Investor's Corner
The Tesla Killer’s death and Elon Musk’s long-term play on batteries, vertical integration
At a press conference last year at Volkswagen’s global headquarters in Wolfsburg, Germany, VW Chairman of the Board Herbert Diess stated that “anything that Tesla can do, we can surpass.” The VW boss even noted that its dedicated MEB electric car architecture would give the company cost advantages at a scale that’s out of Tesla’s reach.
This year, the Tesla Model 3 is steadily making its presence known in the United States auto market. In September alone, the Model 3 was listed as the 4th best-selling passenger car in the US, beating the ubiquitous Toyota Corolla Family. Tesla also finished Q3 on a strong note, manufacturing a total of 80,142 electric cars including 53,239 Model 3, as well as delivering a total of 83,500 vehicles, comprised of 55,840 Model 3, 14,470 Model S, and 13,190 Model X. This Q4, Tesla seems poised to deliver and produce an even more impressive number of vehicles.
For years, Tesla skeptics have pointed at upcoming competition from legacy automakers as a reason for the impending fall of the electric car maker. Just like Herbert Diess, many of Tesla’s critics pointed out that legacy auto’s years of experience, as well as their network of factories, should allow them to leapfrog Tesla in the electric car market as soon as they decide to enter the electric car market.
As companies like Mercedes-Benz, Audi, Jaguar, and Porsche are learning today, though, it is not so simple to build a compelling electric car that’s capable of challenging Tesla’s premium vehicles in their respective segments. Mercedes-Benz, for one, has announced that the EQC — its plush competitor for the Model X — will adopt a gradual rollout due to possible warranty concerns over the vehicle’s battery and other electric car components. German news agency Bild am Sonntag recently noted that the Audi e-tron would be released later than expected as well, due to a software issue and ongoing discussions with its battery provider, LG Chem, which is allegedly adjusting the price of the vehicle’s batteries.
Even legacy carmakers that seem to be fully embracing the transition to electrified transport seem to be learning a lesson in designing and producing electric cars. Jaguar, for one, recently confirmed that the I-PACE has a range of 234 miles per charge, lower than the company’s initial estimates for the vehicle. Porsche, on the other hand, is preparing to build the Taycan, but even workers at its plant in Stuttgart, Germany have to pitch in to make the car a reality. Porsche head of production Albrecht Reimold, for one, noted that employees at the Taycan’s upcoming factory would not have regular salary increases for the next few years as the Taycan’s factory gets constructed.
With legacy automakers revealing their highly-anticipated Tesla competitors, and with each company running into challenges of their own, analysts are starting to retire myth of the “Tesla Killer.” Last month, Toni Sacconaghi of Bernstein, a known skeptic of the electric car maker, stated that the Model 3 faces “no credible competition” from legacy auto until at least 2020. More recently, Berenberg analyst Alexander Haissl reiterated a Buy rating on TSLA stock with a $500 price target, stating that fears over competition from legacy automakers are overblown. Haissl further noted that Tesla’s driving ranges and vehicle efficiencies are well ahead of the competition.
Perhaps the most notable death knell on the Tesla Killer myth came from known TSLA short-seller-turned-long Andrew Left of Citron Research; who pointed out that “there is NO Tesla killer. Competition is nowhere to be found, and no electric vehicle is slated to launch at the Model 3 price point until 2021.”
Ultimately, Tesla’s prominent lead in the electric car market is the culmination of Elon Musk’s long-term play on electric car batteries and the company’s vertical integration. Since Tesla is producing its own battery cells from Panasonic’s lines in Gigafactory 1, the company is saving itself from any of the issues currently being faced by Audi as it struggles to reach a deal with LG Chem for the e-tron’s batteries, or Mercedes-Benz as it deals with uncertainties over the EQC’s battery warranty. The deep integration of Tesla’s hardware and software also creates a unified user experience that is not unlike Apple, allowing the company’s electric cars to perform at their best and preventing issues such as those being faced by Jaguar with regards to the I-PACE’s apparent inefficiency.
The death of the Tesla Killer and the improvements in Tesla’s Model 3 ramp, together with the announcement that the Q3 2018 earnings call would happen on Wednesday, appear to have improved investor sentiment for the company’s stock. On Tuesday, Tesla stock (NASDAQ:TSLA) rose $33.19, ending the day at $294.14, up 12.72% from Monday’s close.
Tesla has scheduled its Earnings Call for Q4 and Full Year 2025 for next Wednesday, January 28, at 5:30 p.m. EST, and investors are already preparing to get some answers from executives regarding a wide variety of topics.
The company accepts several questions from retail investors through the platform Say, which then allows shareholders to vote on the best questions.
Tesla does not answer anything regarding future product releases, but they are willing to shed light on current timelines, progress of certain projects, and other plans.
There are five questions that range over a variety of topics, including SpaceX, Full Self-Driving, Robotaxi, and Optimus, which are currently in the lead to be asked and potentially answered by Elon Musk and other Tesla executives:
- You once said: Loyalty deserves loyalty. Will long-term Tesla shareholders still be prioritized if SpaceX does an IPO?
- Our Take – With a lot of speculation regarding an incoming SpaceX IPO, Tesla investors, especially long-term ones, should be able to benefit from an early opportunity to purchase shares. This has been discussed endlessly over the past year, and we must be getting close to it.
- When is FSD going to be 100% unsupervised?
