This paper analyzes the bearish and bullish views for Tesla Inc. while addressing the main question: What kind of company is Tesla?

1. What Kind of Company is Tesla?
The Situation
Tesla. Just the mere reference of Tesla Inc., the maker of electric cars, solar roofs, and energy storing
batteries, can cause hotly contested debates among Wall Street analysts. Let it be clear, there really isn’t a neutral
position on Tesla. You either think this company is the best thing since sliced bread, or a company built on the
pillars of wishful thinking led by a man fantasizing of living on Mars. Jim Chanos, legendary short-seller and
founder of Kynikos Associates Ltd., says Tesla is “structurally unprofitable.”(1) Mark Spiegel, hedge fund manager
at Stanphyl Capital Management, believes “Tesla is a zero.”(2) On the other hand, some people have a much more
optimistic view of Tesla. Billionaire investor Ron Baron thinks Tesla stock (NASDAQ: TSLA) will hit $1,000 by
2020, marking an upside of more than 200 percent from the closing price on October 30, 2017.(3) He also thinks
Tesla could have a market capitalization of $1 trillion in the next decade.(4) Gene Munster, managing partner of
Loup Ventures and former tech analyst for Piper Jaffray, said Tesla has more growth potential than Amazon(5) and
likens the company to the rapid growth stage of Apple.(6)
So what’s the deal? How can such experienced investors differ so drastically in their views on Tesla? A
value of $0 to $1,000 per share is an extreme range. I have been conducting research on Tesla for roughly three
years and the basic diversion of opinion I have gathered stems from one simple question: What kind of company
is Tesla? I believe the root of an individual’s opinion on Tesla is formed on the answer to that question. Tesla
bears believe the company is nothing more than a car manufacturer competing in an industry with 100-year-old
veterans. They believe there really isn’t any competitive differentiator and that Tesla’s products are basically four
tires and a steering wheel with an electric motor instead of an internal combustion engine. The short sellers think
the company’s cash burn is proof that profitability is a distant dream and bankruptcy is a closer reality. That is the
negative viewpoint on Tesla, a car company destined to follow the path of every car startup of the last half century
– extinction.
On the flipside, the bull case is not just optimistic, it’s futuristic. With Tesla bulls, the list of what the
company is NOT is shorter than the list of what the company is. People with a positive outlook for Tesla view the
company as a pseudo-conglomerate operating in the automotive, energy storage, solar power, and other
technology industries. Basically, they view Tesla as the future. The future of cars. The future of driving. The future
of renewable energy and energy storage. The Tesla following has bought in to the company’s mission, which is “to
accelerate the world’s transition to sustainable energy.”(7) Tesla enthusiasts believe in CEO Elon Musk’s vision and
are willing to absorb the bumps along the ride towards what they believe will be a fantastic future. Simply put,
bears look at Tesla for what it was and what it is today, while bulls look at Tesla for what it can be.
With that said, I will disclose that I do own TSLA stock, a measly two shares I bought in college in 2015. I
will attempt to examine the bull and bear case for Tesla as objectively as possible. I will then provide my own take
on the subject while serving to answer the overall question, “What kind of company is Tesla?”
Casey Rogstad 30 October 2017
IT’S JUST A
CAR COMPANY!
IT’S A CLEAN
ENERGY COMPANY!

2. The Options
The Bear Case
Competition
Electric Cars
There are two primary reasons why bears believe
Tesla is overvalued, the first being increasing competition and
the second being cash burn. Starting with competition, the
race to dominate the electric car market is heating up as
General Motors (GM), Ford, Porsche, Audi, Bavarian Motor
Works (BMW), Mercedes-Benz, Volkswagen, Volvo, Fiat-
Chrysler, and others have all pledged to increase the number
of electric vehicles (EVs) in their fleet. Several niche market players have vowed to make their own EVs too. GM
beat Tesla’s Model 3 to the mass market with its Chevy Bolt EV, capable of driving 238 miles on a single charge.
GM’s economies of scale and manufacturing size make it easier for the company to ramp up production,
something Tesla has constantly fought to overcome. Rather than investing billions into batteries, GM outsourced
its battery packs from LG Chem in Korea, which is much faster than Tesla’s multi-year, $5 billion construction
plan for the Gigafactory. Moreover, GM doesn’t have to worry as much about the Bolt’s sales or losing money on
each car sold because its gas and diesel vehicles can more than pick up the slack. Tesla doesn’t have this leisure as
its EVs are by far the main source of revenue and the Model 3 is paramount to the company’s success. This
heightens Tesla’s single-factor risk, which can be mitigated across GM’s business.(8) GM also stated it would have
20 EVs for sale by 2023, and two new models by early 2019. The company is on board with the growing EV
industry. Mark Reuss, executive vice president of global product development at GM said, “GM believes the future
is all electric, a world free of automotive emissions. It’s real.”(9) Given that GM was the world’s fourth largest car
company by revenue in 2016, the company’s expansion into EVs marks a Goliath competitor challenging Tesla.(10)
GM is not alone in its conquest to defeat the upstart. Germany, known for its unmatched engineering and
high-performance cars, is pushing its auto companies to pick up the pace in the electric car industry. Peter
Altmaier, Chief of Staff to German Chancellor Angela Merkel, said,
German automakers appear to be answering the call. Porsche is due to unleash its answer to Tesla’s Model S
luxury sedan with the Mission E, an electric sports car due in late 2019. Up to this point, Tesla has gone
unopposed in the luxury electric car market with its Model S competing against traditional gasoline cars instead.
Porsche intends to put a stop to that as the company gains interest in EV potential for high-end performance.
Porsche’s electric division chief Oliver Blume said, “We find the technology as such interesting, as electric cars
allow a very sporty driving experience, which
fits well with the core value of our brand.”(12)
By all means, the Mission E has the potential to
be an iconic car for Porsche capable of gaining
similar status as the classic Porsche 911, often
considered to be one of the greatest cars ever
made. The Mission E is designed to perform
comparable to a racecar, with 600 horsepower
and a 0-60 mph time of less than 3.5 seconds.
The car will have a range over 300 miles and
can recharge 250 miles in just 15 minutes.(13)
The specifications of the Mission E are in direct
competition with Tesla’s Model S and is priced
The Chevy Bolt EV, Source: Bloomberg
Q: “When is our automobile industry, which is so good, actually going to be in a position to build a car that
travels 50 kilometers further than a Tesla and costs 10,000 euros less? It must be possible to set this as a
goal. If the automobile industry doesn’t grasp the fact that it has to invest more in electric vehicles,
especially in cities, then it will be very hard to defend combustion engines – gasoline and diesel – over the
long term. We must do all we can now, so that the best electric cars are built in Germany.”(11)
The Porsche Mission E Concept Car, Source: Porsche

3. similarly at $85,000.(14) In addition to the car itself, a hurdle for Tesla will be competing with the Porsche brand.
Porsche enthusiasts will likely stick with the brand they know and love and the general population may side with
the trusted, quality Porsche brand over the less proven Tesla brand. Porsche prides itself on the quality of its cars
and will seek to utilize its superior engineering and brand in the fight against Tesla.
Tesla’s Model X, its electric sport utility vehicle (SUV), will also be under fire from another German car
maker, Audi. Audi is expecting to take its own electric SUV, the E-Tron Quattro, to production in 2018. The E-Tron
Quattro is projected to have a range of 310 miles, surpassing the Model X’s 289-mile range.(15) BMW is planning to
add an electric Mini in 2019, a compact SUV in 2020, and 10 more EVs by 2025. Mercedes-Benz, owned by
Daimler, expects to have 10 EVs in its portfolio by 2022. In addition to the German automakers, Swedish-based,
Chinese-owned Volvo says all new vehicles launched in 2019 or later will be hybrid or all-electric cars. Bloomberg
New Energy Finance (BNEF) is forecasting 136 electric models will be offered globally by the end of 2022.(16) All
that is to say, while Tesla may have been the first mover in the electric car industry, the company is facing a wave
of competition from the much larger, more established automakers throughout the world.
And the competition doesn’t stop there. Tesla could also face opposition from non-traditional car
companies such as technology giants Apple and Alphabet, which is the parent company to Google. Adam Jonas, an
analyst at Morgan Stanley and previously one of the most bullish analysts covering Tesla, said, “Tesla investors
must prepare for serious competition for talent and investment capital in this market,” when he described Apple’s
potential to enter the car industry. Apple’s CEO, Tim Cook, is focusing on autonomous driving, describing it as “a
core technology that we view as very important.”(17) Autonomous driving, or self-driving cars, is an area Tesla is
focusing heavily on with its Autopilot system. Tesla is also facing competition in self-driving technology from
Waymo, a spin off company from Google, and ride-hailing giant, Uber. If Apple, backed with its near endless cash
and resources, were to invest in autonomous driving technology, it could negatively impact one of Tesla’s
signature features, self-driving capability in its vehicles. However, Jonas believes Apple’s car ambitions won’t just
stop with autonomous driving. He said,
Q: “We believe Apple will eventually move beyond just software into designing a full car and/or launching a
platform for third party services and content over time. This is because Apple argues it is most
successful when it vertically integrates in a market, controlling the hardware and software
and creating a platform.”(18)

