Tesla Stock Deep Dive | Elon Musk's Vision to Build the Future (TIP761)
Summary
Disruptive Innovation: Tesla exemplifies disruptive innovation, often misunderstood initially, but capable of exponential growth that defies traditional metrics and investor skepticism.
Company Vision: Tesla's long-term vision includes expanding beyond electric vehicles (EVs) to AI, robotics, and sustainable energy, with ambitious projects like the robo taxi and Optimus humanoid robots.
Market Competition: Tesla faces increasing competition from legacy automakers and new entrants like BYD, particularly in the EV space, where pricing and market share dynamics are rapidly evolving.
Financial Performance: Despite Tesla's impressive revenue growth, concerns about valuation and profitability persist, with some critics pointing to reliance on regulatory credits and competitive pressures on margins.
Leadership and Strategy: Elon Musk's leadership style, characterized by ambitious goals and a high tolerance for risk, is both a strength and a point of contention, influencing Tesla's market perception and strategic direction.
Future Opportunities: Tesla's potential lies in its optionality, with opportunities in energy storage, AI, and autonomous vehicles that could significantly enhance shareholder value if realized.
Investment Risks: Investors face risks related to Tesla's ambitious targets, market competition, and the potential for overvaluation, requiring careful consideration of long-term growth prospects versus current market expectations.
Transcript
(00:00) Oftentimes, the biggest winners in the stock market are able to pull tricks out of their sleeve that no one expected. And you need a really innovative culture that will reimagine the future in order to do that. That is a lot of the value in owning a company like Tesla. Because if the company continues to innovate, then 10 years from now, they'll likely have new business segments that really couldn't be dreamed of today or the company finds new and innovative ways to grow their existing businesses. (00:28) This way of investing stands in stark contrast to the large mature businesses we can invest in which likely aren't going to transform in the same way. So you think about companies like Coca-Cola and Walmart for example. [Music] Before we dive into the video, if you've been enjoying the show, be sure to click the subscribe button below so you never miss an episode. (00:53) It's a free and easy way to support us and we'd really appreciate it. Thank you so much. Welcome to the Investors Podcast. I'm your host, Clayfink, and today I'll be discussing a company that everybody is familiar with and a company that is often in the headlines. That company is Tesla. But before I get to Tesla, I thought a good place to start was to talk a little bit about disruptive innovation. (01:16) Since this concept is the name of the game for a company like Tesla, disruptive companies almost always start out as being misunderstood. The early years tend to be filled with skepticism because they do not neatly fit into the mental models that investors, analysts, and even competitors are used to. The market often tries to evaluate them using traditional metrics and frameworks, but disruption does not play by traditional rules. (01:44) That gap between perception and reality creates a long runway of doubt before people begin to see what's really happening. And once it's finally obvious to most people what is happening, it's too late to invest and earn outsiz returns. Physicist Max Plank once stated, "A new scientific truth does not triumph by convincing its opponents and making them see the light, but rather by its opponents eventually dying and a new generation grows up that is familiar with it. (02:14) " Or a simpler version of that same quote is, "Science advances one funeral at a time." The same principle often applies to business and investing. Paradigm shifts are rarely embraced by the incumbents or even by the majority of investors at first. New ideas usually look fragile, incomplete, or impractical because they don't yet have the scale or proof points that make them easy to understand. (02:40) But that's exactly why the payoff can be so large for those who recognize the seismic shifts early. If you've always lived in a world that was composed of transportation on the ground or by water, imagine how crazy it would be if a company claimed that they would be able to safely fly people in the air through commercial aviation. (02:59) The skepticism would have been overwhelming because it went against everything people thought they knew about travel. Today, an estimated 86% of adults in the United States have flown in an airplane. The history of Tesla fits right into this pattern. For years, skeptics focused on quarterly losses, production challenges, and missed deadlines. (03:22) Or they were anchored in the comparison of Tesla versus the other traditional car manufacturers. But they were missing the bigger picture. Tesla was not just trying to be another car company. It was rebuilding the entire stack with softwaredriven vehicles, vertically integrated manufacturing, a global charging infrastructure, and harnessing renewable energy. (03:44) In hindsight, it can be easy to see the seeds of disruption. But in real time, it almost always feels messy and uncertain. One of the reasons these paradigm shifts are so difficult to grasp is that humans naturally think in a linear way. We project the future as a straight line. A little faster, a little better, a little cheaper. (04:05) But disruptive innovations tend to follow an exponential curve. Progress looks slow and almost invisible at first. Then it suddenly takes off at a pace that catches nearly everyone by surprise. Take the growth of the internet or the growth of smartphones. The early years of smartphones were toys in their infancy. (04:25) And before you know it, nobody can live without checking their phone every hour of the day. This mismatch between linear thinking and exponential reality is exactly why investors underestimate disruptive companies. We overweight the short-term noise and underweight the compounding effects that play out over a decade or more. By the time the exponential growth becomes obvious in the data, the market has already repriced the opportunity and the biggest gains have been made by those who were able to see it early. (04:54) To look at the exponential gains that Tesla has experienced as just one example, back in 2004, they produced 0 in revenue. In 2014, they produced $3 billion in revenue. And by 2024, they produced nearly $100 billion in revenue. This level of growth is just unbelievable. And if in 2014, an analyst had predicted that revenues would reach 100 billion in just 10 years, the rational thing to do would have been skeptical of such astronomical growth. (05:30) To share another example of how disruptive technologies can impact a company like Tesla, let's look at how the cost of batteries have developed over time. Batteries are one of the major input costs into producing a Tesla vehicle. And I'd imagine that 15 years ago, someone would have looked at the cost to produce a battery and said that it's just simply unsustainable to try and build an EV company at scale because no one would be able to afford the cars because the batteries are just so expensive. (05:59) Well, from 2008 to 2023, that's a 15-year time period, the cost of batteries declined by 90%. For anyone who has a bias to thinking linearly, thinking that cost could fall this much would be asinine. But that's exactly what happened. This massive cost reduction has transformed EVs from a niche luxury product into vehicles that can compete directly with the mass market players. (06:24) And as the cost of batteries continue to fall, it opens the door to even more affordable models and wider adoption across the globe. So Charlie Mer once stated, "Never underestimate the man who overestimates himself." That's what he had to say about Elon Musk, the billionaire entrepreneur and innovator best known as the CEO of Tesla and SpaceX, where he has advanced electric vehicles, renewable energy, and space exploration. (06:49) At first glance, this quote almost sounds like a warning because overconfidence is usually seen as a weakness that leads people to make reckless mistakes. When someone overestimates themselves, we often expect failure, embarrassment, or wasted effort. But Munger is pointing out that sometimes overestimation can drive people to attempt things that others would not dare and in rare cases succeed beyond what anyone thought possible. (07:15) It reminds me of the Steve Jobs quote. The people who are crazy enough to think they can change the world are the ones who do. And that's exactly where Tesla comes in. As I was researching for this episode, I was amazed by how much is happening at Tesla today. They recently released what is referred to as their master plan part 4. (07:35) They proposed a new ambitious compensation package for Elon Musk, and they're working to shape the future of technology through offerings like the robo taxi, Optimus, and the full self-driving capabilities. For years, Tesla was a company that almost no one believed in. The auto industry laughed off the idea that an upstart could break into a world dominated by century old giants. (07:57) Wall Street analysts predicted bankruptcy. Legacy automakers dismissed EVs as a niche fad. And critics called Musk's vision unrealistic. And yet, time and time again, Tesla defied those expectations, transforming from a scrappy startup with a single sports car into the most valuable car maker in the world with a market cap well over a trillion dollars today. (08:20) The brilliance of Tesla lies not only in its technology, but in its ability to execute against impossible odds. They redefined what an electric car could be. They built a global charging network before anyone else dared to vertically integrated their supply chain and pushed the entire industry towards electrification. Musk's boldness combined with Tesla's relentless innovation has made them synonymous with the future of transportation and perhaps even with the future of energy itself. (08:48) And yet even today, Tesla remains one of the most polarizing companies on the market. For every believer convinced that they'll continue to dominate the EV era, there are skeptics who argue that competition, regulation, or even Musk's unpredictability could derail them. Perhaps the most pressing challenge comes from Chinese automakers like BYD, who are rapidly scaling production of lowerc cost EVs that could undercut Tesla's dominance in key markets globally. (09:17) The question now is the same one Tesla has faced from the beginning. Can they continue to prove doubters wrong? Or has the company already reached its peak? Since Tesla is a bit of a controversial pick, I'm going to try and analyze the company as objectively as I can, which sort of feels like an impossible task. Those who are bullish will likely say that my analysis is far too bearish, and those who are bearish will probably say I'm far too bullish. (09:43) I think there is no doubt to say that what Tesla has achieved to date is nothing short of amazing as they are led by a generational CEO in Elon Musk whose net worth recently crossed $500 billion. I actually did a podcast on Elon's biography by Walter Isacson back on episode 593 which I'll be sure to get linked in the show notes as well. (10:03) Looking back, I actually happened to purchase shares of Tesla around 2015 or 2016 when I was very early in my stock investing journey. After owning shares for around 9 to 12 months, I then talked myself out of the stock due to valuation concerns. Additionally, the stock wasn't really going anywhere at the time. (10:22) In college, I bought uh the other Elon Musk biography written by Ashley Vance, and admittedly, I was a bit of a fanboy at the time, which is one of the reasons why I bought the stock. Little did I know that Tesla would compound revenues at nearly 40% per year in the decade that followed. Occasionally, I'll go through uh some of my old photos on my phone. (10:44) And in 2017, I thought it was just amazing that I came across this bright red Tesla Model S when I moved to Omaha. Now, it feels like today, whenever I go on the road, I can't go anywhere without, you know, driving past a Tesla. So, in less than a decade, the car has just become a part of everyday life for millions of Americans. (11:02) And it's interesting to think about how a company like Tesla has evolved over the years. 10 years ago, people were asking how many people would want to own a Tesla in the future. What are the types of vehicles they would sell? What is the valuable what is the value of the data they're able to collect on these cars? And there's really no mention of AI. (11:19) But if you look at the most recent quarterly report, the company writes, "Que 2025 was a siminal point in Tesla's history. the beginning of our transition from leading EVs in renewable energy industries to also becoming a leader in AI, robotics, and related services." End quote. (11:38) Brian Faraldi recently discussed on the show this idea of optionality. Oftentimes, the biggest winners in the stock market are able to pull tricks out of their sleeve that no one expected. And you need a really innovative culture that will reimagine the future in order to do that. That is a lot of the value in owning a company like Tesla because if the company continues to innovate, then 10 years from now, they'll likely have new business segments that really couldn't be dreamed of today or the company finds new and innovative ways to grow their existing businesses. This way (12:09) of investing stands in stark contrast to the large mature businesses we can invest in, which likely aren't going to transform in the same way. So, you think about companies like Coca-Cola and Walmart, for example. In their recent report, Tesla shared that their priorities remain the same, which include delivering affordable and compelling autonomy capable models that maximize their global fleet of vehicles as their software continues to rapidly progress, growing the energy business and then advancing their robotics (12:39) efforts. With the success of the business over the past 20 to 25 years, I think a good place to start is with the man who made Tesla what it is today. For many people, Tesla is synonymous with the brand that was handcrafted by Elon Musk. Musk became one of the key investors in Tesla Motors. In 2004, Tesla Motors, now known as Tesla, was an electric car company founded by Martin Eberhard and Mark Tarpin. (13:07) Tesla unveiled its first car, the Roadster, in 2006. And in 2010, the company went public, raising around $226 million. Elon became the CEO of Tesla in October of 2008 during the height of the financial crisis and remains the CEO today. Musk owns over 700 million shares of Tesla, representing nearly a 20% ownership stake in the company, making him by far the largest shareholder. (13:34) As of the time of recording, his shares are worth over $300 billion. Elon is no stranger to making the headlines in the past couple of years with his takeover of X and his efforts in helping the federal government to eliminate wasted spending. The most recent headline that is making the rounds is with regards to Musk's compensation. (13:55) Tesla's board has put forward a 10-year performance compensation plan for Musk that could be worth up to $1 trillion in stock if very aggressive milestones are met. The proposal would be voted on by shareholders at Tesla's annual meeting, which is scheduled for later this year. In an SEC filing, the company wrote, "By introducing innovative and affordable technologies at scale, Tesla can help bring about a society that democratizes autonomous goods and services. (14:23) As a result, sustainable abundance represents a long-term vision, putting us at a critical inflection point, not just as a company, but as a society. We believe that Elon's singular vision is vital to navigating this critical inflection point. And as a result, the importance of having a leader who is not only willing and capable, but eager to meet this challenge. (14:46) Simply put, retaining and incentivizing Elon is fundamental to Tesla achieving these goals and becoming the most valuable company in history." End quote. I mean, what a statement. It should be no surprise those are some bold statements. The company has tied the compensation to a number of benchmarks over the next 10 years, a few of which I'll list here. (15:07) Tesla's overall valuation would need to increase from about $1 trillion to more than $8 trillion. 