2017 Investor Roundtable:General Discussion

[racer26]

This does not seem to be consistent with multiple times Tesla was explaining gross margin impact due to the fact that they could not recognize a particular type of revenue within a quarter.

The latest example from the Q4 letter is their explanation for the impact on the gross margin of the AP revenue that they were not able to recognize.

I think its complicated by the fact that some portion of the COGS is not strictly related to the sale of a particular unit (the fixed vs variable costs) and so that mucks up margin when you have to pay for the factory regardless of whether or not you can recognize the revenue for a particular project or car.

 

[Turing]

Two years is probably inaccurate, because they likely became ambitious and repositioned the X to be a major upgrade of S technology. Originally they were going to rush out an SUV because they were not confident on MS demand.

That is not saying I believe the model 3 release will go smoothly. I doubt they have the ability to maintain quality and scale production anywhere close to projections. My belief is due to the continuing fit and finish issue with the current cars. Getting current production correct is child's play compared to making 10,000 M3 per week with fairly good quality.

"Run the line faster" is about as likely as full self drive in the near future. I expect troubles before Tesla finally stabilizes with good production of the M3.

I feel like many are underestimating Tesla's ability to ramp a easier to build model 3 to 2k/wk. My real concern is more how the transition to 5k/wk and 10k/wk. But thankfully most of Wallstreet is expecting model X like issues with even just M3's ramp to 2k/wk in 2017.

 

[dirtyofries]

Well this is some good news.

Tesla takes a win for direct sales in Wyoming despite lobbying by GM, Ford and other automakers

 

[racer26]

Well this is some good news.

Tesla takes a win for direct sales in Wyoming despite lobbying by GM, Ford and other automakers

My go to analogy for shooting down the argument that its not fair because the big automakers are forced to use a dealer network and Tesla is not is this:

They aren't forced to, except insofar as the contracts they chose to involve themselves with.

~100 years ago, those automakers chose to make that contract with their dealer networks. All Tesla is asking for is to be permitted to make that same choice for itself.

What these states and automakers are trying to force Tesla to do would be like if you forced a farmer to only sell his produce through a grocery store chain, and forbade him from selling his produce directly to the public through a roadside stand.

The only reason that these laws exist at all is because the automakers were sleazy and tried to directly compete with their own contracted dealers. Otherwise, these laws would be unnecessary to protect the dealers from the automakers.

Furthermore: There's nothing really, other than the large cost, preventing the automakers from simply buying out their dealers ownership stakes and bringing the dealer networks under corporate ownership, if they wanted to follow in Tesla's footsteps because its truly a superior model. Listening to these dealer associations trying to justify their existence as some sort of value-add to the customer is so ridiculous. If they truly were adding value to the transaction that a local corporate-owned store could not, then their customers would have no problem with paying for that added value in the form of higher prices.

 

[dennis]

This does not seem to be consistent with multiple times Tesla was explaining gross margin impact due to the fact that they could not recognize a particular type of revenue within a quarter.

The latest example from the Q4 letter is their explanation for the impact on the gross margin of the AP revenue that they were not able to recognize.

AP2 is different because the hardware is in the car (and in COGS) whether or not you purchase the EAP option.

 

[elasalle]

http://www.tesla-matg.com/prix-model-3/ ... is showing supposed Model 3 pricing. Not sure if it is real or "Alt Facts" .. But one of my concerns on Tesla is if Base Price for Model 3 exceeds the said 35K, and Model 3 also ends up being a car that the Middle Class cannot really afford.

 

[vgrinshpun]

AP2 is different because the hardware is in the car (and in COGS) whether or not you purchase the EAP option.

We do not know for sure, but my impression is that the revenue corresponding to the hardware portion is recognized when the corresponding option is purchased, but the margin impact, however, comes from the software related revenue that Tesla can't recognize on cars with enabled option because the software is not complete. This why I mentioned this - because it creates mismatch between what is included in COGS and revenue, which @StefanH was noting always matching according to US GAAP rules.

 

[dirtyofries]

http://www.tesla-matg.com/prix-model-3/ ... is showing supposed Model 3 pricing. Not sure if it is real or "Alt Facts" .. But one of my concerns on Tesla is if Base Price for Model 3 exceeds the said 35K, and Model 3 also ends up being a car that the Middle Class cannot really afford.

Well, it's purely assumption so it's pretty much useless. But even if close, it's not gonna be a car for everyone, just significantly cheaper than now and appealing to a much wider audience.

 

[Tslynk67]

Oil firms could be sued over climate change

In an industry first, one of the world’s biggest oil companies has warned it could face legal action over climate change.

Chevron, the California-based multinational, admitted it could be the subject of “governmental investigations and, potentially, private litigation” because of its role in causing global warming.

And the firm added that regulations designed to reduce greenhouse gas emissions might also render the “extraction of the company’s oil and gas resources economically infeasible”.

 

[dennis]

We do not know for sure, but my impression is that the revenue corresponding to the hardware portion is recognized when the corresponding option is purchased, but the margin impact, however, comes from the software related revenue that Tesla can't recognize on cars with enabled option because the software is not complete. This why I mentioned this - because it creates mismatch between what is included in COGS and revenue, which @StefanH was noting always matching according to US GAAP rules.

