2017 Investor Roundtable:General Discussion

[vgrinshpun]

BTW yesterday night there was another tweet storm from Elon, including exposing as untrue hit pieces about firing his long time assistant and my personal favorite: "Hi Mom!". I guess the bond issue could not have gone that bad (perhaps an understatement).

 

[mongo]

Usually automated storage and retrieval is a sign of misplaced priorities in manufacturing, as storage and retrieval add capital and operating costs (and more importantly cycle time to the inventory, and lags in cause and effect as downstream processes are often the place where flaws are found- they tie up money and effort and delay the discovery of flaws creating a junk exposure/risk) with no actual value added to the product.

So in trying to sort this, if an IC guy designed this thinking that buffers are good, there are differences between data and physical product, but Tesla is pretty smart, and they know that inventory turns matter, so this would be bad sorting on my part.

If color changeovers are so expensive that this facility is the only way to get more than one color on a truck, that might make sense.

I am from the school of low rate parallel machines that don't need a buffer in case they break down. Shigeo Shingo school I guess.

If it is to store finished product to avoid crossing the threshold, because the natural area of distribution is large, it is a natural capacitor, I would tend to rent space in mall garages, on a temporary basis. Or even rail cars or trucks.

If there is some sort of soak time required in the manufacturing process - reforming or something like that, it could make sense. Maybe they are moving a battery process step to occur in vehicle?

I see a pile of money, delay and misdirected effort in these types of buildings. Sometimes to serve a fragile high rate process with slow changeover time. If the inventory money and effort and lag costs were directed toward buying more manufacturing equipment or improving changeover speeds, ... usually it is better not to have these sorts of buildings.

Pretty sure I am missing something.

[Edit: AWK mind bending stream processing with no memory management and Shigeo Shingo single minute exchange of die( and other stuff) are the two things that set my expectation of high speed and low cost to a point where others think "impossible unrealistic." Appreciating these things creates conflict with those who don't...]

I was initially thinking vehicle storage for tax credit maximization, but am now more of the mind that it may be related to the press operation.

Incoming part rate is limited to terrestrial shipping methods and supplier build rates. Those seem like they can be matched to vehicle build rates (just in time).

However, stamped parts are produced in house, on a fixed number of presses (two large ones). To make the Y at Fremont (if they do), they will need new die sets for the panels. These will either need another press line, or to time share with the S,X, and 3.

Stamping is also the part process with the highest change in material density. It goes from a solid roll of metal to a bunch of bent pieces with airspace to their neighbors in a rack with space around it.

So throwing those thoughts together, I can see larger batch runs of stamped pieces optimizing die change over and production rate. Also allows total vehicle build rate to approach total stamping output rate regardless of the number of presses. They do this now, but on a smaller scale (100k on one press per year vs 500k on 2 vs 1,000k on x?)

Oh, it can also help when/ if they refresh the dies. Build ahead the stampings so you hit the max number just as you bank enough parts to cover vehicle builds during the refresh (no idea what that time is)

You could also tell me it's the new paint oven, and I'll make a case for that...

 

[Bobfitz1]

Most people don't care or are even able to tell the difference between 0-60 of 4 seconds and 2.3 seconds. It is just scary fast.

Auto performance freaks tend to think that audiophiles are a tiny community.
And the reverse is also true.
Most branded upgrade audio systems are crap. If you offered a really good one for $10k or even $15k included in the auto loan, without chopping up your car, with factory warranty the demand might surprise you.

No disrespect Robstark (you are knowledgeable and right on 99%) but a quadriplegic could tell the difference between 4 and 2.3 seconds!
I don't believe there is only one part of your body/brain for evaluating acceleration sensations. 0 - 60 in 4 is scary fast (first few times) 2.3 is way scarier precisely because anyone can feel the difference.

Audio has been my hobby for 40 years so I have some knowledge of what medium high end systems can do. Cars have one big advantage when it comes to engineering very good sound quality. The dimensions and materials are fixed and known. I've never tried to upgrade the audio quality of a car I've owned by adding more speakers or separate amps. Caveat: I preferred to spend spare funds on upgrades to my home system.
I will venture an opinion that given the lower engine and road noise in Teslas, it is possible to get very good quality audio from them without spending 10 or 15K on custom installations. By very good, I mean close enough to the sound of a high end home system that you are fully enjoying what you are playing (with possible exception of very quiet passages where residual road noise detracts from enjoyment).

 

[mrdoubleb]

This might be an uninformed financial question from an engineer, and if so I hope professionals in finance, particularly bonds related, could set me straight.

