Case Study
Tesla：in Prospective ofUser/Customer
My investment decisions are considered and made under the following three basic constraints:
(1) Climate change: carbon neutrality, net zero emissions, frequent occurrence of extreme weather, and frequent emergence of various viruses;
(2) Aging: the labor force population is decreasing at an accelerated rate, and the absolute value/growth value is lower than that of the non-labor force;
(3) Over-issuance of banknotes: stagflation, inflation, and deflation occur in ticks.
The main industries in which I have invested since 2019:
Vehicle - battery - battery components - lithium, cobalt heavy metals
Electronic equipment: radar, smart cockpit, connectors, relays
Automotive chips
Corresponding to the main investment targets:
Tesla, BYD, Ningde era;
Desay SV, Huayang Group, Hongfa Shares, Ruida;
The following focuses on Tesla, and the story is a bit long:
First, the origin
Travel in human history has long been for a living, whether it is a pawn of a peddler or a eunuch.
In the imperial agricultural society, the official government attached the people to the land, of course, there were also reasons such as public security and ease of rule, from the Warring States period to the early Ming Dynasty, non-government personnel, including merchants, when traveling more than a hundred miles away from home, would be required to provide guidance, and violators would be subjected to severe punishment such as flogging. Going abroad is a capital offense. The movement of people is strictly controlled, thus ensuring social and economic stability in agricultural societies. In the mid-to-late Ming Dynasty, the expanding commodity economy stimulated the improvement of the transportation system, and economic pressures cleared restrictions on travel. Even if the central government wants to control the movement of people, it no longer has the corresponding capacity. Private travel, sightseeing tours, and merchant travel have never been more prosperous. Transportation is mainly horses, donkeys, mules, and boats. When the British ship Mayflower landed in Cape Cod Harbor in Massachusetts in 1620, there was a thriving travel and tourism industry in China. [1]
After 1949 and not until the end of 1970, the Chinese government allowed private traders to engage in long-distance trafficking, which was proposed as a stopgap measure to solve the employment problem. [2]
In the 2000s, the large-scale movement of people, airplanes, railways, cars and other modes of travel accelerated to change human society and life. For short- and medium-distance travel and daily travel, the car shoulders the irreplaceable and most important travel mission.
Fuel consumption of fuel vehicles, high cost of use, high emissions of dioxide ponds, and, most importantly, even if there are hundreds of electronic chips in high-end fuel vehicles to achieve partial automation of non-core components, with the driver more than a hundred pounds of one person to drive a ton of multiple locomotives, driving is still a heavy burden, especially for female drivers, middle-aged and elderly drivers. The brands I have opened, Volkswagen, Audi, Mercedes-Benz, all of them are like this.
Second, amazing
Until 2015, when I went to Silicon Valley, my friend drove a Tesla to pick me up at the airport. (Picture 1) The feeling of sitting on a Tesla is very quiet, no engine noise, starting to accelerate very fast, and 110 miles per hour (California's maximum speed limit) is very relaxed.
At that time, Tesla, as the big toy of the rich people in Silicon Valley, was a symbol of identity and values, and it was often seen that the CEO of Silicon Valley after selling the company sent photos of Tesla cars with wingside doors in the circle of friends. It's clearly innovators in the market curve, people who want newest things. (Figure 2), of course, at that time, Tesla's performance was much higher than that of fuel vehicles, but due to the imperfection of the charging pile, it was also mainly used for short-distance daily travel, and could not be used as a long-distance travel equipment. At the time, Tesla's stock price was about USD100-200 (non-reinstated). Friends in Silicon Valley drive Tesla cars, and Tesla stocks lie in their accounts.
Figure 1 Tesla Model S in 2015
In 2017, Tesla has begun to enter China in Beijing and Shanghai, selling imported Model S/X models produced at the Fremont plant in California. I test-drive Tesla and its assisted driving system in Beijing. The driving feel is incredibly good, the car is very light (all aluminum body), the steering is very smart, very quiet. So I placed an order. As a user and consumer, I have a more emotional and rational understanding of this amazing product, so I began to look at Tesla stock. At that time, Tesla stock was at the level of USD200-300 (non-reinstated).
