Hey, I’m Steven and this is Solving The Money Problem.
If you’re new, welcome.
If you’re not new…
...welcome.
Let’s do it.
Despite being a self-proclaimed Tesla fanboy, I’m not delusional.
A decent chunk of my net worth is in Tesla stock so it’s in my best interest to assess
things objectively.
I’m a scientist by nature, I’m rational to a fault and I base my beliefs on evidence
not emotions.
Many of you have asked me to shine a light on what I see as potential threats and risks
to Tesla.
This is smart.
It’s super important to ask these kind of questions of any company you’re considering
investing in.
So, in this video I’m going to talk about the potential risks I see Tesla facing in
the future AND I’m also going to debunk some of the more absurd so-called “threats”
I’ve seen thrown around.
The Competition
[Hysterical laughter]
What competition?
Seriously.
Tesla DOES NOT HAVE ANY COMPETITION, PERIOD.
This may change in the future, but currently, the other electric vehicles on roads are not
competition.
They’re bad jokes.
Now this isn’t a jab at the designers and engineers of these other vehicles.
They’re doing the best they can with the limited resources they have.
The results just suck because no one has had the balls to go all-in.
Tesla’s vehicles are literally the safest ever tested.
Tesla’s infotainment is unmatched.
Tesla’s software is unmatched.
Tesla’s supercharging network is unmatched.
Tesla’s range is unmatched.
Tesla’s efficiency is unmatched.
Tesla’s batteries are unmatched.
Tesla’s maintenance costs are unmatched.
Tesla’s over-the-air updates are unmatched.
Tesla’s EV margins are unmatched.
Tesla’s owner satisfaction is unmatched.
Tesla’s full self-driving chip is unmatched.
Tesla’s full self-driving data lead is unmatched.
I could keep going.
You get the point.
Tesla are so absurdly far ahead of everyone on everything that matters, it’s scary.
I mean, seriously.
The 2012 Model S, which is 7 years old, still has more range than any other EV on the market.
Let that sink in.
7 f**king years later, no one is where Tesla was in 2012.
And Tesla isn’t standing still.
They recently acquired Maxwell Technologies and Hibar Systems, suggesting a big battery
breakthrough announcement will come at the Battery and Powertrain Investor Day early
in 2020.
Tesla currently produces half of all lithium ion batteries globally.
This is absolutely insane.
Economies of scale matter.
As Tesla continue to refine their processes, find new efficiencies, negotiate better deals
on materials from supplies and move further down the supply chain, their lead looks likely
to expand further.
For legacy automakers to go all-in on EVs and have a chance of competing with Tesla,
they must turn around a huge ship which is a slow and brutally painful process.
10s of billions of dollars of investment must take place.
Profits will suffer enormously during the transition.
Investors will cry.
Bonuses will be cut.
Huge layoffs are inevitable.
Their competitive edge -- the internal combustion engine -- is now a liability.
Expert designers of internal combustion engines are not expert designers of batteries.
Where is this new engineering talent going to come from when Tesla and SpaceX has the
best engineers in the world?
In 2010, if someone told me the competition was coming for Google or Amazon, I’d have
laughed them out of the room just as I do today, when I hear claims of Tesla’s impending
competition.
Enough already.
Until something changes, the competition is not coming.
The competition does not exist…
--yet.
No Demand
If you haven’t looked at the data, or are incapable of reasoning by analogy, you could
be forgiven for thinking future demand for electric vehicles is uncertain.
It’s not.
EVs currently make up just over 2% of the new vehicle market.
In the future, this will be around 100%.
Just for fun, here’s the transition from horses to cars a century ago.
Question: Are battery costs following a predictable declining cost curve?
Answer: Yes.
Does this mean batteries will continue to decline in cost over time?
YES.
Does this mean the most expensive component in a Tesla will continue to decline in cost
over time?
YES.
Does this means EVs will become substantially cheaper to BUY--nevermind the much lower cost
of ownership--over time?
YES.
Does this mean EVs will face uncertain demand in the future as they become cheaper to buy
than ICE vehicles?
As more people realise they are cheaper to own than ICE vehicles?
As governments incentivize EV ownership and legislate ICE vehicles out of existence?
NO.
If you question demand, I question your reasoning faculties.
Nothing personal, just true.
Elon Musk Leaving
What if Elon Musk leaves Tesla to return to his home planet?
What if he dies?
Sure, this would suck.
A few years ago, Musk leaving would probably have killed Tesla, or severely injured them.
