2017 Investor Roundtable:General Discussion

[Intl Professor]

If Trump used this approach, the cost for the US to issue new debt would skyrocket, and it would be disastrous for the US economy. Also, a downgrade would almost certainly follow.

I'm not sure I understand why this would happen since the Congress has not always required a limit on debt. Did inflation work as you say before the legislation? Politically there is this history.

History Lesson: Why did Congress create the national debt limit?

Further, a downgrade occurred the last time and what you said didn't happen unless it did not occur because the ceiling was raised quickly. Surely the law is not the only reason we limit debt. The Republicans, for example, did a great job of not appropriating money for the 1,000,000 jobs Obama wanted to create in his infrastructure plan in 2011. Now that I think of it, this whole charade is really because Congress can't control itself, as the link suggests. But then I'm not an economist, though I am quite capable of imagining this ladder to get out of the hole, as economists have said.

 

[schonelucht]

In fact, part of the $200M is to finance 50MW installed at Southern California Edison which was already announced back in the original press release saying that Tesla and AMS signed a 500MWh contract (Advanced Microgrid Solutions Signs 500 MWh Energy Storage Deal with Tesla)

Projects in development but without financing, I am sure you would agree, can't be counted as a backlog, can they? Tesla backlog grew by 200MWh in the last 30 days. The math you are suggesting is way off.

Your original criterium was 'announced 30 days past' not 'financed 30 days past'.

 

[ValueAnalyst]

The Model S has had a base price ~$70k in the US for the last four years. Today it stands at $69.5k. There is no material price drop.

Model S75 with all-glass roof used to cost $76,000 last month, and now the same car costs $69,500. How's this not a very significant price drop? Nearly 10%! Larger than competitors' net income margins! Those who point to Tesla's lack of GAAP profitability will soon struggle to explain their bottom lines, especially since Tesla will be growing 100% CAGR but they will be shrinking.

Note that model S achieved 35% market share in the niche US luxury sedan market, before this large price drop, before full autonomy (which I estimate will come in 4Q17), before Supercharger v3 which will cut down chargin time to 5min, with a lower number of service/sales centers and limited brand recognition. Model S/X market shares are set for a step change in 2H17 and 2018.

I know of 5 people who have a Model 3 reservation. None have a powerwall reservation. One is considering Tesla solar panels/powerwall but lives in Fort Wayne Indiana and is skeptical the numbers will pencil out. I am 99% sure there will be less units of powerwall sold than units of Model 3/Y.

I can't comment on what your friends did. I presented my reasoning. Please present yours.

I think powerwall units may end up being lower than number of model 3/y sold, but I don't expect there to be as wide of a gap as the original author of the model predicted. That was my point.

 

[ValueAnalyst]

Projects in development but without financing, I am sure you would agree, can't be counted as a backlog, can they? Tesla backlog grew by 200MWh in the last 30 days. The math you are suggesting is way off.

I'm waiting for the Australia news. It has the potential to be a 1GWh project, which would really bring Tesla Energy's superexponential growth to investors' spotlight.

 

[sundaymorning]

Thanks for positing this.

It's not just you; this video makes it clear Mercedes' technology is trailing Tesla's by multiple years.

The fact that they are using CGI to produce a video of their autonomous driving indicates a lack of confidence in their technology. This is contrary to the confidence in MX's video.. as a matter of fact, reviewers have stated that Mercedes auto mouse is a bit shaky and has trouble keeping the vehicle centered between lanes.

 

[RobStark]

Model S75 with all-glass roof used to cost $76,000 last month, and now the same car costs $69,500. How's this not a very significant price drop? Nearly 10%! Larger than competitors' net income margins! Those who point to Tesla's lack of GAAP profitability will soon struggle to explain their bottom lines, especially since Tesla will be growing 100% CAGR but they will be shrinking.

Note that model S achieved 35% market share in the niche US luxury sedan market, before this large price drop, before full autonomy (which I estimate will come in 4Q17), before Supercharger v3 which will cut down chargin time to 5min, with a lower number of service/sales centers and limited brand recognition. Model S/X market shares are set for a step change in 2H17 and 2018.



I can't comment on what your friends did. I presented my reasoning. Please present yours.

I think powerwall units may end up being lower than number of model 3/y sold, but I don't expect there to be as wide of a gap as the original author of the model predicted. That was my point.

