I hope they do become profitable, but I'm skeptical they will.

1) Their losses are growing, not shrinking. From March 2017 to now, they lost $330M, $336M, $619M, $675M, and $785M. Maybe they hit a tipping point and there is an abrupt change, but it seems like the more natural trajectory would be for losses to become smaller and then turn into profits.

2) Tesla has said they'd be profitable before. https://www.reuters.com/article/us-tesla-results/tesla-expec...

Tesla is a really cool company, but it's hard to see a future where they justify their share price. Let's say that Tesla becomes the next Toyota 15 years from now. Toyota is only worth $213B. So, the kinda max value for Tesla is around 4x their current price. So, under really rosy conditions, Tesla appreciates at 12% per year over the next 15 years. That's not bad, but the likelihood that Tesla is the next Toyota is very small.

Let's say that Tesla is incredibly successful and becomes the next Volkswagen, Daimler, or BMW (the #2, 3, and 4 auto makers by market cap). They'd be a $106B, $85B, or $73B company. That doesn't leave much for price appreciation over their current $51B market cap.

Maybe Tesla can make a company that's way more profitable per vehicle and sell so many vehicles. But that's a bit of a moon-shot.

It seems more likely that Tesla will become a company like Subaru ($26B), Mazda ($8B), Nissan ($43B), Ford ($44B), Hyundai Motor ($40B), Fiat Chrysler ($34B), Renault ($32B), PSA Peugeot Citroën ($22B), Suzuki Motor ($26B), GM ($51B), or Honda ($60B). Those are all very successful auto companies. If Tesla becomes the next Mazda 15 years from now, that will be incredibly bad for investors. Basically, if Tesla doesn't become the next Toyota, it seems hard to believe Tesla won't underperform the market by a lot.

It's possible that Tesla will become the next Toyota, but unlikely. Comparing Tesla's market cap with that of most auto manufacturers makes you realize that investing in Tesla isn't just betting that Tesla will become a great volume car company like Mazda. They have to become the car company.

When investing, it's also important to note that money later is less valuable than money now and account for risk. Tesla is being priced like it's making $6B/year today and it's future is certain.

Beyond that, is the automotive industry long for this world? People are re-urbanizing and city traffic is only getting worse. Self-driving vehicles will mean that being driven unlimited places might fall to $50-100/mo which is significantly less than the $400+/mo of car payments, insurance, gas, parking, maintenance, etc. Why should I spend $631/mo for a $35,000 car plus insurance, gas, parking, maintenance when I can just get driven around for a fraction of that cost? Today, Uber's help is more limited since the human driver costs a lot of money per mile. If that future comes to pass, there will be a lot fewer cars manufactured and bought which limits Tesla's value.

If an autonomous car is serving 25 people a day, that's a lot fewer vehicles that need to be bought. World vehicle production is around 90M/year and Toyota and Volkswagen are 10M of that each. If the demand for vehicles falls to 4% of its current demand, that's only 3.6M vehicles per year. Even if Tesla makes 100% of those vehicles, they don't come close to being the next Toyota or Volkswagen. Even if an autonomous vehicle only serves 10 people a day, that cuts the vehicle market down to 9M. Even if an autonomous vehicle can only serve 4 people a day, that cuts the market to 22.5M. The future market for vehicles might be pretty small compared to the current one and so even if Tesla hits a Toyota or Volkswagen-like 10% of the market, it might not be a large market.

And self-driving services are likely to have stiff price competition. Unlike an Uber competitor that has the network effects of having drivers already signed up, it's relatively cheap to blanket a city with self-driving vehicles. $20,000/mo isn't a huge run rate to to buy 50 vehicles at $400/mo and that will let you place a vehicle within a short distance of everyone in a city like San Francisco (47 square miles). You could position them so that they're usually less than half a mile away to pick you up. $20,000/mo isn't a huge run rate to get your service started and you can buy more vehicles as you get riders. So, even if you think that Tesla might be that self-driving network and will make profits that way, I think it's more likely that the space will have a lot of competition that will push margins down. Waymo and GM/Cruze are well on their way. Nissan and Toyota are expecting to enter the game in a few years. Uber wants to be in this space.

It just seems like Tesla is more likely to become Mazda than Toyota and that the auto industry might be facing a large market-shrinking threat in self-driving cars. As such, it's hard (for me) to look at Tesla's market value and see the potential for a lot of appreciation over the long term. They're already worth more than most successful auto makers.