Coffee Can Next (Part 3): Tesla
A leading Artificial Intelligence (AI) company.
I am a fan of the Coffee Can Portfolio, an “Active Passive” approach to investing. The idea of a Coffee Can is simple: Buy a basket of the best stocks you can and let them sit for years. You incur no costs with such a portfolio, and it is simple to manage.
On December 1 2023, I said I would create a new Coffee Can Portfolio.
Our first two investments were Bitcoin and KWEB. Today we’ll touch upon investment number 3, Tesla.
Investment 3: Tesla
Last Friday I bought Tesla, the third investment in Coffee Can Next.
Tesla needs no introduction.
At this point Tesla is the leader in Electric Vehicles. But Tesla still seems to be compared to existing auto makers. That's a myopic view. That's normalcy bias at its finest.
In addition to its leading battery engineering, its hardware+software vertical integration, its Direct to Consumer sales & marketing, and its vast and growing charger network, Tesla has a massive data advantage.
And this makes Tesla a leading Artificial Intelligence (AI) company.
In my view, this makes Tesla’s growing competitive advantage likely insurmountable.
Most companies building self-driving systems are relying on test fleets & simulations to collect driving data to improve their algos. Meanwhile Tesla uses real-world data from over 1 million cars!
This data, which is used to improve Tesla's driving AI, grows exponentially, and is already orders of magnitude bigger than all competitors combined.
Just like people train Google everyday by searching and clicking on the most relevant results, drivers train Tesla's AI everyday as they make driving decisions on the road.
As Elon said, "this [advantage] is difficult to fully appreciate."
Tesla's Flywheels (Simplified):
More Drivers ⇒ More Driving Decisions ⇒ More Data Collection ⇒ Better AI ⇒ Better Safety ⇒ Fewer Accidents ⇒ More Drivers
AND
More Drivers ⇒ More Cars Produced ⇒ Lower Cost Structure Per Car ⇒ Better Pricing ⇒ More Drivers
Cost of Ownership
In the traditional auto-ecosystem, significant revenue (and profit) comes from car maintenance & upkeep. A lot of this doesn’t get captured by the actual auto-manufacturer.
In the EV market, that's not the same. Tesla has significantly reduced the number of parts in a car. Also, the notion of a “tune-up” doesn’t really exist in the same way. As a result, it has simplified what it means to be a car owner and in doing so, is reducing the total cost of ownership.
In fact, according to Tesla's Master Plan, they say their cars will one day actually make money FOR YOU when you aren't using it.
And, we haven't even talked about the fact that Tesla is also a software platform.
We are witnessing the birthing of the EV industry.
And Tesla is creating it!
World’s Most Valuable Company?
Elon Musk, perhaps THE inventor of our age, believes that Tesla one day will be the most valuable company in the world, and he has a habit of delivering on what sometimes seem like outlandish claims. I’m betting on him
"Tesla has the most exciting product growth map of any company on earth by a long shot, and we'll continue to be in that position. We've got more great ideas than we know what to do with here. The future is very exciting... long term, I am convinced that Tesla will be the most valuable company on earth," Musk said.
It’s hard for me to imagine that Tesla’s stock has top-ticked. We are currently sitting more than 50% below its all-time highs ($414.5/share). For a double, we simply need it to get back there in the next 3-5 years (the duration of our Coffee Can). I think we get there.
Performance Results (2/26/2024):
Given Tesla relies on camera for its autonomous driving service, what happen when there's rain or snow? Can the camera only business model overcome the weather challenge?