Trillion dollar Tesla

Hark, all ye who pay attention to the stock market, for Elon Musk's wheels-focused company broached the $1 trillion market cap threshold today. Yeah, it finally happened, so the Equity team quickly scrambled for the microphones. Chris put together the show, allowing Alex and Kirsten to dive into the matter. Kirsten, in case you aren't familiar with her, is TechCrunch's transportation editor -- her crew handles everything that moves under its own power for the team. She's tremendous. Aside from the obvious market cap point, we got into: What news drove Tesla higher today, leading to its new valuation record? How is Tesla's overall financial performance looking? Has the model mix at the company changed over time? And, because Alex was curious, why Telsa cars all look the same when will the Cybertruck will come to market? In short, it was a very fun Twitter shot. Cheers, and Equity is back Wednesday with our regular programming. Credits: Equity is produced by Theresa Loconsolo with editing by Kell. Bryce Durbin is our Illustrator. We'd also like to thank the audience development team and Henry Pickavet, who manages TechCrunch audio products. Learn more about your ad choices. Visit megaphone.fm/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:09Speaker 00

  Hello and welcome back to Equity. My name is Alex. This is an Equity shot because something has happened in the world of technology that we cannot shut up about. And so to help us understand what is going on with Tesla today, I brought along TechCrunch's Transportation Editor, Fine Human, and General Bon vivant, if I may, Kirsten Korzak. Hey, how's it going?

• 0:29Kirsten Korosec?

  Hey, Alex. I'm doing great. Excited to talk trillion dollar Tesla today.

• 0:34Speaker 00

  Yeah, it's very impressive. So if you go back in time to understand exactly how Tesla pulled this off, as recently as like the late 2019 era, Tesla was worth like $66 a share. Now it's worth 994, which is a simply insane amount of value appreciation. So Kirsten, here's the thing that I think people need to better understand. Tesla went for being a company that was consuming lots of cash, raising money off the private markets, and it became a company that generates cash and seems to be, based on its last earnings report, relatively stable. So what changed at Tesla operationally in the last couple of years that has really kind of revolutionized its operations?

• 1:11Kirsten Korosec?

  Well, that's a mixed one because that's why Tesla is such an interesting company because in many ways, it has been incredibly successful in terms of scaling. There are also sort of some mixed problems over there as well. So on the manufacturing front, to me, what's amazing about this company is that it's has survived. Yes, it is a tech-centric vehicle that puts software at the center and it is a vehicle that people covet. And Elon Musk is, you know, the centerpiece of that. But really, I think it's that the company has not been very risk averse. It has really gone swinging out and taken some giant risks when other automakers probably wouldn't. And that has helped them and that

• 1:54Kirsten Korosec?

  has hurt them. And that's what has, you know, created such volatility in the stock. Also, Elon Musk's Twitter habit has also made the stock relatively volatile. But really, in the last couple of years, they have figured out how to make a lot of EVs and improve the quality. Fit and finish has long been an issue with Tesla vehicles, but it has greatly improved from the early days. And so now they have a factory in China. They have the Fremont factory in California. They are almost finished with the Berlin factory and they are building Austin factory. And of course they have the Giga factory, which is a joint venture with Panasonic. So really it comes down to volume and their ability.

• 2:39Kirsten Korosec?

  So and and demand, demand is just there for for Tesla.

• 2:43Speaker 00

  So on the, on the demand front, a couple of things came out today that have helped juice Tesla's value in this particular trading session. There was a note from Hertz, which is a car rental company that I thought died, but apparently has not died.

• 2:56Kirsten Korosec?

  Well, Hertz emerged from bankruptcy in June and was really kind of crushed from the pandemic. It was a asset, it's an asset heavy business, right? And suddenly no one was renting vehicles and was holding on to all of these cars. And it really suffered, went into bankruptcy, emerged and today announced that they are going to buy 100,000 Tesla EVs through the end of next year.

• 3:20Speaker 00

  Oh, wow.

• 3:21Kirsten Korosec?

  The first of which are going to be coming and available to customers in November. They're also going to be investing in some charging infrastructure. What I thought was really interesting and no one, I don't know if too many people have picked up on it because the 100,000 EV thing is such big news, but they're also going to have, anyone who rents a Tesla from Hertz will also have access to the Tesla Supercharger network, which is going to put, in my view, is going to put pressure in certain markets like Southern California, some places in Northern California and other areas in the country, really under pressure because there are already weights of those superchargers. So it'll be curious to see if there's, I mean, this is, I'm wondering how that's going to all evolve.

• 4:05Kirsten Korosec?

  Like, is there going to be sort of rental customer versus owner stink eye happening at, at the supercharger stations?