4. Tesla has taken several tactics from Apple’s playbook, such as vertical integration with its solar, energy storage,
and EV business model to its aesthetically pleasing stores that sell products directly to consumers. Who better to
use Apple’s strategy than Apple itself? If Apple were to engage in vertical integration in the car market, it would
add a major competitor to Tesla. Apple is the largest company in the world by market cap, exceeding $800 billion,
and would have ample funds and employees to seriously compete with Tesla.(19) Gene Munster thinks what Apple
“should do is buy Tesla” and that it could “transform Apple.”(20) If Apple does enter the car industry, the best case
scenario for Tesla might be an acquisition by Apple.
Batteries
Tesla’s Gigafactory will be the
largest battery plant in the world, but
it’s about to come under attack from
China. The Gigafactory will produce up
to 35 gigawatt-hours (GWh) of battery
cells at maximum output, but Chinese
companies have plans for enough
factories to produce over 120 gigawatt-
hours a year by 2021. None of China’s
individual companies will out-produce
Tesla, but collectively China makes 55
percent of lithium-ion batteries and that
is expected to grow to 65 percent by
2021. China’s expanding battery
production is due to a concerted effort
by the Chinese government. Colin
McKerracher, BNEF analyst, said, “This is
about industrial policy. The Chinese
government sees lithium-ion batteries as
a hugely important industry in the 2020s
and beyond.” The global capacity for
battery manufacturing is forecasted to
more than double by 2021 from 103
GWh to 273 GWh and China expects to
take a large piece of the pie. However,
Tesla is planning to add four locations
for new factories by the end of 2017,
with at least one site in China.(21) China’s
push into battery production could undercut Tesla’s efforts if the Chinese government intervenes and merges its
smaller companies together to combine output and scale. China’s historic ability for low-cost products could also
make its batteries cheaper than Tesla’s.
Just as Germany wants to compete more in the electric car market, it too wants to expand its battery
manufacturing capabilities. Terra E Holding GmbH is planning to break ground on a 34 GWh battery plant at the
end of 2019. The project is endorsed by Chancellor Angela Merkel with 5.2 million euros in subsidies being
awarded from the Ministry of Education and Research. Daimler also broke ground on its own battery factory
earlier this spring. Germany is the world’s fourth largest economy and is heavily focused on adding more
renewable energy sources, which all need battery storage to smooth out intermittent energy flows from wind and
solar.(22) Intensified competition from Germany, which is known for its advanced engineering and automated
robotic manufacturing, could pose another threat to Tesla’s battery production. Siemens, a German conglomerate
focused on electrification, automation, and digitalization, is starting a joint venture with AES Corporation, a global
power company, to focus solely on battery storage systems. Together, the two companies boast experience in
energy technology and have established a presence in more than 160 countries across the globe. Currently, AES
and Siemens have combined to build battery storage systems totaling 463 megawatts (MW), which is more than
Tesla’s 300 MW.(23) The joint venture between these two behemoths adds another global player to compete with
Tesla in the battery-storage space.

5. Cash Burn & Unprofitability
If competition worries are not bears’ biggest concern for Tesla, then the company’s rate of burning
through cash certainly is. Tesla has spent unprecedented amounts of cash to bring its Model 3 to the masses and
build the $5 billion Gigafactory. Acquiring SolarCity, which was on the verge of bankruptcy, was also a head
scratcher for analysts already bearish on Tesla as it was in the thick of what Musk calls “production hell” for the
Model 3. As a result, Bernstein analyst Toni Sacconaghi had a blistering statement about Tesla. He said,
Tesla is projected to surpass a total of $10 billion in total cash burn by the end of the year since becoming a public
company in 2010. Since the initial public offering, the company has never posted a profitable year and has only
posted two profitable quarters, the first quarter of 2013 and third quarter of 2016.(25)
Short sellers have piled on Tesla, making it the most shorted stock in the U.S. market with 27 percent of
its free floating shares short. As Mark Spiegel puts it, “Tesla is losing a massive amount of money with no
competition, and yet massive competition is coming.” Prominent investors such as David Einhorn, CEO at
Greenlight Capital, and famed short-seller Jim Chanos agree; Tesla is a cash burning machine with an outlandish
valuation. Eventually, they believe what goes up, most come down and Tesla is destined for a vicious fall back to
reality. Chanos can’t think of a better company to short. He asked the question, “If you wouldn’t short a $65 billion
company with negative free cash flow, questionable accounting, an executive exodus, in a soon-to-be-competitive
industry, what would you short?” Tesla bears all conclude the company is operating in a fantasy land that couldn’t
be further from the truth. They believe the stock’s stratospheric levels are outrageously blown out of proportion
and completely unsupported by company fundamentals. 50-year short-seller veteran David Rocker says Tesla is
“one of the most incredulous divorces between facts and dreams” he’s ever seen. Tesla cynics think investors in
the company are nothing but tree-huggers, hippies, and Musk cult followers.(26) Investors betting against Tesla
also feel the only thing keeping the company afloat besides wishful thinking is the ability to access capital
markets, which Tesla has done repeatedly through debt, convertible debt, and equity offerings since going public.
According to Itay Michaeli, an analyst at Citi Research, “An inability to access capital markets could place
substantial strain on Tesla’s financial condition.”(27) Tesla has had to lean on capital markets for cash to fund itself
and if those markets were to dry up, it could pose a serious threat to Tesla’s solvency if the company cannot
achieve profitability on its own. At any rate, a consistent inability to reach positive free cash flow and ultimately
positive net income is a surefire way for Tesla’s demise.
Production Shortfalls, Executive Departures, and Policy Changes
Beyond competition woes and piles of burning cash, Tesla pessimists are also troubled by the company’s
almost predictable failure to meet self-imposed deadlines. Musk is known for setting unrealistic goals and
timelines, something that infuriates analysts trying to forecast assumptions in their financial models. In the eyes
of Wall Street, Musk’s mantra seems to be overpromise and underdeliver, which doesn’t bode well for quarterly
earnings reports and analyst target prices. Bloomberg has an ongoing tracker for all of Musk’s companies to
monitor goal achievements and adherence to due dates. With Tesla, the company has an average delay of 139
days, or 46 percent longer than originally stated. Launch dates for the Tesla Roadster, Model S, and Model X were
all behind schedule with the Model X taking two years longer than promised.(28) Tesla bears are betting the trend
continues with Model 3 production, which will allow for competitors to gain ground in the EV market and kick
Tesla’s profitability can further down the road. Tesla’s regular profit misses and production shortfalls set the
stock up for disappointment every quarter and could quell investor optimism as shareholders may lose faith in
the company’s ability to turn visions into realities.
Additionally, crucial executives have been leaving Tesla in recent months. As Jim Chanos describes, a mass
exodus of key employees has been taking place at Tesla just when the company is at its most critical point in
Q: “Tesla’s persistent cash burn has been a major investor controversy … In fact, Tesla may be the largest
public company in history to have never generated either positive annual cash flow or positive annual
profit. Even if we can disregard Tesla’s cash burn, we continue to worry about the company’s ability to
deliver upon its long-term vision of profitability. Specifically, we worry about whether Tesla can
successfully build the mass-market Model 3: (1) with good margins, (2) with good quality, and
(3) on time.”(24)

