I was emailing a friend over the weekend about TSLA and how to play the EV revolution that’s now underway.
My worry about TSLA is that it does basically no advertising now, while it has the EV field in the US more or less to itself. GM spends 2.5% of sales on advertising in the US vs. 0.12% for TSLA. If TSLA had to begin spending on advertising at the same rate as GM, its operating margin would drop from 17% to 14.5%. That’s a contraction of about 15%.
(I decided to get the relevant figures from ChatGPT instead of gong to the SEC EDGAR site and look at TSLA’s financial filings. I figured AI would go to the authoritative source and save me maybe 15 minutes of looking. It turns out what I got from AI was total garbage. The numbers were mostly wrong–by a lot. They came from sketchy websites, rather than the authoritative source. And ChatGPT didn’t know what an operating margin is. It put TSLA’s at 11%. Anyway…)
It’s hard to know if that 2.5% is the right number or not. If I were forced to guess, I’d say it’s too low. Absolute dollars count and GM’s revenues are 1.8x TSLA’s. It’s not clear whether the traditional auto framework, with lots of different colors and different model years–which would presumably entail further costs to TSLA–will be part of the price of entry to the automotive mainstream. It’s also no longer self-evident, I think, that the association with Elon Musk is the unadulterated plus it might have been a few years ago. There’s the hot mess, financially and content-wise, that X has become under Musk’s stewardship. And, if today’s news reports are correct, Musk is demanding a payment in TSLA stock of $80 billion or so for him to remain with the company. Yes, weird stuff, but the most important issue, I think, is potential damage to the brand name.
Of course, there’s all the news coming out of Chicago about Tesla batteries dying in the cold weather–seemingly a combination of the physical characteristics of the batteries and lines at charging stations. I’m also struck by the number of sleek commercials during the football playoffs by high-end manufacturers of conventional autos debuting their new EV offerings.
I have two reactions to all this: EVs are an important place to have some exposure to, and there’s no need to get that exposure through the EV manufacturers.