TIP761: Tesla Stock Deep Dive w/ Clay Finck

26:21So as Tesla increases their level of vertical integration, costs per unit fall, and they can simply pass those cost savings along to customers while keeping margins at a sustainable level. The magic of the scaled economy share model is that it's recursive. Lower prices bring in more customers, which allows them to increase their scale advantage even more, allowing them to lower prices further. With that said, Tesla's gross profit margins are near their lowest level in the past 10 years. So it does seem that competition is playing a role here, as you tend to see in capitalism, and they are not seeing substantial benefits to their massive scale, at least yet anyways.

27:01However, as I alluded to, Tesla's automotive segment is vertically integrated as they manufacture their own batteries at scale, design their own software, and control much of the distribution and servicing by bypassing the traditional dealership bottle. This level of control allows Tesla to maintain higher margins than most automakers, while also giving them flexibility to adjust prices in response to market conditions. Another example of Tesla taking a different approach than other auto manufacturers is bypassing the traditional dealership model. This really gave Tesla complete control over the customer experience.

27:38So back in 2018, I took a trip down to Kansas City with my immediate family and I had one morning free, so I decided to stop by a Tesla showroom and test drive a Model S. I remember the experience quite vividly. When I walked into the showroom, it really didn't feel anything like stepping into your typical car dealership at all. There was no pressure and no salesperson trying to upsell you on options that you don't need. Instead, it felt almost like walking into an Apple store. It was clean, minimalist, and it focused entirely on the customer experience. The Tesla rep I met was incredibly knowledgeable, not just about the specs of the car, but about the bigger vision behind Tesla.

28:20He wasn't just selling a car, he was telling a story of a company redefining what driving could mean. Hopping into the driver's seat of the Model S was an experience in itself too. The premium seat cushions immediately caught my attention. They hugged me just enough to feel sporty, yet the leather was soft and luxurious, almost like sinking into a high-end lounge chair. The steering wheel had a supple feel to it as well, and the overall interior just had a totally different aura to it, similar to how we experienced the iPhone and how it has this very intentional design that's very modern, easy to use, and enjoy.

28:57Quality has its own frequency, and I sensed that frequency when I first sat down in a Model S. Instead of dozens of buttons, knobs, and dials, everything was centered around this massive single touchscreen in the middle of the dashboard. At first, it almost felt futuristic, but within minutes, it was actually pretty intuitive. That screen controlled everything from the climate, navigation, media, and the sunroof. It was clean, efficient, and unlike anything I'd ever seen in a car before. When it came time to drive, the smoothness of the ride really blew me away. I remember getting onto the interstate on-ramp, pressing the accelerator, and instantly feeling that surge of torque.

29:38There was no hesitation or lag with the acceleration. And one of the things that's most different about Tesla vehicles is that when they accelerate, it's almost silent. So you don't have the loud revving engine noise that you're used to and hearing in a gas-powered car. My dad was in the backseat of the Model S. He was next to my mom and my brother, and he actually caught a video of me punching the accelerator while my mom was halfway freaking out since she thought that another car was on the highway going to be entering the same lane as us. I was smiling from ear to ear, completely unprepared for how effortlessly the car would go from zero to highway speed.

30:15The acceleration felt almost like being pulled forward on a roller coaster, but with none of the noise or vibration of a gas engine. It was truly exhilarating. On top of that, the rep encouraged me to try out Tesla's autopilot feature on the highway. watching the steering wheel subtly adjust on its own while the car kept its lane and maintained speed was slightly unnerving. Then he had me click on my left blinker and the autopilot feature went ahead and changed lanes for me. That entire experience at the Tesla showroom just really stuck with me because at the time, it was clear to me that Tesla was offering something fundamentally different from everything Americans were used to.

30:54And because they sold directly through their own showrooms, Tesla created an environment that would be nearly impossible for the traditional dealerships to replicate. Another firsthand experience I have with Tesla was this past winter. I spent a couple of months down in Austin, Texas, where Tesla recently moved their headquarters to. A member of our mastermind community let me know that one of his family members has worked at Tesla for the past nine years, and I briefly connected with that family member down in Austin, and she proudly told me that she had never sold a share of Tesla she's ever bought, and she spoke very highly of Elon in its vision.