How is it possible that a company like GM which seemingly **demonstrated** that it can't run business without underfunding their obligations (I assume that is why they need to issue bonds to part with their pension obligations due to sale of Opel) has S&P rating that is three pegs higher (BBB vs B-) than Tesla's? Is S&P rating indicative of who might prop GM business, rather than credit profile of the company itself?

Also, didn't GM go bankrupt a couple of years ago? Talking about a bad track record..

 

[ItsNotAboutTheMoney]

See originally post linking Automotive News.

Or simply Google

That Automotive News article refers to an analyst call in _May_ about the Model 3 long before the 2017Q2 call in which Musk backtracked. It then says "in the conversation" he said that the Model Y would have much less. The only conversation mentioned in the article is the May call. It says nothing about a new call, or re-iterating the wiring reduction. Other junk sites then refer to that Automotive News article.

 

[schonelucht]

How is it possible that a company like GM which seemingly **demonstrated** that it can't run business without underfunding their obligations (I assume that is why they need to issue bonds to part with their pension obligations due to sale of Opel) has S&P rating that is three pegs higher (BBB vs B-) than Tesla's? Is S&P rating indicative of who might prop GM business, rather than credit profile of the company itself?

I am not really well versed in credit ratings, but I assume free cash flow generation is part of the metrics used.

 

[vgrinshpun]

I am not really well versed in credit ratings, but I assume free cash flow generation is part of the metrics used.

Even if their cash flow generation is achieved by underfunding their obligations? I guess I am perpetually confused then...

 

[ValueAnalyst]

WHY???

Even if we assume additional Gigafactories will cost the same $5 billion, which is a ridiculously conservative assumption given Elon's history of reducing the cost of anything he touches by an order of magnitude, that's a total $500 billion. My estimate is that as Tesla getting more efficient at building Gigafactories and has easier access to cheap non-dilutive debt as the company grows its gross profit 4x in 2018, the cost of each additional Gigafactory will decline. I estimate around $400 billion cost.

If half of the $400 billion comes from internal cash flow and half non-dilutive low-cost debt, Tesla would have to put up only $200 billion.

At Trump's new low tax rate of 15%, that's $235 billion of operating profit. And likely less, because Tesla just sinks all profits into op-ex and cap-ex so expenses/depreciation jump minimizing any taxable income.

Even if we assume a really tremendous investment into operating expenses of $130 billion over the next ten years (about what Apple spent), that's $365 billion of gross profit needed to finance the full 100 Gigafactories.

At 25% gross margin, that's less than $1.5 trillion of revenue.

At ASP $50,000, that's 30 million cars.

With one-third to half of the revenue/profits coming from Tesla Energy throughout the next ten years, that's 15-20 million cars.

Are you telling me that there is no way Tesla can sell 15 million cars CUMULATIVE in the next ten years?

This is the first post (April 2017) in which I mentioned "non-dilutive debt," which shows I had not expected Tesla to do what it just did until 2018.

Elon & Team proved me conservative once again. Simply unbelievable.

 

[schonelucht]

Even if their cash flow generation is achieved by underfunding their obligations? I guess I am perpetually confused then...

I am sure the amount of underfunding is taken into account as well.

 

[22522]

I was initially thinking vehicle storage for tax credit maximization, but am now more of the mind that it may be related to the press operation.

Incoming part rate is limited to terrestrial shipping methods and supplier build rates. Those seem like they can be matched to vehicle build rates (just in time).

However, stamped parts are produced in house, on a fixed number of presses (two large ones). To make the Y at Fremont (if they do), they will need new die sets for the panels. These will either need another press line, or to time share with the S,X, and 3.

Stamping is also the part process with the highest change in material density. It goes from a solid roll of metal to a bunch of bent pieces with airspace to their neighbors in a rack with space around it.

So throwing those thoughts together, I can see larger batch runs of stamped pieces optimizing die change over and production rate. Also allows total vehicle build rate to approach total stamping output rate regardless of the number of presses. They do this now, but on a smaller scale (100k on one press per year vs 500k on 2 vs 1,000k on x?)

Oh, it can also help when/ if they refresh the dies. Build ahead the stampings so you hit the max number just as you bank enough parts to cover vehicle builds during the refresh (no idea what that time is)

You could also tell me it's the new paint oven, and I'll make a case for that...

How much does another large press cost compared to a building that large, all the automation in it (or handling to get parts into and out of it), and all the inventory that is in it?

How much does another paint system cost?

 

[DurandalAI]

BTW It has been over 4 months now that Lucid Motors has been trying to raise either $240M for the first phase(20k cars per year) of their Arizona Factory or $700M for the whole enchilada(130k cars per year).

I read a month ago they had an offer to fund the first phase of the factory but Lucid did not like the strings attached.