20 million vehicles will need to be delivered. 1 million self-driving robo taxis will need to be produced, and the company would need to manufacture 1 million of their humanoid robots, otherwise known as Optimus, which are currently under development. (15:27) This compensation plan would grant Musk more than 423 million additional shares in the company, boosting his level of control to around 25%. However, Musk's previous compensation plan has received push back. In 2018, Tesla investors filed a lawsuit challenging Musk's $56 billion pay package, alleging that he and the company's board had breached their fiduciary duties. (15:54) In August, Tesla stated that they would be granting Musk shares totaling around $29 billion. The size of this new compensation plan is simply unprecedented, as $1 trillion in compensation over 10 years is orders of magnitude larger than almost any prior CEO pay plan in US corporate history. This is really an attempt from the board to do a couple of things. (16:17) first is to try and keep Elon around for an extended period of time as the compensation plan is over the next 10 years and second they want to try and keep his focus on Tesla as we all know that he likes to have his attention on multiple huge projects all at once and with these ambitious targets he won't be given much leeway to work on other big projects though I certainly wouldn't be surprised if he continues to work on other projects as he always has it was the end of 2023 that I read the new Musk biography by Walter Isacson. And it's (16:48) just amazing to me how many times there were where Tesla about died. And if it weren't for Elon Musk, I would say that there's no doubt that this company would not be around, at least anywhere near where it's at today. As you know, he slept on factory floors to meet deadlines and just willed his way to survive and thrive. (17:10) It should be no surprise that Tesla's board thinks very highly of Musk. Tesla's board chair, Robin Denholm, stated in a message to shareholders the following. Tesla is not led by an ordinary CEO. It is led by a CEO who has proven his ability to create extraordinary growth and value several times over. (17:31) Elon Musk is a once- in a generation visionary, and under his continued leadership, we have the potential to become the most valuable company in history. But this requires a one-of-a-kind compensation structure that both retains and incentivizes him to make our vision a reality. Our board's special committee designed a 2025 CEO performance award to retain, motivate, and incentivize Elon in a way that will be 100% aligned with Tesla's shareholders. (17:59) Building upon the successful framework of the 2018 CEO performance award, we have created a payfor-performance compensation plan that will deliver tremendous value for shareholders. In other words, Elon will receive zero compensation unless and until shareholders realize substantial value. Elon gets compensated if shareholders win and win big. End quote. (18:21) Despite the optimism from Denholm here, Tesla's growth in recent years has been fairly lackluster. After experiencing rapid growth in the years leading up to 2022, sales are only up modestly since then, as they've seen slowing growth in both of their major markets, the US and China. (18:41) Zooming into the $8 trillion market cap that they're targeting in 10 years. If we assume that Tesla will be able to achieve the extraordinary growth that they would like to and the company trades at a PE multiple of 50 times earnings at the time, then that would mean that they would need to generate operating profits of $150 billion based on those assumptions. (19:01) And that's even with a lofty PE multiple. Today, Tesla generates just shy of $100 billion in revenue. So, it's no doubt that this level of growth will just be a super extraordinarily tall task for Elon. But this is really nothing new for him. One of the takeaways that I picked up from that Isacson biography was that once Elon starts to get comfortable, he then wants to take on more projects than any rational person would assume they could handle. (19:30) And I think this compensation package is just an example of that. 10 years ago, countless analysts would have said that it would be impossible for Tesla to become a trillion dollar company, which they've of course achieved. But Elon does not stop there. He wants to become the most valuable company in the most innovative company in the world. (19:49) Next, let's transition here to discuss the automotive business. Tesla's vehicle sales remain the foundation of the business, accounting for the majority of revenue. Most of the vehicle sales come from the Model 3 and the Model Y. The Model 3 is their more affordable compact sedan that starts out at a price of $42,000 before any tax incentives, while the Model Y is their compact SUV that offers more space, versatility, and range, starting at a base price of around $45,000 before tax incentives. (20:19) In fact, the Model Y is one of the best selling vehicles in the world, not just among EVs, but across all categories. Other models they sell are the Model X, their premium SUV, the Model S, which is their high-end sedan, and the infamous Cybert truck, which is the newest vehicles they released in late 2023. Although I could never imagine myself driving a Cybert truck, I think it's proof that Tesla is still a company that is willing to push the boundaries of engineering and style and simply do things differently. (20:48) When I look at the automotive industry, I can't help but notice how essentially all car manufacturers here in the US appear to simply be copying each other. In a sea of meto players, Tesla is a company that clearly stands out with pretty much every single vehicle they've produced. They do not accept the status quo. (21:08) They question all conventional wisdom, and that is one thing I really appreciate about their approach to business. In the near future, there's rumors that Tesla will soon launch more affordable electric vehicles below a $30,000 price point. This strategy ties back to Elon Musk's original master plan, which he published in 2006. The idea was simple. (21:30) Start by selling a high-end sports car, then use that money to build a more affordable luxury sedan, and eventually roll profits into mass market vehicles that could accelerate the world's transition to sustainable energy. Looking at today's lineup, you can see that vision playing out from the early Roadster to the premium Model S and Model X and finally to the mass market Model 3 and Model Y. (21:54) And even with the Cybert truck, while it's a bit of a wild card, it fits the mold of pushing innovation forward while expanding Tesla's reach into new segments. And in many ways, the potential launch of a sub $30,000 Tesla would mark the final step in fulfilling that original plan. There are a number of really interesting things about the automotive business that I would like to ponder and elaborate more on here. (22:18) So, first, in recent years, Tesla has implemented price decreases for their vehicles, and investors on both sides of the table rejoiced that they were finally right about their Tesla thesis. The bears claimed that Tesla was facing tough competition, especially outside of the US, and there was potentially some concerns around demand postco after we saw inflation come around and Tesla has some margin to give in terms of price to try and keep their revenues growing. (22:46) However, some Tesla bulls claim that Tesla is simply following the scaled economy shared playbook that where as they grow, they're able to pass on more savings to customers. So, you know, as Tesla increases their level of vertical integration, costs per unit fall and they can simply pass those cost savings along to customers while keeping margins at a sustainable level. (23:09) The magic of the scaled economy shared model is that it's recursive. Lower prices bring in more customers, which allows them to increase their scale advantage even more, allowing them to lower prices further. With that said, Tesla's gross profit margins are near their lowest level in the past 10 years. (23:27) So, it does seem that competition is playing a role here, as you tend to see in capitalism, and they are not seeing substantial benefits to their massive scale, at least yet. Anyways, Jim Ran once said that you're the average of the five people you spend the most time with. And I really could not agree with him more. (23:45) And one of my favorite things about being a host of this show is having the opportunity to connect with highquality like-minded people in the value investing community. Each year, we host live in-person events in Omaha and New York City for our tip mastermind community, giving our members that exact opportunity. (24:05) Back in May during the Bergkshire weekend, we gathered for a couple of dinners and social hours and also hosted a bus tour to give our members the full Omaha experience. And in the second weekend of October 2025, we'll be getting together in New York City for two dinners and socials, as well as exploring the city and gathering at the Vanderbilt 1 Observatory. (24:29) Our mastermind community has around 120 members, and we're capping the group at 150. And many of these members are entrepreneurs, private investors, or investment professionals. And like myself, they're eager to connect with kindered spirits. It's an excellent opportunity to connect with like-minded people on a deeper level. So, if you'd like to check out what the community has to offer and meet with around 30 or 40 of us in New York City in October, be sure to head to thespodcast. (24:58) com/mastermind to apply to join the community. That's the investorspodcast.com/mastermind or simply click the link in the description below. If you enjoy excellent breakdowns on individual stocks, then you need to check out the intrinsic value podcast hosted by Shaun Ali and Daniel Mona. Each week, Shawn and Daniel do in-depth analysis on a company's business model and competitive advantages. (25:25) And in real time, they build out the intrinsic value portfolio for you to follow along as they search for value in the market. So far, they've done analysis on great businesses like John Deere, Ulta Beauty, AutoZone, and Airbnb. And I recommend starting with the episode on Nintendo, the global powerhouse in gaming. (25:45) It's rare to find a show that consistently publishes highquality, comprehensive deep dives that cover all the aspects of a business from an investment perspective. Go follow the Intrinsic Value Podcast on your favorite podcasting app and discover the next stock to add to your portfolio or watch list. However, as I alluded to, Tesla's automotive segment is vertically integrated as they manufacture their own batteries at scale, design their own software, and control much of the distribution and servicing by bypassing (26:16) the traditional dealership model. This level of control allows Tesla to maintain higher margins than most automakers while also giving them flexibility to adjust prices in response to market conditions. Another example of Tesla taking a different approach than other auto manufacturers is bypassing the traditional dealership model. (26:37) This really gave Tesla complete control over the customer experience. So, back in 2018, I took a trip down to Kansas City with my immediate family and I had a one morning free. So, I decided to stop by a Tesla showroom and test drive a Model S. I remember the experience quite vividly. When I walked into the showroom, it really didn't feel anything like stepping into your typical car dealership at all. (27:02) There was no pressure and no salesperson trying to upsell you on options that you don't need. Instead, it felt almost like walking into an Apple store. It was clean, minimalist, and it focused entirely on the customer experience. The Tesla rep I met was incredibly knowledgeable, not just about the specs of the car, but about the bigger vision behind Tesla. (27:23) He wasn't just selling a car. He was telling a story of a company redefining what driving could mean. Hopping into the driver's seat of the Model S was an experience in itself, too. The premium seat cushions immediately caught my attention. They hugged me just enough to feel sporty, yet the leather was soft and luxurious, almost like sinking into a high-end lounge chair. (27:45) The steering wheel had a supple feel to it as well, and the overall interior just had a totally different aura to it, similar to how we experienced the iPhone, and how it has this very intentional design that's very modern, easy to use, and enjoy. Quality has its own frequency, and I sensed that frequency when I first sat down in a Model S. (28:07) Instead of dozens of buttons, knobs, and dials, everything was centered around this massive single touchcreen in the middle of the dashboard. At first, it almost felt futuristic, but within minutes, it was actually pretty intuitive. That screen controlled everything from the climate, navigation, media, and the sunroof. It was clean, efficient, and unlike anything I'd ever seen in a car before. (28:29) When it came time to drive, the smoothness of the ride really blew me away. I remember getting onto the interstate on-ramp, pressing the accelerator, and instantly feeling that surge of torque. There was no hesitation or lag with the acceleration. And one of the things that's most different about Tesla vehicles is that when they accelerate, it's almost silent. (28:51) So, you don't have the loud revving engine noise that you're used to in hearing in a gas-powered car. My dad was in the back seat of the Model S. He was next to my mom and my brother and he actually caught a video of me punching the accelerator while my mom was halfway freaking out since she thought that another car was on the highway going to be entering the same lane as us. (29:12) I was smiling from ear to ear uh completely unprepared for how effortlessly the car would go from zero to highway speed. The acceleration felt almost like being pulled forward on a roller coaster, but with none of the noise or vibration of a gas engine. It was truly exhilarating. On top of that, the rep encouraged me to try out Tesla's autopilot feature on the highway. (29:34) Watching the steering wheel subtly adjust on its own while the car kept its lane and maintained speed was slightly unnerving. Then he had me click on my left blinker and the autopilot feature went ahead and changed lanes for me. That entire experience at the Tesla showroom just really stuck with me because at the time it was clear to me that Tesla was offering something fundamentally different from everything Americans were used to. (29:59) And because they sold directly through their own showrooms, Tesla created an environment that would be nearly impossible for the traditional dealerships to replicate. Another firstirhand experience I have with Tesla was this past winter. I spent a couple of months down in Austin, Texas, where Tesla have recently moved their headquarters to. (30:18) A member of our mastermind community let me know that one of his family members has worked at Tesla for the past 9 years. And I briefly connected with that family member down in Austin, and she uh proudly told me that she had never sold a share of Tesla she's ever bought, and she spoke very highly of Elon in his vision. (30:36) It's just one example, but I sense that there's this similar feel that along with there being a cult-like following