- 8 constituents
- 149.6% 1y performance
- 42.2% volatility
They are here again !
This is how PBS describes 'the Roaring Twenties' in the American Experience, with great photography from “the age of permanent prosperity” ... or so they figured a hundred years ago...
Many Americans spent the 1920s in a great mood. Investors flocked to a rising stock market. Companies launched brand-new, cutting-edge products, like radios and washing machines. Exuberant Americans kicked up their heels to jazz music, tried crazy stunts, and supported a black market in liquor after Prohibition. A popular expression of the time asked :
“What will they think of next?”
Maybe a timely reminder…?
This note will not argue with the true believers in the electrical vehicle and the self-driving revolution engineered by Tesla – nor is it seemingly possible to convince the investors, who are afraid to be ‘left behind’, that there is a fair price of everything, even for a Tesla share…
With no axe to grind (being neither long, nor short Tesla stock), this writer will bore you with the numbers
Sticking to the numbers – the stockholders
Private investors have taken command of Tesla stock with unusually large ownership percentages
According to latest data (Feb. 20 on Fintel and Jun. 20 on NASDAQ),
- Total of shares outstanding : 186 million shares
- Financial institutions : 97.6 million shares (52.36% of total)
- According to the Fintel listing, large privately owned stakes are included in SEC 13 D/G filing for institutionals
- The major private owner is, of course, E. Musk : 38.6 million shares according to SEC 13 D/G filing (as of Feb. 20) – which represents almost 40% of holdings classified as ‘institutional’ and close to 21% of the entire company...if we are not mistaken...
Listing Elon Musk's shares as 'private' is not how shareholdings are reported, but it accounts for the fact that the entrepreneur is a big factor in the trust expressed by the general public
- non-financials (private shareholding) top 68%, including the 21% stake of Mr. Musk
- institutional interest (investment funds and the like) falls to 32%, which is unusually low
- by comparison, 62% Apple stock is owned by financial institutions – Steve Jobs owned a small stake at his death and the ownership of other individuals such as A. Levinson (Chairman) 0.03%, T. Cook (CEO) 0.02% or Al Gore 0.01% remains small
This large base of private investors matters a lot
- 'Keeping the faith' and holding on to their shares for the long run, private investors have remained unaffected by poor quarterly reports
- The unusual balance in favor of private investors may explain why short sellers, confident in their financial acumen, made a grave miscalculation in their bets on falling share prices...and why the investment professionals were lukewarm
But there is more...
- Inclusion in the S&P market index will be driving the demand of institutional investors for their tracker funds
- Because of the large size of the funds - SPDR State Streeet has close to $300 billion assets under management and iShares more than $200 billion, buying orders on TSLA will be very large as well....
Tesla Motors , with the 10th largest market cap at $350 billion as of Aug. 18, 2020, can be expected to enter the major S&P indices very soon
According to the S&P's guidelines, "the sum of the most recent four consecutive quarters ... earnings should be positive as should the most recent quarter"…and this has been true of Tesla as of June 30, '20
- Details of the 'Defined Domestic Indices Methodology' could not be found on S&P Dow Jones Indices
Referring to 'Net income attributable to common stockholders (GAAP)', according to company data - Q2-2020 update (page 4)
|unaudited||by quarter||$ millions|
The remaining question will be when (not if…) Tesla will announce a new common stock offering, following the Feb. ’20 issue of $2 billion
The five-to-one stock split announcement on Aug. 11 further contributed to the price run-up, as explained by most commentators, but the event remains, in our view, less important than inclusion in the S&P 500 (still to be confirmed)
Provided the 'cliffhanger' net income in Q1-2020 ($16 million) is not revised downwards, the GAAP accounting data as of June 30 may have been a key factor behind the initial price run-up from $1 079 to $1 500 (on July 16) and of the additional price jump following the brief fallback to $ 1 374 (from Aug. 11), as the fund managers came to a sense of urgency
Sticking to the numbers – the market share
The case has been made again and again - Tesla's global market share is insignificant, at 179 050 cars in the first half '20
According to focus2move, the World Light Vehicles ranking in the first half of 2020 aggregates sales by manufacturer group
- Toyota Group on top, reaches a 12.4% market share (4.02 million vehicles, a drop of 23% year-on-year)
- Volkswagen Group (11.3%) drops to the second position with 3.69 million vehicles (- 27%)
- Renault Nissan Alliance stays in the third position with 3.36 million units sold (-32.2%)
- Hyundai-Kia takes the 4th spot with an 8.6% share with sales of 2.78 million (-19.7%)
The loss of car sales may be running into the millions for the three top contenders, but their dominance of the industry remains undisputed
The comparison of Tesla's 13% increase in vehicle deliveries for the 1st half of 2020 with these negative trends across the industy in the first 6 months is sweet ... it is also draws a very mistaken picture of competitive challenges playing out in the Plugin market segment
A close look at the Plugin and pure-EV segments of the major car manufacturers tells a very different story...