6. bringing the Model 3 to market. Key departures thus far in 2017 include Kurt Kelty, director of battery
technology, Jason Wheeler, chief financial officer, Chris Lattner, vice president of Autopilot software, and
Diarmuid O’Connell, vice president of business development.(29) Both Kelty and O’Connell were among the longest
-serving executives at the company, joining in 2006.(30,31) Lattner, hired from Apple, and Wheeler, hired from
Google, lasted less than six months and 15 months, respectively.(32,33) Musk is known for asking the impossible
from his employees. There are showers and sleeping bags at the facilities, shining a light on the intense culture at
the company. As Tesla feels the growing pains from Model 3 production, it’s possible many employees succumb to
the pressure and burnout. Losing talented executives during crunch time sends a negative signal to investors that
there might be internal struggles and loss of leadership when the company needs it most. This all adds to the risk
of key employees being snatched up by rival companies and Tesla losing its edge in human capital.
The last points of contention for Tesla bears is the possibility of regulation changes that strip Tesla of its
direct sales business model and the expiration of tax incentives for consumers to purchase electric vehicles.
Unlike traditional automakers, Tesla does not sell through franchised dealerships, but instead sells directly to
customers. Old laws prohibit selling vehicles in the U.S. directly to consumers and this law is enforced on a state
by state basis. Tesla has endured litigation and legal battles in several states over its business model. Currently,
Arizona, Texas, and Maryland have banned Tesla from selling directly to buyers and fifteen other states are in the
middle of a dispute.(34) GM is particularly upset over the issue saying it “demonstrates the inequity of different
competitors having different rules in the marketplace” and that they “will continue to express our concern
anywhere we find market participants are operating under different rules.”(35) Resistance against Tesla’s selling
strategy by more states could squander the company’s mass market ambitions because consumers could not buy
Tesla cars in their states. While these customers could go to another state where it is legal to buy directly from
Tesla or purchase online, this roadblock could prevent potential customers.
Similarly, tax incentives that have buoyed Tesla will eventually expire and could expire sooner than
thought under the Trump administration. As of now, there is a $7,500 federal tax credit for EV purchases and
some states offer additional incentives. These tax breaks can offer substantial price reductions for consumers and
can be the difference between choosing a Tesla or a full-priced gas or diesel-powered car. This federal tax credit
will begin to phase out for any automaker once they have sold a total of 200,000 electric vehicles and Tesla is
already way past the halfway point. The tax credit will be reduced by 50 percent in the following two quarters
after surpassing the 200,000 mark and then will be cut by another 50 percent for the next two quarters, before
being eliminated completely. Jessica Caldwell, executive director of industry analysis at Edmunds, said, “It’s still a
big question whether the thousands of people in line to buy a Model 3 will be able to stomach the full price of the
car without a hefty rebate.”(36) Just as Tesla begins to enter the mass market, it will lose its tax incentive. Unlike
the higher-end buyer the Model S and Model X target, the average consumer may not be as keen on paying the full
sticker price for the Model 3. The removal of tax breaks globally could also hurt Tesla’s sales as countries in
Europe begin to phase out large tax incentives as well. According to the International Energy Agency, “Electric car
market mechanisms are still largely driven by policy support.”(37) If this support were to leave, Tesla would face
more competitive pricing from non-EVs. Typically, incentives steer people towards certain actions. If consumers
are not incentivized to purchase EVs by receiving lucrative tax breaks, they may be less inclined to purchase one.
The Bull Case
Regulatory Environment & Consumer Taste
When looking at the bull case for Tesla, I think it is important to start with the big picture, the macro
landscape surrounding the company. To begin with, the emphasis and action towards fighting climate change has
increased significantly across the globe in recent years. The Paris Climate Agreement is the most prominent
global measure as every country in the world except for the United States and Syria signed up to prevent rising
global temperatures.(38) The global push against climate change sets the backdrop for sustainable energy to take
hold. Some countries are beginning to formally ban the sale of gas and diesel-powered cars such as Norway by
2025, India by 2030, and France and Britain by 2040. (39,40,41)
Despite the fact the U.S. pulled out of the Paris Climate Agreement, which is a topic worthy of debate
in its own paper, the U.S. will still likely follow the trend towards stricter climate regulations. While President
Trump and Republican-controlled Congress may be able to reduce regulations and attempt to keep the coal

7. industry on life support, individual states can still set their own regulations. After President Trump withdrew the
U.S. from the Paris Climate Agreement, a coalition of states, territories, and cities formed the U.S. Climate Alliance
intending to uphold the agreement’s targets. The coalition includes California, Colorado, Connecticut, Delaware,
Hawaii, Massachusetts, Minnesota, New York, North Carolina, Oregon, Rhode Island, Vermont, Virginia,
Washington, Washington D.C., and Puerto Rico. Additional states and cities are considering joining the alliance.
Members of the group represent 36 percent of the population and at least $7 trillion in gross domestic product
(GDP), more than one-third of the U.S. GDP in 2016.(42,43) The standout member in the alliance is California, which
alone is the sixth largest economy in the world and by far the largest market for EVs in the U.S.(44,45) California has
a long history of writing its own environmental policies because of the severe air pollution and smog plaguing Los
Angeles. The state developed its own air pollution standards before the Environmental Protection Agency and
Clean Air Act were established in 1970. As a result, California was given a waiver to follow its own policies. That
precedent has allowed California to become the driving force of environmental regulation and twelve other states
follow California’s standards.(46) This in turn has forced car manufacturers to comply with the stricter standards
because of the market size for vehicle sales in California.
In reality, the U.S. leaving the Paris Climate Agreement is only a surface-level political stunt. The country
cannot submit a written notice to withdraw from the agreement until November 4, 2019 and could decide to
remain in the agreement any time up to that point. The U.S. would not be officially removed from the agreement
until November 4, 2020, which incidentally would be one day after the next presidential election. A new president
could always ask to rejoin and be back in the agreement in 30 days.(47) The first point being that a lot can change
in three years. The second point being that several states and the sixth largest economy in the world, California,
will be moving forward with environmental policies with or without the approval of the Trump administration.
The global movement for a faster pace to reduce the effects of climate change bodes well for Tesla and falls right
in line with the company’s mission to accelerate the world’s transition to sustainable energy. Essentially, Tesla
and the majority of countries are pursuing the same goal. Not exactly a bad tailwind to have nearly the entire
world striving for what Tesla has to offer. Is there really a larger macroeconomic factor than that?
Other regulatory policies affecting the auto industry include the EPA Corporate Average Fuel
Economy (CAFE) standards, which requires a car manufacturer’s vehicle fleet to have an average efficiency of
54.5 miles per gallon by 2025. The Obama Administration initiated the standards in 2012 with a midterm review
that could modify the later years’ requirements. Just before leaving the presidency, the Obama administration
reviewed the standards and decided to finalize them as is. However, the Trump administration and new EPA
head, Scott Pruitt, overturned the decision and a new review will be conducted. 54.5 mpg by 2025 would be
nearly double the 2012 average, a feat most companies are not on track to meet. Many automakers pleaded that
the standards were overbearing, unnecessarily costly, and a “substantial challenge” as described by the Auto
Alliance.(48) While the legacy automakers have struggled to increase the fuel efficiency of their gas and diesel
fleets, Tesla has completely circumvented the entire issue with electric cars. If the standards are eliminated or
reduced, other car companies will be more inclined to continue with their old business model of selling vehicles
with internal combustion engines, thus reducing the competition for Tesla. If other car manufacturers slow down
The U.S. Climate Alliance Has Serious Leverage, Source: U.S. Climate Alliance

8. the investment for electric cars, it opens the playing field for Tesla to further expand its lead in the electric car
industry and gain market share. If the standards are upheld, it will force older car companies to accelerate the
change to hybrid and electric vehicles, but will force the companies to shift away from their bread and butter
business. This point will be discussed further in the Business Model section of the paper.
Let’s face it, whether you like it or not, the millennial generation will be taking over the world’s reigns
soon and is already in the process of doing so. Millennials are the largest generation with a population of 92
million, surpassing the previously largest generation, the Baby Boomers.(49) While there may be many arguments
about millennials and their neediness, their views and interests will shape the future for economic growth,
especially as wealth passes down from older generations and millennials hit their peak spending years. With this
in mind, millennials have different concerns and values than other generations, and one of their most prominent
points is climate change. The Global Shapers Survey, which analyzes the viewpoints of the world’s youth, found
that 48.8 percent of respondents think climate change and the destruction of nature is the most serious global
issue. When it comes to human responsibility for climate change, over 90 percent of young people agree or
strongly agree that humans are responsible.(50) With or without government regulation, the largest generation has
a shifting consumer taste away from fossil fuels and towards sustainable energy. As many employers are
beginning to understand, millennials want more than just material items and a paycheck. They want purpose and
experiences. The same goes for buying a car and this element plays right into Tesla’s hand. Tesla car owners
aren’t just buying a car to get them from point A to point B. They are buying into a purpose and mission. They
believe they are in someway doing their part to reduce the effects of climate change while spending their money
on a company that intends to do the same. This mentality is a direct challenge to the business models of big oil
and older car manufacturers, causing a headwind for those companies and a tailwind for Tesla.
Economics of Renewable Energy
Continuing to develop the broad scope of the situation, the economic viability of renewable energy and
electric cars is getting stronger. That’s not just the viewpoint of green enthusiasts, that’s the growing opinion of
the industries set to be disrupted by the coming changes. Total SA, one of the largest oil producers in the world, is
projecting electric vehicles to make up roughly one-third of new-car sales by 2030, a projection even exceeding
Climate Change Matters to the Largest Generation, Millennials, Source: Global Shapers Survey