The base Model S, like I said previously, is increasing content. Well, except for no longer free for life supercharging just 400 kW per year. But it has remained at a stable ~$70k. The $76k base price only existed for a short time. Do you believe every time Walmart jacks up prices in order to lower them later Walmart is constantly reducing prices? Like I said again Model S base price bumps up when a base Model S is eliminated then lowered again. My guess to manage anger/disappointment from people just missing the upgrade. And despite all the upgrades Tesla still does not match MB/BMW/Audi feature for feature,range, interior quality, and fit & finish. But every couple of months it gets closer. Tesla depends on people placing a large emphasis on powertrain tech, environmental benefits,and/ or auto pilot. A customer still needs to calculate $70k for a base Model S. Just like most of the last 4 years. And soon he won't be able to count on a $7500 Federal credit in the USA. That will move the demand curve significantly to the left.

Not everyone that buys a Model 3 will be a homeowner that can benefit from powerwall. Not every Model 3 owner has solar or time of use rates. Less than half of Tesla potential Model 3 customers will live in areas where a single powerwall pencils out much less multiple powerwalls. The main markets for powerwall will be CA, Germany and Australia and I am sure a few there will buy multiple powerwalls but not a common site for Tesla customers buying powerwalls by the half dozen.

 

[SwTslaGrl]

The Model S base price is $100k including taxes here, I hope we can get a GF in Europe in the coming years.

 

[ValueAnalyst]

The Model S base price is $100k including taxes here, I hope we can get a GF in Europe in the coming years.

Gigafactory 3 is expected to be built in Europe. I expect it will be abnoujved later this year and start coming online in 2020.

 

[ValueAnalyst]

The base Model S, like I said previously, is increasing content. Well, except for no longer free for life supercharging just 400 kW per year. But it has remained at a stable ~$70k. The $76k base price only existed for a short time. Do you believe every time Walmart jacks up prices in order to lower them later Walmart is constantly reducing prices? Like I said again Model S base price bumps up when a base Model S is eliminated then lowered again. My guess to manage anger/disappointment from people just missing the upgrade. And despite all the upgrades Tesla still does not match MB/BMW/Audi feature for feature,range, interior quality, and fit & finish. But every couple of months it gets closer. Tesla depends on people placing a large emphasis on powertrain tech, environmental benefits,and/ or auto pilot. A customer still needs to calculate $70k for a base Model S. Just like most of the last 4 years. And soon he won't be able to count on a $7500 Federal credit in the USA. That will move the demand curve significantly to the left.

Not everyone that buys a Model 3 will be a homeowner that can benefit from powerwall. Not every Model 3 owner has solar or time of use rates. Less than half of Tesla potential Model 3 customers will live in areas where a single powerwall pencils out much less multiple powerwalls. The main markets for powerwall will be CA, Germany and Australia and I am sure a few there will buy multiple powerwalls but not a common site for Tesla customers buying powerwalls by the half dozen.

Thanks for you're reply. We'll have to agree to disagree on both counts.

 

[winfield100]

POS write up. Gotta love it. Not a single mention on the electric range of the Volvo vehicles. Is "attacking Tesla" the new "Tesla killer"?
You must see Volvo's all new 400 horsepower plug-in SUV

""Select Pure mode for an electric-only, zero-emissions range of up to 25 miles""
Drive E and T8 Twin Engine - All-New XC60 SUV | Volvo Cars

This is 2x as good as Volvo XC90 T8 $68,100, 13 electric miles +gas, so Volvo has !!doubled!! their electric range (almost)(well 25 is ~2 x 13)(If they doubled it again it, it could be ~50 and equal to a charge rate crippled, EV range crippled Volt)
http://evadc.org/wp-content/uploads/2017/02/EVInfoSheet-20170123.pdf

 

[racer26]

""Select Pure mode for an electric-only, zero-emissions range of up to 25 miles""
Drive E and T8 Twin Engine - All-New XC60 SUV | Volvo Cars

This is 2x as good as Volvo XC90 T8 $68,100, 13 electric miles +gas, so Volvo has !!doubled!! their electric range (almost)(well 25 is ~2 x 13)(If they doubled it again it, it could be ~50 and equal to a charge rate crippled, EV range crippled Volt)
http://evadc.org/wp-content/uploads/2017/02/EVInfoSheet-20170123.pdf

No, no, don't you understand? This is better than long range electrics because you get the best of two worlds, driving electric AND driving on gasoline.

Just think about all the fuel and maintenance costs you'd miss out on if you drove on only electric.

 

[moe.salih]

Thanks for posting this. I won't go into much detail but a few things I would challenge you on:

1) Why cap S/X units at 125k/year since Model 3 and full autonomy will soon multiply Tesla's brand awareness across the world and "competitors" have not even started building their first gigafactories (i.e. zero competition for another 3-5 years). Model S/X have achieved current level of units with limited supercharger and service center networks, both of which are growing. Also note that Supercharger v3 speed will bring in a lot more customers to Tesla.