The product and company from a user/consumer perspective is the benchmark for my choice of investment target. If a product is not easy to use, the function is not prominent, the inventory is a lot, and the users complain and complain about various complaints, its financial report is good, and I will not follow up. If a product is very sexy, very stunning, very outstanding (referring to the function, applicability, characterization, etc.), even if its financial report is not very good, I will continue to follow up. At that time, Tesla was in a stage where the product was very subversive, but the financial report was very bad. I joined and lurked in more than a dozen of Tesla's riders, mostly wealthy investors, high-tech company executives, and IT guys. Those who have driven Tesla have said that Tesla is particularly good. Questioning Tesla, especially similar to the brake failure (the investigation proves that none of the claims of Tesla's brake failure are real brake failures, but caused by the wrong use of the electric door as brakes) This is from my personal cognition to some groups of cognition, that is, Tesla is a good car. The first group to recognize the value of Tesla products is the high-end group of Kochi, high income, and certain leading force in the market.
Tesla fully embodies the PMF (Product-market fit, product market matching) in the product, that is, a very good, easy-to-use product, can have practical engineering technology to support it out of the laboratory, large-scale mass production, (rather than staying in the prototype car or laboratory of the orphan product) and can find reasonable materials, perfect supply chain so that its production costs continue to decline, without reducing performance and function on the basis of becoming a mass consumer goods.
It has to be said that Musk is a once-in-a-century comprehensive talent of technical talent + engineer + business ability, and he is far above the market level in key aspects such as technological innovation, engineering commercialization, product marketization, organizational ability, and self-all-in. Tesla's ultra-high investment value is very clear.
3. Hold
In 2019, Tesla set up a factory in Shanghai, and I realized that Tesla's stock price would take off. Because of China's world factory, high efficiency, low-cost industrial chain, grafted to silicon valley technology and design, Tesla will copy Apple's grandeur, such as relying on China's large-scale mass production, low-cost, continuous, stable supply chain, relying on the U.S. credit and influence of the global market, gradually expanding marginal profits, forming a very perfect business model of Sino-US cooperation, on this basis to produce very beautiful reports and financial conditions. (It should be noted that the upper end of Apple's supply chain is in the United States, the middle and high end are in Taiwan, and the middle and low end are in Chinese mainland, but the mainland is rapidly encroaching on Taiwan's mid- and high-end supply share.) Now look, Tesla's supply chain from the battery Ningde era, to battery components, electrolyte, diaphragm, positive and negative electrodes, to automotive electronics, to die casting machines, to rare earths, China's localization of the industrial chain is more complete and more comprehensive than Apple) When Musk took a special plane to Shanghai to celebrate the start of construction, I have begun to buy Tesla stock in batches:
USD378 on December 18, 2019 and USD 644.59 on January 6, 2020, with a combined cost of approximately USD 400.
Before the stock split on August 15, 2020, the stock price reached a maximum of 2200, making a profit of 5 times, and I sold one after another.
In late September 2020, the battery stock price fell to about 390 yuan (after the restoration), put a single, I failed to buy in time, waiting for a further decline, however, no, only fell for a half trading days, continued to rise to about 420, I put a buy order of 350 yuan, did not buy. On the evening of October 2, Trump confirmed the new crown, the US stock market fell sharply, rushed back to the office to buy about 370 yuan, failed to deal; on October 6, Trump terminated congressional negotiations on stimulus policies, and the purchase was sold at 420 yuan and 415 yuan. In February 2021, Tesla's stock price hit a new high of 1200, and its market value reached $1 trillion. Some "big coffee" have sold, for reasons: "Only Apple's market value reached 1 trillion, can Tesla surpass Apple?" (Note: At the time of writing in January 2022, Apple's market value was $3 trillion) "Apple is going to build a car, and Apple cars will crush Tesla's cars." Hurry up and sell Tesla to buy Kia. (Kia is Apple's co-oem) "However, I think Tesla's product matrix is far from being released, and the market value will not stop at $1 trillion:
In addition to the product matrix, Tesla's currently undervalued intrinsic assets are its assisted and autonomous driving systems, including self-developed chips, self-driving software, and self-driving mileage, which are currently difficult to quantify assets.
Figure 6 Tesla automatic parking system
Figure 7 Assisted driving during exercise
As mentioned at the beginning of this article, the reason for traveling in agricultural and industrial societies is mostly livelihood. In today's information society, the Internet is interconnected everywhere, takeaway is on call, as long as people have savings to lie flat at home, just like Buddhist youth who do not socialize, do not consume, and do not have children, eating and wearing can be delivered to the door. And telecommuting is already common. So why do people travel?
