Since Tesla’s stock price went through a meteoric rise in 2020, the debate of whether it is over valued, or whether it has a sustained advantage over traditional car manufacturers became a fairly regular occurrence in Momentum Works’s Impulso community

 

Following is the excerpt of a recent conversation:

A:

I saw this

In June 2021, a total of 33,420 electric vehicles were sold in Germany. The ranking and data of the top five builds are as follows:

  1. Tesla Model 3: 4462 sold
  2. Volkswagen e-Up: 2788 sold
  3. Volkswagen ID.3: 2448 sold
  4. Renault Zoe: 2251sold
  5. Hyundai Kona: 1766 sold

Volkswagen seems to be losing steam. 

 

B:

So, what’s your conclusion from this?

 

A:

Personally, I am optimistic about Tesla in the long term. I am buying more of the company’s stocks.

 

C:

Many people don’t seem to understand what “long term” entails.

 

A:

10 years and above is considered long. No point buying if it is less than 3 years. 

 

D:

Read in the news that the standard range version of Tesla Model Y now only sells at 270,000 Yuan (US$42k) in China, which is 60,000 to 70,000 Yuan cheaper than the previous version. I really admire Tesla for this.  They have made drastic efforts in reducing costs and thus, prices. It stands at an excellent position in the EVs ecosystem. 

 

There are two uncertainties though.

One is whether traditional car companies can catch up with them. After all, issues about batteries, motors and electronic control are not rocket science that are out of reach for most players. After these players scale up, everyone is back on the same starting line again essentially. 

Next up is definitely autonomous driving… I won’t go into details. Different people have different opinions on this.

 

C:

Do you think traditional car companies have a chance to catch up?

 

E:

Personally, I find it difficult… Both parties have two different ways of thinking…

 

D:

It is hard to predict for Japanese players. No one knows their actual directions and plans for sure yet. Nevertheless, major players such as Hyundai Kia and Volkswagen are still quite aggressive in their transformation.

 

Model 3 and Model Y are leading the B-segment market, and no specific plans have been seen for A-segments (Corolla, Sylphy, Civic, and Mazda3). They may be constrained by the cost of the battery. If the price does not go up, the gross profit margin will not look good.

 

C:

Does Tesla care about gross margin?

 

D:

They need to, this is why I admire Tesla. The price has been cut, yet the gross profit margin has been steadily rising, and now it is at 25+%. Car manufacturing industry is a different story than the IT industry. 20% gross profit margin is considered a feat worth celebrating. 

 

C:

Therefore, traditional players are unlikely to catch up in the game.

 

D:

The battle within the A-segments hasn’t really started yet. Let’s wait and see. 

We can look into Xpeng’s performance first. Xiaomi may quietly make a competitive model too. 

 

F:

The price of Xpeng P5 is not out yet, and Tesla’s presale strategy is beginning to build up brand loyalty amongst their customers . Just placed an order in the morning.

 

G:

Traditional car manufacturers are too disconnected with their users, and their ability in data collection and ecosystem building is not up to par.

Building an electric car with good gross profit is just the barrier to entry. 

The real differentiating factors are data collection and algorithms. 

Ultimately, it draws down to the efficiency of the ecosystem as a whole

Xpeng’s cost structure is too high. The design of P5 feels very traditional. The overall product positioning is not as good as Nio and Li Auto

 

Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at hello@mworks.asia.

 

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