9. BNEF’s own forecast, which is for
EVs to constitute 35-47% of new
car sales by 2040. Total SA’s Chief
Energy Economist Joel Couse said
fuel “demand will flatten out” or
“maybe even decline” by 2030.
Total SA is not alone. Another oil
giant, Royal Dutch Shell Plc is
cutting its long-term forecast for oil
demand as well. Shell’s Chief
Executive Officer Ben van Beurden
said oil demand could peak by the
end of the 2020s.(51) Even The
International Energy Agency (IEA)
has realized electric cars are going
to have a profound impact on oil
demand led by what Bloomberg
coined, the Tesla effect. The IEA isn’t as pessimistic as Shell, but IEA Executive Director Fatih Birol acknowledged,
“Electric cars are happening.” Philip Verleger, a veteran oil analyst and president of the consultant PKVerleger
LLC based in Colorado, thinks the IEA’s forecast is on the optimistic end of the spectrum. He said,
As oil demand falters, oil-refiners producing gasoline will be hit even harder because gasoline accounts for one in
every four barrels of oil consumed worldwide.(52) Every electric car on the road will compound that point as each
battery recharge is a takeaway from filling up at the pump.
While it used to be true, the idea that solar power was not economically sensible is fading faster than
experts thought. The coal industry has been under pressure and its revival was a campaign promise for President
Trump. To get the coal industry off life support would require overcoming economic shifts that show solar power
is already cost competitive with coal in Germany and parts of the U.S. The argument that environmental rules and
governmental subsidies are propping up renewable energy no longer holds water. Economics have taken over.
BNEF forecasts solar to be cheaper than coal in China and India as quickly as 2021 and less than half the cost of
coal by 2040. BNEF researcher Seb
Henbest said, “Costs of new energy
technologies are falling in a way that
it’s more a matter of when than if.”
Electricity from solar panels costs
roughly a quarter of what it did in
2009 and will probably fall by an
additional 67 percent in the U.S. by
2040. Countries such as Japan and
South Korea could see solar costs fall
by 85 percent and 76 percent,
respectively. Henbest said, “These
tipping points are all happening
earlier and we just can’t deny that
this technology is getting cheaper
than we previously thought.” The
result of these falling costs will
impact the coal industry the most.
BNEF projects coal-power capacity
Q: “Refiners across the globe can only hope that this forecast turns out to be right – because all the
indications are today that consumption is going to begin dropping not in 2030, but probably in
2020. It’s the best news a dying patient can hope to get.”
Electric Vehicles Are Coming, Source: Bloomberg New Energy Finance

10. in the U.S. and Europe to fall 50 percent and 87 percent, respectively, by 2040. Despite his best efforts, President
Trump cannot reverse the changing economics. “Beyond the term of a president, Donald Trump can’t change the
structure of the global energy sector single-handedly,” said Henbest.(53)
Not only are companies
talking about the changing energy
environment, but they are also
speaking with their money. Each
year since 2012, investments in
renewable energy projects have
outpaced fossil fuels by more than
double and have exceeded $200
billion every year since 2010.(54) The
long-run outlook results in this trend
strengthening. Investments in new
solar projects are set to steadily rise,
approaching $2 trillion by 2040,
while new investments in fossil fuels
will be less than $0.5 trillion.(55) Even
more impressively, U.S. solar
installations have increased 4,645
percent from 2008 to 2016.
Investments and new projects aren’t
the only growth in solar, so too are
jobs. The state of California alone employs more people in the solar industry than the coal industry employs in the
entire country.(56) Honestly, President’s Trump idea of creating energy jobs should be in renewables, not coal.
Reality is those jobs aren’t coming back.
One element holding electric cars back from competing with gasoline models are battery costs, which
can make up half the total cost of an electric car. But that is rapidly changing because battery costs have dropped
by two-thirds since 2010 to about $300 per kilowatt-hour (kWh). Bloomberg predicts that number to fall to
$73kWh by 2030 largely in part because of Tesla’s Gigafactory and other companies expanding battery
production.(57) BNEF forecasts at least $239 billion will be invested in lithium-ion batteries, supporting the case
for energy storage devices in homes and power grids and batteries for electric cars.(58) Traditional automakers
have been pouring billions into electric cars to catch up with the industry shift. Michael Liebreich, founder of
BNEF, said, “By 2020 there will be over 120 different models of EV across the spectrum. These are great cars.
They will make the internal combustion equivalent look old fashioned.”(59) As oil demand peaks and coal demand
falls, Tesla is poised to capture the growing market for electric cars and renewable energy with its fleet of electric
cars and Tesla Energy products.
Vertical Integration
Tesla’s $2.6 billion acquisition of SolarCity last year was a hotly contested issue with skeptics eager to
jump on corporate governance issues and cash flow problems. The opposition to the deal believed Musk was
simply bailing out SolarCity and that the combination of two cash burning companies could only lead to a bigger
bonfire of flaming dollar bills. While the full story of the acquisition is far from final, the people disapproving of
the buyout failed to see the point. They could not understand why a car company would have any interest in
buying a solar energy company. Combining the businesses would have zero synergistic advantages and the
acquisition would only detract from Tesla’s Model 3 launch. The Tesla bears grappled onto the view that Tesla is
just a car company and disregarded the company’s mission. Tesla’s goal is not to build electric cars, it is to
accelerate the world’s transition to sustainable energy. Electric cars are just one piece of that equation. Energy
storage in batteries is another piece of the puzzle. The unsolved variable was how to generate the energy in the
first place. That problem was solved with the acquisition of SolarCity.
If you accept that Tesla is more than just a car company, you can begin to see the vertical integration
Tesla is building as an all-encompassing clean energy solution. With Tesla, a consumer can purchase a solar roof

11. to generate energy, store the energy in batteries, and use the energy for transportation with an electric car. There
is no other company I know of that can offer end-to-end products to fulfill a consumer’s ability to generate, store,
and use clean energy. The idea of vertical integration with solar energy, batteries, and electric cars was ten years
in the making from Musk’s initial “Master Plan.”(60) With vertical integration, Tesla can move one step further
towards its mission and offer a full suite of products no other company can.
In order to maintain control on Tesla’s products, Musk has decided to pursue vertical integration, a
concept abandoned long-ago by other car manufacturers. Globalization, low-cost labor, and “just in time”
manufacturing all led other car companies to outsource most of their production. Musk on the other hand wants
to go the opposite route, giving Tesla the ability to control much of the supply chain, closely monitor product
quality, and apply in-house technological advances to the manufacturing process and end product. Not to
mention, Tesla can actually say its products are “Made in America,” something Ford and GM can hardly say.(61)
Musk will even bring previously outsourced processes, such as the Model X seat manufacturing, in-house if he
thinks he can do it better.(62) It’s hard to argue that point against someone who has designed rockets to be landed
and reused in space.
The importance of Tesla’s Gigafactory in this vertical integration cannot be overstated (more on the
Gigafactory in the Competitive Advantages section.) With the Gigafactory, Tesla is able to produce its own
batteries for use in electric cars and battery storage, as opposed to outsourcing the production of batteries.
Building batteries in-house has given Tesla creative control and technological leads in its batteries, allowing its
cars more range than competing electric vehicles. As a result, only three vehicles in the world have broken the
300-mile range threshold and all are made by Tesla: the Model S, Model X, and Model 3.(63)
Vertical integration marks another example of Tesla going against the grain, but it is a signature part of
what’s allowed the company to innovate the manufacturing process, produce high quality products, and protect
its brand. By owning much of the supply chain and clean energy arsenal of products, Tesla has also managed to
diversify its revenue streams. Even if other automakers threaten Tesla’s electric vehicles, there is still an
opportunity to generate the energy to drive them and a place to store the unused energy. Tesla can fulfill those
needs with its solar energy and battery storage offerings while also making the pitch for delivering the full
package for a clean energy solution.
The Business Model
Another differentiating factor for Tesla is its direct sales business model that bypasses the traditional
franchise dealership model used by all other car companies in the U.S. Selling directly to consumers allows Tesla
to circumvent the added costs of advertising to support dealerships and avoid unnecessary inventory that other
automakers must constantly manage. The direct sales model is similar to Apple stores that have control over how
their products are presented to the public. While this business model is unique to Tesla in the U.S., laws requiring
dealerships do not even exist in the rest of the world.(64) When it comes to advertising costs, Tesla spends a
ridiculously low amount compared to General Motors and Ford. In 2016, GM and Ford spent $5.3 billion and $4.3
billion, respectively, on advertising compared to Tesla’s $48 million.(65) Tesla doesn’t need celebrity actors and
Super Bowl commercials to market its products. This allows the company to allocate capital to research and
development, new products, and other investments in the business.
Not only does Tesla save on advertising expenses, but it also avoids costly inventory buildup and
markdowns for year-end sales used by traditional car makers. Because Tesla offers customization features for its
customers, it has a much better idea of its inventory needs. This in turn requires much less building and land
space, saving money with reduced office footprints. Traditional auto manufacturers have to estimate demand for
each year’s models and often incur deep discounts to unsold vehicles at the end of each year to open space for the
newest model. These car companies spend significant amounts of money marketing the brand-new model, which
is basically the same vehicle with some minor changes and maybe a new cup holder. Meanwhile, Tesla does not
offer its vehicles by model year, but instead by model type. There are three model types to choose from and you
don’t have to worry about not getting next year’s upgraded model because Tesla will improve your car with over-
the-air updates. Imagine going to bed and waking up the next morning to discover your Model S now has better
autopilot features and can automatically turn on the air conditioning if the car’s cabin exceeds 105°F. That’s
exactly what happened with Tesla’s 8.0 software over-the-air update.(66) It’s like driving a new car every day.