Now and in the future, people travel for freedom. It is the freedom to think and to go. (Of course, there is still partly based on livelihoods or their business models, such as takeaways, big trucks, commercial vehicles, jobs that have to meet, etc.)
We have the need to go out, but why drive a very heavy fuel car, drive yourself very carefully, and go out? Driving yourself without going out is what a lot of people, myself included, really think.
Networking, chips, computing, artificial intelligence, and new energy have laid the foundation for the four trends in the automobile electrification, connectivity, autonomous autonomy, and new ownership. For Tesla, computing is a core function that traditional car manufacturers don't have. [3]
Different from the platform-based multi-model cars of traditional car manufacturers, Tesla has a software push and technology update every few months to a year, whether it is from the model or from chip computing, automatic driving and other functions.
Automatic driving will reconstruct human travel, in addition to convenience, comfort, free hands and feet and time, automatic driving can better save energy, because the real can do a uniform speed driving, a lock into the warehouse, accurate calculation of braking distance, accurate calculation of the fastest route of only the machine (automatic driving system), which greatly reduces human driving, even if it is a full-time driver driving energy loss, mileage loss, attention loss, health loss, road loss and so on. Tesla Autopilot will receive huge intermediate service revenue, which is not currently reflected in the stock price and market value. Automatic driving is supplemented by intelligent transportation systems (intelligent traffic lights, intelligent navigation, tidal lane settings, etc.), and the efficiency of the use of urban roads and highways will be greatly improved, reducing carbon emissions, shortening travel time, and improving travel convenience and comfort.
Regarding the reconstruction of ownership of autonomous driving, it is a follow-up business model and profitable way after the popularization of autonomous driving, realizing that you travel, you lie flat in the car, you do not travel, you lie flat at home, and your car makes money for you. Specifically, car ownership and increases worldwide continue to rise, but the use rate of cars used for private travel is low, especially in large cities, private cars are mainly used for commuting, holiday travel, and most of the time are parked in garages or parking lots. Just as in 2019, when I attended the China-Japan Industrial Exchange Conference hosted by the China Investment Corporation in Tokyo, the management of Nomura Securities also lamented that most of the time their cars are parked in the parking spaces at home, and even commuting can be used, because the congestion during the commuting period is far less efficient than taking the subway to work. In an era when expensive cars are only used as private spaces and status symbols, their limited travel use, high consumption of fossil energy, and low energy conversion rates are coming to an end in a future of carbon reduction, net zero emissions, and the need to improve energy and resource efficiency. In the future, private cars during idle hours, in the case of autonomous driving and no need for drivers, will become a fleet of self-driving time taxis, paying to carry passengers on the road. This will be a huge market for travel service fees.
Fourth, technology
Tesla's technology, whether it is from the integrated body casting, body materials, round batteries, vision systems, induction motors, autonomous driving systems, car chips, the first use of SiC silicon carbide, multi-tube parallel IGBT inverters in powertrains, and software that highly matches hardware (data acquisition and detection, data communication, data computing, control systems), these technologies are in service and adapt to the product performance, so that users have a superior product experience. Rather than re-exploring the development of products with technology.
I choose the product from the user's point of view, and thus the enterprise, and pay more attention to the product to the technology, rather than from the technology to the product, even the deep technology of Tesla. I don't get myself caught up in the early stages of trying to judge which technical route to take to make a good product, or to make a product. I don't think that's what an investor should do, it's the expertise of engineers, scientists, if it's a product or a business at this stage, I'm not going to step in. For Tesla's specific technical details, there are already many public information, which will not be repeated here.
5. Delivery
According to the ratio of car inventory to sales in the Federal Reserve Bank's economic database, this indicator has a historical average of between 2-3, but the most recent November 2021 data is only 0.24. It shows that the supply of cars is seriously in short supply. Of course, there are reasons for the damage to the supply chain and transportation links of the epidemic, but from the trend point of view, the demand for automobiles is growing.
Tesla's deliveries since 2015 have shown exponential growth. The exponential growth in deliveries means that Tesla has been extremely successful in its product strength and has been validated by the market. With such an increase and the number of deliveries, by 2030, the completion of Musk's expected 10 million deliveries is just around the corner.
6. Finance
In our methodology as a company research from the perspective of users, for financial data, we focus on the first level of inventory (turnover rate, turnover days), monetary funds (cash equivalents) and accounts receivable (turnover rate, turnover days), R&D expenditure, and return on assets.
The small inventory indicates that the product is selling well, and at the same time, it does not have obvious cyclicality.
