2017 Investor Roundtable:General Discussion

[ValueAnalyst]

I'll be surprised if Elon & Team don't have a production trick up their sleeve if reservations surge after the event.

 

[mrdoubleb]

I'm thinking it will check all of the boxes at 75 kWh. Wouldn't be surprised if the 60/55 is a software locked 75, or the 75 is the battery size that gets 237 Wh/Mile. If not, the big battery will still be close to the Ionic for most efficient production car.

You know that bit never really made sense for me even with the S/X.

Sure, I understood why they did it with the 60/40 - they didn't want to go back on their word and deal with the backlash of not delivering on the price point/disappointing people who had reservations for years. That was a temporary thing for a limited run though. Same could be said when they want to retire an older battery config or size without osborning it: for a limited time, as the new pack production ramps, give people a SW locked bigger pack mixed in with the last bits of inventory of the old cells/packs.

But when they started doing that for a longer period for the 60-70-75 (don't remember the exact details) I was thinking: ok, some people may upgrade eventually, but you are giving away the most expensive component of the car for the rest! How did that ever make financial sense. Did streamlining production make up that much lost BOM?

Anyway... with the Model 3 you are looking at much higher volumes. Would they give away 15kWh worth of batteries by the hundreds of thousands in the hope some may upgrade?

 

[22522]

It baffles me that someone can look at this graph and not think to themselves, "how can this possibly be true?"

View attachment 238217

A slightly different thought pattern leads in a different direction.

1. What are they smoking?
2. What do they see that I don't see?
3. What do they value that I don't recognize?

Are they being paid by a participant? What is the funding for this work?

I think they are unaware of Japan activities.
And weigh production and distribution in a traditional sense (elephantine way).
GM is getting credit for Lyft and Maven.

 

[mrdoubleb]

I'll be surprised if Elon & Team don't have a production trick up their sleeve if reservations surge after the event.

Agreed. Even if it is just some convenient timing of a new AP feature. You want some element of surprise. I am still hoping for something a bit more exciting than reading stop signs... maybe higher Supercharging speeds for the new chemistry - and of course announcing this will be enabled on all S/X produced in the last few months as well, as they are still on the old cell format but with the new "Model 3" chemistry.

Disclaimer: just a WAG and wishful thinking. Don't start a rumor on my account.

 

[ValueAnalyst]

Given the large number of reservations, I think it is likely they will be able to sell far more than 10,000 Model 3s per week at some point but am happy to sit back and wait for guidance from the company on when and how many.

I agree that demand is there. I guess the question is, "how quickly can Tesla increase supply?"

I'm not a manufacturing expert. What I guesstimate, however, is that Tesla's capacity to ramp up production from 2011 to 2016 was in the past limited by (i) lack of capital (or the amount they can raise in equity secondaries), (ii) building a Gigafactory for the first time ever, (iii) having to use second-tier suppliers, (iv) uncertainty around regulation and widespread support from governments, and (v) uncertainty of demand for Model 3.

None of those limiting factors apply to the same extent going forward.

I would appreciate if a someone knowledgable could explain what is possible on the supply side in 2H18 and 2019, with the necessary caveats.

@jbcarioca or anyone else?

 

[MitchJi]

I'm a big fan of keeping the mission statement in mind when forecasting what the company will do. Having said that, the company is already producing as many cars as they can, fulfilling its mission statement.

What I'm proposing isn't in opposition of the company's mission statement, but supportive of it, as keeping asp slightly higher (which wouldn't reduce the rate at which Tesla is accelerating the world's transition to sustainable energy since demand is much greater than max supply anyway) could allow the company build out additional Gigafactories quicker, increasing the rate at which.... etc.

You didn't understand what I said. I said that in my opinion based on what Elon said that Tesla is going to charge less than you think. It's hard for me to understand how you can even be aurguiing about that. I added that it's compatible with their mission statement.

I'm tired of explaining this. It's very clear to me that it's the only possible explanation for what he's said over the last couple of years. It's possible that I'm wrong but I believe it's highly unlikely. We'll probably find out in about sixteen hours.

 

[ValueAnalyst]

You didn't understand what I said. I said that in my opinion based on what Elon said that Tesla is going to change less than you think. It's hard for me to understand how you can even be aurguiing about that. I added that it's compatible with their mission statement.

I'm tired of explaining this. It's very clear to me that it's the only possible explanation for what he's said over the last couple of years. It's possible that I'm wrong but I believe it's highly unlikely. We'll probably find out in about sixteen hours.

Did you mean "charge" in the bolded sentence? By "what Elon said," are you referring to management's guidance of $42k ASP?

 

[MitchJi]

Did you mean "charge" in the bolded sentence?

By "what Elon said," are you referring to management's guidance of $42k ASP?

Yes.