with Tesla car owners and Tesla stockholders, there's also this dynamic that likely carries over to the employees as well, especially since the stock has done so well over the years and built a fortune for so many people. (30:54) However, Tesla, of course, faces stiff competition in the EV space. Many of the big legacy automakers are stepping up and treating EVs as core to their future and not just experiments. And many automakers have made commitments to stop producing internal combustion engine vehicles by 2035. (31:14) In the US, GM has been rolling out EV versions of some of its most popular vehicles like the Chevy Silverado and Blazer, aiming to compete head-on with Tesla in the mass market. Ford has also leaned heavily into F-150 Lightning and Mustang Mache, which are designed to appeal to longtime truck and performance car buyers making the switch to electric. (31:37) Hyundai and Kia have gained traction with sleek tech forward models that are gaining traction. While Tesla still dominates overall EV sales, these competitors are steadily chipping away at market share with broader lineups and aggressive pricing strategies. Back in 2020, Tesla held over 70% market share for EVs in the US. (31:56) And today, that figure is closer to 40%. But I think the most important competitor to highlight is one that is not based in the US, and that is BYD. BYD has quickly become Tesla's biggest rival on the global stage, even overtaking Tesla in EV sales in late 2023. BYD is also a vertically integrated manufacturer as they produce their own batteries, chips, and many other components, which allows them to keep costs extremely low. (32:22) One of the striking differences between BYD and Tesla is pricing. Your typical buyer of a Tesla vehicle in the US is paying around $50 to $70,000 depending on the vehicle they select and the add-ons they decide to pay up for. If someone is paying for a BYD vehicle in China, they tend to pay around $10,000 or potentially even less. (32:43) However, upgraded versions may cost upwards of 20 to $35,000, but this is still significantly less than Tesla. In China, BYD dominates with both battery electric vehicles and plug-in hybrids, and their scale gives them cost advantages that are hard for Tesla to match. They've also been aggressively expanding into Europe, Latin America, and Southeast Asia, building factories in places like Hungary and Brazil to get closer to end markets. (33:12) The US market is a different story, though. Tariffs on Chinese-made EVs have kept BYD out of the US for now, and earlier this year, they even shelf plans for a Mexico factory that could have served as a backdoor into the American market. That means Tesla is relatively insulated from BY and its home market. But everywhere else, the two are colliding headon. (33:33) Metaphorically speaking, I think that BYD will make it difficult for Tesla to expand it in new markets across the globe. BYD is pretty aggressive in their pricing strategies. So, they're putting pressure on Tesla to keep innovating and lowering their input costs in order to protect margins and continue growing. (33:50) One of the members of our mastermind community recently gave a presentation on BYD for the group, which is how I started to learn more about this company. When you look at the global landscape, China and the US are the biggest markets for auto sales. And BYD continues to gain share in the EV space in China. (34:09) Around 2/3 of BYYD sales come from China, 16% from Europe, and roughly 10% from the US. Back in 2020, Tesla had more than double the auto revenue of BYD. And in 2024, BYD would end up surpassing Tesla in auto revenue. One of the questions that I had for our members during that presentation was about how China has banned many big tech players from operating in their country, companies or products such as Google, Facebook, Instagram, X, YouTube, etc. (34:37) And I wondered why China has been so open about allowing Tesla to sell their vehicles in China. The member's theory was that EVs were really important to China. So they wanted to learn how Tesla was able to produce EVs at scale. So, they allowed Tesla to produce and sell cars in China to help them pick up the best practices that Tesla was using to mass-produce electric vehicles. (35:00) China did something very similar in allowing Apple to produce iPhones in China so their own industry could develop similar mobile phones. To round out this segment on competition, I wanted to share a clip of Elon on CNBC talking about how he doesn't really think about competition. We do have to battle other car companies in China who are trying to stop us from incredibly competitive market. (35:21) China is the most competitive market and to the extent BYD which is neck and neck with you I think in the EV race I think it's fair to say worldwide correct I don't really follow that you don't no um well they're willing again my question is they're willing to seemingly offer different levels of autonomy for I don't want to call it free but part of the cost of the of the car. (35:44) Do you see that as a possibility for you or is it always going to be that add-on and therefore that significant revenue stream conceivably? I I don't really think about competitors. I just think about making the product as perfect as possible. You don't think about competitors at all? No. I just think about making what we want to achieve is the platonic ideal of the perfect product. (36:09) And as long as you focus on that, you will have a compelling product. Obviously, another challenge that Tesla faces is that the adoption of EVs in the US has decelerated for a number of reasons. One is the relatively higher cost of EVs. The US also has a limited charging infrastructure. It's just not as convenient to use an EV when you're traveling long distances and have limited options to charge your vehicle. (36:34) One of the advantages that Tesla has in the US is their extensive charger network that they've built. Unlike other automakers, Tesla built out a nationwide supercharger system early, giving their drivers reliable access to fast charging. Now, with nearly every major EV brand adopting Tesla's charging standard, the network is set to become the default backbone of the EV infrastructure in the US. (36:58) Before we get to some of Tesla's other segments that are even more forward-thinking and ambitious, I thought this would be a good time to discuss Tesla's master plan part 4, which the company released in September of 2025. Tesla frames the next chapter of their story as a shift beyond just sustainability towards what they refer to as sustainable abundance, where constraints such as energy, labor, and resources are overcome through technological innovation. (37:26) The central thesis is to merge Tesla's scale and manufacturing know-how with AI and automation to build new products and services that reshape labor, mobility, and energy. In Tesla's words, we are building the products and services that bring AI into the physical world. I think a lot of people tend to think of things as zero sum. (37:49) Oftent times, in order for one company to win, another must lose or vice versa. Tesla's vision is that growth can in fact be nearly infinite and they reject this zero sum view due to the abundance that technology and innovation can bring. For example, let's imagine a world where energy and labor cost are dramatically reduced and food becomes so cheap to produce that we can simply just pay a subscription to the grocery store and we can just, you know, walk in and take as much as we'd like off the shelves. (38:19) This seems crazy and impossible. similar to how the idea of Netflix would have been deemed crazy and impossible in 1990 to someone that was told that, you know, we'd have nearly unlimited movie selection at a low fixed monthly price. One notable criticism of the master plan part 4 is that it lacks the concrete road maps, production targets, and timelines that characterize Tesla's early master plans. (38:44) So, it reads a bit more like a philosophical manifesto than an operational blueprint. There's also a noticeable tension with Tesla's past focus. While earlier master plans centered around specific vehicles, scaling EV production, and expanding their charging infrastructure, this latest plan shifts their attention towards AI, robotics, and automation as the new frontiers of value creation. (39:08) And given how much the market is currently rewarding anything tied to AI, some see this as a strategic move by Tesla to align its narrative with the dominant investor theme. So it's a way to ride the AI wave and help sustain its lofty valuation in some people's minds. In short, the master plan part 4 highlights the shift in Tesla's focus from releasing new models of automobiles to being a leader in developing these broader transformations and how society operates in embedding AI into the physical world. All right, so jumping (39:40) here to some of Tesla's other segments outside of EVs, let's move to the energy segment. In recent years, Tesla's energy generation and storage segment has also seen rapid growth since 2020. Revenue for this segment has grown from $2 billion to nearly 10 billion last year, representing a 38% compounded annual growth rate. (40:03) Tesla's energy generation and storage division includes products like solar panels, the solar roof, and storage systems such as the power wall for homes, the power pack for businesses, and the massive mega pack for utilities. This segment aligns with Tesla's mission, which is to accelerate the world's transition to sustainable energy by not only producing clean electricity, but also storing it efficiently for when the sun is not shining and the wind is not blowing. (40:29) When it comes to renewable energy, one of the big challenges that businesses face is the storage cost. Batteries have historically been expensive, making it tough to scale. And batteries are an area where Tesla has been forced to innovate because one of the issues with some of the earlier models of vehicles was that they weren't able to get batteries on the vehicle that could store enough power for them to travel long distances. (40:55) So Tesla took it upon themselves to invest heavily in vertical integration in designing their own battery cells to reduce the cost per kilowatt hour while increasing energy density. They've been able to produce batteries at scale through their dedicated factory in Lanthrop, California, and they have plans to expand production to China. (41:14) The battery technology they've developed is just another example of Musk thinking outside the box and define conventional wisdom. It reminds me a bit of the quote he shared, "If conventional thinking makes your mission impossible, then unconventional thinking is necessary." Tesla's energy segment pairs well with the auto business because as batteries improve and manufacturing continues to scale, the cost to produce each vehicle will continue to decline. (41:40) The energy segment's gross margins have been improving as of late and has surpassed that of the auto business in recent quarters. And Musk has hinted that the energy segment could one day rival the auto segment in terms of revenue. But the biggest Tesla bulls believe that the majority of the value in the future will come from optimists. (41:59) Tesla's Optimus is designed to perform tasks that humans generally don't want to do. Think about tasks that are unsafe, repetitive, or boring. I think if you ask most people, they would rather not do things like prepare meals, do the dishes, run your clothes through the laundry, clean your house, etc. (42:16) I can't imagine how much time I would save in a year if I could remove the need for those tasks. And this is exactly the type of work that Optimus is built for. Optimus stands at about 5 feet 8 in tall and weighs around 160 pounds. And it's built with Tesla's expertise in AI, robotics, and manufacturing. The robot is equipped with cameras, sensors, and Tesla's full self-driving computer for navigation and interaction with its environment. (42:43) Elon has long been vocal about declining birth rates in developed countries, and Optimus could serve to fill the gaps in labor shortages and help transform industries through automation. This year, Morgan Stanley published a report that forecasted the humanoid industry will produce 1 billion humanoid robots and 5 trillion in revenue by 2050. (43:05) Now, of course, no one has a crystal ball and reality will likely be much different than that. And even Morgan Stanley's estimates vary drastically from year to year, but it seems practical that a robot like Optimus could play a major role in society and drastically improve the quality of life for us all. (43:23) It even seems a little bit scary to think about. If Tesla is able to be at the forefront of humanoid robotics, then this could be an absolutely massive opportunity for them to capitalize on. In fact, just a few weeks back, Elon posted on X that around 80% of Tesla's value will be from Optimus. (43:43) So, of course, Elon sees the opportunity here. Most will be skeptical that so much value will come from a product that doesn't exist yet. But remember that there was a day when there were no coffee shops in most countries. And today we have Starbucks, which has a market value of $100 billion. And a couple of decades ago, people got by just fine with flip phones or no mobile phones at all. (44:04) Then came along Apple and the iPhone in 2007, which seemed like a luxury gadget at the time. Today, Apple is worth over $2 trillion, and smartphones are practically an extension of ourselves. The lesson is clear. It's that truly innovative companies don't just create products, they create entire markets. And with that comes extraordinary shareholder value. (44:26) Optimus has started to come into the limelight after last year when Tesla hosted a Wii robot event in October where Optimus was used to serve drinks, provide entertainment, and mingle with attendees. It was quite funny and uh Musk was on stage talking about uh full self-driving, the robo taxi, the robo van and then he went on to discuss Optimus and then a handful of these Optimus robots came walking out. (44:51) He then shared that he estimates that Optimus at full-scale production will cost less than half than a car, so around 20 to $30,000. Quoting Elon here, he stated, "And what can it do? It'll basically do anything you want. It can be a teacher, babysit your kids, walk your dog, mow your lawn, get groceries, just be your friend, or serve drinks. (45:13) Whatever you can think of, it will do. I think this will be the biggest product ever of any kind." End quote. Musk was also recently interviewed on CNBC where he discussed that he sees tens of billions of robots coming in our future and how he believes that it will be the biggest product ever. (45:32) Demand will be insatiable and everyone is going to want one. But when it comes to humanoid robots, Tesla is not the only player in the game. Companies like Figure AI, Aptronic, and Agility Robotics are all building their own versions with Figure raising big money and Agility already testing robots and warehouses. There are many similar firms in China as well. (45:53) The real challenge for everyone is the same. Making robotics reliable, affordable, and capable of doing more than just a controlled demo. Most competitors are starting with industrial settings like factories and logistics since those environments are a little easier to manage than sending a robot into your own home. (46:12) Tesla's edge will be its scale, its AI experience from self-driving and its manufacturing knowhow. But make no mistake, there is certainly a lot of competition in this space. So, in my research for this episode, I came across a man by the name of CERN Basher. He works in the investment industry and has his own firm and he puts out a lot of really interesting content on Tesla. (46:34) And funny enough, my co-host Preston Pitch actually just released an episode with CERN that went out just a couple weeks ago. Based on some of the