, October 05, 2022

Tesla productivity miracle belies market sell-off


  •   4 min reads
Tesla productivity miracle belies market sell-off

Tesla is witnessing something tantamount to a productivity miracle as its Californian giga factory becomes the most productive car factory in the US; this achievement belies stock market falls.

At a recent Volkswagen conference of 200 managers, Elon Musk made a guest appearance by video call. Volkswagen CEO Dr Herbert Diess was making a point. He was trying to ram home to senior managers the need to be more like Tesla, more vertical integration, more rapid decision making. He was apparently cock-a-hoop, when Musk said that Volkswagen had the potential to be Tesla’s main rival.

DeepMind makes a profit while Tesla rakes in the money
DeepMind, the AI unit at Alphabet, has made its first-ever profit while Tesla more than quadrupled profits and increased revenue at a time when rivals saw revenue fall.

Imagine that; the CEO of mighty Volkswagen celebrating such praise from the CEO of a company that generates a fraction of the German car maker’s turnover.

But then that is electric vehicles for you. They have fewer moving parts than traditional cars; the manufacturing process is different. Software, especially AI and batteries, are the tricky bit.

Volkswagen responds with its CARIAD software platform.

But Deiss goes where Tesla has already trodden.

Electric vehicle revolution illustrates disruptive technology
When the books on disruptive technology are written the story of electric vehicles will form a new chapter

Now a report on Bloomberg claims that Tesla’s factory in Fremont, California, is making 8,550 cars a week. Not even Toyota with its much-acclaimed manufacturing process can match that, not in the US, anyway — its factory in Georgetown, Kentucky makes 8,427 cars a week, states Bloomberg.

Last year, Tesla’s factory in China tripled output, now at 486,000 cars a year, and the company is set to commence manufacturing at factories in Berlin and Texas.

Tesla has even bigger plans; it is attempting to develop technology to manufacture the entire body of a car from one casting.

Last year, Musk Tweeted: “With our giant casting machines, we are literally trying to make full-size cars in the same way that toy cars are made.”

Yet, in the month prior to Bloomberg’s findings, Tesla’s share price dropped by almost a quarter.

Tesla is a kind of poster boy for all those who say techs are wildly overvalued. They look at Tesla enjoying a market cap that exceeds Toyota’s, Volkswagen’s and the next half dozen or so largest car companies and mutter “crazy.”

But the real crazy is how slow traditional car companies have been to wake up to the reality of EVs, the rising importance of software and AI in the car business and the impending threat of autonomous cars.

We are going through waves of extraordinary disruption. Are stocks overvalued? Maybe? Will the recent sell-off continue? Perhaps? Will this sell-off turn into a full-blown crash? Possibly. But maybe the truly overvalued companies are the ones that have not woken up to the reality of what disruption means.

Tesla sales mirror Model T Ford, can its growth continue?
Sales of Teslas are on a similar trajectory to sales of the Model T Ford following its launch in 1908. But can the growth continue?

Tech cynics and traditionalists say “told you so” as the performance of Cathie Woods’ funds deteriorates such that they are no longer outperforming Warren Buffett’s Investments.

You need to take a long-term view. The staggering achievements at Tesla (and the extent to which some traditional carmakers lag behind) is testament to disruptive technology's power. Come back in five years and ask then whether the flip from techs to traditional stocks — which we have witnessed so far this year — continued. We predict that it won't, and Tesla profits and revenue in 2027 will make exuberance concerning Tesla stock in 2021 seem about right.

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