. Optimus is targeted at around $30,000 each, the same as the Cybercab. You do not have to picture it in your home first - put it in a factory, a work setting, or the back of a restaurant, where it just does the job without feeling strange. Once it works as intended, Tesla (TSLA) should become an incredible company over the next 5 to 10 years, transforming ride-sharing, transportation, factory work, and eventually home robots.
The Musk pattern
Tesla (TSLA) has run this way for 15 years - wait to see what comes next. Musk promises at level 100, delivers at level 70, while everyone expected level 20. He beats expectations but falls short of what he promised, and he keeps promising the moon. As more of these near-delivered promises land, the transformations follow.
Conversion data shows people trying full self-driving (not full autonomy) for the first time and being floored. They start talking about getting one for a kid who just got a license or an older parent. Those demographics are prime targets for full self-driving, which leads naturally into the Cybercab.
Regulation as the main risk
Which political party holds power matters a lot here. Had the last election gone the other way, Musk and his companies would face much more scrutiny. Right now they get less, and a better chance at a fair hearing. That can change with any coming election. Musk is a political figure with a target on his back from the Democratic side; if they gain more power, it becomes a problem for him and the company. As a shareholder I would hedge my bets on the November elections.
Getting past regulation is essential. Self-driving will be about 100 times safer, yet an accident involving full self-driving will happen. Whether Tesla (TSLA) is at fault or not, everyone will jump on it and ignore the drunk and terrible drivers causing crashes every day. Having billions of miles logged when regulators look at the record makes approval far easier than starting with very few. Musk keeps pushing limits, not asking permission, building great things, but eventually the official check mark is required. The political landscape is a huge X factor that can shift quickly.
The patience case
The path forward for investors who bought a year ago or this year is patience. Look back 10 or 15 years using an internet time machine at what people said - the Tesla haters have been around forever and wrong for 15 years straight. Do not align with them. Think long term about the vision, what has been accomplished, and what is coming. Making an electric vehicle faster than an internal combustion engine, and one that drives itself, all seemed impossible at the time and are now happening. The bullish case rests on the track record and the vision.
Tesla (TSLA) is one of Likefolio's few "infinite hold" companies - ones you can buy and hold forever.
The SpaceX backstop
SpaceX sits out there with billions of dollars and is controlled by the same people. There is always potential for a merger. It is almost like Tesla (TSLA) shareholders hold a put option at some unknown strike price: if the stock falls low enough, a merger with SpaceX becomes likely. That strike is not at the $300 level - probably lower - but it is a useful defense to have.