videos I've seen, CERN is one of the biggest Tesla bulls out there. He believes that in the next 3 to 5 years, you're going to see a ton of developments from the robo taxi segment. (46:53) It reminds me that I was just in Big Sky, Montana for our TIP Summit event and my colleagues Shawn Ali and Daniel Mona did a stock pitch on Uber there. I really liked the presentation, but one of the concerns I had around Uber was around the terminal value of the business given that Tesla is planning on this huge roll out of robo taxis. (47:13) If they're able to roll out millions of these autonomous robo taxis over the next 10 years, have their own app that riders use, and undercut Uber's pricing, then I can't help but think that that will be hugely disruptive to Uber's mobility segment. In CERN's conversation with Preston, he even threw out the idea that eventually the cost of energy will be so low that people may be able to get rides for free and users will be served ads in the vehicle to help cover the cost. (47:40) So, it's similar to how we use Google, Facebook, Gmail, or even Spotify or YouTube today at no cost. Uh, assuming you're looking at the premium model and you're being delivered ads. It's an ambitious project and we'll see if it comes to fruition in Tesla's future. Tesla has already announced that its first dedicated robo taxi service has launched in Austin, Texas with pilot programs and they're expected to expand into other US cities shortly after. (48:06) I was seeing some snapshots of the early launch in Austin and how Tesla was offering rides to beta users at about 1/5 the price of an Uber. Of course, Tesla is very likely subsidizing these rides, but it's interesting to say the least given Tesla's software capabilities with having an app, the brand awareness, and the full self-driving software. (48:26) In Austin, Texas certainly makes sense as a starting point since Tesla has its Gigafactory there, their headquarters is there along with supportive local regulators and a tech friendly population that's really open to trying new things. From there, the rollout's expected to spread into other metro areas like San Francisco, Miami, and possibly Phoenix, where autonomous vehicle testing is already more common. (48:49) Regulations seem to be the biggest bottleneck for scaling autonomous vehicles. Relative to Whimo, Tesla seems to be in the earlier stages of getting through multiple levels of approval with regulators. Regulations evolve rapidly. They differ state by state and often reset testing clocks after incidents occur which creates a high level of financial and operational risk for AV companies. (49:13) Whimo is also ahead of Tesla in its full self-driving capabilities. Whimo has already reached level four autonomy, meaning its robo taxis can operate without a driver in certain geoenced areas. By contrast, Tesla's system is still considered level 2 plus, requiring the driver to stay attentive and ready to take control at all times. (49:34) Tesla has the advantage of scale in a massive driving data set, but for now, Whimo is the one actually running cars with no one behind the wheel. The potential of the robo taxi segment overall is shaping up to be massive. Arc Invest, for example, has published research that estimates the global robo taxi opportunity could be worth trillions of dollars by the 2030s. (49:54) The economics are compelling because once the cars are driving themselves, the cost per mile drops dramatically. Tesla believes that with its vertically integrated approach, it can achieve a level of scale and profitability that companies like Uber and Lyft simply cannot match. But the large scale is essential. (50:14) They need to be producing millions of robo taxis to hit their $25,000 price target per vehicle and still turn a profit on each sale. Of course, this is still a huge if. Regulators need to sign off and Tesla still has to prove its full self-driving system can truly handle city driving with the level of safety required for commercial robo taxis. (50:37) Companies like Whimo and Cruz have made early progress with robo taxis in cities like San Francisco and Phoenix. So the competitive landscape is already forming. But if Tesla pulls this off, it could be one of the most disruptive shifts in transportation we've ever seen. Imagine fleets of Teslas driving around 24/7, picking up passengers, lowering the cost of urban mobility, and creating a brand new recurring revenue stream for the company. (51:03) For Tesla shareholders, the robo taxi vision is one of the biggest potential value drivers, and it's easy to see why so many bulls like CERN, for example, get so excited about it. There are plenty of scenarios where AV transition could play out well for Uber, though. The bull case I could foresee in mobility with Uber is that Tesla isn't able to capture a large share of the market, and Uber benefits from being the platform that sits in the middle of this fragmented market of several different players. (51:32) So even if Tesla captures say 10% of the mobility market, much of the rest still lies in the hands of Uber and Lyft with Uber capturing a line share of the profits. Now let's talk a bit about the bare case for Tesla since a lot of this episode has focused on what can go right for the company. (51:50) In my view, the bare case for the company centers around two broad and key themes. First, the company falls short of the ambitious goals it has set for the coming decade. And second, even if the company continues to achieve remarkable things, investors may end up overpaying for their shares. And as a result, despite the company's success, those investors could still earn disappointing returns. (52:12) Bulls typically believe that Tesla can do no wrong and the best time to buy Tesla shares is today. Bears typically believe that Tesla is a borderline fraudulent company and the best time to buy shares is never. But the truth tends to lie somewhere in the middle. I think that Tesla is a classic case study as some investors bringing emotions into their opinion of a company. (52:33) A lot of people either love or hate statements that Musk has made on a wide variety of topics and they can carry that baggage into their view of the company. In some ways, this can be useful since Tesla's brand is heavily rellyant on Musk and his actions. But on the other hand, carrying this baggage into our opinion of the company can be misleading. (52:53) Our show recently featured prominent shorteller Jim Chanos, who has been a longtime Tesla bear. One of Chenos's criticisms of Tesla is that the core car making business is structurally unprofitable and much of the reported profitability has come from regulatory credits sold to other car makers. (53:12) So the car makers that sell the gas powered vehicles end up buying regulatory credits from Tesla because they exceed the emissions rules in their local jurisdiction. So, if we look at the most recent year, 2024, Tesla reported $2.7 billion in regulatory credit revenue, and the net income they reported was 7 billion. So, while Chainos's comments may have applied in the past, they don't seem to necessarily apply today, and they have other business segments that are rapidly growing, which helps diversify their revenue streams. Also, Tesla bears have (53:43) tried to compare Tesla's valuation to that of other car makers. I think that's a huge mistake. I personally think this is a ridiculous way of valuing the company because there's certainly a nonzero chance that Tesla will be able to unlock value from the other segments outside of just selling cars. If Musk can send rockets into space and land them back on Earth, then I wouldn't rule out the possibility of him mass-producing robo taxis or being successful with Optimus. (54:10) One concern I do think is valid is increased competition. Although Tesla had a first mover advantage in the EV space, that moat may be narrowing. Legacy car makers have massive global scale distribution networks and established supply chains. The question is, can their costs compete with Tesla? On the one hand, these legacy businesses also have manufacturing know-how, but is Tesla able to bring enough automation into their process to gain a real cost advantage? This is one area I think Tesla is lacking when compared to a company like BYD which is able to sell (54:46) their EVs at a much cheaper price. Although some consumers in the US will be loyal to the Tesla brand, it seems that the EV space overall is becoming more and more commoditized as more and more players enter the market and center their strategy around EVs. I think Bulls initially sort of had this optimistic view that Tesla will dominate EVs. (55:07) They'll be, you know, the main player. everyone's going to want an EV. They'll roll out these affordable cars and capture more than 50% market share. But reality today is really nowhere near that. In 2024, there were just shy of 16 million cars sold here in the United States. And based on the numbers I'm seeing, Tesla vehicle sales accounted for just 4% of that volume. (55:29) Additionally, their share in the EV space specifically has declined in each of the past 5 years. Truth be told that the auto business is just a ruthless industry with low margins and high cyclicality. The last point on the bare case here I'll mention is related to Elon Musk's style of governance. Let's take the example of full self-driving. (55:51) Back in 2015, Musk stated in an interview, we'll have complete autonomy in about 2 years. In 2016, he said a Tesla will be able to drive from LA to New York without the need for a single touch by the end of 2017. In 2017, Mus said that within about 2 years, Tesla owners would be able to fall asleep in their cars and wake up at their destination. (56:18) At Tesla's 2019 autonomy day, Mus declared that Tesla would have over 1 million robo taxis on the road by 2020. In early 2020 earnings calls and interviews, Musk promised that full self-driving would be feature complete by the end of 2020. So essentially over an extended time period, he has said that FSD was 1 to two years away. (56:40) My point isn't whether Tesla does or doesn't have full self-driving capabilities. That to me is just inevitable and it's going to be coming to the roads. My point is that given Musk's track record of making predictions, how can we put any weight on anything he says about the future from here? I would personally rather have a CEO who underpromises and overdelivers rather than the other way around. (57:04) I think it would be safe to take anything that Musk says with a grain of salt because he has this incentive to get investors excited and keep the stock price propped up with lofty expectations about the future. I don't know whether Tesla will be a massive success or a total flop, but when I think of Tesla, I think about the concept of the capacity to suffer. (57:25) The best businesses are able to have the capacity to suffer and simply do things that no one else is willing to do. I think about two companies that embody this concept really well. It's Tesla and Nvidia. Nvidia's founder Jensen Wong has said, "Greatness comes from character and character is not formed out of smart people. (57:44) It's formed out of people who suffered. If you read that Walter Isaxson biography on Musk, you know that Elon has gone through just so much pain in trying to make Tesla and SpaceX successful. In many ways, Musk is essentially wired to seek out pain and hardship. Whenever he gets comfortable, he always takes on a new and ambitious project. (58:06) In other words, he always takes on more pain. Back during the great financial crisis, Tesla wasn't producing the Roadster profitably, and raising new money at this time was incredibly difficult. So, Musk went through what he referred to as manufacturing hell in order to figure out how to bring down costs enough to turn a profit on these vehicles. (58:26) He eventually went into just desperation mode, asking friends, family, and Tesla employees for money to keep the company afloat. Musk stated at the time, "I was working every day, all night, all day in a situation that required me to pull a rabbit out of the hat, now do it again, now do it again." End quote. (58:44) So, I think there's something to be said about having that capacity to suffer and being willing to do what no one else will do. When I look at Tesla's valuation, I very much still see this as somewhat of a story stock. The company has to achieve significant feats in the future to justify today's valuation of around $1.4 trillion or $440 per share. (59:07) When I look at their price to sales metric, for example, we're sitting at around 15 today. Over the past 5 years, this has gone as high as 27 and as low as four. And with the stock performing quite well over the past year or so, it seems that Tesla has been riding the AI wave and how AI stocks have, you know, benefited from it being a hot sector to invest in. (59:29) Tesla is probably one of the most unpredictable businesses out there when we're looking out over a 10-year time frame. And this makes it extremely difficult to model out sales, model out profits over the next decade, and just so difficult to pinpoint an accurate intrinsic value. just the the range of outcomes is just so wide. (59:47) With that said, I could see this potentially being a worthwhile investment, especially if you're able to get it during the market dislocations, as this is a very volatile stock. Back in January of 2023, the stock was down over 70% from its high. And just in April of this year, 2025, the stock was down nearly 50% from its high. (1:00:08) Perhaps the auto business and energy business alone will be able to justify today's valuation with a significant increase in sales and profits over the next decade. But the real money is likely to be made in their optionality. Ideally during the these market dislocations, you're able to purchase the core businesses at a fair price and you still get the optionality of Optimus, robo taxis, and their other potential segments for free. (1:00:31) With all that said, few businesses in history have pushed the boundaries of technology in manufacturing quite like Tesla. Through relentless innovation and a willingness to take on impossible challenges, Elon Musk has proven himself to be a truly generational CEO, one who redefineses entire industries rather than merely competing within them. (1:00:52) While the road ahead will surely have bumps, Tesla's story reminds us that extraordinary results often come from those willing to think unconventionally and continue to push the limits of their capacity to suffer. One of my favorite things that my colleagues Shawn and Daniel do over at the Intrinsic Value Podcast is close out each episode with a quote. (1:01:15) And I thought there was no better way to close out this episode than with a few quotes from Elon Musk. The first one is related to investing. It's okay to have your eggs in one basket as long as you control what happens to that basket. The second one is about being an entrepreneur. Being an entrepreneur is like eating glass and staring into the abyss of death. (1:01:36) And finally, the last one is about life. When something is important enough, you do it even if the odds are not in your favor. The last thing I'll say about Tesla is that it feels like with Tesla's early pursuit of EVs, the whole world was waiting for them to fail. Everyone was skeptical of them being able to turn profitable. Short sellers tried to burn their brand and reputation to the ground and legacy car manufacturers sat on the sidelines as Tesla built innovative new models. (1:02:06) Now today, Tesla is pursuing massive opportunities in energy, robo taxis, and Optimus, and it still feels like many are waiting for them to fail in these pursuits. As I mentioned at the top of the episode, Munger shared to never underestimate the man who overestimates himself. (1:02:25) With that, I think we'll close out the episode on that note. Thank you for tuning in to today's episode on Tesla. If you're a Tesla bull or bear or just have some interesting research or information about the company, feel free to shoot me a note on LinkedIn or email me at clay@theinvestorspodcast.com. I'd love to hear from you and learn more about this fascinating company. (1:02:46) With that, thanks again for tuning in and I hope to see you again next week. And you'll find throughout this book that Elon essentially never becomes content in the operation of his businesses. Today, he's heavily involved in running six companies, which is practically unheard of, and he's wired much differently than even your typical entrepreneur. (1:03:09) Elon also developed a very, very high tolerance for risk. Peter Teal once said that Elon wants risk for its own sake. He seems to enjoy it and at times even be addicted to