2) I think you may want to lower your ASPs for outer years. Recent Model S price drop shows Elon is not kidding about accelerating the world's transition to sustainable energy to as close as he can get it to the speed of light. On a side note - I'm curious to see if BMW/Mercedes will try to match it. I doubt that they will or can, which means further market share erosion for them. I wouldn't be surprised if Model S captures more than 40% of luxury sedan market in the US in 2H17 (which brings me back my point #1 above). In addition, with the recent large price drop Model S will quickly start eating into 5-series and C-class. I think your 125k/year estimate for Model S/X will prove very conservative. I think 150-175k/year combined is likely in 2018 and beyond.

3) Generally speaking, I think your automotive unit estimates are too conservative. Just to put it in perspective: you're projecting 1.4 million units in 2022, I'm projecting 4 million in 2020. Tesla is aiming to achieve 1.0-1.5 million cars/year (likely more since the Gigafactory max capacity estimate seems to multiply ever year like a family of rodents) with just Gigafactory 1. What do you think they'll do with "Gigafactories 3, 4, and possibly 5" that they just announced? Let them sit there and look pretty?

4) I would start Powerpack pricing at Rive's recent estimate of $400-600 (so say $500) and reduce it by the same 5-10% per year as you did. Note that the $250/kWh price Elon gave to Australians is just at the pack level. Rive's price includes inverters etc. so it's more complete for modeling purposes. Also - I think 4GWh for 2017 too aggressive as the company will be very busy with the Model 3, but your growth rate assumption of ~100% per year is too conservative. I'm assuming 2GWh for 2017, but 3x growth per year for the next five years. Remember: stationary battery business is expected to grow "several times faster" than the auto business, and auto business will have grown ~80-100% CAGR if Tesla achieves 500k guidance for 2018.

5) I would bring Powerwall unit projections closer to Model 3/Y units as most people who buy either of those cars will likely buy at least one and maybe two Powerwall(s), but I don't know how Tesla will meet this demand. I guess this explains the need to build three more Gigafactories.

6) I think 2018 revenue multiple will be higher but I agree with your estimates for outer years.

Thanks for the Tesla Energy project tab. Very useful and clearly shows the "superexponential" growth rate that Elon and JB have referenced a few times.

Thanks for the comments.

- My 2017-2020 numbers are based on Tesla's guidance discounted by ~20% for execution risk.

- I don't expect GF3 to start volume production until 2020, so all 2017-2020 production numbers are pretty much capped by GF1 ramp.

- I don't expect ASPs to drop in the next couple of years. Demand is strong. Tesla will just keep releasing better and better cars at the same prices.

- Powerwall numbers are conservative until we get an update from Tesla on how that's going or hints for future production numbers. Same with Solar.

- 2021-2022 numbers are not based on any numbers from Tesla, so they're intentionally very very conservative.

 

[DurandalAI]

I didn't know Canada hasn't such good liability insurance. The bare minimum for the US is about $25k in liability and many people, as you can imagine, would take advantage of this. While the majority of "average American" with property such as a home to their name often opt for the $100-$300k liability claim.

Heck, where I am, you're lucky if the SOB even has liability insurance at all! (Drives up comprehensive premiums.) The premiums are worse in no-fault states as well, which I think encourages poor driving behavior. I'm of the more radical opinion that vehicles without liability insurance should be impounded.

 

[D-egg-O]

""Select Pure mode for an electric-only, zero-emissions range of up to 25 miles""
Drive E and T8 Twin Engine - All-New XC60 SUV | Volvo Cars

This is 2x as good as Volvo XC90 T8 $68,100, 13 electric miles +gas, so Volvo has !!doubled!! their electric range (almost)(well 25 is ~2 x 13)(If they doubled it again it, it could be ~50 and equal to a charge rate crippled, EV range crippled Volt)
http://evadc.org/wp-content/uploads/2017/02/EVInfoSheet-20170123.pdf

What is this, 2010?

 

[ValueAnalyst]

- My 2017-2020 numbers are based on Tesla's guidance discounted by ~20% for execution risk.

I don't remember management giving specific Model S/X unit guidance for 2019 and 2020. Can you provide source?

Also, management guidances, although less often, can prove conservative. For instance, Gigafactory 1 was originally planned for 500k/year max in 2020, which was adjusted upwards 3x after surprising demand for the Model 3. I think we'll see another upward revision after the final reveal in July.

