The Exchange

Kelly Evans: The Lure of Tesla

Scott Mlyn | CNBC
CNBC

As you've probably noticed, I've been a bit obsessed with the energy and EV transition lately since it suddenly seems to be happening at an accelerating pace. "Time to write about something different," I told myself over the weekend.  

Then we took a little field trip to the local farmer's market yesterday morning, like we often do. (It's somehow gotten the boys to eat apples. Whatever works!) As we were pulling in, we noticed a new, handwritten sign. "EV show," it read, with an arrow. My husband and I exchanged bemused looks; wouldn't it be funny if they were actually having an electric vehicle display, we thought in sync, assuming it must actually stand for "extra vegetables," or something.  

No--it was actually a display of electric vehicles, with a booth for the local EV owners' club and Facebook Group. One of the cars was a Tesla Model 3, the other a Kia whose model name I didn't catch. My husband got to sit in the cars and pepper their owners with questions; he was most impressed to realize that because the cars don't need an oil change, those irritating twice-a-year service appointments become moot.  

Then we showed up to my neighbor's house for dinner. "We have some news," they said. There was a long pause. "We bought a Tesla!" They exclaimed. For sure, the appeal to them is both technological and environmental. It's also practical; now that one spouse is going back to the office in a town pretty far away and traffic is heavier, it avoids a chunky gas bill.  

They're getting the Model 3, not the Y, but both are becoming ubiquitous now on our roadways. I see them so often I was beginning to wonder if Tesla only offered them in white these days--but it turns out, that's just the current free paint color. Someone actually tweeted Elon Musk about this the other day ("we are inundated with white Model 3s and Ys. Please change the free color to something else. Thanks. Silver?"). To which Musk replied, "Good point, will discuss with team."  

Now, just this morning, Bernstein, which has an underperform rating on Tesla, put out a note once again questioning the company's valuation. "We believe that surplus profits and technological innovation will likely be competed away over time," they said, noting the company trades at "3x the combined value of Toyota and GM, despite delivering 15-20x fewer cars." Tesla's earnings are due out Wednesday afternoon.  

To which I'd say fine, but do Toyota and GM have legions of fans who will literally show up to help the them hit their delivery numbers by dropping off new cars to owners on the last day of the quarter? Because Tesla does (listen to Episode 323 here). Would my neighbors be as excited if they were getting an EV by a different automaker? I doubt it. 

 So there are two ways to think about Tesla from here. One, as a traditional automaker whose valuation will eventually reset to something much more boring. As Bernstein's Toni Sacconaghi notes, "operating margins for the largest [automakers] have not changed meaningfully in the past 20-30 years...on average, rangebound between 4-8%." Elon Musk himself, when asked at the annual shareholder meeting recently what he thought would be Tesla's long-term competitive advantage in a world where  most cars are electric, and most might even be operating off of Tesla's autopilot technology, answered simply--"Manufacturing."  

But the other way to think about this is that Tesla is the new Apple--a $2.4 trillion juggernaut whose operating profit is more like 30%. That might sound crazy, but if Tesla's got the brand name, the fanbase, the subscription software that could become the platform for mobility, and hardware that's basically leading edge (because, as the mobile phone wars have shown, it doesn't actually have to be the very best), then maybe it's not out of the question. 

And if you're buying the shares here, at over an $800 billion valuation, then this is clearly the argument you're already making.  

See you at 1 p.m! 

Kelly

Twitter: @KellyCNBC

Instagram: @realkellyevans

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