I'm referring to a lot of statements he's made. One statement that supports my belief is the $42k asp statement.

We'll find out very soon now.

 

[ValueAnalyst]

Yes.

I'm referring to a lot of statements he's made. One statement that supports my belief is the $42k asp statement.

We'll find out very soon now.

Just FYI - Elon wasn't the one who said $42k. From 1Q17 Earnings Call Transcript:

----------
Alexander Eugene Potter - Piper Jaffray & Co.

[...] Is there any way to gauge sort of what you think the trim and option uptake is going to look like on the Model 3 just to give folks an idea of what the pricing and margin profile might look like? Thanks.

Elon Reeve Musk - Tesla Motors, Inc.

I think it's really guesswork at this point, but if it were to be comparable to what we see with say Model S or with what other vehicles in the market (05:03) it's something like a 20% to 30% increment over the finished product (5:08) would be the typical average. Jon, do you have any...?

Jonathan McNeill - Tesla Motors, Inc.

Yeah, I think that's right. And we experienced a little bit higher than that in Model S. And Model S in comparison to Model 3 has more range, has more power, has more cargo, et cetera. And we'll be introducing at the start of production. I think, we'll be announcing our vehicle as we get closer to the start of production what those vehicle specs will be, but I think 20% is a fair number to use.
----------

The upper bound of Elon's "20% to 30%" range would be in-line with my 2018 ASP estimate of $45,000 incl. EAP/FSD and other options.

I think Tesla may use EAP/FSD pricing to counter federal tax credit phase out: full now, half in 2H18, free in 2019.

 

[Starno]

Macron isn't Libertarian. He's at most a centrist. (between socialist, and right wing party).

And, knowing very well the french, I don't expect Macron to do much about what he said.

Even the taxes cut he promised won't happen before 2020, and they're much lower than what he initially planed ....

So, Macron still libertarian ? :

France nationalises strategic shipyard to thwart Italian ownership

 

[ValueAnalyst]

Question to all: What is your 2018 revenue estimate?

 

[Hogfighter]

We have a price target of $165 on Tesla: Barclays' Brian ...

Bwaahahaha!! I love the questions posed in this interview. 'We have a $165 price target on this stock, but don't ever see it going there'.

To quote Bugs Bunny, what an ultra-maroon.

 

[Reciprocity]

The upper bound of Elon's "20% to 30%" range would be in-line with my 2018 ASP estimate of $45,000 incl. EAP/FSD and other options.

I think Tesla may use EAP/FSD pricing to counter federal tax credit phase out: full now, half in 2H18, free in 2019.

I just do not think they need to do anything to offset the loss of Fed tax credits with the model 3. Its already priced at a very competitive place when you factor in TCO and residual value. I think EAP/FSD will improve residual values as people or fleet owners can buy the used base models and enable those features. I just dont think that Tesla will do anything to lower margins and will not do things to increase demand for the Model 3 until they are making millions of them per year.

I am almost certain the ASP for the model 3 will be closer to 45K then 42K. Main reason being that most will get the 7500 tax credit which means the car is closer to the price of Camry when you factor in TCO and residual values. I know my ASP will be 45k+ and I am getting two.

Edit: You will know if I am right sooner then later because we will see how fast base models move from West to East coast, which will set the bottom bound for the average price. If tons of people are waiting for Duel motor and performance versions, that will jack up the ASP a lot. Then again, many will also be waiting for the smaller battery. Maybe the way to tell is which come first, the smaller batter option or the duel motor option. Anyone have an idea on which will come first?

 

[ValueAnalyst]

I just do not think they need to do anything to offset the loss of Fed tax credits with the model 3. Its already priced at a very competitive place when you factor in TCO and residual value. I think EAP/FSD will improve residual values as people or fleet owners can buy the used base models and enable those features. I just dont think that Tesla will do anything to lower margins and will not do things to increase demand for the Model 3 until they are making millions of them per year.

I am almost certain the ASP for the model 3 will be closer to 45K then 42K. Main reason being that most will get the 7500 tax credit which means the car is closer to the price of Camry when you factor in TCO and residual values. I know my ASP will be 45k+ and I am getting two.

Edit: You will know if I am right sooner then later because we will see how fast base models move from West to East coast, which will set the bottom bound for the average price. If tons of people are waiting for Duel motor and performance versions, that will jack up the ASP a lot. Then again, many will also be waiting for the smaller battery. Maybe the way to tell is which come first, the smaller batter option or the duel motor option. Anyone have an idea on which will come first?

I agree with you that Tesla does not need to lower Model 3 ASP, and I agree with @MitchJi that they will lower it sooner than they need to.

I just don't think EAP/FSD options will be thrown in for free until federal tax credit phase out and/or other manufacturers offer FSD.

