What Did Gordon Johnson Say?
Gordon was asked if he was bullish on the EV market in general and was there anything that he would short or buy?
He responded with:
He doesn't hate Tesla but thinks Tesla is grossly overvalued and misrepresented.
He mentioned that BYD, a company in China, which is one Warren Buffett owns, is a great company doing great things that makes their own batteries. He said you can be positive on this company.
He also said that battery electric cars are only 2.6% of auto sales year to date. What about Ford, GM, and VW who have been selling cars for 100 years. Why would they go after a 5% market share. It wouldn't be advantageous.
He says that Tesla hasn't even sold a million cars this year and VW has sold 10 million. These other auto makers aren't worried about battery electric cars. There's other promising technologies such as hydrogen fuel cells.
He mentioned that Tesla's CFO said that Tesla's gross margins will go down with the ramp of Giga Berlin and Giga Texas. With no new cars coming from Tesla next year, you not only have a gross margin risk, but a volume risk. This will be positive for other companies like BYD.
Will Tesla Have a Tough 2022?
Let's dissect some of Gordon's comments here and respond to them one by one.
Is Tesla Grossly Overvalued and Misrepresented?
To those who look only in the next quarter or year, and not any further, yes, Tesla appears to be overvalued. To those who look 5 years or more down the road, Tesla starts to look like a bargain. It all depends on the time frame you give Tesla. Those who say Tesla is overvalued can't or won't look beyond the current quarter or year. Those who look further out value it highly and see the trajectory that battery electric vehicles are taking and will end up to by the end of the decade. I think Gordon is being short sighted here and that Tesla will win the long game and be the primary winner in the electric vehicle transition.
Is BYD, the company Warren Buffett Owns a Great Company?
I think so. They are producing electric vehicles and their own batteries. I'm uncertain of what will happen with them being in China though. But I have no problems with what Gordon said about BYD.
What About the 2.6% Battery Electric Vehicle of Sales To Date?
That seems small if you look at it right now. Until you see the growth in other countries around the world and the trend from even a couple years ago. The rate of increase is accelerating, almost doubling year to year. Look at any trend of % of battery electric vehicles being bought and you will see it go from under 1% just a couple years ago to almost triple that now. I believe this will continue and we'll see at least 50% by the end of the decade - and probably much sooner - because electric vehicles are just that much better in battery efficiency and costs, lower maintenance, and better motors/engines.
Many investors underestimating the speed at which EV adoption is soaring globally. EV adoption is should exceed 10% in 2022, up from >6% in 2021. This is being fueled by pro-EV policy in Europe and China. US EV adoption will similarly accelerate once new EV incentives are passed. pic.twitter.com/AXoVMGWNBW— Gary Black (@garyblack00) December 11, 2021
What About Hydrogen Fuel Cells?
I don't know much about hydrogen fuel cells, but I haven't seen anybody get this to work, let alone at scale. Until I see evidence of this working and being cost effective, I'm going to have to call this one something not to worry about.
What About Other Auto Makers Delivering So Many More Cars?
It's true that the other auto makers are delivering many more cars right now. But those auto makers have tons of debt. Why didn't Gordon mention VW's ~ $260 billion in debt? What about the difficulty it will take to transition to EV's from ICE cars? Gordon likes to say, "When you take a step back." I think he should take a step back and look at what the future is going to be in 5 years. I'm not sure with so much debt tied up in ICE cars and factories that produce ICE cars that the other auto makers are going to make it. Tesla will be catching up in just a few years to the other auto makers in volume...
What About Tesla Gross Margins and New Factories?
Gordon mentioned that Tesla's CFO - I mean Master of Coin - said that gross margins will come down next year. You have two new factories coming online and that takes time to get going and work out any bugs and kinks. He may be somewhat correct in his statement about Tesla's gross margins, but I'm not worried about that. Tesla has shown a culture of innovation and solving problems. After 2022, the gross margins will start to go back up as volume production is reached.
"With respect to next year, I think $TSLA has big problems. Their CFO said their gross margins are going to come down ... with no new cars coming for $TSLA, not only do you have a gross margin risk but you have a volume risk," says @GordonJohnson19. pic.twitter.com/x6F0X1F4gL— Squawk Box (@SquawkCNBC) December 9, 2021
What do you think about Gordon Johnson's comments? Is he correct in anything he has said? Should you short Tesla stock because of this?
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Jeremy Johnson is a Tesla investor and supporter. He first invested in Tesla in 2017 after years of following Elon Musk and admiring his work ethic and intelligence. Since then, he's become a Tesla bull, covering anything about Tesla he can find, while also dabbling in other electric vehicle companies. Jeremy covers Tesla developments at Torque News. You can follow him on Twitter or LinkedIn to stay in touch and follow his Tesla news coverage on Torque News.