Today, it’s not the case.
Tesla has a fantastic product roadmap, huge moats, the best engineers, the best batteries,
the best software, and an ingrained culture of disruption, innovation and endless optimisation.
If Musk went, the stock would get rekt for awhile but Tesla would continue executing
on its Masterplan, just at a slower pace.
But don’t doubt Elon’s commitment to seeing his vision through.
After all, if Tesla does not grow, Elon does not get paid.
There's still 8 years left to achieve all tranches of his 10-year CEO performance award.
Theft of Intellectual Property
What if someone (well, China), steal’s Tesla’s IP?
In June 2014 Tesla open sourced their patents.
They’re more concerned about helping the world transition to EVs than stifling progress.
What’s happened since?
Well, Tesla continued to innovate and disrupt, and... everyone else is still sitting
on their hands and not using any of Tesla’s patents.
What’s more, even if a competitor were to steal trade secrets, or the Autopilot source-code
like this a**hole, Tesla’s pace of innovation ensures they will almost instantly pull back
into the lead.
This is a non-issue.
The Ending of EV Tax Incentives
Many governments are incentivizing the transition to EVs by providing tax benefits to buyers.
In the US, the Federal EV Tax Credit began at $7,500.
Tesla has sold so many vehicles since, that the credit halved to $3,750, then $1,875 and
come 2020, buyers of Tesla vehicles will receive no incentive at all.
The declining tax credit has not impacted sales.
The truth is, Tesla vehicles represent such incredible value that they will sell--and
ARE selling--without the need for any incentives.
They’re a nice bonus, but not necessary.
NEXT.
Slow Manufacturing Ramp
The Model 3 production ramp was hell.
Tesla tried to over-automate, bit off more than they could chew and made some big mistakes.
As a young company ramping production of its first high-volume vehicle, mistakes were inevitable.
Tesla learned from these quickly and demonstrated its ability to adapt, erecting the
“tent” production line in record time and applying all those lessons to their future
products, factory designs, and product ramps.
Gigafactory 3 was built in 10 month flat for 65% less capex per unit of capacity than the
US production lines and is already ramped to a rate of what appears to be THOUSANDS
of Model 3s per week. Less than a year after it was a muddy field.
What’s more, the Model Y was designed to share about 75% of its parts in common with
the Model 3 making for an efficient production ramp, low learning curve and massive capex
savings.
Tesla has demonstrated its ability to learn and adapt quickly.
We will not see another production hell.
A Global Recession
What if we have another global recession?
Great question, but it’s one I’ll have to smack down.
First of all, a global recession is not a threat to Tesla.
It’s a threat to everyone.
Raising this as a risk is like worrying that an extinction-level asteroid impact might
be bad for Tesla.
Of course, a global recession would suck for Tesla--and everyone else.
But with $5 billion in the bank, an agile culture and Elon Musk’s ability to raise
capital in any economic conditions, this doesn’t concern me.
If you really want to get down in the weeds... during a recession, consumers--and especially
businesses--become very cost-conscious.
Anyone with a calculator and a brain can conclude that buying or leasing a Tesla over a new
ICE vehicle in a similar price range will save them money in the long run with MUCH
lower running and maintenance costs.
And of course, if Tesla has solved Full Self Driving and activated its robo taxi fleet
and there’s a recession, buying a Tesla and having it make money for you will be a
very tantalising financial prospect.
A FUD Campaign
Never in my life have I seen such a strong campaign of spreading fear, uncertainty, doubt
and outright lies, than that against Tesla.
Whether it’s shorts, shills, big oil, big auto or big a**holes, someone is always spouting
rubbish about Tesla.
In the end, no matter how much BS is spread in the media, the truth will win.
If the FUD wasn’t wasn’t able to suffocate Tesla in its vulnerable infancy, it’s not
going to make a difference now.
Consumers are WAY smarter than we like to give them credit for. You and I are consumers too, remember?
Material and Supply Constraints
With plans to scale battery production by roughly 100x, Tesla’s biggest challenge
in the future may be sourcing materials.
As usual, however, Tesla are a few steps ahead.
[A lot of this also is dependent on our ability to manufacture a lot of cells and make a lot]
[of battery packs.]
[As we scale battery production to very high levels, we actually have to look further down]
[the supply chain and um, and, um, we-we might get into the mining business…]
[I don’t know.]
[Maybe.]
[You know, a little bit at least.]
[We’ll do whatever we have to to ensure that we can scale at the fastest rate possible.]
