Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Long Ideas

The Potential Value at Tesla (NASDAQ: TSLA)

I think no company in today’s stock market could have more potential value than Tesla (NASDAQ: TSLA).

To explain, I think Tesla comprises four companies, each of which has huge value potential. First, Tesla Motors (NASDAQ: TSLA) is obviously a car manufacturer and passenger transportation provider.

Second, Tesla Energy is an electricity provider and battery manufacturer. Third, Tesla manufactures solar panels. Fourth, Tesla could become a freight and logistics company through the Tesla Semi.

The Actual Value at Tesla is electricity

Interestingly, I think Tesla’s biggest potential value could be as an electricity provider.

For example, Tesla operates 1,870 Tesla Supercharger Stations; filling stations for electric vehicles. Thus, Tesla is an infrastructure company that fills electric vehicles’ need electricity. In particular, Tesla operates 16,585 individual superchargers.

Therefore, Tesla could make money by powering all the electric vehicles its competitors plan. For instance, the vaunted Ford (NYSE: F) electric pickup. Ford owns no superchargers but plans an electric version of its F-150 pickup for 2020, Green Car Reports claims.

The F-150 is America’s most popular vehicle. Ford sold 186,562 F-150 trucks in the United States in 1st Quarter 2020, Ford Authority estimates. Notably, neither Ford nor another electric truck maker Rivian has its own superchargers.

Notably, Amazon (NASDAQ: AMZN) plans to buy 100,000 electric delivery vans from Rivian, Car & Driver reports. The Rivian vans and F-150 trucks will need to charge somewhere. Tesla could make money by providing that electricity.

Will Tesla Become an Electricity Maker?

Beyond supercharging, Tesla offers home electricity through the Powerwall a household battery system. Tesla claims the Powerwall could provide over seven days’ worth of continuous power for a home or business.

Additionally, Tesla is becoming an electricity manufacturer. In particular, the Tesla battery farm at the Hornsdale Power Reserve could power 30,000 homes, Popular Mechanics claims.

The Neon SA-owned Hornsdale Power Reserve is the world’s largest lithium-ion battery. Neon claims Hornsdale can store up to 100 megawatts (MW) or 129 megawatt hours (MGH) of electricity.

Tesla’s Infrastructure Value

Hornsdale in South Australia cost $50 million to build but reduced network costs by $76 million a month, Bloomberg claims.

Hornsdale serves as a backup to South Australia’s grid by storing electricity solar panels and wind turbines generate. Neon is adding another 50 megawatts of electricity storage at Hornsdale this summer.

Interestingly, Tesla has applied for a permit to generate electricity in the United Kingdom, the BBC reports. However, the BBC does not how Tesla will use the electricity it could generate in the UK. It is also unclear if Tesla has plans to build battery farms in the United Kingdom.

I think the batteries and electricity generation could create value at Tesla. To explain, Tesla could make money by providing the underlying infrastructure for electric vehicles and home power systems.

The Value at Tesla Energy

Hence, Tesla Energy could resemble Amazon’s (NASDAQ: AMZN) cash cow Amazon Web Services (AWS).

AWS’s revenues grew at a rate of 33% in 1st Quarter of 2020, Statista estimates. The AWS quarterly annual revenues grew from $17.46 billion in 2017 to $35.03 billion in 2019.

Thus, Tesla Energy could be the cash cow that fuels Tesla’s growth. Hence, Tesla could have something similar to AWS under development.

A related revenue source could be the Tesla solar roof which homes with solar panels or tiles that look like shingles. I think the “electric grid of the future” could be a combination of solar roofs and battery power.

Is Tesla Energy a Value Investment?

To explain, solar roofs on all the structures in a city could replace traditional power plants. The solar roofs will feed power into the grid. Then they will store the electricity in a battery farm such as the Hinsdale Reserve.

I think the solar and battery farm business model could theoretically generate vast amounts of money. Notably, Warren Buffett’s Berkshire Hathaway (NYSE: BRK.B) is making enormous investments in solar and battery storage.

Berkshire Energy plans to construct a 380 megawatt array with 1.5 gigawatt-hours (1.5 billion) hours of storage capacity, Mazorsedge claims. Berkshire plans to build the so-called Gemini Solar Project on public land 25 north of Las Vegas in unincorporated Clark County, Nevada. The Gemini project will presumably power Berkshire Hathaway (NYSE: BRK.A) subsidiary NV Energy.