Tesla Stock Deep Dive | Elon Musk's Vision to Build the Future (TIP761)
Summary
Transcript
(00:00) Oftentimes, the biggest winners in the stock market are able to pull tricks out of their sleeve that no one expected. And you need a really innovative culture that will reimagine the future in order to do that. That is a lot of the value in owning a company like Tesla. Because if the company continues to innovate, then 10 years from now, they'll likely have new business segments that really couldn't be dreamed of today or the company finds new and innovative ways to grow their existing businesses. (00:28) This way of investing stands in stark contrast to the large mature businesses we can invest in which likely aren't going to transform in the same way. So you think about companies like Coca-Cola and Walmart for example. [Music] Before we dive into the video, if you've been enjoying the show, be sure to click the subscribe button below so you never miss an episode. (00:53) It's a free and easy way to support us and we'd really appreciate it. Thank you so much. Welcome to the Investors Podcast. I'm your host, Clayfink, and today I'll be discussing a company that everybody is familiar with and a company that is often in the headlines. That company is Tesla. But before I get to Tesla, I thought a good place to start was to talk a little bit about disruptive innovation. (01:16) Since this concept is the name of the game for a company like Tesla, disruptive companies almost always start out as being misunderstood. The early years tend to be filled with skepticism because they do not neatly fit into the mental models that investors, analysts, and even competitors are used to. The market often tries to evaluate them using traditional metrics and frameworks, but disruption does not play by traditional rules. (01:44) That gap between perception and reality creates a long runway of doubt before people begin to see what's really happening. And once it's finally obvious to most people what is happening, it's too late to invest and earn outsiz returns. Physicist Max Plank once stated, "A new scientific truth does not triumph by convincing its opponents and making them see the light, but rather by its opponents eventually dying and a new generation grows up that is familiar with it. (02:14) " Or a simpler version of that same quote is, "Science advances one funeral at a time." The same principle often applies to business and investing. Paradigm shifts are rarely embraced by the incumbents or even by the majority of investors at first. New ideas usually look fragile, incomplete, or impractical because they don't yet have the scale or proof points that make them easy to understand. (02:40) But that's exactly why the payoff can be so large for those who recognize the seismic shifts early. If you've always lived in a world that was composed of transportation on the ground or by water, imagine how crazy it would be if a company claimed that they would be able to safely fly people in the air through commercial aviation. (02:59) The skepticism would have been overwhelming because it went against everything people thought they knew about travel. Today, an estimated 86% of adults in the United States have flown in an airplane. The history of Tesla fits right into this pattern. For years, skeptics focused on quarterly losses, production challenges, and missed deadlines. (03:22) Or they were anchored in the comparison of Tesla versus the other traditional car manufacturers. But they were missing the bigger picture. Tesla was not just trying to be another car company. It was rebuilding the entire stack with softwaredriven vehicles, vertically integrated manufacturing, a global charging infrastructure, and harnessing renewable energy. (03:44) In hindsight, it can be easy to see the seeds of disruption. But in real time, it almost always feels messy and uncertain. One of the reasons these paradigm shifts are so difficult to grasp is that humans naturally think in a linear way. We project the future as a straight line. A little faster, a little better, a little cheaper. (04:05) But disruptive innovations tend to follow an exponential curve. Progress looks slow and almost invisible at first. Then it suddenly takes off at a pace that catches nearly everyone by surprise. Take the growth of the internet or the growth of smartphones. The early years of smartphones were toys in their infancy. (04:25) And before you know it, nobody can live without checking their phone every hour of the day. This mismatch between linear thinking and exponential reality is exactly why investors underestimate disruptive companies. We overweight the short-term noise and underweight the compounding effects that play out over a decade or more. By the time the exponential growth becomes obvious in the data, the market has already repriced the opportunity and the biggest gains have been made by those who were able to see it early. (04:54) To look at the exponential gains that Tesla has experienced as just one example, back in 2004, they produced 0 in revenue. In 2014, they produced $3 billion in revenue. And by 2024, they produced nearly $100 billion in revenue. This level of growth is just unbelievable. And if in 2014, an analyst had predicted that revenues would reach 100 billion in just 10 years, the rational thing to do would have been skeptical of such astronomical growth. (05:30) To share another example of how disruptive technologies can impact a company like Tesla, let's look at how the cost of batteries have developed over time. Batteries are one of the major input costs into producing a Tesla vehicle. And I'd imagine that 15 years ago, someone would have looked at the cost to produce a battery and said that it's just simply unsustainable to try and build an EV company at scale because no one would be able to afford the cars because the batteries are just so expensive. (05:59) Well, from 2008 to 2023, that's a 15-year time period, the cost of batteries declined by 90%. For anyone who has a bias to thinking linearly, thinking that cost could fall this much would be asinine. But that's exactly what happened. This massive cost reduction has transformed EVs from a niche luxury product into vehicles that can compete directly with the mass market players. (06:24) And as the cost of batteries continue to fall, it opens the door to even more affordable models and wider adoption across the globe. So Charlie Mer once stated, "Never underestimate the man who overestimates himself." That's what he had to say about Elon Musk, the billionaire entrepreneur and innovator best known as the CEO of Tesla and SpaceX, where he has advanced electric vehicles, renewable energy, and space exploration. (06:49) At first glance, this quote almost sounds like a warning because overconfidence is usually seen as a weakness that leads people to make reckless mistakes. When someone overestimates themselves, we often expect failure, embarrassment, or wasted effort. But Munger is pointing out that sometimes overestimation can drive people to attempt things that others would not dare and in rare cases succeed beyond what anyone thought possible. (07:15) It reminds me of the Steve Jobs quote. The people who are crazy enough to think they can change the world are the ones who do. And that's exactly where Tesla comes in. As I was researching for this episode, I was amazed by how much is happening at Tesla today. They recently released what is referred to as their master plan part 4. (07:35) They proposed a new ambitious compensation package for Elon Musk, and they're working to shape the future of technology through offerings like the robo taxi, Optimus, and the full self-driving capabilities. For years, Tesla was a company that almost no one believed in. The auto industry laughed off the idea that an upstart could break into a world dominated by century old giants. (07:57) Wall Street analysts predicted bankruptcy. Legacy automakers dismissed EVs as a niche fad. And critics called Musk's vision unrealistic. And yet, time and time again, Tesla defied those expectations, transforming from a scrappy startup with a single sports car into the most valuable car maker in the world with a market cap well over a trillion dollars today. (08:20) The brilliance of Tesla lies not only in its technology, but in its ability to execute against impossible odds. They redefined what an electric car could be. They built a global charging network before anyone else dared to vertically integrated their supply chain and pushed the entire industry towards electrification. Musk's boldness combined with Tesla's relentless innovation has made them synonymous with the future of transportation and perhaps even with the future of energy itself. (08:48) And yet even today, Tesla remains one of the most polarizing companies on the market. For every believer convinced that they'll continue to dominate the EV era, there are skeptics who argue that competition, regulation, or even Musk's unpredictability could derail them. Perhaps the most pressing challenge comes from Chinese automakers like BYD, who are rapidly scaling production of lowerc cost EVs that could undercut Tesla's dominance in key markets globally. (09:17) The question now is the same one Tesla has faced from the beginning. Can they continue to prove doubters wrong? Or has the company already reached its peak? Since Tesla is a bit of a controversial pick, I'm going to try and analyze the company as objectively as I can, which sort of feels like an impossible task. Those who are bullish will likely say that my analysis is far too bearish, and those who are bearish will probably say I'm far too bullish. (09:43) I think there is no doubt to say that what Tesla has achieved to date is nothing short of amazing as they are led by a generational CEO in Elon Musk whose net worth recently crossed $500 billion. I actually did a podcast on Elon's biography by Walter Isacson back on episode 593 which I'll be sure to get linked in the show notes as well. (10:03) Looking back, I actually happened to purchase shares of Tesla around 2015 or 2016 when I was very early in my stock investing journey. After owning shares for around 9 to 12 months, I then talked myself out of the stock due to valuation concerns. Additionally, the stock wasn't really going anywhere at the time. (10:22) In college, I bought uh the other Elon Musk biography written by Ashley Vance, and admittedly, I was a bit of a fanboy at the time, which is one of the reasons why I bought the stock. Little did I know that Tesla would compound revenues at nearly 40% per year in the decade that followed. Occasionally, I'll go through uh some of my old photos on my phone. (10:44) And in 2017, I thought it was just amazing that I came across this bright red Tesla Model S when I moved to Omaha. Now, it feels like today, whenever I go on the road, I can't go anywhere without, you know, driving past a Tesla. So, in less than a decade, the car has just become a part of everyday life for millions of Americans. (11:02) And it's interesting to think about how a company like Tesla has evolved over the years. 10 years ago, people were asking how many people would want to own a Tesla in the future. What are the types of vehicles they would sell? What is the valuable what is the value of the data they're able to collect on these cars? And there's really no mention of AI. (11:19) But if you look at the most recent quarterly report, the company writes, "Que 2025 was a siminal point in Tesla's history. the beginning of our transition from leading EVs in renewable energy industries to also becoming a leader in AI, robotics, and related services." End quote. (11:38) Brian Faraldi recently discussed on the show this idea of optionality. Oftentimes, the biggest winners in the stock market are able to pull tricks out of their sleeve that no one expected. And you need a really innovative culture that will reimagine the future in order to do that. That is a lot of the value in owning a company like Tesla because if the company continues to innovate, then 10 years from now, they'll likely have new business segments that really couldn't be dreamed of today or the company finds new and innovative ways to grow their existing businesses. This way (12:09) of investing stands in stark contrast to the large mature businesses we can invest in, which likely aren't going to transform in the same way. So, you think about companies like Coca-Cola and Walmart, for example. In their recent report, Tesla shared that their priorities remain the same, which include delivering affordable and compelling autonomy capable models that maximize their global fleet of vehicles as their software continues to rapidly progress, growing the energy business and then advancing their robotics (12:39) efforts. With the success of the business over the past 20 to 25 years, I think a good place to start is with the man who made Tesla what it is today. For many people, Tesla is synonymous with the brand that was handcrafted by Elon Musk. Musk became one of the key investors in Tesla Motors. In 2004, Tesla Motors, now known as Tesla, was an electric car company founded by Martin Eberhard and Mark Tarpin. (13:07) Tesla unveiled its first car, the Roadster, in 2006. And in 2010, the company went public, raising around $226 million. Elon became the CEO of Tesla in October of 2008 during the height of the financial crisis and remains the CEO today. Musk owns over 700 million shares of Tesla, representing nearly a 20% ownership stake in the company, making him by far the largest shareholder. (13:34) As of the time of recording, his shares are worth over $300 billion. Elon is no stranger to making the headlines in the past couple of years with his takeover of X and his efforts in helping the federal government to eliminate wasted spending. The most recent headline that is making the rounds is with regards to Musk's compensation. (13:55) Tesla's board has put forward a 10-year performance compensation plan for Musk that could be worth up to $1 trillion in stock if very aggressive milestones are met. The proposal would be voted on by shareholders at Tesla's annual meeting, which is scheduled for later this year. In an SEC filing, the company wrote, "By introducing innovative and affordable technologies at scale, Tesla can help bring about a society that democratizes autonomous goods and services. (14:23) As a result, sustainable abundance represents a long-term vision, putting us at a critical inflection point, not just as a company, but as a society. We believe that Elon's singular vision is vital to navigating this critical inflection point. And as a result, the importance of having a leader who is not only willing and capable, but eager to meet this challenge. (14:46) Simply put, retaining and incentivizing Elon is fundamental to Tesla achieving these goals and becoming the most valuable company in history." End quote. I mean, what a statement. It should be no surprise those are some bold statements. The company has tied the compensation to a number of benchmarks over the next 10 years, a few of which I'll list here. (15:07) Tesla's overall valuation would need to increase from about $1 trillion to more than $8 trillion. 20 million vehicles will need to be delivered. 