2017 Investor Roundtable:General Discussion

[RobStark]

 

[Matias]

Didn't know that:

Quote:

Haissl said the battery technology used in the 220 mile version used a 45kWh battery, 5kWh less than expected.

“At our estimated battery cost of $146/kWh, this implies an additional $730 of gross profit per vehicle and a 50 basis point higher automotive gross margin than we forecast. The long range version adds 19kWh of battery capacity based on our calculations, which at a price of $9,000 implies an incremental gross margin of 69%,” Haissl said.

End quote.

According to this [Spoiler Alert + Mild Speculation] Tesla has created a monster!

Model 3 LR has 80.5 kWh, so I think SR can't have only 45 kWhs. EPA ranges don't add up.

 

[petteriiiiii]

Tesla is planning to produce 500k cars in 2018 witch is close to maximum capacity for fremont factory, how can they possibly ramp to 1 million cars by 2020? Must take more than 2 years to build next gigafactory?

 

[WarpedOne]

witch is close to maximum capacity for fremont factory,

If that was Toyota + GM.

This is tesla.

 

[EinSV]

Tesla is planning to produce 500k cars in 2018 witch is close to maximum capacity for fremont factory, how can they possibly ramp to 1 million cars by 2020? Must take more than 2 years to build next gigafactory?

Elon has suggested several times that they can expand Fremont capacity beyond 10k/week Model 3s plus Model X/S. He also said at the shareholder meeting that Model Y would help them get to 1M/year in 2020. I would expect they plan to start building the US Model Y production plant soon -- maybe early 2018 -- so Model Y production can help meet the 1M vehicle in 2020 goal. I don't know when they plan to break ground or start vehicle production at the European and Chinese GFs -- hopefully we will learn more later this year.

 

[petteriiiiii]

If that was Toyota + GM.

This is tesla.

Yea but i still cant see 1million cars from fremont alone.

 

[techmaven]

Found this image with VIN number 6. Says it was produced 2017-07-27, just 1 day before delivery event.
Do they produce the cars sequentially? If so, would be very fast production. 30-50 cars in 1-2 days
View attachment 240017

Found them here: Photos of Model 3

That is likely the firmware build date.

 

[Dagger]

That is likely the firmware build date.

Yeah, your right. Deleted the post. Thanks.

 

[ValueAnalyst]

As I wrote earlier in response to another post that also mentioned 16Q3, I do think that quarter was an outlier because Tesla had easy and near 0 cost of converting Model 3 reservation holders to the Model S. It's a tactic that only worked once and cannot be repeated to that extent. As a results, we saw the ratio of SGAA/Atuo Rev rose back quite a bit in the following 16Q4.

I went back and examined all ERs since 2014 Q1. Since 2016 Q4 part of Tesla's earnings reflects SCTY. I'm using the following basis:

1. Before acquisition (2016 Q1-Q3), SCTY was running about $250M/Q on OpEx, with SGAA being the overwhelming part of it (RND was below $15M).
2. In 2016 Q4, SCTY reported $135M OpEx with $12M of RND and TSLA reported $85 OpEx related to SCTY. So I took $80M out of TSLA SGAA in 2016 Q4 to get auto related SGAA.
3. I assumed SCTY costing around $150M of SGAA for 2017 Q1 and Q2 due to letting people go.
4. 2017 Q1 had another $65M one time cost related to acquisition that was taken off to calculate this ratio.
5. I assume SGAA related to storage is negligible. This assumption would overestimate this ratio.

End results look like this

2014 Q1: 20%
2014 Q2: 18%
2014 Q3: 19%
2014 Q4: 22%
2015 Q1: 22%
2015 Q2: 23%
2015 Q3: 28%
2015 Q4: 26%
2016 Q1: 31%
2016 Q2: 27%
2016 Q3: 16%
2016 Q4: 19%
2017 Q1: 17%
2017 Q2: 17%

Yesterday I didn't notice take the SCTY related SGAA cost in 2016 Q4 so got a much higher ratio that quarter. I also forgot the $65 acquisition cost in 2017 Q1. So what I thought was 16%, 23%, 20%, 17% for Q3, Q4, Q1, Q2, and thought we have a trend here. Now the improvement since Q4 was only modest and not really worth to be excited.

Thank you for your work on this. Very informative, and in-line with my view.

Based on your knowledge and best estimate with available information, what would you expect this ratio to be in 4Q18, assuming revenue of $10B for the quarter?

 

[ValueAnalyst]

I think Tesla should raise more debt in Q2'18 to fund additional GGF as quickly as possible.

One the risk side, 2 questions we face now are whether they can ramp M3 and whether they can profit from the M3. By Q2'18 those 2 questions should be answered, and allow more debt to be raised.