According to the 2019 Q4 financial report, Tesla's vehicle inventory turnover days have dropped to 11 days, creating the best level in four years. The degree of demand is evident. The 2020 financial report shows that the sales cycle is shorter than the delivery cycle, and the sales growth has promoted the positive generation of cash.
More monetary funds, less accounts receivable, and short terms, indicating that the product has achieved real sales, rather than in exchange for a large number of accounts receivable, the probability of fraud is low.
The large amount and high proportion of R&D expenditure indicate that there is a benign growth potential in the future.
The return on assets is greater than 0 and higher, indicating that it is not a money-burning, dependent on capital investment or debt to obtain survival and growth, and the operation efficiency of the enterprise is high and sustainable.
At this level, best-selling is the core.
The second level focuses on analyzing the growth rate of revenue, market share growth, profit margins, and pricing power. At this level, pricing power is at the core. Pricing power depends on (1) product power and (2) cost reduction ability that does not reduce product power. Best-selling and pricing power, basically determines that this product has both good cash flow capabilities and good profit margins.
Tesla Motors has been in short supply since its launch. According to the official reply of Tesla's customer service, from the order to the pick-up, the usual waiting time is 3 months, and the specific exact time varies slightly with the order model, production progress, import/domestic transportation conditions. The following figure is the production-to-sales ratio in the past two years:
Note: The slight difference in delivery volume recorded in the financial report is due to the difference in sales confirmations
Figure 10 Tesla production-to-sales ratio
Under the influence of the epidemic and the "lack of core" and other factors, Tesla's delivery volume has still doubled. This is Tesla's efforts to break through the supply dilemma by improving the vertical integration capabilities of the global supply chain and the technical reserves, including the capabilities of self-developed chips.
For inventory data, such as the following report,
Balance Sheet
(in millions,except per share data)
Figure 11 Annual report 2020, Q2 2021 report
Because Tesla is producing according to orders, this production method determines that there will be no large inventory of finished products, so the inventory amount in the report is no longer analyzed, and the inventory turnover rate and inventory turnover days are no longer calculated. If it is not an order-based production enterprise, I will choose a company with an inventory turnover of less than 90 days, the fewer the better, and the enterprises with more than 120 days, 240 days or even 360 days are basically excluded. In fact, I chose companies whose products need to be lined up with coins to buy.
According to Tesla's operating data for the third quarter of 2021 (at the time of writing, the fourth quarter operating data has not yet been released), Tesla's profit margin in the third quarter of the automobile business was as high as 30.5%, while increasing the overall gross profit margin of the company in the third quarter to 26.6%, both of which hit a record high.
According to the "Nihon Keizai Shimbun" on November 17, 2021, Tesla's profit per vehicle is 3.2 times Toyota's profit per vehicle, Tesla's bicycle profit is 730,000 yen, and Toyota's bicycle profit margin is 250,000 yen. In my opinion, Tesla Motors is no longer, and never has been, what the CEO of Toyota Motor Corporation calls "a delicate side dish in the restaurant," but a main dish.
Tesla's market share has reached 25% in 2020 and is expected to reach 30% in 2021. Well above second place.
7. Founder analysis
Understanding the past behavior of the founder of the investment target and conducting psychological and personality analysis is an essential step for my investment. I'm basing myself on dr. Dr. Dr. The psychoanalytic theory founded by Michael Lincoln interprets the true personality, personality characteristics and psychological characteristics of characters by observing their facial texture lines and expressions.
Musk has had many successful entrepreneurial experiences, including PayPal;
There is no record of dishonesty in history;
Completely all in their own wealth, possessions, talents, time to entrepreneurship, often sleeping in factories;
Firm will, many times facing bankruptcy, bankruptcy has not given up;
At the same time, he has the talent and ability of engineers, product managers and entrepreneurs.
The above is the external trajectory of behavior that can be traced and can be traced.
Based on facial expressions and the muscle textures and facial features formed by long-term expressions, the psychological and underlying emotional states on which expressions are based are inferred:
If the left and right faces are inconsistent, it shows that there is a difference between his social performance and real personality, the more inconsistent the left and right faces, the greater the difference between external performance and real psychology, he is hypocritical, deeply hidden, dangerous person, such a person's business, cautious investment;
The depth of the eyes, and the inward orientation, indicates that he is very intelligent and does not care about external perceptions;
The look is not fearful, but with coldness and anger, indicating that he is cruel enough to others and to himself, and the rebellion caused by anger will make him not conform to the rules, but instead is maverick and unscrupulous;
The slight skimming of his lips shows that he has the basic emotions of disgust and contempt, and he does not agree with, dislikes, and despises the existing world, system, products, and people, and this basic emotion is most likely the psychological and emotional motivation for him to make exquisite products that far exceed the worldly standard;
The chin is strong, indicating a strong will.