• 4:14Speaker 00

  Yes, there's definitely, that's going to happen for sure.

• 4:17Kirsten Korosec?

  But the big news and the reason why shares are going up is because of that number 100,000 EVs. That would represent about 20% of Hertz's global portfolio. So significant. And Bloomberg citing some unnamed sources put that worth about 4.2 billion in revenue.

• 4:35Speaker 00

  That's quite a lot of money. And then on the sales front, there was another news item about Europe, Model 3 market share.

• 4:41Kirsten Korosec?

  The report that came out from another sort of a research note from Jado Dynamics determined that the Tesla Model 3 was the top selling vehicle in Europe last month. This makes it the first time a full electric car has outsold rival models that are combustion engine models. So that's, you know, quite the milestone and just is indicative of the demand for Tesla vehicles. I mean, when people say they're going to go buy an EV, you ask and pretty much say Tesla. Now that is

• 5:13Speaker 00

  It's going to change.

• 5:14Kirsten Korosec?

  and likely to change. But, but as much as we might say it's going to change or there's going to be a Tesla killer out there, like it has just hasn't really happened. It is absolutely motivated though, the market, meaning other automakers to, to jump in on this. And then we'll see. A lot of these manufacturers like companies like GM and Ford and VW, they do know how to make cars at volume and at scale. So we'll see if they're able to have their vehicles will have the same cachet as a Tesla.

• 5:45Speaker 00

  Yeah, I wanted to talk about the Model 3 number because it's brought up a subject that I'm very curious about. And I just realized in our notes, I wrote Model S to Model 3 mix shit. I meant mix shift. I just noticed that typo. So sorry about that. But there has been a real handoff between the Model S, which has been around longer than the Model 3 at Tesla. And now Model 3s make up a huge, you know, kind of majority of Tesla unit volume. Has that like, has the Model 3 cannibalized Model S revenues? Or is it just kind of popular because it's cheaper and essentially as good as a Model S?

• 6:16Kirsten Korosec?

  Well, the Model S, if you speak to some of the, you know, earliest Tesla employees, people who worked on the Model S, I mean, the Model S was never meant to be Like a volume production vehicle to the, to what it became. Originally, it was going to exist and then lead to cheaper models, but not necessarily hang around. And it has hung around. It has been updated recently. The 2021 model year is significant refresh. Model X is getting the same. But if you look at the breakdown of production and delivery numbers, Model Y and Model 3 encompass 95% of, of that figure. So it's completely taken over from the X and the S.

• 6:59Kirsten Korosec?

  And that's what's really interesting to me in terms of their profit is that they're able to profit in spite of selling a cheaper vehicle.

• 7:06Speaker 00

  And to put that in kind of numerical terms for everybody, if you look at Q3 deliveries for Tesla, there were 232,102 Model 3 and Model Y vehicles. And there were 9,289 delivered Model S and Model X. So really a mix shift towards the cheaper vehicles. But at the same time, Kirsten, Tesla just put up a record automotive gross margin number. So they've actually managed to sell lower cost vehicles while boosting their overall economics, which I found to be incredibly impressive when I was reading the last earnings report. I mean, it speaks to operational, I hate to say it, but excellence, I think.

• 7:41Kirsten Korosec?

  Right, which is kind of fascinating again, because they have been criticized in the past. There were at least a few eyebrows raised because of some of their manufacturing tactics, specifically in Fremont, where they were building vehicles in a tent, for example. And the thing is, is that Tesla should be credited for very quickly prototyping. They're very good at prototyping and zigging when they need to zag and, you know, adjusting quickly. But that oftentimes led to, let's say, quality issues. It seems like they've managed to figure out much of that. And it also helps that they are now, of course, making vehicles in China as well.

• 8:21Kirsten Korosec?

  And soon in Europe and that, that, that operational efficiency and all the mistakes that they made in the past. Hopefully are corrected. On the other end, there still is major issues on the service side. There are absolutely problems with getting service quickly. That is a problem. And the more you scale, those problems will be, you know, will be compounded until you deal with that.

• 8:44Speaker 00

  It sounds like Tesla is a little bit over its skis then when it comes to supercharger station density in certain markets where it's popular and also service capacity. Are they scaling those up kind of in a common sort of fashion?

• 8:56Kirsten Korosec?

  Definitely on the supercharger side of things. I believe that they're at about 3,000 superchargers. If you have that in front of you, you can, you can tell me if I'm correct on that.

• 9:06Speaker 00

  3,254 supercharging stations, up 49% year over year.

• 9:11Kirsten Korosec?