31:31It's just one example, but I sense that there's this similar feel that, along with there being a cult-like following with Tesla car owners and Tesla stockholders, there's also this dynamic that likely carries over to the employees as well, especially since the stock has done so well over the years and built a fortune for so many people. However, Tesla of course faces stiff competition in the EV space. Many of the big legacy automakers are stepping up and treating EVs as core to their future and not just experiments. And many automakers have made commitments to stop producing internal combustion engine vehicles by 2035.

32:09In the US, GM has been rolling out EV versions of some of its most popular vehicles like the Chevy Silverado and Blazer, aiming to compete head-on with Tesla in the mass market. Ford has leaned heavily into F-150 Lightning and Mustang Mach-E, which are designed to appeal to long-time truck and performance car buyers, making the switch to electric. Hyundai and Kia have gained traction with sleek, tech-forward models that are gaining traction. While Tesla still dominates overall EV sales, these competitors are steadily chipping away at market share with broader lineups and aggressive pricing strategies.

32:45Back in 2020, Tesla held over 70 % market share for EVs in the US, and today that figure is closer to 40%. But I think the most important competitor to highlight is one that is not based in the US, and that is BYD. BYD has quickly become Tesla's biggest rival on the global stage, even overtaking Tesla in EV sales in late 2023. BYD is also a vertically integrated manufacturer as they produce their own batteries, chips, and many other components, which allows them to keep costs extremely low. One of the striking differences between BYD and Tesla is pricing. Your typical buyer of a Tesla vehicle in the US is paying around$50 ,000 to$70 ,000, depending on the vehicle they select and the add-ons they decide to pay up for.

33:30If someone is paying for a BYD vehicle in China, they tend to pay around$10 ,000 or potentially even less. However, upgraded versions may cost upwards of$20 ,000 to$35 ,000, but this is still significantly less than Tesla. In China, BYD dominates with both battery electric vehicles and plug-in hybrids, and their scale gives them cost advantages that are hard for Tesla to match. They've also been aggressively expanding into Europe, Latin America, and Southeast Asia, building factories in places like Hungary and Brazil to get closer to end markets. The US market is a different story though. Tariffs on Chinese-made EVs have kept BYD out of the US for now, and earlier this year, they even shelved plans for a Mexico factory that could have served as a backdoor into the American market.

34:21That means Tesla is relatively insulated from BYD and its home market, but everywhere else, the two are colliding head-on, metaphorically speaking. I think that BYD will make it difficult for Tesla to expand into new markets across the globe. BYD is pretty aggressive in their pricing strategies, so they're putting pressure on Tesla to keep innovating and lowering their input costs in order to protect margins and continue growing. One of the members of our mastermind community recently gave a presentation on BYD for the group, which is how I started to learn more about this company. When you look at the global landscape, China and the US are the biggest markets for auto sales, and BYD continues to gain share in the EV space in China.

35:03Around two-thirds of BYD's sales come from China, 16 % from Europe, and roughly 10 % from the US. Back in 2020, Tesla had more than double the auto revenue of BYD, and in 2024, BYD would end up surpassing Tesla in auto revenue. One of the questions that I had for our members during that presentation was about how China has banned many big tech players from operating in their country, companies or products such as Google, Facebook, Instagram, X, YouTube, etc. And I wondered why China has been so open about allowing Tesla to sell their vehicles in China. The member's theory was that EVs were really important to China, so they wanted to learn how Tesla was able to produce EVs at scale, so they allowed Tesla to produce and sell cars in China to help them pick up the best practices that Tesla was using to mass-produce electric vehicles.

35:55China did something very similar in allowing Apple to produce iPhones in China so their own industry could develop similar mobile phones. To round out this segment on competition, I wanted to share a clip of Elon on CNBC talking about how he doesn't really think about competition.

