Profits are way down the drag

When owning companies, you are not owning a share price. You are owning the future profitability of that business and paying a price today for that. The collective try and figure out whether or not the price is right, right now. Tesla is a great example of that. What a business! They are trying to revolutionise the way we think about private transport and the combustions engine. However, the business does not make meaningful profits, if any. They are only going to sell 35 thousand vehicles this year, of the Model S that is. The expectations are for a run rate of 100 thousand vehicles next year.


Whilst Tesla are selling all these motor vehicles and growing revenues quickly, they are spending loads of money ramping up production, breaking ground for the gigafactory (an agreement has been signed with Panasonic on battery development and manufacture) and in general attracting lots of attention, the company still makes a loss. So how do you value it? Obviously you are making lots of assumptions on Tesla's ability to meet a growing demand, affordability relative to the combustion engine and running costs, equally conversion to battery operated vehicles by consumers, which is a mindset hurdle.


Once there are more people with electric motor vehicles there will be more people that want a similar vehicle. The only negative that I can see locally with electric vehicles is that the power produced locally is by burning coal. So whilst you might feel like you are doing the environment a favour, you are not really. One more moderate negative, because the car is so quiet, pedestrians will have to be more aware visually i.e. not as dependent on sound for telling where vehicles are. We are on the cusp of some sort of change I think, with regards to consumer mindsets in richer countries. I think Tesla will disrupt hugely and do superbly well, if you buy it you must know that it is going to be a long way out however.