Tesla in India? Not a Chance
Tesla in India? Not a Chance
And listen to what Cathie Wood of ARK Investments had to say about TSLA and ride sharing.
By JIM COLLINS Feb 18, 2021 | 10:00 AM EST
Stocks quotes in this article: TSLA, ARKK, UBER, LYFT, TTM
There it is! That's it! Every day, I keep telling myself, OK, that's it, we have hit Peak Stupidity in these markets, and we will now revert to thoughtful, real analysis and independent valuation of independent companies. Never happens.
In the past 24 hours I have been confronted with two prime examples of Peak Stupidity regarding... what else?... Tesla (TSLA) . This company is followed by people the likes of which I have never seen. This confederacy is aided and abetted by the financial media. So, TSLA has a few bad trading days in a row, and as Paul Westerberg sang for the Replacements, "here come the regulars."
First, I was astounded to read this piece in Business Insider featuring quotes from Dan Ives, whose firm I have never heard of, but is a regular guest on CNBC. According to Ives:
Wedbush analyst Daniel Ives says India represents a key strategic market for Tesla and could account for 5%-plus of its global sales by 2026. Ives admits there are "a number of logistical and ramp-up issues." EVs represent less than 1% of vehicles in India. Also, EV technology and infrastructure are emergent at best.
Still, Ives said in a recent note to clients that India "has significant pent-up demand for EVs and represents a major potential growth area for Tesla over the coming years." He added that "showrooms, supercharger networks, and other build-outs (R&D centers) (are) expected over the next 18 to 24 months."
Are you kidding me? India? Here I will drop some knowledge on RM's readers:
India is a poor country. According to the World Bank, India's income per capita was $6,920 for the year 2019, and India ranked #142 on the list of GDP per capita by country.
India has a VERY small market for cars compared to its population, as most vehicle sales there (about 80% of the total) are two-and three-wheelers. India's total car sales will come in under 3 million for FY2021 (April) after hitting 3.3 million in FY2020.
The top-selling EV model in India is (as self-proclaimed by Tata (TTM) ) the Tata Nexon EV, which sold all of 2,200 units in the past year.
There is virtually no Indian EV market today. The Tata Nexon EV is, at least based on the pictures on the Internet, as poorly constructed an auto I have seen in 30 years of following the industry. Also, as mentioned, India lacks charging infrastructure.
India will not have a robust EV market in this decade. Anyone buying a stock in the hopes that it will is completely delusional.
Which brings me to my second moment of Peak Stupidity, in this case, major Tesla shareholder Cathie Wood of ARK Investments (ARKK) . Wood's firm has grown to, reportedly, above $50 billion in assets by riding the wave of investing in disruptive companies. TSLA is the largest holding of ARK's Innovation ETF.
So, jaw-droppingly, Wood went on TV to proclaim:
"Our confidence in Tesla has grown as we've done research on what ride sharing potentially could add. It could limit the risks significantly, it's a much more profitable business than electric vehicles..."
Are you freaking serious? Tesla's revenue per unit, adjusted for models that are leased, is in the neighborhood of $50,000. And now we are supposed to buy the stock because someone is going to spend $50k to use his Model 3 --which is still only performing to Level 2 autonomous driving on the SAE's five-level autonomy scale -- as a taxi? In Mumbai, maybe?
Again, this is an example of such shoddy analysis that it makes me cringe. Is ride-sharing really more profitable than making EVs? In the fourth quarter Uber (UBER) reported:
Mobility Adjusted EBITDA margin reached 4.3% of Gross Bookings, compared to 4.1% in Q3 2020 and 5.5% in Q4 2019.
That is a tiny EBITDA margin and is also an aggressively-accounted figure, as it excluded $644 million of quarterly expenses that Uber classified as Corporate (and therefore were not allocated to the Mobility division) but let's just take it at face value as seemingly all Silicon Valley analysts do with all financial numbers.
Tesla's reported Adjusted EBITDA Margin in 4Q was 17.2%, but that was after two consecutive quarters above 20%. That figure adds results from solar and energy storage to dilute the results from auto, while including corporate costs and revenues from sales of ZEV credits to other automakers while excluding stock-based compensation.
It is not just Uber, Lyft's (LYFT) Adjusted EBITDA was negative for 4Q2020. So, is a ride-sharing business REALLY more profitable than an EV-manufacturing business?
Bottom line: India is going to become the world's EV capital and a business that posts a 4.1% margin is more profitable than one that posts an 17.2%. Tell us more, Oracles of Investing Knowledge! As John Lennon said: turn off your mind, relax and float downstream. Start by turning off the financial news....and stop listening to people who spout nonsense.
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