The only revenue corresponding to the hardware portion is the base price of the car, since the Autopilot hardware is standard equipment on every Model S and X that is shipped.

 

[vgrinshpun]

The only revenue corresponding to the hardware portion is the base price of the car, since the Autopilot hardware is standard equipment on every Model S and X that is shipped.

Yes, agreed, but my remark was not related to this, it was about recognizing revenue that corresponds to the software portion. The reason Tesla needed to explain impact on the margin is because they incurred (and accounted for) cost , but could not book the corresponding portion of the revenue. If there would be a match as @StefanH mentioned, there would have been no impact on the margin.

 

[dw4ngg]

Well this is some good news.

Tesla takes a win for direct sales in Wyoming despite lobbying by GM, Ford and other automakers

While I'm glad for the victory, this is rather ridiculous to even be an issue and battle. It's like cell phone service providers lobbying to prevent Apple selling iPhones in their own stores and having to go through the Tmobiles, Verizons, and ATTs.... ridic

 

[dennis]

Another brilliant "analysis" from Colin Langan at UBS (Sell rating, PT of $160):

The UBS Evidence Lab estimated that the average drive time to the nearest TSLA Supercharger is 31 minutes vs. the average drive time to the nearest gas station of only 4 minutes," he wrote.

The bottom line, according to Langan, is that to "match the convenience of the US gas infrastructure, TSLA would need to add 30k Superchargers, costing ~$8bn.

He conveniently overlooks that more than 95% of EV charging occurs at home, which has an average drive time of 0 minutes.

UBS predicts Tesla will need to spend $8 billion to expand its Supercharger network

 

[dennis]

Yes, agreed, but my remark was not related to this, it was about recognizing revenue that corresponds to the software portion. The reason Tesla needed to explain impact on the margin is because they incurred (and accounted for) cost , but could not book the corresponding portion of the revenue. If there would be a match as @StefanH mentioned, there would have been no impact on the margin.

I believe you are mistaken here. There is no "cost" associated with the software portion, only with the hardware portion that is standard equipment on every car. Tesla has correctly matched revenues and costs - the cost of the standard autopilot hardware and the revenue as represented by the MSRP.

The impact on the overall gross margin is that with AP1 in Q3 Tesla was able to recognize the revenue for everyone who opted for the Autopilot software option. When they switched the hardware to AP2 in Q4 they were unable to recognize the revenue because the optional software wasn't ready. In both cases the hardware costs were included in the base price of the car.

 

[FredTMC]

Another brilliant "analysis" from Colin Langan at UBS (Sell rating, PT of $160):

He conveniently overlooks that more than 95% of EV charging occurs at home, which has an average drive time of 0 minutes.

UBS predicts Tesla will need to spend $8 billion to expand its Supercharger network

Yeah, Total BS.

 

[Turing]

Another brilliant "analysis" from Colin Langan at UBS (Sell rating, PT of $160):

He conveniently overlooks that more than 95% of EV charging occurs at home, which has an average drive time of 0 minutes.

UBS predicts Tesla will need to spend $8 billion to expand its Supercharger network

You mean to tell me that if I already had a gasoline line built into my home that I would be able to use gas stations less?

 

[Thumper]

http://www.tesla-matg.com/prix-model-3/ ... is showing supposed Model 3 pricing. Not sure if it is real or "Alt Facts" .. But one of my concerns on Tesla is if Base Price for Model 3 exceeds the said 35K, and Model 3 also ends up being a car that the Middle Class cannot really afford.

Link not working for me.

 

[racer26]

Link not working for me.

Not for me either.

I believe you are mistaken here. There is no "cost" associated with the software portion, only with the hardware portion that is standard equipment on every car. Tesla has correctly matched revenues and costs - the cost of the standard autopilot hardware and the revenue as represented by the MSRP.

The impact on the overall gross margin is that with AP1 in Q3 Tesla was able to recognize the revenue for everyone who opted for the Autopilot software option. When they switched the hardware to AP2 in Q4 they were unable to recognize the revenue because the optional software wasn't ready. In both cases the hardware costs were included in the base price of the car.

There absolutely is cost associated with AP software. The problem is that its a fixed cost, and not variable per unit sold. So that cost is recognized as its incurred, but because the software was not delivered, they could not recognize the corresponding option revenue.

 

[erthquake]

Link not working for me.

Typo. It should be this: Les prix des Model 3

 

[MP3Mike]

Typo. It should be this: Les prix des Model 3

The only thing I really see out of line is you don't pay for both the glass roof and the sun roof. You only get one or the other. As far as option prices they look reasonable to me, but we won't have actual numbers until Tesla releases them, and they may just go for a trim package system instead of individual options. (Maybe there will only be three packages: Base, Limited, and Super Limited and you have to select the trim level that contains the options that you have to have, and accept/pay for the extra options that you wouldn't otherwise include.)

So yes, the base will be $35,000, but options, if you choose to add them, could really drive the price up.