36:21I think in the EV race, I think it's fair to say, worldwide, correct? I don't really follow that. You don't? No. Well, they're willing, again, my question is, they're willing to seemingly offer different levels of autonomy for, I don't want to call it free, but part of the cost of the car. Do you see that as a possibility for you? Or is it always going to be that add-on and therefore that significant revenue stream conceivably? I don't really think about competitors. I just think about making the product as perfect as possible. You don't think about competitors at all? No, I just think about making…

36:54what we want to achieve is the platonic ideal of the perfect product. And as long as you focus on that, you will have a compelling product, obviously. Another challenge that Tesla faces is that the adoption of EVs in the US has decelerated for a number of reasons. One is the relatively higher cost of EVs. The US also has a limited charging infrastructure. it's just not as convenient to use an EV when you're traveling long distances and have limited options to charge your vehicle. One of the advantages that Tesla has in the US is their extensive charger network that they've built. Unlike other automakers, Tesla built out a nationwide supercharger system early, giving their drivers reliable access to fast charging.

37:38Now, with nearly every major EV brand adopting Tesla's charging standard, the network is set to become the default backbone of the EV infrastructure in the US. Before we get to some of Tesla's other segments that are even more forward-thinking and ambitious, I thought this would be a good time to discuss Tesla's Master Plan Part 4, which the company released in September of 2025. Tesla frames the next chapter of their story as a shift beyond just sustainability towards what they refer to as sustainable abundance, where constraints such as energy, labor, and resources are overcome through technological innovation.

38:16The central thesis is to merge Tesla's scale and manufacturing know-how with AI and automation to build new products and services that reshape labor, mobility, and energy. In Tesla's words, we are building the products and services that bring AI into the physical world. I think a lot of people tend to think of things as zero-sum oftentimes. In order for one company to win, another must lose, or vice versa. Tesla's vision is that growth can in fact be nearly infinite, and they reject this zero-sum view due to the abundance that technology and innovation can bring. For example, let's imagine a world where energy and labor costs are dramatically reduced and food becomes so cheap to produce that we can simply just pay a subscription to the grocery store and we can just walk in and take as much as we'd like off the shelves.

39:09This seems crazy and impossible, similar to how the idea of Netflix would have been deemed crazy and impossible in 1990 to someone that was told that we'd have nearly unlimited movie selection at a low fixed monthly price. One notable criticism of the Master Plan Part 4 is that it lacks the concrete roadmaps, production targets, and timelines that characterize Tesla's early master plans. So it reads more like a philosophical manifesto than an operational blueprint. There's also a noticeable tension with Tesla's past focus. While earlier master plans centered around specific vehicles, scaling EV production, and expanding their charging infrastructure, this latest plan shifts their attention towards AI, AI, robotics, and automation as the new frontiers of value creation.

39:57And given how much the market is currently rewarding anything tied to AI, some see this as a strategic move by Tesla to align its narrative with the dominant investor theme, so it's a way to ride the AI wave and help sustain its lofty valuation in some people's minds. In short, the Master Plan Part 4 highlights the shift in Tesla's focus from releasing new models of automobiles to being a leader in developing these broader transformations in how society operates and embedding AI into the physical world. All right, so jumping here to some of Tesla's other segments outside of EVs, let's move to the energy segment.

40:36In recent years, Tesla's energy generation and storage segment has also seen rapid growth. Since 2020, revenue for this segment has grown from$2 billion to nearly$10 billion last year, representing a 38 % compounded annual growth rate. Tesla's energy generation and storage division includes products like solar panels, the solar roof, and storage systems such as the Powerwall for homes, the PowerPack for businesses, and the massive MegaPack for utilities. This segment aligns with Tesla's mission, which is to accelerate the world's transition to sustainable energy by not only producing clean electricity, but also storing it efficiently for when the sun is not shining and the wind is not blowing.

41:19When it comes to renewable energy, one of the big challenges that businesses face is the storage cost. Batteries have historically been expensive, making it tough to scale, and batteries are an area where Tesla has been forced to innovate because one of the issues with some of the earlier models of vehicles was that they weren't able to get batteries on the vehicle that could store enough power for them to travel long distances. So Tesla took it upon themselves to invest heavily in vertical integration and designing their own battery cells to reduce the cost per kilowatt hour while increasing energy density.