[Yeah, we’re not sitting idly by.]
[We’re taking all the moves to be masters of our own destiny here, technologically and]
[otherwise.]
[And you know, I think, through all the experience we’ve developed through partners and otherwise,]
[we have solutions in place.]
[Yeah.]
If anyone is to face supply issues, it probably won’t be the company producing half the
world’s batteries, with the strongest supplier relationships and a willingness to go as far
down the supply chain as necessary.
We’ll hear more about this at battery and powertrain investor day.
A Better Battery Developed Elsewhere
Tesla currently leads the world in battery technology by a preposterous margin.
No one is even CLOSE.
This is not up for debate.
This is a fact.
Tesla has the world’s best batteries.
And they’re not standing still.
Tesla has their ear to the ground.
Tesla has the best engineers, brilliant scientists and fantastic researches and has shown its
willingness to acquire both technology and talent.
Tesla acquired Maxwell Technologies recently.
Why?
Maxwell has battery technology that Tesla wants.
Tesla acquired Hibar Systems recently.
Why?
Hibar specialises in battery manufacturing systems.
Superior battery technology will be developed.
However, I believe the odds of this happening outside of Tesla’s own R&D efforts or in
a situation where Tesla does not immediately acquire the technology, are low.
It seems much more likely that Tesla will continue to grow their lead in battery technology.
p.s.
I’m calling it now.
At the Battery and Powertrain investor day, Tesla will announce plans to supply OTHER
automakers batteries as they grow production toward 2 terawatt-hours.
Being Beaten To Full Autonomy
The solving of full self-driving will be one of the most monumental breakthroughs in the
history of transportation.
Tesla’s solution, a vision-based neural network, is the obvious answer.
Humans drive with 2 cameras (also known as eyes), connected to a neural network (our
brain).
Our entire transport infrastructure is made for human vision.
Street signs, road markings, traffic lights--ALL designed to be seen.
Tesla’s full self-driving data lead appears unassailable and is growing exponentially
as the Tesla fleet scales.
I’m not going to dive into deep learning and artificial neural networks in this video,
that can wait for another time.
However, I must stress this point.
It's incredibly unlikely that anyone is going to catch Tesla on full self-driving.
No one else has the data.
Most of them are using band-aid, narrow solutions like Lidar in geofenced areas.
This is a waste of time.
Each Tesla on roads today is training the self-driving AI to get better.
Every driver intervention is flagged and used to make the software better.
Tesla has 100x more data than anyone else and that lead is growing.
But what if, by some miracle, Tesla doesn’t solve full self driving first?
Let’s explore that.
What if it’s Waymo?
Cool.
Now Waymo needs more vehicles.
Today they have a few hundred.
Who’s going to make the new vehicles?
How fast can they make them?
What will this cost?
Guess what Tesla will be doing while Waymo, or whoever it is, tries to get grow their
autonomous fleet?
Tesla will be solving full self driving.
Tesla has close to 1 million vehicles on roads TODAY, which will be capable of full self-driving
with an over-the-air update.
This fleet will number in the millions soon.
Even if Tesla were beaten to the punch, it would take a few years for anyone else to
deploy a similarly-sized fleet of autonomous vehicles.
The Unknown Unknowns
In my opinion, the most dangerous threats to Tesla are the ones we don’t know about
yet.
That kind of makes them hard to discuss.
Today, Google owns search.
Amazon owns e-commerce.
Tesla owns EVs.
All three of these companies could be dethroned any time, despite having cultures of innovation
and staggering competitive advantages.
There are just some risks nobody sees coming.
But ask yourself this question.
If you had to guess, who do you think is most likely to own Search, e-Commerce and Electric
Vehicles in 2025?
To sum it up, Tesla really doesn’t face much in the way of headwinds.
This was not always the case.
Just a few years ago, Tesla could easily have died.
But things have changed.
And things could change again.
But today, from where I’m standing, I feel like I’m watching a 23 year old Usain Bolt
line up against a bunch of toddlers in a foot race.
I mean, maybe he’ll break both legs and have a heart attack...
but I wouldn't count on it.
The biggest visible challenge Tesla faces, in my humble opinion, is being able to scale
fast enough to meet the growing demand.
Thanks so much for watching.
Let me know your thoughts in the comments below.
What do you see as Tesla’s biggest threats?
Do you agree or disagree with any points?
Any threats I didn’t mention?
And of course, if you have any ideas for future videos, let me know.
I read ALL your comments.
p.s.
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