Another factor is how quickly can and should Tesla build. There is a cliche that you can't have 9 women and get a baby in 1 month. That is true for the current M3 production line, there is 1 line, and the M3 is being built in a serial fashion, there is a saturation point where you get the most bang for your buck in terms of accelerating growth, past that point, more money doesn't help much. Also while the line is still not proved out to be able to build 100K's of cars, you don't want to spend money to build another line, in case something doesn't work with this line and need to be changed.

But after M3 production ramp is proven, say it cost $2B to build out that line, now if Tesla can borrow $10B, they can confidently build 5 more lines in parallel. This also applies to GGF and TE production, once they achieve some 10's of GW capacity, now they will be confident that the GGF design works, and can spend more money copy/paste in parallel. I agree with idea in recent post that GGF1 is a prototype, once it's proven, it can be copied in parallel, and also done cheaper and faster.

Another factor is that since MY will be built on the same platform of M3, successful and profitable ramp of M3 should also de-risk MY, and allow Tesla to raise debt and aggressively ramp initial MY production, in contrast to the M3. Maybe they will build a factory that house 1M capacity of MY right from the start.

I think the capital raise in 2018 will be shocking to anyone who don't see the growth potential, and I expect TSLA stock will continue to be volatile. If it's not, then Elon has played it too safe, and not executed the master plan as quickly as he could.

I agree with this post 110%. The borrowing capacity of Tesla is underestimated. If Model 3 production goes as planned, I expect credit rating agencies to upgrade their ratings and outlook on the company by the end of 2017 and again by the end of 1Q18.

About half was: Tesla - Current Report
Add up the form 4s for most of the rest.

Those who think Tesla can issue non-dilutive debt at will to raise new capital should check the restrictions in the Asset Based Credit Agreement (and other existing borrowing agreements) about Additional Indebtedness and other financial covenants.

These agreements are amendable, and/or Tesla can issue other debt to replace this one.

These are certainly valid points. There is a related argument to be made, possibly with equal validity. That is the observation that in terms Gross margin TSLA is now outperforming the best in the industry. That does not negate the probable need for more capital, but does strongly suggest that any analyst capable of evaluating credit risk will see that TSLA is highly profitable on a steady-state basis, thus likely to obtain very attractive terms on any type of financing.

For comparison I have used YCharts to ensure that the comparison is Apples to Apples, as it were:
Gross Margin %
Quarter ending BMW TSLA
March 31, 2017 20.52 24.77
Dec 31, 2016 18.43 19.05
Sept 30, 2016 19.64 27.70

BMW Gross Profit Margin (Quarterly) (BAMXF) BMW
Tesla Gross Profit Margin (Quarterly) (TSLA) TSLA

BMW is normally a primary reference for high GM within the industry. TSLA are ahead of them even considering the massive growth rate, hubristic Model X issues during the period, and high ongoing expenses to keep ahead of the TSLA growth curve. So, while agreeing with @EinSV on most points I also think that TSLA has already proven their ability to tackle unprecedented engineering and production issues while creating extraordinary margins. It is true that TSLA corporately has not yet done large scale mss production, but they do have a large number of people who have established new large auto plants, have sourced robotics from well-established auto industry suppliers and have mostly established Tier One quality suppliers now. In batteries, inverters, motors etc they are already world leaders. They have long been avoiding such difficult-to-scale issues as permanent magnets, for example. Those speak to TSLA advantages to well-informed capital sources.

Beyond those issues the TSLA distribution system is another big advantage for GM and growth. For all we complain about support problems, spare collision parts and other such issues TSLA is well ahead of the curve in distribution quality. That is another major GM advantage. Then there is the issue of sales recognition accounting, itself a Big Deal. TSLA recognizes income when the product has been delivered to the end user. Almost all competitors ('almost' only because I have not checked them all.) recognize income when the product is legally transferred to a dealer, generally when the product is placed in transportation to the dealer. For TSLA a sale is a sale. For others a sale is conditional and is subject to numerous questions. Lastly TSLA has less exposure to lease accounting risks than any other comparable entity, even including the overhang from former SolarCity installations.

So new capital needs, certainly. Problem? no way!
We mostly agree, I'm sure, but I thought a little more detail might illustrate how low the probable capital raising risk actually will be.

Yes, and I would add that BMW's and others' profits margins will have to erode very quickly throughout 2018, or they won't be selling many cars. This is a trend that already started with heavy discounting across the industry even though the economy is doing well. Bulging inventories are also a big sign.

 

[landis]

It sounds like you are talking about the GFs as big battery production factories. However as I understand it, Tesla is heading in the direction of complete vehicle factories.