1 million self-driving robo taxis will need to be produced, and the company would need to manufacture 1 million of their humanoid robots, otherwise known as Optimus, which are currently under development. (15:27) This compensation plan would grant Musk more than 423 million additional shares in the company, boosting his level of control to around 25%. However, Musk's previous compensation plan has received push back. In 2018, Tesla investors filed a lawsuit challenging Musk's $56 billion pay package, alleging that he and the company's board had breached their fiduciary duties. (15:54) In August, Tesla stated that they would be granting Musk shares totaling around $29 billion. The size of this new compensation plan is simply unprecedented, as $1 trillion in compensation over 10 years is orders of magnitude larger than almost any prior CEO pay plan in US corporate history. This is really an attempt from the board to do a couple of things. (16:17) first is to try and keep Elon around for an extended period of time as the compensation plan is over the next 10 years and second they want to try and keep his focus on Tesla as we all know that he likes to have his attention on multiple huge projects all at once and with these ambitious targets he won't be given much leeway to work on other big projects though I certainly wouldn't be surprised if he continues to work on other projects as he always has it was the end of 2023 that I read the new Musk biography by Walter Isacson. And it's (16:48) just amazing to me how many times there were where Tesla about died. And if it weren't for Elon Musk, I would say that there's no doubt that this company would not be around, at least anywhere near where it's at today. As you know, he slept on factory floors to meet deadlines and just willed his way to survive and thrive. (17:10) It should be no surprise that Tesla's board thinks very highly of Musk. Tesla's board chair, Robin Denholm, stated in a message to shareholders the following. Tesla is not led by an ordinary CEO. It is led by a CEO who has proven his ability to create extraordinary growth and value several times over. (17:31) Elon Musk is a once- in a generation visionary, and under his continued leadership, we have the potential to become the most valuable company in history. But this requires a one-of-a-kind compensation structure that both retains and incentivizes him to make our vision a reality. Our board's special committee designed a 2025 CEO performance award to retain, motivate, and incentivize Elon in a way that will be 100% aligned with Tesla's shareholders. (17:59) Building upon the successful framework of the 2018 CEO performance award, we have created a payfor-performance compensation plan that will deliver tremendous value for shareholders. In other words, Elon will receive zero compensation unless and until shareholders realize substantial value. Elon gets compensated if shareholders win and win big. End quote. (18:21) Despite the optimism from Denholm here, Tesla's growth in recent years has been fairly lackluster. After experiencing rapid growth in the years leading up to 2022, sales are only up modestly since then, as they've seen slowing growth in both of their major markets, the US and China. (18:41) Zooming into the $8 trillion market cap that they're targeting in 10 years. If we assume that Tesla will be able to achieve the extraordinary growth that they would like to and the company trades at a PE multiple of 50 times earnings at the time, then that would mean that they would need to generate operating profits of $150 billion based on those assumptions. (19:01) And that's even with a lofty PE multiple. Today, Tesla generates just shy of $100 billion in revenue. So, it's no doubt that this level of growth will just be a super extraordinarily tall task for Elon. But this is really nothing new for him. One of the takeaways that I picked up from that Isacson biography was that once Elon starts to get comfortable, he then wants to take on more projects than any rational person would assume they could handle. (19:30) And I think this compensation package is just an example of that. 10 years ago, countless analysts would have said that it would be impossible for Tesla to become a trillion dollar company, which they've of course achieved. But Elon does not stop there. He wants to become the most valuable company in the most innovative company in the world. (19:49) Next, let's transition here to discuss the automotive business. Tesla's vehicle sales remain the foundation of the business, accounting for the majority of revenue. Most of the vehicle sales come from the Model 3 and the Model Y. The Model 3 is their more affordable compact sedan that starts out at a price of $42,000 before any tax incentives, while the Model Y is their compact SUV that offers more space, versatility, and range, starting at a base price of around $45,000 before tax incentives. (20:19) In fact, the Model Y is one of the best selling vehicles in the world, not just among EVs, but across all categories. Other models they sell are the Model X, their premium SUV, the Model S, which is their high-end sedan, and the infamous Cybert truck, which is the newest vehicles they released in late 2023. Although I could never imagine myself driving a Cybert truck, I think it's proof that Tesla is still a company that is willing to push the boundaries of engineering and style and simply do things differently. (20:48) When I look at the automotive industry, I can't help but notice how essentially all car manufacturers here in the US appear to simply be copying each other. In a sea of meto players, Tesla is a company that clearly stands out with pretty much every single vehicle they've produced. They do not accept the status quo. (21:08) They question all conventional wisdom, and that is one thing I really appreciate about their approach to business. In the near future, there's rumors that Tesla will soon launch more affordable electric vehicles below a $30,000 price point. This strategy ties back to Elon Musk's original master plan, which he published in 2006. The idea was simple. (21:30) Start by selling a high-end sports car, then use that money to build a more affordable luxury sedan, and eventually roll profits into mass market vehicles that could accelerate the world's transition to sustainable energy. Looking at today's lineup, you can see that vision playing out from the early Roadster to the premium Model S and Model X and finally to the mass market Model 3 and Model Y. (21:54) And even with the Cybert truck, while it's a bit of a wild card, it fits the mold of pushing innovation forward while expanding Tesla's reach into new segments. And in many ways, the potential launch of a sub $30,000 Tesla would mark the final step in fulfilling that original plan. There are a number of really interesting things about the automotive business that I would like to ponder and elaborate more on here. (22:18) So, first, in recent years, Tesla has implemented price decreases for their vehicles, and investors on both sides of the table rejoiced that they were finally right about their Tesla thesis. The bears claimed that Tesla was facing tough competition, especially outside of the US, and there was potentially some concerns around demand postco after we saw inflation come around and Tesla has some margin to give in terms of price to try and keep their revenues growing. (22:46) However, some Tesla bulls claim that Tesla is simply following the scaled economy shared playbook that where as they grow, they're able to pass on more savings to customers. So, you know, as Tesla increases their level of vertical integration, costs per unit fall and they can simply pass those cost savings along to customers while keeping margins at a sustainable level. (23:09) The magic of the scaled economy shared model is that it's recursive. Lower prices bring in more customers, which allows them to increase their scale advantage even more, allowing them to lower prices further. With that said, Tesla's gross profit margins are near their lowest level in the past 10 years. (23:27) So, it does seem that competition is playing a role here, as you tend to see in capitalism, and they are not seeing substantial benefits to their massive scale, at least yet. Anyways, Jim Ran once said that you're the average of the five people you spend the most time with. And I really could not agree with him more. (23:45) And one of my favorite things about being a host of this show is having the opportunity to connect with highquality like-minded people in the value investing community. Each year, we host live in-person events in Omaha and New York City for our tip mastermind community, giving our members that exact opportunity. (24:05) Back in May during the Bergkshire weekend, we gathered for a couple of dinners and social hours and also hosted a bus tour to give our members the full Omaha experience. And in the second weekend of October 2025, we'll be getting together in New York City for two dinners and socials, as well as exploring the city and gathering at the Vanderbilt 1 Observatory. (24:29) Our mastermind community has around 120 members, and we're capping the group at 150. And many of these members are entrepreneurs, private investors, or investment professionals. And like myself, they're eager to connect with kindered spirits. It's an excellent opportunity to connect with like-minded people on a deeper level. So, if you'd like to check out what the community has to offer and meet with around 30 or 40 of us in New York City in October, be sure to head to thespodcast. (24:58) com/mastermind to apply to join the community. That's the investorspodcast.com/mastermind or simply click the link in the description below. If you enjoy excellent breakdowns on individual stocks, then you need to check out the intrinsic value podcast hosted by Shaun Ali and Daniel Mona. Each week, Shawn and Daniel do in-depth analysis on a company's business model and competitive advantages. (25:25) And in real time, they build out the intrinsic value portfolio for you to follow along as they search for value in the market. So far, they've done analysis on great businesses like John Deere, Ulta Beauty, AutoZone, and Airbnb. And I recommend starting with the episode on Nintendo, the global powerhouse in gaming. (25:45) It's rare to find a show that consistently publishes highquality, comprehensive deep dives that cover all the aspects of a business from an investment perspective. Go follow the Intrinsic Value Podcast on your favorite podcasting app and discover the next stock to add to your portfolio or watch list. However, as I alluded to, Tesla's automotive segment is vertically integrated as they manufacture their own batteries at scale, design their own software, and control much of the distribution and servicing by bypassing (26:16) the traditional dealership model. This level of control allows Tesla to maintain higher margins than most automakers while also giving them flexibility to adjust prices in response to market conditions. Another example of Tesla taking a different approach than other auto manufacturers is bypassing the traditional dealership model. (26:37) This really gave Tesla complete control over the customer experience. So, back in 2018, I took a trip down to Kansas City with my immediate family and I had a one morning free. So, I decided to stop by a Tesla showroom and test drive a Model S. I remember the experience quite vividly. When I walked into the showroom, it really didn't feel anything like stepping into your typical car dealership at all. (27:02) There was no pressure and no salesperson trying to upsell you on options that you don't need. Instead, it felt almost like walking into an Apple store. It was clean, minimalist, and it focused entirely on the customer experience. The Tesla rep I met was incredibly knowledgeable, not just about the specs of the car, but about the bigger vision behind Tesla. (27:23) He wasn't just selling a car. He was telling a story of a company redefining what driving could mean. Hopping into the driver's seat of the Model S was an experience in itself, too. The premium seat cushions immediately caught my attention. They hugged me just enough to feel sporty, yet the leather was soft and luxurious, almost like sinking into a high-end lounge chair. (27:45) The steering wheel had a supple feel to it as well, and the overall interior just had a totally different aura to it, similar to how we experienced the iPhone, and how it has this very intentional design that's very modern, easy to use, and enjoy. Quality has its own frequency, and I sensed that frequency when I first sat down in a Model S. (28:07) Instead of dozens of buttons, knobs, and dials, everything was centered around this massive single touchcreen in the middle of the dashboard. At first, it almost felt futuristic, but within minutes, it was actually pretty intuitive. That screen controlled everything from the climate, navigation, media, and the sunroof. It was clean, efficient, and unlike anything I'd ever seen in a car before. (28:29) When it came time to drive, the smoothness of the ride really blew me away. I remember getting onto the interstate on-ramp, pressing the accelerator, and instantly feeling that surge of torque. There was no hesitation or lag with the acceleration. And one of the things that's most different about Tesla vehicles is that when they accelerate, it's almost silent. (28:51) So, you don't have the loud revving engine noise that you're used to in hearing in a gas-powered car. My dad was in the back seat of the Model S. He was next to my mom and my brother and he actually caught a video of me punching the accelerator while my mom was halfway freaking out since she thought that another car was on the highway going to be entering the same lane as us. (29:12) I was smiling from ear to ear uh completely unprepared for how effortlessly the car would go from zero to highway speed. The acceleration felt almost like being pulled forward on a roller coaster, but with none of the noise or vibration of a gas engine. It was truly exhilarating. On top of that, the rep encouraged me to try out Tesla's autopilot feature on the highway. (29:34) Watching the steering wheel subtly adjust on its own while the car kept its lane and maintained speed was slightly unnerving. Then he had me click on my left blinker and the autopilot feature went ahead and changed lanes for me. That entire experience at the Tesla showroom just really stuck with me because at the time it was clear to me that Tesla was offering something fundamentally different from everything Americans were used to. (29:59) And because they sold directly through their own showrooms, Tesla created an environment that would be nearly impossible for the traditional dealerships to replicate. Another firstirhand experience I have with Tesla was this past winter. I spent a couple of months down in Austin, Texas, where Tesla have recently moved their headquarters to. (30:18) A member of our mastermind community let me know that one of his family members has worked at Tesla for the past 9 years. And I briefly connected with that family member down in Austin, and she uh proudly told me that she had never sold a share of Tesla she's ever bought, and she spoke very highly of Elon in his vision. (30:36) It's just one example, but I sense that there's this similar feel that along with there being a cult-like following with Tesla car owners and Tesla stockholders, there's also this dynamic that likely carries over to the employees as well, especially since the stock has done so well over the years and built a fortune for so many people. (30:54) However, Tesla, of course, faces stiff competition in the EV space. Many of the big legacy automakers are stepping up and treating EVs as core to their future and not just experiments. And many automakers have made commitments to stop producing internal combustion engine vehicles by 2035. (31:14) In the US, GM has been rolling out EV versions of some of its most popular vehicles like the Chevy Silverado and Blazer, aiming to compete head-on with Tesla in the mass market. Ford has also leaned