12. Maybe more importantly, the direct business model is more appealing for the customer’s experience. No
longer do customers have to heckle with commission-based salesman trying to squeeze out one more deal for
their quarterly quotas. At Tesla stores, customers interact with product specialists who are there to answer
questions, provide information, and assuage customer concerns. Customers learn about both Tesla products and
the electric car market in general, can experiment with various custom orders, and test drive vehicles. This model
gives customers a more positive and educational experience as opposed to storming out of a dealership after
being nickel and dimed by a salesman. A smoother experience helps build loyal customers who may become
repeat buyers and/or spread positive reviews through word of mouth advertising.
Lastly, Tesla’s business model does not have the drag of a century old legacy business like typical car
makers. This is another reason why Tesla sidesteps the franchise dealership model in which salesmen are
inclined to sell gas and diesel-powered cars because that is what they know. Musk made this point loud and clear
in 2012 in a Tesla blog posting titled “The Tesla Approach to Distributing and Servicing Cars.” He wrote,
While this was written in 2012, the concept still applies to the dilemma traditional car companies face today.
There is little incentive for dealerships to push electric cars because they represent a small amount of sales and
are unfamiliar products to sell. Just as it is extremely difficult for nicotine addicts to drop smoking, it will be
challenging for traditional automakers to ween themselves away from their cash cow, gas and diesel vehicles,
even if it is in their best long-term interest.
Competitive Advantages
Electric Vehicles
Speed. Performance. Range. Safety. When it comes to electric cars, Tesla leads in all categories, hands
down. When it comes to gasoline cars, Tesla competes quite well too. There is no doubt Tesla cars are fast. The
Tesla Model S P100D, Tesla’s most luxurious Model S, holds the record for the quickest 0-60 mph acceleration of
any production car ever tested at 2.28 seconds, faster than the Porsche 918, Ferrari La Ferrari, and McLaren P1.
(68) These gas-powered cars have a faster top speed, but unless you’re on the Autobahn or a racetrack, that top
speed never gets used. Tesla can achieve this performance by using dual motors, one for the front and rear sets of
wheels, technology-leading batteries, and the physics behind electric motors. Having the heavy batteries centered
on the bottom of the car allows for a more balanced weight distribution than an internal combustion engine
located in the front or rear of a car. This gives Tesla cars a low center of gravity and along with individual motors
for each set of wheels, provides the
cars with top-end handling and
performance, and reduces rollover
risk.(69) Tesla has managed to change
the old perception of electric cars
being slow and poor performing to
being some of the fastest, high-
performing vehicles on the road.
Tesla’s investment in its
batteries has led to industry-leading
range in its electric vehicles. Only
one non-Tesla EV on the market
today has a range over 200 miles, the
Chevy Bolt EV, with a range of 238
miles. No other non-Tesla EVs even
break the 150-mile range marker
Q: “Existing franchise dealers have a fundamental conflict of interest between selling gasoline cars, which
constitute the vast majority of their business, and selling the new technology of electric cars. It is
impossible for them to explain the advantages of going electric without simultaneously
undermining their traditional business.”(67)
Tesla Model S P100D, Source: Green Car Reports

13. and many struggle to get over 100 miles. On the other hand, the minimum range for a Tesla is the standard Model
3 at 220 miles with the range extending to 335 miles for the Tesla Model S 100D.(70) When it comes to range
anxiety for EV adopters, Tesla by far does the most to dampen those concerns. According to the AAA Foundation
for Traffic Safety, Americans drive an average of 29.2 miles per day, meaning a low-end Tesla could handle a
week’s worth of driving on one
charge.(71) With a range of 300 miles
and a free Supercharger network,
long-distance trips become a real
possibility. Sure, you can’t recharge
as quickly as filling up at the gas
station, but a 30-minute stop at a
Tesla Supercharger will get you 170
miles for a Tesla Model S and Model
3 with the long-range battery. Just
enough time to stretch your legs and
use the money you saved on gas for
a lunch break. Not only has Tesla’s
batteries provided the best range for
electric vehicles, they’ve also
provided the best bang for your
buck with the Model 3. The long-
range Model 3 can go 310 miles and
is priced at $44,000, making it the
cheapest price-per-mile of vehicle
range of any electric car at $141.94.
(72) Tesla’s technology for its
batteries has set it apart as the
leader in EV range and performance
giving the company an edge over its
competitors.
Beyond speed,
performance, and range, Tesla
strives to have the safest vehicles on
the road. So far, it’s cars have proven
just that. When the Model S was first
tested by the National Highway
Traffic Safety Administration
(NHTSA) in 2013, it achieved the
best safety rating of any car ever
tested. As a sedan, the Model S set a
record for the lowest likelihood of
injury to occupants, even beating out the safety score of all SUVs and minivans.(73) However, more recently, the
Insurance Institute for Highway Safety (IIHS) downgraded the Model S in one of the five crash test categories. The
IIHS described it as a narrow miss for Tesla. Tesla expects to earn “the highest possible rating in every category”
and made clear the IIHS rating is separate from NHTSA, which gave the Model S a 5-star safety rating.(74)
Additionally, the Tesla Model X was given a perfect 5-star rating by NHTSA, the first ever SUV to get the top score.
Most SUVs score lower on rollover risk, but this was reduced in the Model X because of the heavy battery pack
located on the bottom of the vehicle.(75) Tesla’s efforts towards safety carry over to the Model 3. Final safety
ratings have not been provided yet, but a video of side-impact tests of the Model 3 versus the Volvo S60, which is
considered to one of the safest cars out there, shows no comparison. Musk described the difference by saying, “In
the Model 3 you’re fine. The Volvo is wrapped like a burrito around a coat hanger. It’s not good.”(76) Combined
with speed, performance, and range, the added safety of Tesla’s vehicles make them well rounded and difficult to
beat by other automakers. These factors all contribute to Tesla’s ability to gain deeply loyal customers of which
91 percent said they would buy a Tesla again, higher than any other car brand.(77)
Tesla Model 3, Source: Tesla
The Best Bang for Your Buck, Source: Automaker Figures, Bloomberg

14. Tesla Energy
Moving past Tesla as just a car company, the Tesla Energy business unit is gaining traction and is on
pace to exceed $1 billion in revenue this year compared to about $181 million in 2016.(78) This is due to the
SolarCity acquisition and expansion of the Powerwall and Powerpack battery units for residential, commercial,
and utility use. The newest product arising from the SolarCity acquisition is solar roof tiles, which started being
delivered in mid-2017. The pricing for Tesla’s solar roof tiles with roofing materials and labor will cost about $42
per square-foot, undercutting the cost of traditional solar panels installed on top of a normal roof. “The pricing is
better than I expected, better than
everyone expected,” said BNEF solar
analyst Hugh Bromley.(79) The tiles
are designed to look like normal roof
tiles, presenting an aesthetic option
for solar rooftops. Not only do the
solar tiles look good, they’re tougher
than standard roofing material. Tesla
believes the quality and durability of
their solar tiles are worthy of an
infinite warranty. The Tesla website
says, “Made with tempered glass,
Solar Roof tiles are more than three
times stronger than standard roofing
tiles. That’s why we offer the best
warranty in the industry – the
lifetime of your house, or infinity,
whichever comes first.”(80) The
company is taking an Apple Store
approach by including the solar tiles
for sale in its auto stores to offer a
streamlined process of purchasing
the full sustainable package in one
location. With solar power added to
Tesla’s repertoire, it can complete
the chain for a clean energy lifestyle
by combining solar power, home
batteries, and electric cars. As Musk
says, “These are really the three legs
of the stool for a sustainable energy
future. Solar power going to a
stationary battery pack so you have
power at night, and then charging an
electric vehicle… you can scale that
to all the world’s demand.”(81) While
many people disagreed with and
were confused by the SolarCity
acquisition, it enabled Tesla to unify the three step sustainable process. It also allowed the two companies to join
under one brand name, which carries more weight under the Tesla brand led by the well-known CEO, Elon Musk.
Furthermore, Tesla has reduced customer acquisition costs by eliminating the door-to-door sales model
previously used by SolarCity for the one-stop shopping experience at Tesla stores.(82)
Tesla’s energy storage units have taken off as well, especially for large-scale commercial and utility
projects. Earlier this year, Tesla was awarded the largest battery system installation project in the world after
South Australia decided to use the system to address several blackouts in the region. The project will provide
three times more power than the next biggest battery installation in the world. Sticking to short, audacious
deadlines is not a specialty of Musk, but he promised to have the 100 MW system installed and working after 100
days or the project would be free.(83) Tesla has finished several other utility projects powering locations from
Tesla’s Solar Roof Tiles, Source: Tesla