Competing on international markets
In terms of presence on the global electrical plug-in market (fully electric vehicles as well as plug-in hybrids), Tesla remains the dominant player, benefitting from its head start and technological advance
According to ev-volumes, total sales by region, all manufacturers combined, have been in a patchwork of contradictory trends in the first half of 2020
- Asia (China & Japan) were down 40% on average, while their total car market dropped half that much, by 20%
- In the US, Coronavirus lockdowns extracted their toll on both Plugin's and the total market - both down 25%
- In Europe, the reverse is true - with very strong EV growth (+57%) against a falling total market (-37%)
To interpret the trends, two factors come in play, on top of the ever-present lock-downs
- Plugin sales incentives, reducing the ticket price, are falling in China (driving sales down by 280 000 vehicles) while the incentives have been boosted in Europe (up 150 000 vehicles)
- Competition has become a major factor on markets Tesla 'owned' as prime mover
Looking forward, the two regions dominating total plugin sales are China and Europe, with approx. 40% each and the US represented just 11%
With a factory in China (Shanghai) and a factory under construction in Germany (near Berlin), Tesla has its priorities right
- with a market presence in all vehicle types, from buses to low-medium to high-end personal vehicles, domestic competition has thrived on regulatory frameworks limiting the consumer options at country-, provincial- and city-level, as discussed in 'an Electrifying Future'
- Tesla, a newcomer, will be seeking a high-end niche market - battling with BMW and Mercedes China-made cars - with high hopes for its two models - Model 3 (in production - with an annual production target of 100 000 cars) and model Y (production line under construction)
Actual sales in China are not known, beyond the Q2-20 statement 'Model 3 has received a strong reception in China, not only becoming the bestselling EV, but also competing with mid-sized premium sedans...'
- According to the International Energy Agency (IEA), 2.3 million EVs and hybrids were on the Chinese roads in 2018 (with 1.1 million vehicles sold that same year), representing 4.5% of the car market. Bucking falling trends in 2019 (-8.4% in sales of combustion vehicles, down 2 million vehicles), EV sales remained stable at 1.2 million cars
- Tesla's upbeat public statement presumably refers to a narrow market segment of luxury cars, which may, or may not, grow considerably in volume
Reports seeded with upbeat projections of China's potential for Tesla will be watched closely, not only because of geopolitical uncertain
China's car makers align with governmental priorities and are determined to hold their own in every segment of the domestic market, including luxury...
- Side-stepping the familiar franchised dealerships, Tesla's distribution strategy, via its own network of showrooms where customers can view a vehicle before placing an order online, is bound to create frictions with well-regarded dealers as Tesla's stake on the Chinese market grows. A recent and unauthorized Model-3 promotion in Wuhan may be a harbinger of things to come ?