A future GF will produce a complete vehicle. Maybe even several vehicles (considering the importance they assign geographical proximity to customers) .

Also, since the GFs will be producing complete vehicles, how much sense does it make to talk about the GFs in terms of GWh/yr production?

Thank you for the kind words. I agree that we need to know more about the nature of subsequent Gigafactories for the best estimate. Just trying to wrap my arms around an initial estimate with available info for now.

Given that GF1 will have about 24-27 sections, it is likely useful to compute capital per section rather than the entire factory.
Presumably different GF locations are likely to have different numbers of sections purposed for battery cell production.

IIRC they are already using different sections for TE cells, TA cells, TA packs. No idea whether M3 motors are in the same section as TA M3 packs. Or where the on site cans for cells is sited. I presume sections could also be used for BIW (body in white), paint, and final assembly much like in Fremont but mapped to a section somehow. And supposedly there are future sections for battery recycling. So even at GF1 we can expect there will be less than 24 sections producing cells.

I presume purpose of each section is selected individually, and that PV production could be in one or more sections of future GFs.
Each GF site (other than GF2) likely can accommodate some max number of sections.

 

[Reciprocity]

Elon has suggested several times that they can expand Fremont capacity beyond 10k/week Model 3s plus Model X/S. He also said at the shareholder meeting that Model Y would help them get to 1M/year in 2020. I would expect they plan to start building the US Model Y production plant soon -- maybe early 2018 -- so Model Y production can help meet the 1M vehicle in 2020 goal. I don't know when they plan to break ground or start vehicle production at the European and Chinese GFs -- hopefully we will learn more later this year.

What Elon said was that they could expand to 1M in Fremont, but probably shouldn't because it would make more sense to build cars closer to where they are delivered. Maybe they are rethinking that with 500,000+ reservations before the car is even available to test drive. I think demand will determine how many they make in Fremont. My best guess is that they will expand to as many as possible possible based on us demand alone.

 

[ValueAnalyst]

Gene Munster discusses his model of Tesla's future. There are a few out of date items, like theorizing that the Model 3 will reduce demand for X and S, but overall it rivals various highly positive models discussed here.

1.6m annual production by 2023?!

6,000 Model 3's in 2017?

310,000 total cars delivered in 2018?

Osborne on both Model S AND Model X?

Model Y at end-2019?

Tesla Energy growth slower than Automotive?

$11B revenue in 2017?

Profitability in 2021 or later?

"Elon Musk stands to earn $1.6B in stock options if he can achieve 10 milestones by 2022" - didn't he already earn most of this incentive?

This model is insanely conservative, and he sounds very confused.

There's an extreme gap between what Tesla said it will do in 2018 and what even the most bullish sell-side analysts are projecting. A very wide gap, the size of which I've never seen before. This is really odd.

 

[WarpedOne]

Follow the money.

 

[scaesare]

I think this is the picture some refer to :

1st Picture Of A Tesla Model Y (Under Cover)?

Not before the S, but is not an X and seems to predict another FWD model.

Ahh.. that picture.

In addition to the conjecture as a result of it: A) Being under wraps, and, B) Tesla not having disclosed what model that may be... when you examine that picture more closely, it become rather apparent that's not a FWD under the covers, but an entirely different profile running the length of the car.

Here's a zoomed in crop:

Notice the sharp edges of whatever's under that cover clear in to the windshield and hood area. I suspect that was a combo sedan/CUV-ish design exercise.

Apparently designing clay models with a different design on each side is not an uncommon method to evaluate multiple designs with less effort. I can't find an example as dramatic (although I've seen them), but here's a pic of a split model:

I don't believe I've ever seen a picture of a Model 3 concept with FWD's... and almost certainly not anything official from Tesla.

 

[Reciprocity]

Good point! Question is how is BMW 4 series doing in China. Apparently 2017 BMW sales have been stellar. I just can't find more granular information on individual series sales.

I don't know if you are only referencing China or not, but what I have seen is that in the US BMW sales have been lagging and only the mini brand and x5 are doing really well. I'm almost 100% Tesla is willing to concede the mini market segment for now and recent order drop and performance improvements for model x is targeting X5. X5 must be one of the most profitable vehicles left that Tesla has not dominated.

 

[Mich]

Amber Heard splits from PayPal billionaire Elon Musk | Daily Mail Online

 

[kenliles]

Still not getting it, but good to see them trying

The Problem With Electric Cars? Not Enough Chargers — The Wall Street Journal

 

[LargeHamCollider]

Tesla vlogger Ben Sullins

Clear takeoff of this dude:

 

[AudubonB]

As off-topic as much of today's postings:

ref. #24348 - can someone please tell me why a clay model has a license plate on it?!?!?!?

"I pulled you over because your windshield was obscured...."