Thus, Tesla Energy is in one of the same businesses as Berkshire Hathaway. Importantly, Buffett and his team smell value in Tesla Energy’s business.

Can Tesla Make Money in Freight?

Oddly, Tesla (NASDAQ: TSLA) could make money in freight with its electric Semi.

To explain, the Tesla Semi is an electric-powered Class 8 semi-tractor. Therefore, the Semi is a freight-hauling machine.

Dramatically, Clean Technica claims the Tesla Semi’s operation costs could be cheaper than rail. In detail, Elon Musk claims his Semi will have lower maintenance costs and fuel costs than today’s big rigs. In particularly, Tesla claims the Semi offers operators $200,000 in fuel savings.

Clean Technica’s Michael Barnard claims autonomous Tesla semis could run in convoys that will offer lower costs. In Barnard’s estimation, Tesla semis running in convoy could cost less than rail freight. Normally, they consider rail the cheapest kind of freight.

Currently, I think Tesla is laying the groundwork for Semi freight corridors that could compete with rail. For instance, Tesla is testing such a run between the Gigafactory in Storey County, Nevada, and its factory in Freemont, California.

Tesla Plans Freight Network

Moreover, Elektrek reports Tesla has built a Trans-Canada corridor of Superchargers. That corridor runs from a major Pacific port, Vancouver, British Columbia, to Ontario, where most Canadians live.

I think this Supercharger Corridor could power Tesla Semis running across Canada. Meanwhile Tesla has built several corridors of Superchargers across the United States. Therefore, Tesla could run convoys of Semis across the United States.

Hence, I think Tesla could compete with railroads in hauling low-cost freight. Importantly, major companies including Walmart (NYSE: WMT) are buying Tesla Semis. Notably, Endgadget reports that Walmart Canada purchased 30 Tesla Semis.

I think Tesla is planning a network of semis that could help it to enter the freight and logistics businesses. Thus Tesla could compete with trucking companies, railroads, and possibly Amazon (NASDAQ: AMZN). Unfortunately, all the evidence for my thesis is circumstantial.

Tesla’s Wild Stock Ride

So Tesla has much theoretical value that could go far beyond its car business. However, investors will ask if that value could justify the wild ride Tesla stock has been on.

In fact, Tesla’s share price has nearly doubled in 2020. Mr. Market paid $430.26 a share on 2 January 2020 but rose to $816.66 on 11 May 2020 and dropped to $803.33 on 13 May 2020. Incredibly, Tesla stock hit a $917.42 high on 19 February 2020.

In fact, Tesla’s share price has nearly doubled in 2020. Mr. Market paid $430.26 a share on 2 January 2020 but rose to $816.66 on 11 May 2020 and dropped to $803.33 on 13 May 2020. Incredibly, Tesla stock hit a $917.42 high on 19 February 2020.

Is Tesla Making Money?

Tesla Motors (NASDAQ: TSLA) reported making a $1.234 billion gross profit on $5.985 billion in revenues for the quarter ending on 31 March 2020.

Notably, Tesla reported a $283 million quarterly operating income and a $68 million quarterly net income on the same day. Therefore, Tesla makes a little money, but generates a lot of cash.

For instance, Tesla reported a $2.708 billion financing cash flow, and an $8.547 billion ending cash flow for the last quarter 2020. However, Tesla reported a negative operating quarterly cash flow of -$440 million on 31 March 2020. Finally, Tesla had $8.08 billion in cash and short-term investments on 31 March 2020.

Is Tesla the New Amazon?

Thus, Tesla makes a little money, but its business generates a lot of cash. That reminds me of Amazon (NASDAQ: AMZN). 

For example, Amazon reported an annual operating income of $178 million on annual revenues of $88.988 billion as recently as 2015. Amazon also had $17.416 billion in cash and short-term investments on 31 December 2015.

Today, Tesla reports low operating and net incomes but enormous amounts of cash. That will remind many of Amazon’s recent past.

Likewise, Stockrow estimates Amazon had a 26.39% revenue growth rate in the quarter ending on 31 March 2020. In comparison, Stockrow reveals Tesla’s revenue grew at a rate of 31.8% in the same quarter.

Thus, Tesla’s latest revenue growth figure rivals Amazon. In addition, Tesla generated a lot of cash last quarter.

In the final analysis, I consider Tesla (NASDAQ: TSLA) grossly overpriced. However, I also think Tesla’s business has the potential to generate a lot of value. If you can live with high stock prices and a lot of risk, Tesla could be an interesting investment.