41:55They've been able to produce batteries at scale through their dedicated factory in Lanthrop, California, and they have plans to expand production to China. The battery technology they've developed is just another example of Musk thinking outside the box and defying conventional wisdom. It reminds me a bit of the quote he shared, if conventional thinking makes your mission impossible, then unconventional thinking is necessary. Tesla's energy segment pairs well with the auto business because as batteries improve and manufacturing continues to scale, the costs to produce each vehicle will continue to decline.

42:28The energy segment's gross margins have been improving as of late and has surpassed that of the auto business in recent quarters. And Musk has hinted that the energy segment could one day rival the auto segment in terms of revenue. But the biggest Tesla bulls believe that the majority of the value in the future will come from optimists. Tesla's optimist is designed to perform tasks that humans generally don't want to do. Think about tasks that are unsafe, repetitive, or boring. I think if you ask most people, they would rather not do things like prepare meals, do the dishes, run your clothes through the laundry, clean your house, etc.

43:04I can't imagine how much time I would save in a year if I could remove the need for those tasks. And this is exactly the type of work that Optimus is built for. Let's take a quick break and hear from today's sponsors. Curious about online trading, but haven't taken the first step yet? You're not alone. And Plus 500 Futures is a great place to start. The futures markets are moving fast. And with Plus 500, you can explore popular assets like oil, gold, S &P 500, Bitcoin, and more. From crypto to commodities, there's always something happening. The platform is super easy to use so you can trade on the go right from your phone.

43:41You can get started with just$100 and jump into the action. See something interesting? Once your account is open, you can trade it in just a couple of clicks. And if you're not quite ready yet, you can practice with a free demo account. No risk, no pressure. With 20 years of experience, Plus500 makes trading more accessible than ever. Check it out at plus500.com. Trading and futures involves risks of loss and is not suitable for everyone. Not all applicants will qualify. Plus 500. It's trading with a plus. Let's say every day your business is late to AI. You fall two days behind. The competition is only moving faster.

44:19So how do you keep up? Fortunately, there's NetSuite next. You probably know NetSuite, the AI-powered business management suite that securely connects all of your data, financials, inventory, commerce, HR, and CRM in a single source of truth, trusted by over 43 ,000 customers. NetSuite Next is the next huge leap in how business gets done because AI is built into everything you do. It surfaces custom insights throughout your day. AI agents work alongside you to handle the routine work. And anytime you have a question about anything, Just ask, like you're talking to a colleague. I use this and you should too.

44:59For the first time ever, you can try NetSuite Next for free. If your revenues are at least in the seven figures, go to netsuite.ai slash tip. Built for every industry, ready for every boardroom. netsuite.ai slash tip. What's the one thing in business spreading as fast as AI? AI risk. Every new tool your team signs up for, every vendor that flips on AI features, every fresh integration, each one is another opening for something to go wrong. And most security problems simply weren't built for the pace AI is moving. Enter Vanta. Vanta is the number one agentic trust platform trusted by over 16 ,000 fast-moving companies, including Ramp, Cursor, and Harvey to stay audit ready.

45:48And now, Vanta is helping companies like yours catch the risks that show up between audits across your vendors, your AI tools, and your whole environment. How? The Vanta agent works like a 24-7 GRC engineer running in the background, finding issues, drafting fixes for you, and cutting vendor assessment time by up to 50%. Whether you're a fast-growing startup or a global enterprise, Vanta is here to help you automate your security and compliance and earn and prove trust. Get started today at vanta.com slash T-I-P. That's V-A-N-T-A dot com slash T-I-P. All right, back to the show. Optimus stands at about five feet, eight inches tall and weighs around 160 pounds, and it's built with Tesla's expertise in AI, robotics, and manufacturing.

