Are markets underestimating Tesla? Are markets underestimating Tesla? Are markets underestimating Tesla?

Are markets underestimating Tesla?

Equities 5 minutes to read
Peter Garnry

Head of Saxo Strats

Summary:  Despite founder Elon Musks's recent gaffes and scandals, Tesla's Q3 numbers and deliveries are likely to hit targets.

A lot of news has hit Tesla and CEO Elon Musk lately. While Musk’s latest actions have been unquestionably negative for the company and shareholders, however, I believe the headlines have distracted many observers from the real signal. But before we go into my observations, let me just clarify my views of the recent developments:

• The SEC settlement was good and actually cleans up the corporate governance mess at Tesla. Three new independent board members are a good thing for shareholders and increase the likelihood that Musk will keep his focus on production.

• Tesla’s balance sheet is weak, which is reflected in the five-year CDS instrument price being above 700 basis points. Fast-growing deliveries, however, will improve the company's financials and together with an equity raise, Tesla will continue on its current trajectory. The balance sheet is the key risk.

• Production is ramping up and most bottlenecks have been solved, something that will soon be clear to sceptics.

Despite all the challenges and uncertainties, I believe many observers are greatly underestimating Tesla and what’s happening with electric vehicles of late. This opinion piece by a German engineer pretty well sums up my view that German carmakers remain a mile behind and are not willing to sacrifice short-term margins and profits for long-term victory.

Already now, the Tesla 3 is outselling all the leading German brands in the midsize luxury segment in the US; the Germans have already lost ground in what is arguably the future.
Small and midsize luxury car sales (US)
The argument I always hear, from sceptics within Saxo Bank and clients alike, is that when the other carmakers begin to move into EV they will crush Tesla. This sounds like a something we have heard before – remember Nokia versus Apple? The point is that Tesla’s pace of innovation is much faster than the competition right now and the Germans have underestimated Tesla.

Let’s look at the numbers:

As of 2018, Tesla will have spent $6.2 billion on research and development and $12bn in CAPEX. On top of this, Tesla is already climbing the production learning curve of battery and EV mass production. Most importantly, the mass production of batteries is probably where the competition will come up short against Tesla as the CAPEX needed is massive. 

VW has said it will invest $25bn in EVs and start mass-producing in 2022. What a joke! By 2022, if Tesla continues at its current rate and avoids bankruptcy, the cumulative R&D in EV technology will have hit $16-20bn and cumulative CAPEX (gigafactories and production plants) will have hit $32-36bn.

According to analysts, Tesla could have $53bn in revenue in FY'22 (around 24% of VW’s current revenue).

Just for the record, Tesla spends 11.7% of revenue on R&D compared to 5.7% at VW. If you believe R&D matters in the long run, it’s clear that the German carmakers should begin recognising the threat. 
Tesla details
What about the Chinese carmakers? Are they not ahead of Tesla in terms of volume? Yes, but for the foreseeable future, they will only sell in their home market. While China is of course a big market, Chinese consumer companies still do not have the global brand perception necessary to conquer foreign markets. US and European carmakers are unmatched in terms of brand perception against their Chinese rivals in all markets but China. Tesla will not be meaningfully threatened by Chinese carmakers in markets except for China. 

The latest customer satisfaction survey (one million car owners) we have on the car industry is a year old, but here Tesla topped the industry with 90% satisfaction across all models; number two was Porsche at 85%.

Tesla will soon report Q3 numbers and deliveries. My expectation is that the company will hit the target. Tesla is currently at a run rate of 360,000 cars (all models) and will probably hit 500,000 in first half of 2019. At this point, the company will be profitable and the car industry will be shocked at Tesla’s growth rate. The US car market topped out in 2016 and that means that the industry will experience zero to slightly negative growth rates in ICEs over the coming years. The only transition is into EVs, but Tesla already dominates the segment.

The risks, however, are still immense. The biggest risks are bankruptcy, Elon Musk, the new production tent not being approved by the local state, faster-than-expected arrival of competing EVs, and a slower-than-expected decline in battery costs.

These are my observations on Tesla and should not be viewed as an investment recommendation.


The Saxo Group entities each provide execution-only service, and access to analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular, no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (
Full disclaimer (

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region


Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.