15. entire islands in the Pacific Ocean to college campuses and craft breweries. Tesla also completed a 20 MW battery
system in Southern California, which at the time was the largest battery storage project in the world, in just three
months.(84) The advantage with Tesla Energy is the ability to complete projects quickly unlike the automotive
segment, which has been plagued by product launch delays. Tesla’s Powerpacks have the capability to be
infinitely scaled to meet any size demand. And, the Powerwall and Powerpack batteries don’t have to be
connected to renewable energy to offer value. The batteries alone can regulate energy usage to smooth out costs
between daily peak demand and cheaper energy during low usage. The batteries can also store energy to prevent
blackouts during power outages. These factors all help reduce customer’s energy costs and improve power
reliability. Even though the Tesla Energy business segment is much smaller than the automotive segment, it is
growing rapidly and offers another revenue stream for the company. The fact battery installation projects can be
completed quickly is a positive difference from the automotive unit and can help fund Tesla’s other financial
needs. In turn, the Tesla Energy piece benefits from economies of scale provided by battery cost reduction at the
Gigafactory. These components combine to offer synergistic benefits from large-scale battery production and
diversify risk by adding another business line separate from the automotive unit.
Gigafactory
As stated earlier, the importance of the Gigafactory cannot be overstated. For clarification, the name
comes from the unit of measurement “giga” which represents “billions.” The factory is expected to produce annual
battery capacity of 35 gigawatt-hours, with one GWh equaling the generation (or consumption) of 1 billion watts
of power for one hour.(85) The scale and size of the Gigafactory are truly staggering. Its completion date is
scheduled for 2020 and by that time the Gigafactory alone will produce more lithium-ion batteries than the entire
world did in 2013. It will be the largest building in the world by footprint, 6 million square feet, and could have up
to 15 million square feet after including multiple floor levels. By volume, it will be the second largest building,
coming up slightly smaller than Boeing’s plant in Everett, Washington. The total investment in the factory will be
about $5 billion. The manufacturing process of batteries will be insanely fast as described by Musk,
All of this size and speed is designed to do two things: meet Tesla’s demand for batteries and reduce the cost
of batteries through economies of scale. Tesla is currently the largest consumer of lithium-ion in the world and
the Gigafactory will allow it to also become the largest producer of lithium-ion batteries. This production will help
The Tesla PowerPack Can Be Scaled Infinitely for Utility Energy Storage, Source: Energy Matters
Q: “I think we’re probably approaching 3x the efficiency of the best plant in the world. I think that’s pretty
good. Cells will be going through that thing like bullets from a machine gun. In fact, the exit rate
of cells will be faster than bullets from a machine gun.”

16. service the goal of making 500,000 EVs per year by 2018
and one million EVs per year by 2020. Even more
importantly, the economies of scale are expected to reduce
the cost of batteries by 30 percent, enabling the capability
of the mass market car, the Model 3.(86) Without the
Gigafactory, Tesla could simply not reduce the cost of an
electric vehicle to make it attractive to the masses and
would struggle to fill its own demand for lithium-ion
batteries. With the Gigafactory, Tesla is positioned to take
advantage of declining battery costs from economies of
scale and extreme manufacturing efficiency. While Tesla is
not the only company investing in battery production, none
of the other car makers come remotely close to the
oversight and scale of batteries as does Tesla. Plus, Tesla
can use the Gigafactory to produce batteries for multiple
uses with its electric cars and Tesla Energy storage devices.
Elon Musk
It cannot go without saying the importance of Elon Musk for Tesla’s success. He is the definition of a
company’s key figure and it can be certain that Tesla would not be where it is today or even still exist without
Musk’s leadership. There are many Musk haters and naysayers who believe he is a delusional man with
outlandish dreams and has no idea how to run a business. Frankly, the people who feel this way have usually been
on the losing end of a Musk idea. Yes, it is true that Musk has a terrible track record of meeting deadlines and he
sets unattainable goals leaving Wall Street analysts wondering what the difference is between Musk’s projections
and reality. But when it comes to Musk, there is one reliable track record: don’t bet against the man. If you haven’t
already, I highly encourage you to read Ashlee Vance’s biography on Elon Musk, Elon Musk: Tesla, SpaceX, and the
Quest for a Fantastic Future. Ashlee Vance is a well-respected writer at Bloomberg and his book details Musk’s life
from a child in apartheid South Africa to the creator of multiple billion-dollar companies. You certainly don’t have
to agree with Musk’s vision, but this book will help explain how he thinks, the adversity he’s been through, and
the passion he has for his life’s calling, which can be simplified down to helping humanity. You may not like the
man, but you will at least respect him after reading this book.
Now that I’ve made the pitch for why you should be wary of betting against Musk, I’ll back it up with some
evidence. Here’s a list of the companies Musk has founded and/or been a major part of:
Economies of Scale from the Gigafactory, Source: BNEF, Ford, GM, Tesla, Survey Participants
How the Finished Gigafactory Will Look, Source: Tesla

17. • Zip2 Corporation
• Musk’s first company founded in 1995
• Supplied maps and business directories to online newspapers, creating the internet’s
first online Yellow Pages
• Sold in 1999 for $307 million
• X.com which merged into PayPal
• Founded X.com in 1999 as an online financial services company
• Merged the company with a competitor led by Peter Thiel and the company was
renamed PayPal
• Sold to eBay in 2002 for $1.5 billion
• Space Exploration Technologies, also known as SpaceX
• Founded in 2002 with the ultimate mission of colonizing Mars
• First private company to send a rocket to space, previously only a feat accomplished by
a select number of countries’ government programs
• First and only company to send a rocket into space, land the rocket, and reuse it to
send into space again
• Currently valued over $20 billion(87)
• Tesla Motors, now Tesla Inc.
• Musk was the primary investor in Tesla in 2004 and joined the board of directors
• Musk became CEO in 2008
• Tesla essentially created the electric car industry
• Along with Ford Motor Company, it is the only American car company to have never
gone bankrupt
• Currently has a market cap of roughly $53 billion
• SolarCity
• Musk invested heavily in SolarCity and set the frame work for the company, which was
founded by his cousins Lyndon and Peter Rive
• Musk acted as chairman of the company
• SolarCity was the largest retail solar rooftop installer in the U.S.
• Acquired by Tesla in 2016 for $2.6 billion
• Hyperloop
• In 2013, Musk unveiled the concept for high-speed transportation sending capsules
riding on air through reduced-pressure tubes
• Created the Hyperloop pod competition in 2015
• Received verbal government approval for hyperloop from New York City to
Washington D.C.
• OpenAI
• Created by Musk in 2015
• Non-profit for artificial intelligence (AI) research
• Neuralink
• Co-founded by Musk in 2016
• Neurotechnology company to integrate the human brain with artificial intelligence
• The Boring Company
• Started in late 2016 to solve traffic problems
• Company will dig tunnels for high-speed transportation underground
After analyzing the companies Musk has been involved with, the commonality between them is they were
all industry disruptors. Zip2 pioneered the idea for Google Maps and PayPal disrupted the financial industry for
online payments. Both internet companies survived the dotcom bust and PayPal now has a market cap over $85
billion. SpaceX revolutionized the space industry, accomplishing things previously thought to only be possible for
NASA or the Russian government. SpaceX can send cargo to space for a small fraction of the cost other companies
can and is the only company in history to have reused and landed a rocket sent to space. Tesla entered an
industry built on a century of internal combustion engines. Tesla turned the view of electric cars from ugly, slow
golf carts to sexy cars with quicker acceleration than a Lamborghini. Not to mention, they’re safer than a Volvo
and get better performance after purchasing due to over-the-air software updates. Additionally, Tesla has