Sales data published by industry analyst Matthias Schmidt, quoted on insideevs.com, focus exclusively on the all-electric car segment, the most relevant for Tesla and its direct competition
- excluding hybrids, EVs still grew in the first half '20 by 34% - to 216 000 vehicles (which is about half the total 414 000 units including all plugin's)
While Tesla had a banner year in 2019, with competition still gearing up and line-ups incomplete, significant inroads have now been made
- still a leading brand with 36 700 cars , of which 32 300 Model 3 and only 4 400 for the top range, Tesla retains a 17% share
- but Renault took the lead with 42 000 cars, the low-priced Zoe (37 540 cars, +50%) becoming the top selling EV in Europe
Still a strong contender, Tesla cannot be pleased - sales dropped by 18% in a regional market growing by 34% (all-electric) and by 57% (all plug-ins)
Along with France, Germany is the largest European car market and a likely trend-setter for the electrical future
- Sales numbers remain tiny at 61 105 EVs (thru July 30 data for 7 months '20)
- From about zero two years ago, EV sales increased by 65% year-on-year, 2020/2019, bearing a message...Europe's large car manufacturers are alive and well and kicking
Arguably, German manufacturers recovering the crown in their home country, with about 2/3 of the fledging EV market, was to be expected and EV luxury sedans 'made in Germany' were bound to hurt Tesla's ambitions (source - KBA, the German new vehicle-registration agency)
The strong showing by Renault (with its affordable Zoe becoming Europe's top EV seller), by Hyundai and by part of the VW line-up, may be more worrisome
Undoubtedly, the drivers of rocketing sales in Europe (+57% for all plug-ins and +34% for pure EVs) and in Germany (+65%) have been in the low-to-middle price range, where volume will push manufacturing costs down relentlessly
It is fair to assume that projections of EV sales growth will remain very high for years to come as regulatory inducements and pent-up demand reconfigure the market but, if 2020 so far is any indicator, Mr. Musk has a fight on his hands
- Inroads in Tesla's 17% European market share (July '20) by the German luxury brands with attractive line-ups in the middle-to-high end segment seems preordained
- Demand will cluster at the low - volume-driven - end of the EV market, slamming into Tesla's well-honed marketing strategy
Undoubtedly, Tesla will make its mark and benefit from the shift in favor of car electrification, encouraged by the European authorities, but the company will not be alone
Tesla vehicle sales numbers will rise and possibly best their European luxury competitors, but holding on to an 8 to 9% market share, as is the case in Germany today, cutting today's European market presence in half, would be a great achievement by itself
We look for no more..
How uniquely unique Tesla is
Not unlike beauty, uniqueness at Tesla will remain unquestionable true ...until it is not
Therein lies the paradox - and Elon Musk, if he ever were to read this note, would share our conclusions
- Tesla's founder has created single-handedly, by a sheer act of will and force of conviction, a category sated and sleepy car- manufacturing behemoths felt convenient to ignore
- The general public has benefitted - both as drivers of exceptional vehicles and as potential customers of a car industry rediscovering the virtue of nimbleness
- In sum, first mover advantage has been great while it lasted
Putting wind in the sails of the fledging company, the regulatory authorities around the world aided and abetted the innovative push
- China's early commitment to electrification commingled industrial strategy with urban planning imperatives
- The nation-wide Chinese experimentation fell on fertile ground in some U.S. states and in Europe where environmental concerns and ambitions for 'livable' cities upended traditional political commitments
- Putting a regulatory lid on greenhouse gas emissions, governments set out their store of enticing subsidies and credits, of which Tesla, first mover again, was to benefit greatly
- In sum, first mover advantage is great (again) but can it last ?
U.S. regulatory credits are allocated to the firms with zero emissions and bought by competing car companies to bring their average emissions in line with State regulations
By selling its credits to the likes of GM or Fiat-Chrysler (both known buyers), Tesla benefits all the more because credits have no 'cost' and the 'revenue' derived from their sale drops directly to the bottom line
This is how net income turned positive quarter after quarter and the company expects 2020 to be a banner year with the sale of $900 million worth of regulatory credits ($428 million as of June)
|by quarter||ending||$ millions||$ millions||$ millions (1)|
(1) auto. income = automotive revenues
This note has covered the dynamics of Tesla Motors
On the stock market, dynamics remain...unusual
In an increasingly competitive landscape, worldwide, the dynamics must rely on fast growing demand in the mid-to-high end tier...less unusual but not conclusive either
On the regulatory plane, the dynamics are fraught with uncertainty, fading smoothly at best, breaking up in a worst-case scenario...