46:42The robot is equipped with cameras, sensors, and Tesla's full self-driving computer for navigation and interaction with its environment. Elon has long been vocal about declining birth rates in developed countries, and optimists could serve to fill the gaps in labor shortages and help transform industries through automation. This year, Morgan Stanley published a report that forecasted the humanoid industry will produce 1 billion humanoid robots and$5 trillion in revenue by 2050. Now, of course, no one has a crystal ball, and reality will likely be much different than that, and even Morgan Stanley's estimates vary drastically from year to year.

47:22But it seems practical that a robot like Optimus could play a major role in society and drastically improve the quality of life for us all. It even seems a little bit scary to think about. If Tesla is able to be at the forefront of humanoid robotics, then this could be an absolutely massive opportunity for them to capitalize on. In fact, just a few weeks back, Elon posted on X that around 80 % of Tesla's value will be from Optimus. So of course, Elon sees the opportunity here. Most will be skeptical that so much value will come from a product that doesn't exist yet. But remember that there was a day when there were no coffee shops in most countries, and today we have Starbucks, which has a market value of$100 billion.

48:05And a couple of decades ago, people got by just fine with flip phones or no mobile phones at all. Then came along Apple and the iPhone in 2007, which seemed like a luxury gadget at the time. Today, Apple is worth over$2 trillion, and smartphones are practically an extension of ourselves. Truly innovative companies don't just create products, they create entire markets, and with that comes extraordinary shareholder value. Optimus has started to come into the after last year when Tesla hosted a Wee Robot event in October where Optimus was used to serve drinks, provide entertainment, and mingle with attendees.

48:44It was quite funny, and Musk was on stage talking about full self-driving, the robo-taxi, the robo-van, and then he went on to discuss Optimus. And then a handful of these Optimus robots came walking out. He then shared that he estimates that Optimus at full-scale production will cost less than half than a car, so around$20 ,000 to$30 ,000. Quoting Elon here, he stated, And what can it do? It'll basically do anything you want. It can be a teacher, babysit your kids, walk your dog, mow your lawn, get groceries, just be your friend, or serve drinks. Whatever you can think of, it will do. I think this will be the biggest product ever of any kind.

49:25Musk was also recently interviewed on CNBC where he discussed that he sees tens of billions of robots coming in our future and how he believes that it will be the biggest product ever. Demand will be insatiable and everyone is going to want one. But when it comes to humanoid robots, Tesla is not the only player in the game. Companies like Figure AI, Aptronic, and Agility Robotics are all building their own versions, with Figure raising big money and Agility already testing robots and warehouses. There are many similar firms in China as well. The real challenge for everyone is the same, making robotics reliable, affordable, and capable of doing more than just a controlled demo.

50:06Most competitors are starting with industrial settings like factories and logistics, since those environments are a little easier to manage than sending a robot into your own home. Tesla's edge will be its scale, its AI experience from self-driving, and its manufacturing know-how. But make no mistake, there is certainly a lot of competition in this space. So in my research for this episode, I came across a man by the name of CERN Basher. He works in the investment industry and has his own firm, and he puts out a lot of really interesting content on Tesla. And funny enough, my co-host Preston Pitch actually just released an episode with CERN that went out just a couple of weeks ago.

50:44Based on some of the videos I've seen, CERN is one of the biggest Tesla bulls out there. He believes that in the next three to five years, you're going to see a ton of developments from the robo-taxi segment. It reminds me that I was just in Big Sky, Montana for our TIP Summit event, and my colleagues Sean O'Malley and Daniel Malka did a stock pitch on Uber there. I really liked the presentation, but one of the concerns I had around Uber was around the terminal value of the business, given that Tesla is planning on this huge rollout of robo-taxis. If they're able to roll out millions of these autonomous robo-taxis over the next 10 years, have their own app that riders use, and undercut Uber's pricing, then I can't help but think that that will be hugely disruptive to Uber's mobility segment.

51:30In Cern's conversation with Preston, he even threw out the idea that eventually the cost of energy will be so low that people may be able to get rides for free and users will be served ads in the vehicle to help cover the cost. So it's similar to how we use Google, Facebook, Gmail, or even Spotify or YouTube today at no cost, assuming you're looking at the freemium model and you're being delivered ads. It's certainly an ambitious project, and we'll see if it comes to fruition in Tesla's future. Tesla has already announced that its first dedicated robo-taxi service has launched in Austin, Texas with pilot programs, and they're expected to expand into other US cities shortly after.

