2017 Investor Roundtable:General Discussion

[ValueAnalyst]

Model S/X Gross Margin

Given that Tesla's long-term gross margin goal of more than 30%, and Model 3 (revenue driver) gross margin goal being a segment-leading 25%, Model S/X gross margins will need to exceed 30% by a substantial margin.

Given that the two models currently have less than 30% gross margin at nearly optimum production rate, what else do you think Tesla can do to improve gross margin?

Battery, wiring harness, distance to end-customer, and manufacturing automation are the four likely areas I can think of...

A discussion around specifics would be helpful.

 

[ZenMan]

Model S/X Gross Margin

Given that Tesla's long-term gross margin goal of more than 30%, and Model 3 (revenue driver) gross margin goal being a segment-leading 25%, Model S/X gross margins will need to exceed 30% by a substantial margin.

Given that the two models currently have less than 30% gross margin at nearly optimum production rate, what else do you think Tesla can do to improve gross margin?

Tesla has already discontinued the single motor S's. This will add at least $5K to the ASP of each Model S. Once the Model 3 ramp exceeds 5K units a week, I'd think the next thing to go will be the 75kW versions of the Model S. Maye bring back an 85kW version with a higher ASP?

 

[ValueAnalyst]

Tesla has already discontinued the single motor S's. This will add at least $5K to the ASP of each Model S. Once the Model 3 ramp exceeds 5K units a week, I'd think the next thing to go will be the 75kW versions of the Model S. Maye bring back an 85kW version with a higher ASP?

I think that makes a lot of sense. Move Model S ASP to closer to Model X ASP as Model 3 rolls out.

I need to make that change in my DCF. Model S ASP at $105k going forward sounds reasonable.

 

[22522]

Model S/X Gross Margin

Given that Tesla's long-term gross margin goal of more than 30%, and Model 3 (revenue driver) gross margin goal being a segment-leading 25%, Model S/X gross margins will need to exceed 30% by a substantial margin.

Given that the two models currently have less than 30% gross margin at nearly optimum production rate, what else do you think Tesla can do to improve gross margin?

Battery, wiring harness, distance to end-customer, and manufacturing automation are the four likely areas I can think of...

A discussion around specifics would be helpful.

It is always helpful for margins to use the parts from the high volume product across all products. I expect the model 3 main motor (or maybe front motor) will show up as the S and X front motor to deliver a cost reduction and a slight range bump at the same time.

The dash should migrate the same way, with the driver getting a head up display in the more expensive vehicles.

Introducing the Y and truck off the new batteries and selling against some industry established reference, like the i pace, will create a price margin umbrella for whichever company has the lowest costs.

Need to be careful on flagship products not to trash the brand, so past the dash and the front motor, I see most of the margin in new vehicles with large frontal area that give battery costs more leverage wrt competitive price references.

The solar shingles, working off the reference price of a house in California, have some margin room as well.

 

[dennis]

I think that makes a lot of sense. Move Model S ASP to closer to Model X ASP as Model 3 rolls out.

I need to make that change in my DCF. Model S ASP at $105k going forward sounds reasonable.

In order to get the ASP of the Model S to rise, Tesla will have to reach its demand target without the price reductions and discounting that have become necessary recently. I can think of several ways this could happen:

- Model 3 increases foot traffic in stores and results in more demand for S
- Major interior upgrade creates more demand for S
- Tesla holds production flat for S+X at 25K and allows Model X to take a bigger and bigger portion of that, so fewer Model S need to be sold. This presupposes that X demand is increasing without discounting

IMO Tesla does not need to increase sales of S+X while the Model 3 is adding so much revenue that the growth rate resumes it's 50%+ trajectory. This means managing the S+X as a cash cow, if that concept is even possible at Tesla. Once Model 3 revenues begin to plateau (most likely because of reaching the production line limit), Tesla will need Model Y (and semi) to reach volume production in order to have continued high revenue growth.

 

[ValueAnalyst]

The following is from Tesla's latest Form 10-K:

We capitalize initial direct costs from the origination of solar energy system leases or power purchase agreements (the incremental cost of contract administration, referral fees and sales commissions) as an element of solar energy systems, leased and to be leased – net, and subsequently amortize these costs over the term of the related lease or power purchase agreement.

Can anyone please confirm that this means referral fees are booked into Cost of Goods Sold as amortized?