- I don't expect GF3 to start volume production until 2020, so all 2017-2020 production numbers are pretty much capped by GF1 ramp.

I agree that additional gigafactories will not start volume production until 2020, but why are you assuming only GF3 will enter volume production in 2020? The company is planning to announce locations for "Gigafactories, 3, 4, and possibly 5" later this year (2H17?), which probably means breaking ground on each shortly thereafter in 4Q17/1Q18 at the latest, so some level of volume production by 2H20. Note that I am not assuming any improvement to timeline or cost from experience of having built Gigafactories 1 and 2.

- I don't expect ASPs to drop in the next couple of years. Demand is strong. Tesla will just keep releasing better and better cars at the same prices.

I don't expect ASPs to drop in the next couple of years either, which is why I said "for outer years" meaning 2019 and beyond. I think one of Tesla's strategies will be to generate significant shifts in volume by significantly reducing the cost of transportation. This is a primary reason why I expect the majority of existing ICE manufacturers to file for bankruptcy by 2020: their margins are already slim so they can't compete with Tesla's price cuts, they don't have the innovation or Gigafactory-level scale to lower costs as fast as Tesla can, and finally their balance sheets are crippled with debt backed by quickly depreciating value of used ICE cars. They are gone.

So I think when ICE manufacturers make claims around electric cars and autonomous vehicles, one must then ask "can you achieve this within 24 months?" because if not, you're gone.

This naturally brings up the question: "why wouldn't Tesla keep prices high and capture profits while the incumbents go bankrupt?" but if someone is asking this question, then they have not been following Tesla closely and/or long enough to fully understand their mission: "to accelerate the world's transition to sustainable energy." And this is most quickly done by lowering prices to the limit of survival and fastest growth, not profits. Think Amazon.

- Powerwall numbers are conservative until we get an update from Tesla on how that's going or hints for future production numbers. Same with Solar.

I think this upcoming earnings release will be an eye-opener for Powerwall/Powerpack volume production. If you go into the Powerwall forums on TMC, you'll see that customers who have patiently been waiting for so long (I couldn't do that frankly) have recently been contacted by Tesla for appointments for surveys etc. So I expect Powerwall/Powerpack revenue to really accelerate with this earnings release and throughout the rest of the year. Remember, they started volume production at Gigafactory 1 in January.

- 2021-2022 numbers are not based on any numbers from Tesla, so they're intentionally very very conservative.

I think being "very very conservative" is equally as detrimental to valuation as being optimistic. I think some conservatism is good but it should be within reason.

Generally speaking, the main question you have to answer is: what will "Gigafactories 3, 4, and possibly 5" do if Tesla will be producing only 1 million cars in 2020? It's reasonable to expect all three projects to move along simultaneously and start some level of volume production by 2020. Considering the "order of magnitude" improvements that have now become Elon's signature, it's also reasonable to expect the capacity of next-gen gigafactories to be higher than 1.5 million cars/year, potentially a lot more. This is why I believe 4 million cars per year with further expansion into Tesla Energy production by 2020 is reasonable.

So my base case assumes $200 billion of revenue and $500 billion of market cap by the end of 2020.

 

[Spidy]

The fact that they are using CGI to produce a video of their autonomous driving indicates a lack of confidence in their technology. This is contrary to the confidence in MX's video.. as a matter of fact, reviewers have stated that Mercedes auto mouse is a bit shaky and has trouble keeping the vehicle centered between lanes.

Maybe that's because they aren't actually presenting an autonomous car

 

[vgrinshpun]

In fact, part of the $200M is to finance 50MW installed at Southern California Edison which was already announced back in the original press release saying that Tesla and AMS signed a 500MWh contract (Advanced Microgrid Solutions Signs 500 MWh Energy Storage Deal with Tesla)

Projects in development but without financing, I am sure you would agree, can't be counted as a backlog, can they? Tesla backlog grew by 200MWh in the last 30 days. The math you are suggesting is way off.

Your original criterium was 'announced 30 days past' not 'financed 30 days past'.

Well, you did not answer my question, so my conclusion is that you agree that projects in development without nailed financing can't be counted as a backlog.

I think I now understand you skepticism toward TE. If one can't count projects *without finalized financing* as a backlog (enter "up to 500 MWh agreement" which you conveniently trying to describe as "Tesla and AMS signed a 50MWh contract"), and also can't count these projects as a backlog *after financing is finalized* (the CIT financing announcement), the future of TE looks bleak indeed.