heavily into F-150 Lightning and Mustang Mache, which are designed to appeal to longtime truck and performance car buyers making the switch to electric. (31:37) Hyundai and Kia have gained traction with sleek tech forward models that are gaining traction. While Tesla still dominates overall EV sales, these competitors are steadily chipping away at market share with broader lineups and aggressive pricing strategies. Back in 2020, Tesla held over 70% market share for EVs in the US. (31:56) And today, that figure is closer to 40%. But I think the most important competitor to highlight is one that is not based in the US, and that is BYD. BYD has quickly become Tesla's biggest rival on the global stage, even overtaking Tesla in EV sales in late 2023. BYD is also a vertically integrated manufacturer as they produce their own batteries, chips, and many other components, which allows them to keep costs extremely low. (32:22) One of the striking differences between BYD and Tesla is pricing. Your typical buyer of a Tesla vehicle in the US is paying around $50 to $70,000 depending on the vehicle they select and the add-ons they decide to pay up for. If someone is paying for a BYD vehicle in China, they tend to pay around $10,000 or potentially even less. (32:43) However, upgraded versions may cost upwards of 20 to $35,000, but this is still significantly less than Tesla. In China, BYD dominates with both battery electric vehicles and plug-in hybrids, and their scale gives them cost advantages that are hard for Tesla to match. They've also been aggressively expanding into Europe, Latin America, and Southeast Asia, building factories in places like Hungary and Brazil to get closer to end markets. (33:12) The US market is a different story, though. Tariffs on Chinese-made EVs have kept BYD out of the US for now, and earlier this year, they even shelf plans for a Mexico factory that could have served as a backdoor into the American market. That means Tesla is relatively insulated from BY and its home market. But everywhere else, the two are colliding headon. (33:33) Metaphorically speaking, I think that BYD will make it difficult for Tesla to expand it in new markets across the globe. BYD is pretty aggressive in their pricing strategies. So, they're putting pressure on Tesla to keep innovating and lowering their input costs in order to protect margins and continue growing. (33:50) One of the members of our mastermind community recently gave a presentation on BYD for the group, which is how I started to learn more about this company. When you look at the global landscape, China and the US are the biggest markets for auto sales. And BYD continues to gain share in the EV space in China. (34:09) Around 2/3 of BYYD sales come from China, 16% from Europe, and roughly 10% from the US. Back in 2020, Tesla had more than double the auto revenue of BYD. And in 2024, BYD would end up surpassing Tesla in auto revenue. One of the questions that I had for our members during that presentation was about how China has banned many big tech players from operating in their country, companies or products such as Google, Facebook, Instagram, X, YouTube, etc. (34:37) And I wondered why China has been so open about allowing Tesla to sell their vehicles in China. The member's theory was that EVs were really important to China. So they wanted to learn how Tesla was able to produce EVs at scale. So, they allowed Tesla to produce and sell cars in China to help them pick up the best practices that Tesla was using to mass-produce electric vehicles. (35:00) China did something very similar in allowing Apple to produce iPhones in China so their own industry could develop similar mobile phones. To round out this segment on competition, I wanted to share a clip of Elon on CNBC talking about how he doesn't really think about competition. We do have to battle other car companies in China who are trying to stop us from incredibly competitive market. (35:21) China is the most competitive market and to the extent BYD which is neck and neck with you I think in the EV race I think it's fair to say worldwide correct I don't really follow that you don't no um well they're willing again my question is they're willing to seemingly offer different levels of autonomy for I don't want to call it free but part of the cost of the of the car. (35:44) Do you see that as a possibility for you or is it always going to be that add-on and therefore that significant revenue stream conceivably? I I don't really think about competitors. I just think about making the product as perfect as possible. You don't think about competitors at all? No. I just think about making what we want to achieve is the platonic ideal of the perfect product. (36:09) And as long as you focus on that, you will have a compelling product. Obviously, another challenge that Tesla faces is that the adoption of EVs in the US has decelerated for a number of reasons. One is the relatively higher cost of EVs. The US also has a limited charging infrastructure. It's just not as convenient to use an EV when you're traveling long distances and have limited options to charge your vehicle. (36:34) One of the advantages that Tesla has in the US is their extensive charger network that they've built. Unlike other automakers, Tesla built out a nationwide supercharger system early, giving their drivers reliable access to fast charging. Now, with nearly every major EV brand adopting Tesla's charging standard, the network is set to become the default backbone of the EV infrastructure in the US. (36:58) Before we get to some of Tesla's other segments that are even more forward-thinking and ambitious, I thought this would be a good time to discuss Tesla's master plan part 4, which the company released in September of 2025. Tesla frames the next chapter of their story as a shift beyond just sustainability towards what they refer to as sustainable abundance, where constraints such as energy, labor, and resources are overcome through technological innovation. (37:26) The central thesis is to merge Tesla's scale and manufacturing know-how with AI and automation to build new products and services that reshape labor, mobility, and energy. In Tesla's words, we are building the products and services that bring AI into the physical world. I think a lot of people tend to think of things as zero sum. (37:49) Oftent times, in order for one company to win, another must lose or vice versa. Tesla's vision is that growth can in fact be nearly infinite and they reject this zero sum view due to the abundance that technology and innovation can bring. For example, let's imagine a world where energy and labor cost are dramatically reduced and food becomes so cheap to produce that we can simply just pay a subscription to the grocery store and we can just, you know, walk in and take as much as we'd like off the shelves. (38:19) This seems crazy and impossible. similar to how the idea of Netflix would have been deemed crazy and impossible in 1990 to someone that was told that, you know, we'd have nearly unlimited movie selection at a low fixed monthly price. One notable criticism of the master plan part 4 is that it lacks the concrete road maps, production targets, and timelines that characterize Tesla's early master plans. (38:44) So, it reads a bit more like a philosophical manifesto than an operational blueprint. There's also a noticeable tension with Tesla's past focus. While earlier master plans centered around specific vehicles, scaling EV production, and expanding their charging infrastructure, this latest plan shifts their attention towards AI, robotics, and automation as the new frontiers of value creation. (39:08) And given how much the market is currently rewarding anything tied to AI, some see this as a strategic move by Tesla to align its narrative with the dominant investor theme. So it's a way to ride the AI wave and help sustain its lofty valuation in some people's minds. In short, the master plan part 4 highlights the shift in Tesla's focus from releasing new models of automobiles to being a leader in developing these broader transformations and how society operates in embedding AI into the physical world. All right, so jumping (39:40) here to some of Tesla's other segments outside of EVs, let's move to the energy segment. In recent years, Tesla's energy generation and storage segment has also seen rapid growth since 2020. Revenue for this segment has grown from $2 billion to nearly 10 billion last year, representing a 38% compounded annual growth rate. (40:03) Tesla's energy generation and storage division includes products like solar panels, the solar roof, and storage systems such as the power wall for homes, the power pack for businesses, and the massive mega pack for utilities. This segment aligns with Tesla's mission, which is to accelerate the world's transition to sustainable energy by not only producing clean electricity, but also storing it efficiently for when the sun is not shining and the wind is not blowing. (40:29) When it comes to renewable energy, one of the big challenges that businesses face is the storage cost. Batteries have historically been expensive, making it tough to scale. And batteries are an area where Tesla has been forced to innovate because one of the issues with some of the earlier models of vehicles was that they weren't able to get batteries on the vehicle that could store enough power for them to travel long distances. (40:55) So Tesla took it upon themselves to invest heavily in vertical integration in designing their own battery cells to reduce the cost per kilowatt hour while increasing energy density. They've been able to produce batteries at scale through their dedicated factory in Lanthrop, California, and they have plans to expand production to China. (41:14) The battery technology they've developed is just another example of Musk thinking outside the box and define conventional wisdom. It reminds me a bit of the quote he shared, "If conventional thinking makes your mission impossible, then unconventional thinking is necessary." Tesla's energy segment pairs well with the auto business because as batteries improve and manufacturing continues to scale, the cost to produce each vehicle will continue to decline. (41:40) The energy segment's gross margins have been improving as of late and has surpassed that of the auto business in recent quarters. And Musk has hinted that the energy segment could one day rival the auto segment in terms of revenue. But the biggest Tesla bulls believe that the majority of the value in the future will come from optimists. (41:59) Tesla's Optimus is designed to perform tasks that humans generally don't want to do. Think about tasks that are unsafe, repetitive, or boring. I think if you ask most people, they would rather not do things like prepare meals, do the dishes, run your clothes through the laundry, clean your house, etc. (42:16) I can't imagine how much time I would save in a year if I could remove the need for those tasks. And this is exactly the type of work that Optimus is built for. Optimus stands at about 5 feet 8 in tall and weighs around 160 pounds. And it's built with Tesla's expertise in AI, robotics, and manufacturing. The robot is equipped with cameras, sensors, and Tesla's full self-driving computer for navigation and interaction with its environment. (42:43) Elon has long been vocal about declining birth rates in developed countries, and Optimus could serve to fill the gaps in labor shortages and help transform industries through automation. This year, Morgan Stanley published a report that forecasted the humanoid industry will produce 1 billion humanoid robots and 5 trillion in revenue by 2050. (43:05) Now, of course, no one has a crystal ball and reality will likely be much different than that. And even Morgan Stanley's estimates vary drastically from year to year, but it seems practical that a robot like Optimus could play a major role in society and drastically improve the quality of life for us all. (43:23) It even seems a little bit scary to think about. If Tesla is able to be at the forefront of humanoid robotics, then this could be an absolutely massive opportunity for them to capitalize on. In fact, just a few weeks back, Elon posted on X that around 80% of Tesla's value will be from Optimus. (43:43) So, of course, Elon sees the opportunity here. Most will be skeptical that so much value will come from a product that doesn't exist yet. But remember that there was a day when there were no coffee shops in most countries. And today we have Starbucks, which has a market value of $100 billion. And a couple of decades ago, people got by just fine with flip phones or no mobile phones at all. (44:04) Then came along Apple and the iPhone in 2007, which seemed like a luxury gadget at the time. Today, Apple is worth over $2 trillion, and smartphones are practically an extension of ourselves. The lesson is clear. It's that truly innovative companies don't just create products, they create entire markets. And with that comes extraordinary shareholder value. (44:26) Optimus has started to come into the limelight after last year when Tesla hosted a Wii robot event in October where Optimus was used to serve drinks, provide entertainment, and mingle with attendees. It was quite funny and uh Musk was on stage talking about uh full self-driving, the robo taxi, the robo van and then he went on to discuss Optimus and then a handful of these Optimus robots came walking out. (44:51) He then shared that he estimates that Optimus at full-scale production will cost less than half than a car, so around 20 to $30,000. Quoting Elon here, he stated, "And what can it do? It'll basically do anything you want. It can be a teacher, babysit your kids, walk your dog, mow your lawn, get groceries, just be your friend, or serve drinks. (45:13) Whatever you can think of, it will do. I think this will be the biggest product ever of any kind." End quote. Musk was also recently interviewed on CNBC where he discussed that he sees tens of billions of robots coming in our future and how he believes that it will be the biggest product ever. (45:32) Demand will be insatiable and everyone is going to want one. But when it comes to humanoid robots, Tesla is not the only player in the game. Companies like Figure AI, Aptronic, and Agility Robotics are all building their own versions with Figure raising big money and Agility already testing robots and warehouses. There are many similar firms in China as well. (45:53) The real challenge for everyone is the same. Making robotics reliable, affordable, and capable of doing more than just a controlled demo. Most competitors are starting with industrial settings like factories and logistics since those environments are a little easier to manage than sending a robot into your own home. (46:12) Tesla's edge will be its scale, its AI experience from self-driving and its manufacturing knowhow. But make no mistake, there is certainly a lot of competition in this space. So, in my research for this episode, I came across a man by the name of CERN Basher. He works in the investment industry and has his own firm and he puts out a lot of really interesting content on Tesla. (46:34) And funny enough, my co-host Preston Pitch actually just released an episode with CERN that went out just a couple weeks ago. Based on some of the videos I've seen, CERN is one of the biggest Tesla bulls out there. He believes that in the next 3 to 5 years, you're going to see a ton of developments from the robo taxi segment. (46:53) It reminds me that I was just in Big Sky, Montana for our TIP Summit event and my colleagues Shawn Ali and Daniel Mona did a stock pitch on Uber there. I really liked the presentation, but one of the concerns I had around Uber was around the terminal value of the business given that Tesla is planning on this huge roll out of robo taxis. (47:13) If they're able to roll out millions of these autonomous robo taxis over the next 10 years, have their own app that riders use, and undercut Uber's pricing, then I can't help but think that that