This week Tesla reported its numbers for the 4th quarter. After hitting a record number of vehicle sales, the numbers were outstanding.
The stock, which was already on a major run, was propelled to even greater heights. This put the value above every other American car company and all in the world, sans Toyota.
How could this possibly be? There is no way a company that just sold 360K cars in 2019 can be worth that much.
When looking at Tesla as an automobile manufacturer, this is absolutely correct. To substantiate that value, they would need to increase their annual production 15x and then they would be just overvalued.
However, there is a problem with looking at Tesla as a car company. In fact, there is an issue with looking at what they produce as cars. The term being tossed around is "computer on wheeles".
Tesla is remaking the entire auto industry. We are quickly entering a digital world and, so far, they are the only car company that can offer over the air updates. This seems like a novelty until you realize exactly what they are doing and the profit potential.
Over the air updates mean little when you are just doing them. However, when a company starts to offer something that is paid for by the customers, suddenly a revenue stream is realized. The software and gaming industries have known this for years.
Part of the revenue stream is going to include a $10 monthly subscription to receive Tesla over the air services. This is really not giving the car Internet connection since that is required for the updates. Nevertheless, if anyone wants the other features, the monthly charge applies. This is a nominal amount to a Tesla owner so I cannot see anyone not having it.
With 800K cars on the road, that is $8 million per month, or $24 million a quarter. This is almost pure profit, dropping to the bottom line. Of course, as the company churns out another 100,000+ cars per quarter, this number increased by another million each month. For a company that was in the red for so long, adding $40 million per years is significant. This will only keep increasing as their production goes up.
There is another factor in this. Tesla recently offered an acceleration package on their Model 3. This update boosted the acceleration on the car. The cost was $2,000.
How many people took advantage? I have no seen the number but if 25,000 owners took advantage, this is a cool $50 million quickly generated. The profit margin on software, as most of us know, is absurd.
Do that a few times throughout the year and we are talking about some serious money.
Another piece to this puzzle is a bit more speculative but really could impact the future of transportation. A great deal of what we see, across many different industries, is a battle for control of the operating system. This is essentially what is taking place with the Alexa/Siri battle. Apple, Amazon, and Google all wants to be your home operating system. If they can accomplish this, they will have control of the entire environment.
With autonomous driving, the same holds true. There will be a couple (or perhaps 3) companies that are able to get their operating system out there. Just like IOS and Android in the mobile phone world, we are going to see a couple companies dominate.
Tesla is looking like they are a big part of the equation when it comes to this. Along with Google, they are the leaders in self driving technology as far as I can see. In fact, it really is a situation where everyone else is 3 or 4 years behind. That is a lifetime in the AI world.
Too many people still want to talk about "car companies". That is so 20th century. Today, the most powerful companies are not in a particular industry. Instead, they technology/AI companies.
This is where the difference comes in.
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Posted via Steemleo