Generally I would wish well for any companies entering the BEV sector, but honestly I don't want people to be distracted from a company that can delivery great BEVs while already having a great charging network available. I think that a number of these smaller companies such as Dubuc Motors are really only interested in seed money or being acquired, rather than actually following through.

 

[AlMc]

Thanks Fred L: When will the $7,500 tax credit run out?

Tesla salespeople are telling Model 3 reservation holders that $7,500 federal tax credit runs out in 2017


My opinion: Attempt to sell you an S *now*

 

[DurandalAI]

How much does another large press cost compared to a building that large, all the automation in it (or handling to get parts into and out of it), and all the inventory that is in it?

How much does another paint system cost?

The used schuler press was $50mil. I would expect that a new one to cost at least triple that. I don't know how much that building costs, though.

 

[DurandalAI]

Thanks Fred L: When will the $7,500 tax credit run out?

Tesla salespeople are telling Model 3 reservation holders that $7,500 federal tax credit runs out in 2017
My opinion: Attempt to sell you an S *now*

That's the kind of lying behavior I would expect from a franchise dealership, not Tesla. I hope the person that sent the email is terminated immediately.

 

[techmaven]

Thanks Fred L: When will the $7,500 tax credit run out?
Tesla salespeople are telling Model 3 reservation holders that $7,500 federal tax credit runs out in 2017
My opinion: Attempt to sell you an S *now*

So much very wrong with this. The salesperson really needs to be schooled here.

Mind you, if you sit in retail for any length of time in any store that sells anything remotely technical or complex, the crap that spews out of sales people's mouths is incredibly bad. Still, Tesla's sales people should be held to a much higher standard.

 

[22522]

The used schuler press was $50mil. I would expect that a new one to cost at least triple that. I don't know how much that building costs, though.

$150 million is 3000 cars...

Can any of that work be done on a less expensive press?

 

[Bobfitz1]

Does anyone on TMC have knowledge or likely indications on what options they give to M3 reservation holders whose number comes up and are contacted to configure, but who wish to wait until some option like dual motor AWD becomes available?
I would hope these reservation holders are put in a dedicated queue so that when M3 AWD is available they get their cars ahead of holders who have higher numbers than theirs, who are not in that line. For some, how this is handled could determine whether they get 100% of the federal tax credit or 50%. Once the M3 AWD wait queue is drawn down, then position on regular reservation line and geographic location would again become the only considerations.

 

[22522]

I was initially thinking vehicle storage for tax credit maximization, but am now more of the mind that it may be related to the press operation.

Incoming part rate is limited to terrestrial shipping methods and supplier build rates. Those seem like they can be matched to vehicle build rates (just in time).

However, stamped parts are produced in house, on a fixed number of presses (two large ones). To make the Y at Fremont (if they do), they will need new die sets for the panels. These will either need another press line, or to time share with the S,X, and 3.

Stamping is also the part process with the highest change in material density. It goes from a solid roll of metal to a bunch of bent pieces with airspace to their neighbors in a rack with space around it.

So throwing those thoughts together, I can see larger batch runs of stamped pieces optimizing die change over and production rate. Also allows total vehicle build rate to approach total stamping output rate regardless of the number of presses. They do this now, but on a smaller scale (100k on one press per year vs 500k on 2 vs 1,000k on x?)

Oh, it can also help when/ if they refresh the dies. Build ahead the stampings so you hit the max number just as you bank enough parts to cover vehicle builds during the refresh (no idea what that time is)

You could also tell me it's the new paint oven, and I'll make a case for that...

Mongo, you likely know this.

In changeover, setting the closing height is the long time constant: too open and you don't form the part and too closed and you break something that takes a long time to replace. On smaller presses you build up every die you have, no matter how deep the draw, to have the same closing height.

Is this standard procedure with the big stuff, as "that adds a lot of steel to the shallow dies" if the deepest draw is significant?

 

[Bobfitz1]

$150 million is 3000 cars...

Can any of that work be done on a less expensive press?

It would be good to know how common it has been for presses this size to be used in North American auto assembly plants.
If using that is the norm, then the number of shuttered plants in NA would suggest how likely it would be for Tesla to purchase additional used presses. I believe for something the size and complexity of these presses, not only the price of new will be much higher, worse the time to deliver once ordered will be much longer as well. Stamping presses might be one of the major constraints on ramping total production as quickly as Tesla would prefer and could otherwise achieve. Thoughts?

 

[mongo]

$150 million is 3000 cars...

Can any of that work be done on a less expensive press?

For large, multi-step parts, probably not. Using the full capacity of the existing presses also removes the lead time to get an additional press built and installed (Y pull forward?), although as @Bobfitz1 points out, used can be faster.