 

[Paracelsus]

After a visit to the Portland Tesla store I had a tax question I was hoping to ask here (@neroden or others) - the Model X is over 6,000 pounds and thus should qualify for a $25,000 1st-year tax deduction for a business vehicle if used the majority of the time for that business (?).....and the $7,500 tax credit for an electric vehicle (?).......so if I purchased a new Model X for my business would I be able to claim a $32,500 tax deduction for this year? That sounds pretty wonderful since I had to sell a few of our March 2013 shares this year. This has probably been discussed somewhere on this board in the archives but I have never seen the discussion and follow these boards very closely. Thanks in advance and good luck to all!

 

[ValueAnalyst]

Yes, but that is not right for what it does for customer net promotion of the vehicle.

Promotion does not equal taunting. Recommending something that you know the other person cannot afford does not create community, but division. People have to drop out of activities when the cost is too high: Have to.

People struggle to promote in a conditional way. In other words they do not do it.

The car is smaller than an S. There is no blood in those turnips.

Tesla needs to deliver a car at a price that one family can recommend to another family, without threatening the college fund.

So to make net promotion work, there are 1000 small details that have to be right, and pricing is one of them.

Or they could advertise like GM. With an advertising budget of 3.77 billion in the US. If they sell 500,000 cars annually, that is $7500 per car.

Which behavior generates more good will: Advertising or selling the car for $7,500 less?

The net promoter script has to work. That means a lot of things, but priced right is one of them.

Could you please recommend a book on net promotion?

 

[mongo]

After a visit to the Portland Tesla store I had a tax question I was hoping to ask here (@neroden or others) - the Model X is over 6,000 pounds and thus should qualify for a $25,000 1st-year tax deduction for a business vehicle if used the majority of the time for that business (?).....and the $7,500 tax credit for an electric vehicle (?).......so if I purchased a new Model X for my business would I be able to claim a $32,500 tax deduction for this year? That sounds pretty wonderful since I had to sell a few of our March 2013 shares this year. This has probably been discussed somewhere on this board in the archives but I have never seen the discussion and follow these boards very closely. Thanks in advance and good luck to all!

The 25k is subtracted from your taxable income and the 7,500 is subtracted from your taxes. There is also bonus depreciation first year I think. Deductions prorated by business vs personal usage.

 

[DurandalAI]

Considering the delivery event tonight of the Model 3, I pose the following questions for those who may have this information readily at hand, or at least educated guesses.
1. How much $ was required for the equipment expansion for the Model 3 production line?
2. From that, can we determine how much $ will be required to ramp up to 500,000 cars a year, and then higher?
3. Assuming 20% margin on $42k ASP after production hits 5,000 cars/week, how many cars (and as a result time) would Tesla need to fund #2 without a capital raise either through stock issuance or credit expansion?

Personally it doesn't matter to me, as my $$ isn't going anywhere out of TSLA, but I thought it a good question that some of you might be thinking as well, so I would pose it.

 

[ZenMan]

After a visit to the Portland Tesla store I had a tax question I was hoping to ask here (@neroden or others) - the Model X is over 6,000 pounds and thus should qualify for a $25,000 1st-year tax deduction for a business vehicle if used the majority of the time for that business (?).....and the $7,500 tax credit for an electric vehicle (?).......so if I purchased a new Model X for my business would I be able to claim a $32,500 tax deduction for this year? That sounds pretty wonderful since I had to sell a few of our March 2013 shares this year. This has probably been discussed somewhere on this board in the archives but I have never seen the discussion and follow these boards very closely. Thanks in advance and good luck to all!

Not right. Here's how I calculate how it breaks down:

GVWR is ~6400 lbs - Heavy SUV depreciation rules apply
For this example – Assume you use the vehicle 100% for business to make the math simpler, and assume a $100K purchase price.

- You can write off $25,000 ($25k limit on heavy SUVs) of the cost thanks to the Section 179 deduction on new equipment.
- Then, you will be able to write off another $37,500 thanks to first year bonus depreciation (.50($100,000-$25,000)).
- Then, you follow the regular business depreciation rules to depreciate the remaining cost of $37,500 over 5 years. (20% x $37,500) = $7,500. You take this amount quarterly, so if you buy in third quarter, you'd take half this amount in 2017.

So 1st first-year depreciation write-off equals ($25,000 + $37,500 + $3,750 = $66,250). Now if you are in a high tax bracket like I am this might actually save you 45% in combined Federal and state taxes, so just the depreciation savings will result in a ($66,250 * .45) = ~$30K tax savings.

Add your $7,500 Federal tax credit and your total tax savings the first year is ~$37,500.

Caveats:
You are only supposed to take depreciation based on business use of the vehicle. If you only use it 80% for business your depreciation will only be 80% of the $30K.

You should confirm this with your own CPA.

 

[MitchJi]

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