 

[neroden]

Weekend..
At IAC EM talked about using PV energy, draw CO2 from the air to create CH4. He said this could also be used on earth. Perhaps it's a new product with PV, PowerPack and a CH4 machine? It sounds like the project TIM spec.

“We’ve already started building the system,” he said. “The tooling for main tanks has been ordered, the facility is being built. We’ll start construction of the first ship in about six to nine months. I feel fairly confident we can complete the ship and be ready for launch in about five years.”
Elon Musk revises Mars plan, hopes for boots on ground in 2024 – Spaceflight Now

It's actually very important to suck CO2 out of the air as fast as we can, so this is a good technology even if we just use the methane to make... I don't know... plastics.

 

[Paracelsus]

Model S/X Gross Margin

Given that Tesla's long-term gross margin goal of more than 30%, and Model 3 (revenue driver) gross margin goal being a segment-leading 25%, Model S/X gross margins will need to exceed 30% by a substantial margin.

Given that the two models currently have less than 30% gross margin at nearly optimum production rate, what else do you think Tesla can do to improve gross margin?

• Exponential growth of TE - for which preparation (accelerated GF1 plans to create the largest battery factory in the world) has now already met opportunity (nearing successful implementation and nearly unlimited free advertisement of the world's largest battery storage facility in Australia). Let's not overlook the potential for increased awareness of TE grid stability opportunities with the free units being shipped to Puerto Rico now, too. The potential for TE growth was previously limited by capacity. The simultaneous roll-out of the Model 3 with the Australia effort combined with Good Will efforts is a major signal that the paradigm has already shifted. Tesla has batteries available...........and for sale!
• Maximizing the margin potential of the X/S that are delivered - many reasons already stated above, i.e. max battery size-only, consolidation of available features into pre-configured premium packages, etc
• Decrease the impact of the initial Model 3 ramp-up by growing the number of high margin X/S that can be delivered during the very low margin start-up period of Model 3........our 100D Model X experience was similar to recent posts - that it arrived to the Portland delivery location so much quicker than previous vehicles that even the sales staff were surprised that it was there already. I have greatly enjoyed following the intensity of the TMC exercise to track Model 3 deliveries. But I have found the story of the potential for increased Model S/X growth and increased delivery speed between the lines of the Model 3 VIN story to be of particular interest during this interim higher Model 3 manufacturing cost period. Your question here VA is particularly pertinent IMHO

 

[Paracelsus]

It's actually very important to suck CO2 out of the air as fast as we can, so this is a good technology even if we just use the methane to make... I don't know... plastics.

Yes, and we learned yesterday that science is admitting that 'sources' are producing more of it than originally thought.

Massive Global Warming discovery shocks scientists

Talk about preparation meeting opportunity. Either SpaceX will move into the organic beef industry to generate rocket fuel for the new BFR, or we will eventually find out that the South Park aliens were correct that cows are the most intelligent things on earth because they created a path to organically 're-ignite' the space race.

 

[ValueAnalyst]

Who wants to guess a number for how many Americans know that 'Tesla' is a car company making cars they can buy?

How many people on TMC?

 

[Lessmog]

How many people on TMC?

... as opposed to ... ?

 

[D-egg-O]

It's actually very important to suck CO2 out of the air as fast as we can, so this is a good technology even if we just use the methane to make... I don't know... plastics.

If we are using solar to suck CO2 from the atmosphere to make methane, then use this methane as rocket fuel, it's carbon neutral for international travel. You're just releasing the CO2 back into the air you previously captured.

Your point about making plastics is interesting. The carbon would be sequestered in the plastic for the life of the product, but when said product decomposes does it always release methane (which has greater greenhouse gas effect)? A google search shows lots of write ups on a complete carbon neutral lifecycle approach to methane based plastics. I wonder how viable it is.

 

[aubreymcfato]

As far as I remember, sucking C02 artificially is less effective than planting trees or fighting deforestation (probably, the most efficient and effective action for fighting global warming). But using C02 for using it (either bioplastic or fuel) it's of course much better. BFR would eat an important pie from air transport.

 

[ValueAnalyst]

Someone earlier was asking about risk factors... I love my clients. I love them alive.

 

[BioSehnsucht]

If we are using solar to suck CO2 from the atmosphere to make methane, then use this methane as rocket fuel, it's carbon neutral for international travel. You're just releasing the CO2 back into the air you previously captured.