18. disrupted the energy industry built on coal, oil, and natural gas with energy storing batteries, clean cars, and solar
roof tiles. Musk’s other ventures have the potential to disrupt artificial intelligence and high-speed transportation.
Not to say whatever Musk touches turns to gold, but it certainly is not the same afterwards. Many of Musk’s ideas
have yet to fully play out, but it is clear he fundamentally changes the industries he enters. If you want to bet
against him, you better be able to tolerate the tail risk that he is successful.
Lastly, it is important to take a moment to better understand Musk’s mentality and motivation. First of all,
he thinks completely different than Wall Street, which is probably why analysts are repeatedly upset with his
projections and quarterly performance. But that’s just it. Musk doesn’t care about the next quarter’s earnings per
share. While Wall Street bickers over how many days, or months, late Musk was from his forecast, he’s thinking
about the company’s next move to set them up for the next decade. Wall Street would prefer to set a low bar and
gracefully step over it. Like an overly ambitious kid on the playground, Musk would rather jump for the highest
monkey bar and miss than shoot for an easily reachable goal. This is called the Musk Doctrine. Tom Randall from
Bloomberg describes it perfectly,
A perfect example of the Musk Doctrine at
work was his latest goal of producing 500,000 cars
in 2018, shifting the goal forward by two years, and
changing the 2020 goal to one million cars.
By now, Wall Street has learned to take Musk’s
targets with a grain of salt, but the principle is
taking effect. When Joseph Spak, an analyst at RBC
Capital Markets, heard of Musk’s 2018 production
goal he figured it was just more risk for another
missed target. Meanwhile, he almost doubled his
2020 forecast to 620,000 vehicles, which was higher
than Musk’s old target of 500,000 that most people
already thought was impossible.(89) So, maybe Musk
does fall short of one million vehicles in 2020, but
620,000 cars would be 120,000 more than his
previously “impossible” goal.
His mentality is completely different and
is probably a root cause for the disconnect between
him and many naysayers. Another separating factor
for Musk is he’s not in it for the money. If he was, he
wouldn’t be risking billions to send rockets to Mars
and take on car and oil giants with electric cars.
Instead, he could be kicking it on a private island in
the Pacific Ocean with his $21 billion-dollar (90)
fortune earning a stable return in a low-cost index
fund. But that’s not who he is. He is a man who
deeply cares about the future of humanity and is
doing all he can to help. His passion goes far beyond
dollars and cents and is unquestionably what keeps
him moving forward against all odds, against all
competitors, against what seems impossible. His
determination is probably stronger than your desire
to continue betting against him.
Q: “It goes something like this: People do paradigm-shifting work only when they’re under tremendous
pressure, so the key is to ensure deadlines are always impossible. This could help explain why Musk has
never launched a product on time, yet no one seems able to keep up with him.
It drives Wall Street nuts.”(88)
Biography on Elon Musk, Source: Good Reads

19. My Take
After analyzing the bearish and bullish viewpoints on Tesla with the underlying topic of determining what
type of company Tesla is, I would like to finish by stating my own thoughts on the matter. So, what type of
company is Tesla? My answer is Tesla is more than just a car company. I think it is a narrow-minded approach to
believe all Tesla does is produce cars powered by an electric motor instead of an internal combustion engine.
Here’s why. Tesla is in the business of sustainable energy and electric cars are just part of that equation. Even
before the SolarCity acquisition, Tesla was expanding the Tesla Energy unit for residential, commercial, and utility
battery storage. Tesla is situated to become the largest producer of batteries in the world with the completion of
the first Gigafactory and plans for several more. Really, Tesla is in the business of making batteries for clean
energy purposes. Those batteries are then used for electric cars to solve sustainable transport and for energy
storage to make renewable energy sources, such as wind and solar, practical for everyday use. The acquisition of
SolarCity completed the sustainable chain by offering a clean method of harvesting energy from the sun. Certainly,
the majority of Tesla’s revenue comes from its automobile unit, but that’s only today’s picture, not tomorrow’s.
The very fact the company is now reporting “energy generation and storage” as its own revenue line and spent
over $2 billion to buy a non-automotive business suggests Tesla is not just a car company.(91)
Even if you only want to analyze the vehicle segment, an argument can still be made for its multifaceted
business besides selling cars. Tesla’s self-driving system has gathered over 1.3 billion miles of data from Autopilot
-equipped vehicles, as of December 2016. Every car produced since October 2014 has Autopilot hardware
installed it and Tesla can gather data even when it’s not engaged. These 1.3 billion miles have included real world
driving situations in various road and weather conditions throughout the world. In October 2016, Musk tweeted,
“Cumulative Tesla Autopilot miles now at 222 million.” By comparison, Google’s autonomous vehicles
accumulated 2 million real-world miles since 2009. Nidhi Kalra, a senior information scientist at the Rand
Corporation, said,
In today’s algorithmic world, data is king and Tesla has more of it than any other self-driving company.(92) Tesla’s
advanced technology and large amount of data point towards the company being just as much a big data and
technology company as it is a car company. Collectively, it does not make sense to me limit Tesla to just four tires
and a steering wheel. That viewpoint does not give credit to the advancements Tesla has made in solar energy and
battery storage, nor does it acknowledge the foundational mission of the company to accelerate the world’s
transition to sustainable energy. Note that Tesla’s mission statement changed the word transport to energy in July
2016 and the company changed its name from Tesla Motors to Tesla Inc.(93) I advise other people to make the
change as well.
Burning Cash
By this point you can probably tell I have a bullish view for Tesla’s prospects. I would like to give more of
my take on this opinion, but I must say this is an overarching outlook, not a specific target price on the stock. I do
however, plan on following up this paper with my own financial analysis, valuation, and target price. First of all, I
concede to the bears that Tesla is burning significant amounts of cash. There is no denying the fact Tesla has spent
billions of dollars without earning an annual profit. While this is certainly unsustainable, I think it is important to
step back for a moment and look at what Tesla has done and is doing. Tesla is the first car company to go public
since Ford Motor Company initiated its IPO in 1956.(94) By the time Ford became public, it had already existed for
half a century and pioneered the gas-powered automobile. Meanwhile, Tesla is only 14 years old and is
pioneering the 21st century version of Ford’s Model T with its own Model 3. Simply put, what Tesla is doing is
unprecedented, complex, and extremely expensive. Rather than writing lines of code or building a website
predicated on making money from advertisements, Tesla has had to acquire and build large-scale manufacturing
plants and intricate supply chains. Tesla has invested heavily in research and development, even outspending its
revenue in prior years. The Gigafactory is a $5 billion project itself. Starting from the ground up is a costly process
and Tesla has exacerbated those costs by investing so much in R&D. But the company wouldn’t be what it is today
if it hadn’t done so and it wouldn’t be setting itself up for the future either.
Q: “There’s no question that Tesla has an advantage. They can learn from a wider range of experiences and
at a much faster rate than a company that is testing with trained drivers and
employees behind the wheel.”

20. Yes, Tesla has burned through $10 billion without making a penny, but the quality of its products, the
advancement of its technology, and the improvement in economies of scale could not have happened without
forking out the dough. It’s my guess Tesla could have squeezed out a profit through cost cutting, outsourcing, and
building plastic cars (kind of like GM’s Chevy Bolt designed with cheap plastic and rubber to save expenses).(95)
That wouldn’t have made for a compelling case to switch from gas to electric in a time when people thought EVs
were a joke. Tesla could have purchased batteries from China instead of building the largest battery plant in the
world. Tesla could have operated on a quarter by quarter mentality, but where would the company be today with
that approach? Instead, Tesla invested in producing high quality, safe, vehicles that can outperform gas and diesel
-powered cars. Instead, Tesla advanced its battery technology and financed a factory that could pump out more
batteries than the rest of the world. Instead, Tesla capitalized on vertical integration in sustainable energy,
aligning itself with the overwhelming globally-focused goal of fighting climate change. Eventually, the cash fueled
fire will burn out, but it was necessary for building Tesla’s foundation.
Competition
In terms of the impending
competition Tesla will face, it’s
important to point out a few key
points. I can remember just a few
years ago, people thought electric
vehicles could never take on the
internal combustion engine. The
engine had been the incumbent king
for over a century, refined to its
optimal point by top-notch German
engineers. Oil was plentiful and
cheap. Gas guzzling Humvees were
the next big thing. Electric cars were
nothing more than crappy golf carts.
They were ugly, slow, and had to be
recharged after a short ride. Besides,
GM had already tried out the electric
car thing with the EV1 in the 1990s.
The result ended in recalling all of
the cars from customers and
flattening them into metal pancakes
in 2003.(96) Ironically, Tesla was
founded the same year GM was
destroying its own EVs. At this time, Tesla had to overcome the challenge of proving the viability of electric cars.
In essence, Tesla was creating its own industry, one of which was laughed at by big oil, traditional car makers, and
Wall Street. There wasn’t any competition because there wasn’t anything to compete over. EVs were doomed to
fail and people had a countdown clock for when Tesla would go bankrupt. But none of that happened. Tesla
survived the 2008 financial crisis and produced the Roadster followed by the Model S in 2013. Tesla proved EVs
could be sexy, fast, and a legitimate replacement for the internal combustion engine. Along the way, older car
companies began to take notice and started making plans to invest in their own electric cars. As more players
were added to the field, Wall Street figured they’d be a major threat to Tesla, but in typical Musk fashion, he
welcomed the competition by saying, “It’s a vindication of what we’re trying to do.”(97) When it comes to
competition for Tesla, it must be understood that Tesla first had to overcome the notion that electric cars were
not a feasible industry. Competition for Tesla is actually a good sign because that means what they’re doing is the
right business. If no one was interested in battling Tesla, then the company’s fundamental product would have
been a waste and the company would be extinct. Changing the global community’s mentality towards EVs
requires more than just Tesla. In a short number of years, the conversation has changed from if EVs are a
legitimate contender to how soon EVs will takeover. If that conversation would have never changed, we wouldn’t
be talking about Tesla today. The discussion shifted in part because companies like Ford, GM, BMW, Mercedes,
Porsche, etc. decided to invest billions into EVs, showing support for the industry Tesla created.
A Pile of Crushed EV1s, Source: Electrifying Times