52:10I was seeing some snapshots of the early launch in Austin and how Tesla was offering rides to beta users at about one-fifth the price of an Uber. Of course, Tesla is very likely subsidizing these rides, but it's interesting to say the least, given Tesla's software capabilities with having an app, the brand awareness, and the full self-driving software. In Austin, Texas certainly makes sense as a starting point since Tesla has its gigafactory there, their headquarters is there, along with supportive local regulators and a tech-friendly population that's really open to trying new things. From there, the rollout's expected to spread into other metro areas like San Francisco, Miami, and possibly Phoenix, where autonomous vehicle testing is already more common.

52:53Regulations seem to be the biggest bottleneck for scaling autonomous vehicles. Relative to Waymo, Tesla seems to be in the earlier stages of getting through multiple levels of approval with regulators. Regulations evolve rapidly, they differ state by state, and often reset testing clocks after incidents occur, which creates a high level of financial and operational risk for AV companies. Waymo is also ahead of Tesla in its full self-driving capabilities. Waymo has already reached level 4 autonomy, meaning its robo-taxis can operate without a driver in certain geofenced areas. By contrast, Tesla's system is still considered level 2 +, requiring the driver to stay attentive and ready to take control at all times.

53:38Tesla has the advantage of scale and a massive driving dataset, but for now, Waymo is the one actually running cars with no one behind the wheel. The potential of the robotaxi segment overall is shaping up to be massive. ARK Invest, for example, has published research that estimates the global robotaxi opportunity could be worth trillions of dollars by the 2030s. The economics are compelling because once the cars are driving themselves, the cost per mile drops dramatically. Tesla believes that with its vertically integrated approach, it can achieve a level of scale and profitability that companies like Uber and Lyft simply cannot match.

54:15But the large scale is essential. They need to be producing billions of robo-taxis to hit their$25 ,000 price target per vehicle and still turn a profit on each sale. Of course, this is still a huge if. Regulators need to sign off, and Tesla still has to prove its full self-driving system can truly handle city driving with the level of safety required for commercial robotaxis. Companies like Waymo and Cruise have made early progress with robotaxis in cities like San Francisco and Phoenix, so the competitive landscape is already forming. But if Tesla pulls this off, it could be one of the most disruptive shifts in transportation we've ever seen.

54:56Imagine fleets of Teslas driving around 24-7, picking up passengers, lowering the cost of urban mobility, and creating a brand new recurring revenue stream for the company. For Tesla shareholders, the RoboTaxi vision is one of the biggest potential value drivers, and it's easy to see why so many bulls like CERN, for example, get so excited about it. There are plenty of scenarios where AV transition could play out well for Uber, though. The bull case I could foresee in mobility with Uber is that Tesla isn't able to capture a large share of the market, and Uber benefits from being the platform that sits in the middle of this fragmented market of several different players.

55:36So even if Tesla captures, say, 10 % of the mobility market, much of the rest still lies in the hands of Uber and Lyft, with Uber capturing a lion's share of the profits. Now let's talk a bit about the bear case for Tesla, since a lot of this episode has focused on what can go right for the company. In my view, the bear case for the company centers around two broad and key themes. First, the company falls short of the ambitious goals that is set for the coming decade. And second, even if the company continues to achieve remarkable things, investors may end up overpaying for their shares. And as a result, despite the company's success, those investors could still earn disappointing returns.

56:15Bulls typically believe that Tesla can do no wrong and the best time to buy Tesla shares is today. Bears typically believe that Tesla is a borderline fraudulent company and the best time to buy shares is never. But the truth tends to lie somewhere in the middle. I think that Tesla is a classic case study of some investors bringing emotions into their opinion of a company. A lot of people either love or hate statements that Musk has made on a wide variety of topics, and they can carry that baggage into their view of the company. In some ways, this can be useful since Tesla's brand is heavily reliant on Musk and his actions.