- Our Take – Musk said today that this is essentially a solved problem, and it could be available in the U.S. by the end of this year.
- What is the current bottleneck to increase Robotaxi deployment & personal use unsupervised FSD? The safety/performance of the most recent models or people to monitor robots, robotaxis, in-car, or remotely? Or something else?
- Our Take – The bottleneck seems to be based on data, which Musk said Tesla needs 10 billion miles of data to achieve unsupervised FSD. Once that happens, regulatory issues will be what hold things up from moving forward.
- Regarding Optimus, could you share the current number of units deployed in Tesla factories and actively performing production tasks? What specific roles or operations are they handling, and how has their integration impacted factory efficiency or output?
- Our Take – Optimus is going to have a larger role in factories moving forward, and later this year, they will have larger responsibilities.
- Can you please tie purchased FSD to our owner accounts vs. locked to the car? This will help us enjoy it in any Tesla we drive/buy and reward us for hanging in so long, some of us since 2017.
- Our Take – This is a good one and should get us some additional information on the FSD transfer plans and Subscription-only model that Tesla will adopt soon.
Tesla will have its Earnings Call on Wednesday, January 28.
Elon Musk
Tesla locks in Elon Musk’s top problem solver as it enters its most ambitious era
The generous equity award was disclosed by the electric vehicle maker in a recent regulatory filing.
Tesla has granted Senior Vice President of Automotive Tom Zhu more than 520,000 stock options, tying a significant portion of his compensation to the company’s long-term performance.
The generous equity award was disclosed by the electric vehicle maker in a recent regulatory filing.
Tesla secures top talent
According to a Form 4 filing with the U.S. Securities and Exchange Commission, Tom Zhu received 520,021 stock options with an exercise price of $435.80 per share. Since the award will not fully vest until March 5, 2031, Zhu must remain at Tesla for more than five years to realize the award’s full benefit.
Considering that Tesla shares are currently trading at around the $445 to $450 per share level, Zhu will really only see gains in his equity award if Tesla’s stock price sees a notable rise over the years, as noted in a Sina Finance report.
Still, even at today’s prices, Zhu’s stock award is already worth over $230 million. If Tesla reaches the market cap targets set forth in Elon Musk’s 2025 CEO Performance Award, Zhu would become a billionaire from this equity award alone.
Tesla’s problem solver
Zhu joined Tesla in April 2014 and initially led the company’s Supercharger rollout in China. Later that year, he assumed the leadership of Tesla’s China business, where he played a central role in Tesla’s localization efforts, including expanding retail and service networks, and later, overseeing the development of Gigafactory Shanghai.
Zhu’s efforts helped transform China into one of Tesla’s most important markets and production hubs. In 2023, Tesla promoted Zhu to Senior Vice President of Automotive, placing him among the company’s core global executives and expanding his influence beyond China. He has since garnered a reputation as the company’s problem solver, being tapped by Elon Musk to help ramp Giga Texas’s vehicle production.
With this in mind, Tesla’s recent filing seems to suggest that the company is locking in its top talent as it enters its newest, most ambitious era to date. As could be seen in the targets of Elon Musk’s 2025 pay package, Tesla is now aiming to be the world’s largest company by market cap, and it is aiming to achieve production levels that are unheard of. Zhu’s talents would definitely be of use in this stage of the company’s growth.
Tesla analyst Andrew Percoco of Morgan Stanley teased the company’s dominance in its self-driving initiative, stating that its lead over competitors is “not even close.”
Percoco recently overtook coverage of Tesla stock from Adam Jonas, who had covered the company at Morgan Stanley for years. Percoco is handling Tesla now that Jonas is covering embodied AI stocks and no longer automotive.
His first move after grabbing coverage was to adjust the price target from $410 to $425, as well as the rating from ‘Overweight’ to ‘Equal Weight.’
Percoco’s new note regarding Tesla highlights the company’s extensive lead in self-driving and autonomy projects, something that it has plenty of competition in, but has established its prowess over the past few years.
He writes:
“It’s not even close. Tesla continues to lead in autonomous driving, even as Nvidia rolls out new technology aimed at helping other automakers build driverless systems.”
Percoco’s main point regarding Tesla’s advantage is the company’s ability to collect large amounts of training data through its massive fleet, as millions of cars are driving throughout the world and gathering millions of miles of vehicle behavior on the road.
This is the main point that Percoco makes regarding Tesla’s lead in the entire autonomy sector: data is King, and Tesla has the most of it.
One big story that has hit the news over the past week is that of NVIDIA and its own self-driving suite, called Alpamayo. NVIDIA launched this open-source AI program last week, but it differs from Tesla’s in a significant fashion, especially from a hardware perspective, as it plans to use a combination of LiDAR, Radar, and Vision (Cameras) to operate.
Percoco said that NVIDIA’s announcement does not impact Morgan Stanley’s long-term opinions on Tesla and its strength or prowess in self-driving.
NVIDIA CEO Jensen Huang commends Tesla’s Elon Musk for early belief
And, for what it’s worth, NVIDIA CEO Jensen Huang even said some remarkable things about Tesla following the launch of Alpamayo:
“I think the Tesla stack is the most advanced autonomous vehicle stack in the world. I’m fairly certain they were already using end-to-end AI. Whether their AI did reasoning or not is somewhat secondary to that first part.”
Percoco reiterated both the $425 price target and the ‘Equal Weight’ rating on Tesla shares.
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