21. While the competition waited for Tesla to prove the market, it may have missed its opportunity to
squash the rebellious newcomer. The time to for the competition to kill Tesla was in its infancy before it became a
major threat. There was a chance in 2008 when the company was hours away from bankruptcy, but it prevailed.
There was a chance in early 2013 when Google had a handshake deal to buy Tesla because it was late in launching
the Model S and couldn’t gather its footing. Then the company turned its first profitable quarter and shares took
off. From there Tesla has grown to a market cap flirting with the competition that once thought it was nothing but
a hobbyist company with a hippie idea. What has the threatening competition done about it? Honestly, not much
except for cheap talk and open-ended promises because until recently, the competition still viewed Tesla as a
laughing matter. Less than two years ago, a former Daimler chairman, Edzard Reuter said Tesla was “a joke that
can’t be taken seriously compared to the great car companies of Germany” and that Musk was a “pretender.”
Ferdinand Dudenhoeffer, a German car industry analyst at the Center for Automotive Research, said in reference
to the German car companies,
While Tesla was on the rise, what were the German automakers doing instead? They pushed EVs aside as just
another fad and went all-in on clean diesel, which turned into an epic scandal. Volkswagen’s answer to cleaner,
more efficient cars was rigging them with devices to cheat on emissions tests. Whoops, that only cost $30 billion
… so far.(99)
Maybe the competitors Tesla is supposed to be losing sleep over are actually the ones in panic mode. In
spring of this year, BMW employees were shown a picture of Elon Musk’s face to scare them about who and what
is coming after them. The presenter described the face of the enemy by saying, “We’re in the midst of an electric
assault. This must be taken very seriously.”(100) As of now, there is not a single electric car in competition with the
Model S or Model X and any signs of competing vehicles are only concept cars slated to be released in coming
years. The concept cars are comparing themselves to Tesla’s current models, which I imagine will have improved
by the time competing vehicles arrive. The only EV in competition with the Model 3 is the Chevy Bolt. Bloomberg
writer Kyle Stock described the cockpit of the Bolt as “a cheap collage of plastic and hard rubber that feels down-
market even on a $30,000 vehicle.”(101) Bloomberg writer Tom Randall said the $37,500 Chevy Bolt is “outclassed
in nearly every way by the Model 3.”(102) Frankly, the Chevy Bolt is nothing more than a GM marketing move to
show the company can make an electric car, not a real intention of shifting towards EVs. The company has shown
little care to focus on the Bolt because pickup trucks and SUVs are their real cash cow. The same goes for other
traditional auto manufacturers. Gas and diesel-powered vehicles are their bread and butter. That’s what they
know how to make. That’s what they know how to sell. That’s what brings in the money. Beyond the Chevy Bolt
and a few concept cars, the rest of the competition has done nothing more than state its intentions to shift
towards hybrid and all-electric cars sometime in the mid to late 2020s. I expect that will likely be a mix heavily
tilted towards hybrids than all-electric cars.
By the way, there are a few other EVs on the market, none of which exceed 150 miles in range and some
fail to go even 100 miles. Those EVs are closer to the ugly, golf cart stage of EVs than a Tesla car. I don’t consider
that to be competition. Also, I’d like to highlight the fact that while traditional car makers may have decades of
experience building cars with internal combustion engines, they have slim to no experience of making electric
cars. Tesla on the other hand, has 14 years of experience building only electric cars. Tesla also has the benefit of
literally calling in the rocket scientists from SpaceX to work on certain problems.(103) I don’t know of any other car
manufacturer getting assistance with building its cars from a company with the resources and brain power to
send reused rockets into space and land them on a pad in the middle of the ocean. Maybe the ruckus upstart from
California is actually the expert in the field.
Elon Musk
Plenty has been said about Elon Musk, but I have a few final thoughts on him. Tesla has the “Musk
Premium” for a reason because he is crucial to the company and has gathered vast amounts of people who believe
in his vision. He is determined to see his vision through and is fueled by something larger than money. He believes
Q: “Germans have an enormous amount of pride in their engineering skills and believe they know everything
that needs to be known about cars. They used to think there was no way that anyone could possibly build
cars as well as they do. And then along comes this young punk in California. They thought he didn’t have
a clue about cars and treated him like a joke. And now they’re seeing that he’s leading the revolution.”(98)

22. his purpose is to help humanity and will do so however he can. He is insanely smart and has a long track record of
proving people wrong. Every time Wall Street expects him to fail or run out of investor support, people come
running to get a piece of Tesla’s future. As I wrote earlier, before getting in an argument with someone about
Musk, you need to read Ashlee Vance’s biography on him. I promise it will change your perspective and then you’ll
at least know what you’re talking about. Yes, it is true Musk sets outrageous goals to be accomplished on insanely
short timelines. While he may underdeliver on due dates, he overdelivers on quality. The quality of Tesla’s
products has continually impressed people at every turn of the corner and they keep getting better. Besides, when
did setting big hairy audacious goals (BHAGs) become such a terrible idea? Last I checked, it’s not a low bar that
creates the next innovation. While the old guard sat around laughing at Musk’s impossible ideas to start an
electric car company and disrupt space exploration, there was Musk making the impossible happen. As James A.
Baldwin said,
The Big Picture
Finally, I think it is imperative to see the big picture when analyzing Tesla. Global trends, consumer
tastes, economic changes, and governmental regulations are all in favor of Tesla’s business model. Countries
throughout the world are throwing in their support for a cleaner world run on renewable energy and electric
cars. Even China, the biggest polluting country, is aggressively picking up the fight. Consumers, driven by the
millennial generation, are taking action to do their part to stop climate change. This marks a drastic change from
big oil and smoke-puffing trucks, to clean energy solutions and sustainable transport. Economic factors are
reducing the cost of batteries, wind, and solar making them economically competitive with coal, natural gas, and
oil. Governments are stepping in to enact stricter requirements on fuel efficiency and pollution and countries
have unified under the Paris Climate Agreement to collectively slow down the effects of climate change. All of
these macroeconomic factors benefit Tesla and its commitment to accelerate the world’s transition to sustainable
energy. Tesla is well-positioned in the overarching landscape surrounding it with both its electric vehicles and
Tesla Energy business units. Tesla will most definitely have to make improvements as an individual company,
most importantly by becoming profitable. However, I would much rather be Tesla operating in a positive
environment than coal, oil, or gas and diesel-powered vehicles operating in an environment that will lead to a
slow death.
As far as investing in Tesla, here is my advice. If you don’t like the company, think competition will eat
Tesla’s lunch, or it will never be profitable, that’s fine. Don’t short it. Shorting Tesla has lost investors millions of
dollars and proven to be the wrong bet time and time again. You might be right about the company and still get
burned by the stock. I think it’s safe to say buyers of Tesla have a much longer time horizon than sellers. Buyers
are looking five, ten years down the road, not one or two. Chances are, they’ll keep their investment longer than
you can sustain holding your short. On top of that, you’re at the mercy of other shorts. As soon as other short-
sellers start covering their position, the stock goes up even more. Now, people don’t even have to be buying Tesla
for the stock to go up because the 27 percent of stock sold short can drive up the price alone. Alexander Potter, an
analyst at Piper Jaffray & Co., sums it up well,
Why would you pay interest to bet a stock will go down when the stock has consistently proven that bet to be
wrong? Ask the short-sellers I’ve referenced in this paper how well they’ve done making that bet. It just simply
isn’t worth shorting Tesla. If you don’t like Tesla, great. Don’t touch it and find a better investment to make. If you
want to invest in Tesla with without taking as much risk, consider buying convertible debt. This offers lower risk
with access to some of the equity upside. If you are an equity investor in Tesla, be prepared to stomach volatility
and a wave of naysayers. If you hold on for this story to play out, you might just be glad you did.
The Final Q&A
Q: What kind of company is Tesla?
A: While some see Tesla as “just a car company,” there is evidence
to support Tesla’s case as a vertically-integrated, sustainable energy company.
Q: “Those who say it can’t be done are usually interrupted by others doing it.”
Q: “It’s as if there’s a worldwide commitment to helping this company succeed – from consumers, suppliers,
and investors alike – and we don’t think it’s wise to bet against a story with this much momentum.”(104)

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(57) ibidem
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