will be hugely disruptive to Uber's mobility segment. In CERN's conversation with Preston, he even threw out the idea that eventually the cost of energy will be so low that people may be able to get rides for free and users will be served ads in the vehicle to help cover the cost. (47:40) So, it's similar to how we use Google, Facebook, Gmail, or even Spotify or YouTube today at no cost. Uh, assuming you're looking at the premium model and you're being delivered ads. It's an ambitious project and we'll see if it comes to fruition in Tesla's future. Tesla has already announced that its first dedicated robo taxi service has launched in Austin, Texas with pilot programs and they're expected to expand into other US cities shortly after. (48:06) I was seeing some snapshots of the early launch in Austin and how Tesla was offering rides to beta users at about 1/5 the price of an Uber. Of course, Tesla is very likely subsidizing these rides, but it's interesting to say the least given Tesla's software capabilities with having an app, the brand awareness, and the full self-driving software. (48:26) In Austin, Texas certainly makes sense as a starting point since Tesla has its Gigafactory there, their headquarters is there along with supportive local regulators and a tech friendly population that's really open to trying new things. From there, the rollout's expected to spread into other metro areas like San Francisco, Miami, and possibly Phoenix, where autonomous vehicle testing is already more common. (48:49) Regulations seem to be the biggest bottleneck for scaling autonomous vehicles. Relative to Whimo, Tesla seems to be in the earlier stages of getting through multiple levels of approval with regulators. Regulations evolve rapidly. They differ state by state and often reset testing clocks after incidents occur which creates a high level of financial and operational risk for AV companies. (49:13) Whimo is also ahead of Tesla in its full self-driving capabilities. Whimo has already reached level four autonomy, meaning its robo taxis can operate without a driver in certain geoenced areas. By contrast, Tesla's system is still considered level 2 plus, requiring the driver to stay attentive and ready to take control at all times. (49:34) Tesla has the advantage of scale in a massive driving data set, but for now, Whimo is the one actually running cars with no one behind the wheel. The potential of the robo taxi segment overall is shaping up to be massive. Arc Invest, for example, has published research that estimates the global robo taxi opportunity could be worth trillions of dollars by the 2030s. (49:54) The economics are compelling because once the cars are driving themselves, the cost per mile drops dramatically. Tesla believes that with its vertically integrated approach, it can achieve a level of scale and profitability that companies like Uber and Lyft simply cannot match. But the large scale is essential. (50:14) They need to be producing millions of robo taxis to hit their $25,000 price target per vehicle and still turn a profit on each sale. Of course, this is still a huge if. Regulators need to sign off and Tesla still has to prove its full self-driving system can truly handle city driving with the level of safety required for commercial robo taxis. (50:37) Companies like Whimo and Cruz have made early progress with robo taxis in cities like San Francisco and Phoenix. So the competitive landscape is already forming. But if Tesla pulls this off, it could be one of the most disruptive shifts in transportation we've ever seen. Imagine fleets of Teslas driving around 24/7, picking up passengers, lowering the cost of urban mobility, and creating a brand new recurring revenue stream for the company. (51:03) For Tesla shareholders, the robo taxi vision is one of the biggest potential value drivers, and it's easy to see why so many bulls like CERN, for example, get so excited about it. There are plenty of scenarios where AV transition could play out well for Uber, though. The bull case I could foresee in mobility with Uber is that Tesla isn't able to capture a large share of the market, and Uber benefits from being the platform that sits in the middle of this fragmented market of several different players. (51:32) So even if Tesla captures say 10% of the mobility market, much of the rest still lies in the hands of Uber and Lyft with Uber capturing a line share of the profits. Now let's talk a bit about the bare case for Tesla since a lot of this episode has focused on what can go right for the company. (51:50) In my view, the bare case for the company centers around two broad and key themes. First, the company falls short of the ambitious goals it has set for the coming decade. And second, even if the company continues to achieve remarkable things, investors may end up overpaying for their shares. And as a result, despite the company's success, those investors could still earn disappointing returns. (52:12) Bulls typically believe that Tesla can do no wrong and the best time to buy Tesla shares is today. Bears typically believe that Tesla is a borderline fraudulent company and the best time to buy shares is never. But the truth tends to lie somewhere in the middle. I think that Tesla is a classic case study as some investors bringing emotions into their opinion of a company. (52:33) A lot of people either love or hate statements that Musk has made on a wide variety of topics and they can carry that baggage into their view of the company. In some ways, this can be useful since Tesla's brand is heavily rellyant on Musk and his actions. But on the other hand, carrying this baggage into our opinion of the company can be misleading. (52:53) Our show recently featured prominent shorteller Jim Chanos, who has been a longtime Tesla bear. One of Chenos's criticisms of Tesla is that the core car making business is structurally unprofitable and much of the reported profitability has come from regulatory credits sold to other car makers. (53:12) So the car makers that sell the gas powered vehicles end up buying regulatory credits from Tesla because they exceed the emissions rules in their local jurisdiction. So, if we look at the most recent year, 2024, Tesla reported $2.7 billion in regulatory credit revenue, and the net income they reported was 7 billion. So, while Chainos's comments may have applied in the past, they don't seem to necessarily apply today, and they have other business segments that are rapidly growing, which helps diversify their revenue streams. Also, Tesla bears have (53:43) tried to compare Tesla's valuation to that of other car makers. I think that's a huge mistake. I personally think this is a ridiculous way of valuing the company because there's certainly a nonzero chance that Tesla will be able to unlock value from the other segments outside of just selling cars. If Musk can send rockets into space and land them back on Earth, then I wouldn't rule out the possibility of him mass-producing robo taxis or being successful with Optimus. (54:10) One concern I do think is valid is increased competition. Although Tesla had a first mover advantage in the EV space, that moat may be narrowing. Legacy car makers have massive global scale distribution networks and established supply chains. The question is, can their costs compete with Tesla? On the one hand, these legacy businesses also have manufacturing know-how, but is Tesla able to bring enough automation into their process to gain a real cost advantage? This is one area I think Tesla is lacking when compared to a company like BYD which is able to sell (54:46) their EVs at a much cheaper price. Although some consumers in the US will be loyal to the Tesla brand, it seems that the EV space overall is becoming more and more commoditized as more and more players enter the market and center their strategy around EVs. I think Bulls initially sort of had this optimistic view that Tesla will dominate EVs. (55:07) They'll be, you know, the main player. everyone's going to want an EV. They'll roll out these affordable cars and capture more than 50% market share. But reality today is really nowhere near that. In 2024, there were just shy of 16 million cars sold here in the United States. And based on the numbers I'm seeing, Tesla vehicle sales accounted for just 4% of that volume. (55:29) Additionally, their share in the EV space specifically has declined in each of the past 5 years. Truth be told that the auto business is just a ruthless industry with low margins and high cyclicality. The last point on the bare case here I'll mention is related to Elon Musk's style of governance. Let's take the example of full self-driving. (55:51) Back in 2015, Musk stated in an interview, we'll have complete autonomy in about 2 years. In 2016, he said a Tesla will be able to drive from LA to New York without the need for a single touch by the end of 2017. In 2017, Mus said that within about 2 years, Tesla owners would be able to fall asleep in their cars and wake up at their destination. (56:18) At Tesla's 2019 autonomy day, Mus declared that Tesla would have over 1 million robo taxis on the road by 2020. In early 2020 earnings calls and interviews, Musk promised that full self-driving would be feature complete by the end of 2020. So essentially over an extended time period, he has said that FSD was 1 to two years away. (56:40) My point isn't whether Tesla does or doesn't have full self-driving capabilities. That to me is just inevitable and it's going to be coming to the roads. My point is that given Musk's track record of making predictions, how can we put any weight on anything he says about the future from here? I would personally rather have a CEO who underpromises and overdelivers rather than the other way around. (57:04) I think it would be safe to take anything that Musk says with a grain of salt because he has this incentive to get investors excited and keep the stock price propped up with lofty expectations about the future. I don't know whether Tesla will be a massive success or a total flop, but when I think of Tesla, I think about the concept of the capacity to suffer. (57:25) The best businesses are able to have the capacity to suffer and simply do things that no one else is willing to do. I think about two companies that embody this concept really well. It's Tesla and Nvidia. Nvidia's founder Jensen Wong has said, "Greatness comes from character and character is not formed out of smart people. (57:44) It's formed out of people who suffered. If you read that Walter Isaxson biography on Musk, you know that Elon has gone through just so much pain in trying to make Tesla and SpaceX successful. In many ways, Musk is essentially wired to seek out pain and hardship. Whenever he gets comfortable, he always takes on a new and ambitious project. (58:06) In other words, he always takes on more pain. Back during the great financial crisis, Tesla wasn't producing the Roadster profitably, and raising new money at this time was incredibly difficult. So, Musk went through what he referred to as manufacturing hell in order to figure out how to bring down costs enough to turn a profit on these vehicles. (58:26) He eventually went into just desperation mode, asking friends, family, and Tesla employees for money to keep the company afloat. Musk stated at the time, "I was working every day, all night, all day in a situation that required me to pull a rabbit out of the hat, now do it again, now do it again." End quote. (58:44) So, I think there's something to be said about having that capacity to suffer and being willing to do what no one else will do. When I look at Tesla's valuation, I very much still see this as somewhat of a story stock. The company has to achieve significant feats in the future to justify today's valuation of around $1.4 trillion or $440 per share. (59:07) When I look at their price to sales metric, for example, we're sitting at around 15 today. Over the past 5 years, this has gone as high as 27 and as low as four. And with the stock performing quite well over the past year or so, it seems that Tesla has been riding the AI wave and how AI stocks have, you know, benefited from it being a hot sector to invest in. (59:29) Tesla is probably one of the most unpredictable businesses out there when we're looking out over a 10-year time frame. And this makes it extremely difficult to model out sales, model out profits over the next decade, and just so difficult to pinpoint an accurate intrinsic value. just the the range of outcomes is just so wide. (59:47) With that said, I could see this potentially being a worthwhile investment, especially if you're able to get it during the market dislocations, as this is a very volatile stock. Back in January of 2023, the stock was down over 70% from its high. And just in April of this year, 2025, the stock was down nearly 50% from its high. (1:00:08) Perhaps the auto business and energy business alone will be able to justify today's valuation with a significant increase in sales and profits over the next decade. But the real money is likely to be made in their optionality. Ideally during the these market dislocations, you're able to purchase the core businesses at a fair price and you still get the optionality of Optimus, robo taxis, and their other potential segments for free. (1:00:31) With all that said, few businesses in history have pushed the boundaries of technology in manufacturing quite like Tesla. Through relentless innovation and a willingness to take on impossible challenges, Elon Musk has proven himself to be a truly generational CEO, one who redefineses entire industries rather than merely competing within them. (1:00:52) While the road ahead will surely have bumps, Tesla's story reminds us that extraordinary results often come from those willing to think unconventionally and continue to push the limits of their capacity to suffer. One of my favorite things that my colleagues Shawn and Daniel do over at the Intrinsic Value Podcast is close out each episode with a quote. (1:01:15) And I thought there was no better way to close out this episode than with a few quotes from Elon Musk. The first one is related to investing. It's okay to have your eggs in one basket as long as you control what happens to that basket. The second one is about being an entrepreneur. Being an entrepreneur is like eating glass and staring into the abyss of death. (1:01:36) And finally, the last one is about life. When something is important enough, you do it even if the odds are not in your favor. The last thing I'll say about Tesla is that it feels like with Tesla's early pursuit of EVs, the whole world was waiting for them to fail. Everyone was skeptical of them being able to turn profitable. Short sellers tried to burn their brand and reputation to the ground and legacy car manufacturers sat on the sidelines as Tesla built innovative new models. (1:02:06) Now today, Tesla is pursuing massive opportunities in energy, robo taxis, and Optimus, and it still feels like many are waiting for them to fail in these pursuits. As I mentioned at the top of the episode, Munger shared to never underestimate the man who overestimates himself. (1:02:25) With that, I think we'll close out the episode on that note. Thank you for tuning in to today's episode on Tesla. If you're a Tesla bull or bear or just have some interesting research or information about the company, feel free to shoot me a note on LinkedIn or email me at clay@theinvestorspodcast.com. I'd love to hear from you and learn more about this fascinating company. (1:02:46) With that, thanks again for tuning in and I hope to see you again next week. And you'll find throughout this book that Elon essentially never becomes content in the operation of his businesses. Today, he's heavily involved in running six companies, which is practically unheard of, and he's wired much differently than even your typical entrepreneur. (1:03:09) Elon also developed a very, very high tolerance for risk. Peter Teal once said that Elon wants risk for its own sake. He seems to enjoy it and at times even be addicted to