Quick Summary
Tesla (TSLA) designs, manufactures, and sells electric vehicles, rooftop solar energy systems, and battery storage products. 85% of the company's revenue comes from sales and leasing of its electric vehicles, notably the Model 3 sedan (over 80% of 2019 deliveries). The company also currently produces the Model X full-size SUV, the Model S high-end sedan, and recently started deliveries on its Model Y compact SUV. In total, the firm delivered 370,000 vehicles in 2019, with current production capacity of about 650,000. The energy generation and storage business (rooftop solar systems and batteries) accounts for about 6% of sales, deploying about 1,600 MWh. The remainder of revenues are from servicing and financing of its products.
Does The Company Have Recurring And/Or Rising Revenues?
SOMEWHAT. The vast majority of Tesla's sales are new vehicle deliveries, which are transactional and cannot be considered recurring revenue. As for rising revenues, Tesla's are unequivocally rising, and rapidly, with a 3-year annual revenue growth rate exceeding 50%. There are numerous catalysts going forward. Electric vehicles at large are nearing an inflection point, as major car manufacturers the world over enter the category, growing its acceptance. The market is expected to grow over 20% annually to 2030. Tesla has also been aggressive with product launches, including the launch of the Model Y SUV (a 12 million unit global market), and the upcoming Cybertruck (pickups are a 7 million unit market).
Does The Company Have Durable Competitive Advantages?
SOMEWHAT. Car companies are not particularly effective moat-builders, but we believe Tesla has a few nascent, budding competitive advantages taking shape. The first is a CONSUMER BRAND MOAT, as the undisputed world leader in electric vehicles and a strong cult of personality around CEO Elon Musk. Electric car shoppers are partially looking to make a statement, and are less enthused to buy from legacy brands associated with gasoline cars, allowing Tesla to price higher. Ultimately, Tesla's "gigafactory" construction should give it an ECONOMIES OF SCALE cost advantage in battery production, a key component in electric vehicles. Being vertically integrated in batteries provides the company protection from price swings due to global supply shortages. Finally, there are some major short-term competitive advantages. Its close to 8,000 Supercharger locations gives the company the only nationwide charging network, providing buyers confidence in their EV for long-term trips. Tesla also has a huge lead on the legacy companies with its highly developed software and self-driving systems. It will take them many years to catch up, and continue to drive early EV buyers to the firm.
GreenDot Rating: YELLOW
It is difficult to come off of a "red" business model rating for a car maker. These are non-recurring revenue, low-moat, highly capital intensive and economically sensitive businesses. However, Tesla is exceptional and gets a YELLOW (somewhat attractive) rating due to several factors. First, it is the undisputed leader in electric vehicles, a category with enormous growth potential. Second, it is developing some very real long-term economic moat characteristics with its brand and vertical integration. And finally, the solar business acts as a "wild card", providing the firm a potentially second lucrative industry to enter over the long-term.
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