  And there is, there are plans and they continue to build those out. Like one of the biggest supercharger stations you should check out if you're ever in California, I believe is the Kettelman one. And that one has expanded exponentially. It's massive facility. If you've ever gone and hung out and waited for your Tesla to, to charge, which I have. And I should say, I don't own a Tesla, but I test them all the time. So there is that happening. They have indicated that there is work to be done on service and they're scaling that up. It just is not as obvious to me. And they're anecdotal. I hear reports, tips all the time of like problems with service, depending on the market and the timing.

• 9:46Speaker 00

  So to summarize for everybody, Tesla, good news today, pushed the stock to a new high, hit the $1 trillion market cap. But essentially what matters is there's been a long history leading up to this point to allow them that kind of capacity and ability to deliver cars at that volume. And this leads us to the most important question regarding Tesla, which is why are they so ugly?

• 10:03Kirsten Korosec?

  I think in the notes I said, in your opinion, Alex.

• 10:07Speaker 00

  But my opinion is correct. So I want to know why.

• 10:12Kirsten Korosec?

  Well, what, what, what is so offensive to you?

• 10:15Speaker 00

  They look the same. Like I feel like the Model S came out and then they just threw away their pencils and they made the Model S, which is kind of like the Model 3. And the Model Y, they just stretched it a little bit from top to bottom. So it's slightly fatter. Like, I mean, and the Model X is just a very stretched Model S. Like, why don't they come up with a new design?

• 10:32Kirsten Korosec?

  Well, I don't know. That'd be a question for them. Although I will say that if you want to really push the range, you can do that in a number of ways. One is by just putting increasingly large battery pack size in, or thinking about things like coefficient drag and light weighting your vehicles. And so certain designs just tend to be more efficient, you know, on the battery efficiency side, or at least allowing for that longer range. But also, they've also had the same designer over at Tesla for a long time. I'm not a huge fan of the Model X, I'll be honest. I just have never really loved the design. The Model Y, you're correct, is very similar to the Model 3. It shares a lot of the same parts, which is probably

• 11:17Kirsten Korosec?

  why they're able to push that automotive gross margins up. But I would argue that the S does look considerably different from the 3.

• 11:25Speaker 00

  Well, maybe I should do a side by side. But whenever I see them in the wild, I'm like, ah, it's an S3. I see. Yes, it's one of those again. One of those generic cars have been seen since 2012. Just looking ahead though, Kirsten, one last question for you. It's about the Cybertruck, which was announced, and then I feel like it's just disappeared. Is that actually coming? Or is that turned into kind of like, just kind of like a brag that never turned into reality?

• 11:45Kirsten Korosec?

  I mean, I'm not going to say it's never going to happen. But I was at the Tesla event in which they unveiled the Tesla Semi, and that was 2017. And that hasn't happened yet either. So I would say...

• 11:58Speaker 00

  Do you want to hold my breath?

• 12:00Kirsten Korosec?

  Yeah, I was thinking of another way to say that. But yeah, I mean, I'm sure it will eventually happen. But if the priority, if they're making money now, right, and they're scaling up, and they have a number of factory projects underway, we haven't talked at all about the full self-driving beta software, which, to be clear to the audience, is the enhanced feature, or the $10,000 feature that's added on to the autopilot, which is the advanced driver assistance system. This is not a self-driving car. You can argue all day long about that, but it is not. A driver has to still be able to pay attention and gain control. And that is the dividing line between what is self-driving and what is not. We haven't talked at all about that and what that... Might mean for the future of the company.

• 12:42Kirsten Korosec?

  My view has always been that it is the most promised, but also the biggest risk to the company. And I think shareholders right now are very aggressively protective of it. But I'm waiting for something that used to happen and was happening around early 2000s with energy and oil and gas companies, which was, and I covered energy for a long time, which was that suddenly shareholders kind of started turning on companies like Chevron and Exxon because they saw climate change as a financial risk to the company.

• 13:13Speaker 00

  Yeah.

• 13:14Kirsten Korosec?

  I'm waiting for that same thing to happen with shareholders, where they see full self-driving, or specifically how it's being rolled out, as potentially being a financial risk for the company because of regulators, which are already increasing their scrutiny, really start to lock it down. It puts Tesla at risk. It also puts other automakers at risk too, because right now, most of these are guidelines. These are voluntary guidelines in the industry. So here we are. And I'm really curious in the next year or two, how this all falls together in terms of FSD.

• 13:51Speaker 00

  We'll leave it to Tesla to finally get to the point in which it seems economically and commercially viable for the long term, only to introduce another enormous question mark over its head, demanding our attention for the coming couple of years. Kirsten, we've got to leave it there, but I really appreciate your time. And congrats on building a really great transport team at TC. I read tons of your group's coverage and they're fantastic. So thank you for that. And ladies and gentlemen, Equity is back Wednesday. We'll see you then. Bye.