56:52But on the other hand, carrying this baggage into our opinion of the company can be misleading. Our show recently featured prominent short seller Jim Chanos, who has been a long-time Tesla bear. One of Chanos' criticisms of Tesla is that the core car-making business is structurally unprofitable, and much of the reported profitability has come from regulatory credits sold to other carmakers. So the carmakers that sell the gas-powered vehicles end up buying regulatory credits from Tesla because they exceed the emissions rules in their local jurisdiction. So if we look at the most recent year, 2024, Tesla reported$2.7 billion in regulatory credit revenue, and the net income they reported was$7 billion.

57:34So while Chanos' comments may have applied in the past, they don't seem to necessarily apply today, and they have other business segments that are rapidly growing, which helps diversify their revenue streams. Also, Tesla bears have tried to compare Tesla's valuation to that of other car makers. I personally think this is a ridiculous way of valuing the company because there's certainly a non-zero chance that Tesla will be able to unlock value from the other segments outside of just selling cars. If Musk can send rockets into space and land them back on Earth, then I wouldn't rule out the possibility of him mass-producing robotaxis or being successful with Optimus.

58:12One concern I do think is valid is increased competition. Although Tesla had a first mover advantage in the EV space, that moat may be narrowing. Legacy carmakers have massive global scale distribution networks and established supply chains. The question is, can their costs compete with Tesla. On the one hand, these legacy businesses also have manufacturing know-how, but is Tesla able to bring enough automation into their process to gain a real cost advantage? This is one area I think Tesla is lacking when compared to a company like BYD, which is able to sell their EVs at a much cheaper price.

58:51Although some consumers in the US will be loyal to the Tesla brand, it seems that the EV space overall is becoming more and more commoditized as more and more players enter the market and center their strategy around EVs. I think bulls initially sort of had this optimistic view that Tesla will dominate EVs. They'll be the main player. Everyone's going to want an EV. They'll roll out these affordable cars and capture more than 50 % market share. But reality today is really nowhere near that. In 2024, there were just shy of 16 million cars sold here in the United States. And based on the numbers I'm seeing, Tesla vehicle sales accounted for just 4 % of that volume.

59:32Additionally, their share in the EV space specifically has declined in each of the past five years. Truth be told that the auto business is just a ruthless industry with low margins and high cyclicality. The last point on the bear case here I'll mention is related to Elon Musk's style of governance. Let's take the example of full self-driving. Back in 2015, Musk stated in an interview, will have complete autonomy in about two years. In 2016, he said, a Tesla will be able to drive from LA to New York without the need for a single touch by the end of 2017. In 2017, Musk said that within about two years, Tesla owners would be able to fall asleep in their cars and wake up at their destination.

1:00:18At Tesla's 2019 Autonomy Day, Musk declared that Tesla would have over 1 million robo-taxis on the road by 2020. So essentially, over an extended time period, he has said that FSD was one to two years away. My point isn't whether Tesla does or doesn't have full self-driving capabilities. That to me is just inevitable and it's going to be coming to the roads. My point is that given Musk's track record of making predictions, how can we put any weight on anything he says about the future from here? I would personally rather have a CEO who under-promises and over-delivers rather than the other way around.

1:00:57I think it would be safe to take anything that Musk says with a grain of salt because he has this incentive to get investors excited and keep the stock price propped up with lofty expectations about the future. I don't know whether Tesla will be a massive success or a total flop, but when I think of Tesla, I think about the concept of the capacity to suffer. The best businesses are able to have the capacity to suffer and simply do things that no one else is willing to do. I think about two companies that embody this concept really well, Tesla and NVIDIA. NVIDIA's founder Jensen Wong has said, greatness comes from character and character is not formed out of smart people.

1:01:37It's formed out of people who suffered. If you read that Walter Isaacson biography on Musk, you know that Elon has gone through just so much pain in trying to make Tesla and SpaceX successful. In many ways, Musk is essentially wired to seek out pain and hardship. Whenever he gets comfortable, he always takes on a new and ambitious project. In other words, he always takes on more pain. Back during the great financial crisis, Tesla wasn't producing the roadster profitably, and raising new money at this time was incredibly difficult. So Musk went through what he referred to as manufacturing hell in order to figure out how to bring down costs enough to turn a profit on these vehicles.

