“You guys taking it all in? Because this is what it looks like when Google acquires your company for over $200 million. Look Dustin Moskovitz. Elon Musk. Eric Schmidt. . . . I mean, Kid Rock is the poorest person here. Apart from you guys.” – Silicon Valley
The earliest prototypes for the Tesla® cars were actually called Newton™, and depended only on gravity!
Elon Musk has a plan. Honestly, I think it might work, and I heartily endorse it. But you will have to wait until Monday and I’ll share what Elon’s plan really is. But the good news? This post and the next two will be ELON MUSK week. It’s like Shark Week® on Discovery™, but for real nerds. This is part one. Part two is here (LINK) and part three is here (LINK).
You might have heard that that Musk made international headlines for . . . delivering thirty cars. That’s amazing! He brings out $1.5 million worth of merch, and the world collapses toward him like puppies on a dead wildebeest. I assume puppies eat wildebeest. Anyway . . .
In my hometown, they probably sold that many vehicles last week. You can’t keep a car salesman in cologne with much less than that. But did the tech journalists hover around Big Mack while he sold Farmer Brown a ¾ Ton Chevy®? Nope.
Elon Musk has a vision, and a talent for sharing it. He was the kid in class that could convince the teacher that, sure, it was an awesome fall day out in Pretoria, so they should hold class outsides.
Great idea, Elon! (In actuality, it sounds like his childhood was much more like a version of Terminator® when it came to the other kids, but I can totally identify with that, too. Maybe another post. Nah.)
But Elon moved ahead. Eventually, after making several hundred million dollars before he was old enough to grow a decent beard, Elon got involved with Tesla®. (This is after he got involved with SpaceX, which will be important Monday.) At the end of 2016, Tesla had sold 182,115 cars.
This is the total. For all time.
Musk indicates that he will ramp Model 3 production up to 500,000 . . . a year. Let’s say that he can ramp it up (normally he does meet goals, sometimes late) and produce that for 10 years. That’s five million cars.
Currently, Tesla® is worth $53.7 billion. Dollars. That total comes from the total number of shares of Tesla™ divided by the current share price. So, just for grins, let’s divide that $53.7billion by the five million cars he plans to produce.
That’s $10,740 per car. In the next ten years. Certainly he could produce more, but he’s not even produced his stated goal of 500,000 per year yet.
Ford® made 6.6 million cars. Last year. Assume ten years of steady production? 66 million cars. Ford™ is worth $44.3 billion dollars (and actually makes a profit). Divide $44.3 billion dollars by 66 million cars? That $671 per car.
Okayyyyy . . . is Tesla worth fifteen times what Ford® is worth?
What about Daimler A.G.? They make Mercedes-Benz©, which are awesome cars. Things the Germans build well? Tanks and cars. Thankfully they’re building cars now. Daimler makes only about 3 million cars a year. (But, they’re AWESOME cars.) So, 30 million cars in ten years. They are worth about $74.5 billion dollars, or $2500 in stock per car. But, Daimler pays a dividend of 5% per year, too. And it makes a profit.
But the post is titled, “Will you buy a Tesla™ 3? You already have.” not, “Is Tesla® stock stupidly overpriced?”
Cars (for me) are (mostly) a utility. If I can get from one place to another reliably and cheaply, that’s really all I want out of a car. I think that carpet in any pickup is a travesty. And air conditioning? That’s not for closers. And I have skin in the game (I’m talking to you, Taleb (LINK )) as this is the way I live my life. Old car. New car. Clown car. Really doesn’t much matter to me (LINK).
But a Tesla 3© is not low cost.
Musk claims that about half the country could afford one, and I’d argue that he’s very pretty far off the mark on this one. I still suggest that spending you shouldn’t buy a car that costs more than 15% of your gross income. If you follow this rule, you can afford a Tesla 3®, if your income is $230,000 a year. Or more. If we relax that to 20%? You can get one if you make $175,000 a year (or more).
So, there is some subset of people who can afford a Tesla 3©. Just not all that many, since the average family income in the US is about $52,000. (And, remember, cash only!)
Furthermore, the average age of people in the US is 37.8 years. The average net worth of the average forty-year-old is $52,000. There is no planet (except Mars?) on which I’d suggest you sink 70%+ of your net worth into a car.
But, let’s say you could afford a Tesla 3®. Should you get one? Maybe???
The Tesla 3™ is a sedan. The Toyota Camry© is a sedan.
The Tesla 3™ costs $35,000. The Toyota Camry© costs $23,000. (Both are base models.)
At $0.14/kW, a Tesla 3® costs (in energy) $0.034 per mile.
At $2.50/gallon gasoline, a 30MPG Camry© costs $0.083 per mile.
So, a nickel a mile is what you save by driving a Tesla 3©.
Good deal. The average driver drives 12,000 miles per year. So, the $12,000 difference in cost between the Tesla and the Toyota? Yeah, you’ll earn that back in 20 years after driving 240,000 miles. If you still have the Tesla after 20 years. Everyone keeps a car 20 years, right?
That’s a lame payout, $600 per year on $12,000. But on that 21st year? That $600 is all yours, baby!
What about $4.00 gas? Pays out in about 10 years. $7.00 gas? Five years. Now we’re talking! Gas has been at that price . . . never.
But Elon isn’t stupid.
And you’ve already bought one of his cars.
I know, you’re saying, “John Wilder, I’m not an Internet billionaire! How can I afford one?”
You paid taxes.
And if you buy a Tesla 3®? You get a $7,500 tax incentive. From the federal government – that, after a fashion, everyone else pays for. So if you didn’t buy one? You still kick in for everyone else’s car.
State level incentives exist as well, from $0 (sane states), up to a whopping $9,500 income tax credit in Louisiana.
If you live in the right state, a Tesla 3® actually costs less than a Camry™, thanks to everyone else kicking in for your car.
But not really. In theory, Musk actually has to produce your car. And if you’re over a pre-determined maximum number of cars (200,000), the credit drops, then, eventually disappears. But I’m betting that Musk has another plan altogether, and, in some fashion, he’ll continue shifting the cost of the Tesla 3® to other people, so it might be a good deal for the purchasers.
But, like I said, you already bought one.
It’s just that someone else is owns it.
Like I said – Musk has a plan. Come back on Monday and I’ll clue you in as to what it is.
PLEASE do NOT take this blog as tax advice. I am not a registered phlebotomist, or whatever the person is who does taxes. Entering this record into court might be amusing, but it certainly won’t help you, unless you want to go to prison for tax evasion.
Also, I do NOT have positions in any of the stocks mentioned, nor do I intend to take any, because the market can stay stupid longer than I can stay solvent. I am not a financial planner. But I am a dancer!