Some of that fuel burn may be outside of the atmosphere and blown away by the solar wind vs re-entering?

And if they use this to produce fuel for Moon/Mars/etc missions off-planet, then a lot of that is definitely going into space.

So it could be carbon negative eventually... though I won't hold my breath

 

[RobStark]

Chevy Bolt owner,wife of Model X owner, parking lot reviews of Model 3 in several colors at Fremont factory.

In Russian, with some poor CC in English, but I think you get the jist.

 

[TEG]

That red one is the same #33 we have seen so many times at the factory. I assume it is someone who works there, not a new customer car being delivered.

She really shouldn't be touching all over other people's cars like that. It looks like she opened the door on the blue one.

 

[DragonWatch]

Thx DW

Couple points that may help understanding your tour:

1) Stamping (fenders, doors, deck lids, hoods, etc). Lots of staged, ready for assembly stamped parts for the M3, if tour guide was correct. Remember, a door frame, is a door frame until you see were it is being assembled.

2) Body-in-white Robotic lines (separate for Model 3). Produces bare metal car chassis. Then chassis goes to paint shop. Here is where my traumatic event, robbery screwed us all:-( My plan was to sit down with my wife, sister, and brother-in-law and compare notes over a glass of red wine, but the days events went to another world of hell, and I in turn have failed you.

3). Paint Shop (not on tour). Correct.

4). After paint shop, you're seeing Painted Cars. These car go to General Assembly Lines. There's ONE gen assembly line for Model 3 and a separate Gen Assembly Line that assembles MS AND MX

Having been on a tour of the Volvo plant in Sweden and one other years before most were born, the Tesla plant uses every available square inch of floor space. At every entry point there are parts staged ready to be entered onto the line. Again, because the tour cattle car snakes around and the fact that each line is currently dedicated to each model it is not always easy to re-figure where you are unless the guide clarifies. All stamping locations were silent. But everywhere we looked there were stamped parts ready for assembly.

The Sweden plant was easy to follow since it moved along like a ski lift line and models varied along the way depending on the feed based in computer punch cards The robots were human in those days. The only complete robotic action we were stopped to observe was a MS being shuffled from the end of one line to another by Ice Man and Wolverine (name of two robots) at the Tesla plant. Oh, and an S or X was taken from the last body grinding area where I saw the M3 up onto the line headed out for painting.

I wish I could do a better job here, but things just got scrambled. As we were driving Xena (our MX), out of the area enroute north a blue MX caught up waved and then fell back. That was a nice touch

It would be nice to do the tour two or three times in close sequence, but the tour guide probably never wants to see me again since I ask all the questions he cannot answer Additionally, since this trip had way too many road bumps, my wife is threatening never to do another one We did have breakfast at the Crater Lake Lodge which was nice. Clear blue skies with just a touch of snow accumulated here and there. FYI we were able to drive up and back down with sufficient killawats to be comfortable. The new onboard mileage tracking takes into elevatin changes down to the nats, well you get the idea. I was very impressed!

Okay, back home with still lots of jumping through hoops plugging holes from the trip, but still looking for some of that green I was asking about

Hey, if you ever see our plate ~ waterfall scene ~ 4 EARTH Please say high!

 

[dennis]

Great pictures! Where there any interesting conversations while (or before, or after) these pictures were taken? Could you add come *color* (to the descriptive part, obviously)?

There was no one taking delivery of a Model 3 for the 20-30 minutes I was there, so no color on that unfortunately. The VIN's on the 8 Model 3's in the picture were in a very wide range, and a fewer of the older ones had paper tags indicating that they were awaiting some rework. I ran into some friends who were taking delivery of their second Tesla, an inventory X75D that was replacing their SUV that died last week. I guess that quick sale shows the value of having cars in inventory.

The other thing that struck me was the scale of the delivery center. There are two huge rooms with the cars awaiting delivery. Each is capable of holding 12-14 cars without being crowded. There was a huge parking lot behind the building with on the order of 50 Tesla's. Seeing 2 transporters unloading cars while I was there leads me to believe they must have been bringing in fresh cars for delivery all day long. There was also another large part of the building that appeared to be dedicated to prep, but I didn't venture close enough to see how big it was or what was in there. I couldn't help but think about the millions of $$ of capital located at just this one facility. The scale of the auto industry and its capital requirements are immense.

 

[skitown]

This is how you win on the Internet, kids. Classic:

The robots were human in those days.