1:02:18He eventually went into just desperation mode, asking friends, family, and Tesla employees for money to keep the company afloat. Musk stated at the time, I was working every day, all night, all day, in a situation that required me to pull a rabbit out of the hat, now do it again, now do it again, end quote. So I think there's something to be said about having that capacity to suffer and being willing to do what no one else will do. When I look at Tesla's valuation, I very much still see this as somewhat of a story stock. The company has to achieve significant feats in the future to justify today's valuation of around$1.4 trillion or$440 per share.

1:03:00When I look at their price of sales metric, for example, we're sitting at around 15 today. Over the past five years, this has gone as high as 27 and as low as four. And with the stock performing quite well over the past year or so, it seems that Tesla has been riding the AI wave and how AI stocks have benefited from it being a hot sector to invest in. Tesla is probably one of the most unpredictable businesses out there when we're looking out over a 10-year timeframe. And this makes it extremely difficult to model out sales, model out profits over the next decade, and just so difficult to pinpoint an accurate intrinsic value.

1:03:37Just the range of outcomes is just so wide. With that said, I could see this potentially being a worthwhile investment, especially if you're able to get it during the market dislocations, as this is a very volatile stock. Back in January of 2023, the stock was down over 70 % from its high. And just in April of this year, 2025, the stock was down nearly 50 % from its high. Perhaps the auto business and energy business alone will be able to justify today's valuation with a significant increase in sales and profits over the next decade, but the real money is likely to be made in their optionality.

1:04:12Ideally, during these market dislocations, you're able to purchase the core businesses at a fair price, and you still get the optionality of Optimus, Robotaxis, and their other potential segments for free. With all that said, few businesses in history have pushed the boundaries of technology in manufacturing quite like Tesla. Through relentless innovation and a willingness to take on impossible challenges, Elon Musk has proven himself to be a truly generational CEO, one who redefines entire industries rather than merely competing within them. While the road ahead will surely have bumps, Tesla's story reminds us that extraordinary results often come from those willing to think unconventionally and continue to push the limits of their capacity to suffer.

1:05:00One of my favorite things that my colleagues Sean and Daniel do over at the Intrinsic Value Podcast is close out each episode with a quote. And I thought there was no better way to close out this episode than with a few quotes from Elon Musk. The first one is related to investing. It's okay to have your eggs in one basket, as long as you control what happens to that basket. The second one is about being an entrepreneur. Being an entrepreneur is like eating glass and staring into the abyss of death. And finally, the last one is about life. When something is important enough, you do it even if the odds are not in your favor.

1:05:36The last thing I'll say about Tesla is that it feels like with Tesla's early pursuit of EVs, the whole world was waiting for them to fail. Everyone was skeptical of them being able to turn profitable. Short sellers tried to burn their brand and reputation to the ground, and legacy car manufacturers sat on the sidelines as Tesla built innovative new models. Now today, Tesla is pursuing massive opportunities in energy, robo-taxis, and optimists, and it still feels like many are waiting for them to fail in these pursuits. As I mentioned at the top of the episode, Munger shared to never underestimate the man who overestimates himself.

1:06:16With that, I think we'll close out the episode on that note. Thank you for tuning in to today's episode on Tesla. If you're a Tesla bull or bear, or just have some interesting research or information about the company, feel free to shoot me a note on LinkedIn or email me at clayattheinvestorspodcast.com. I'd love to hear from you and learn more about this fascinating company. With that, thanks again for tuning in, and I hope to see you again next week. Thank you for listening to TIP. Make sure to follow We Study Billionaires on your favorite podcast app and never miss out on episodes. To access our show notes, transcripts or courses, go to theinvestorspodcast.com.

1:06:58This show is for entertainment purposes only before making any decision, consult a professional. This show is copyrighted by the Investors Podcast Network. Written permission must be granted before syndication or rebroadcasting.