In general, he will not be a likable and lovely person in life and work, (which is probably why Buffett, Munger and other traditional Midwestern Americans dislike him very much and think that his corporate culture is very bad) But it is these psychological and emotional traits that are the intrinsic driving force behind him to make a product that is beyond the conventional, beautiful, revolutionary, and disruptive.
Based on his carelessness and certain unpredictability of his behavior, I made a 70% discounted disccount for Tesla's stock price and market value, leaving 30% of the profit margin for spreads and discounts.
VIII. Conclusion
Tesla is a behemoth, and an in-depth analysis of any aspect of its technical capabilities, product lines, batteries, motors, chips, computing power, autonomous driving, charging piles, neural network DOJO, heavy metal reserves, energy storage and energy (energy storage, solar roofs) is enough to publish a monograph. Tesla products are products that make people look at it twice, because of such an excellent product, we focused on market field verification and empirical analysis in our research; we did not take a magnifying glass to see its financial statements, nor did it take a lot of time and manpower. As long as there are no apparent discrepancies or material flaws in the financial reports, no special material accounting policies that differ from the market or material changes, we will pass investment decisions. In other words, our investment decisions are based on products, 20% based on financial analysis, and 10% based on founder analysis from the user's point of view.
Such a weight does not represent the importance of the weight indicator, not that the importance of the founder is only 10%, or the importance of finance is only 20%. To become an excellent company, the product, operation, the embodiment of business results, that is, the financial situation, the founder are very important, indispensable. These important factors alone do not determine their respective weights of importance. At the same time, our analysis of any enterprise, whether it is insiders or outsiders, insiders or users of the company, is only a blind person touching the elephant; based on the analysis of people's own IQ, knowledge structure, experience, way of thinking, intuition, ideology, emotional state and other factors, we can only see a certain aspect of the enterprise, or some aspects, and there is no panoramic perspective, completely objective God's eye. The reason why the user perspective of the product is put high is because the product is easier to verify than other factors and is closer to objectivity. In addition to the personal experience of their own use and community use, there are multiple statistics on the market that can cross-verify cross-check. For financial data, very shrewd accountants and analysts, even if they conduct on-site verification for three or five months, are inevitably deceived by carefully designed false and perfect accounting statements, often these accounting statements are issued by the four major, or even if the financial statements do not constitute the fraud required by law, some companies or accountants change major accounting policies, which also makes the financial statements basically lose the value that investment decisions can rely on or can be referenced. For the analysis of the founder, it is easier to peek at the leopard and see only one spot.
Overall, my investments and cases are in line with the GARP (Growth At Reasonable Price) strategy, in the high-boom long-slope snow industry, in a reasonable price range, in the early stage of high growth, and hold for a long time, until the company's core competitiveness declines or the industry matures. This not only has the "margin of safety" emphasized by Benjamin Graham; it can also catch a few era stocks in the big historical era, such as the Dow Chemical and Texas Instruments bought and held by Philip Fisher in the 1940s and 1980s, which were ten times the big bull stocks of that era.
According to the International Energy Agency IEA Global EV Outlook 2021, the number of electric vehicles in the world has reached 10 million, and if we want to meet the sustainable development goals, the global electric vehicle ownership needs to reach 230 million by 2030, which is a huge challenge and opportunity. 2022-2030 will be 8 years of large-scale development of electric vehicles. Make a flag: In the near future, Tesla will surpass Apple's market value. The only thing that can beat Tesla is Musk himself, and the only thing that can surpass Tesla's market value is the post-IPO Space X, if it goes public.
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Note: The pictures in this article, except for the source source quoted, are from my original and my Weibo.
Author: Zhang Jianghong, Beijing Lanxi Investment Management Co., Ltd
[1] Mei, James M Hargett, "Yushan Danchi, Traditional Chinese Travelogue Literature", Shanghai People's Publishing House, p174, 175, 188.
[2] Wu Jinglian, "A Market Economy Calling for the Rule of Law," Sanlian Bookstore, p428.
[3] Insideevs: Does Tesla’s centralized computer architecture requirefewer chips? By Evannex.