 

[moe.salih]

I don't remember management giving specific Model S/X unit guidance for 2019 and 2020. Can you provide source?

Also, management guidances, although less often, can prove conservative. For instance, Gigafactory 1 was originally planned for 500k/year max in 2020, which was adjusted upwards 3x after surprising demand for the Model 3. I think we'll see another upward revision after the final reveal in July.



I agree that additional gigafactories will not start volume production until 2020, but why are you assuming only GF3 will enter volume production in 2020? The company is planning to announce locations for "Gigafactories, 3, 4, and possibly 5" later this year (2H17?), which probably means breaking ground on each shortly thereafter in 4Q17/1Q18 at the latest, so some level of volume production by 2H20. Note that I am not assuming any improvement to timeline or cost from experience of having built Gigafactories 1 and 2.



I don't expect ASPs to drop in the next couple of years either, which is why I said "for outer years" meaning 2019 and beyond. I think one of Tesla's strategies will be to generate significant shifts in volume by significantly reducing the cost of transportation. This is a primary reason why I expect the majority of existing ICE manufacturers to file for bankruptcy by 2020: their margins are already slim so they can't compete with Tesla's price cuts, they don't have the innovation or Gigafactory-level scale to lower costs as fast as Tesla can, and finally their balance sheets are crippled with debt backed by quickly depreciating value of used ICE cars. They are gone.

So I think when ICE manufacturers make claims around electric cars and autonomous vehicles, one must then ask "can you achieve this within 24 months?" because if not, you're gone.

This naturally brings up the question: "why wouldn't Tesla keep prices high and capture profits while the incumbents go bankrupt?" but if someone is asking this question, then they have not been following Tesla closely and/or long enough to fully understand their mission: "to accelerate the world's transition to sustainable energy." And this is most quickly done by lowering prices to the limit of survival and fastest growth, not profits. Think Amazon.



I think this upcoming earnings release will be an eye-opener for Powerwall/Powerpack volume production. If you go into the Powerwall forums on TMC, you'll see that customers who have patiently been waiting for so long (I couldn't do that frankly) have recently been contacted by Tesla for appointments for surveys etc. So I expect Powerwall/Powerpack revenue to really accelerate with this earnings release and throughout the rest of the year. Remember, they started volume production at Gigafactory 1 in January.



I think being "very very conservative" is equally as detrimental to valuation as being optimistic. I think some conservatism is good but it should be within reason.

Generally speaking, the main question you have to answer is: what will "Gigafactories 3, 4, and possibly 5" do if Tesla will be producing only 1 million cars in 2020? It's reasonable to expect all three projects to move along simultaneously and start some level of volume production by 2020. Considering the "order of magnitude" improvements that have now become Elon's signature, it's also reasonable to expect the capacity of next-gen gigafactories to be higher than 1.5 million cars/year, potentially a lot more. This is why I believe 4 million cars per year with further expansion into Tesla Energy production by 2020 is reasonable.

So my base case assumes $200 billion of revenue and $500 billion of market cap by the end of 2020.

Tesla didn't guide on S/X production but if you consider the 1 million cars in 2020 and 150GWh output, with high Tesla Energy growth, there won't be enough battery capacity left for higher S/X growth. I tried to fit the numbers as much as possible within those constraints. Tesla will be battery constrained for the next 10 years.

I generally agree with you on new gigafactories being better and faster, but I'd like to have more solid info from Tesla before I update my numbers. I want my forecast to match Tesla's public plans as much as possible.

 

[sundaymorning]

And despite all the upgrades Tesla still does not match MB/BMW/Audi feature for feature,range, interior quality, and fit & finish. But every couple of months it gets closer.

That's funny, I didn't realize MB/BMW/Audi has an electric car that out-ranges Tesla. I didn't realize they have a frunk like a Tesla, I also didn't realize they were safer than a Tesla, I didn't realize accellerate 0-60 is faster than the fastest car in the world in the Tesla. I must have missed that the MB/BMW/Audi also has a larger display screen than the 17 inch model S. I sure must have been living under a rock bc I didn't realize you can do over the air upgrade with those cars neither. Sure Tesla doesn't have all the weird features that those other car manufactures have, like a mouse pad instead of a touch screen.. but my bet is that if those German car companies attempt to incorporate Tesla's features, they'll need to add another $50k to their price tag for a fair comparison (and still wouldn't acccelerate as fast as a Tesla). I'll give them one thing though, they have better and way more buttons than a Tesla ever will.

 

[RobStark]

That's funny, I didn't realize MB/BMW/Audi has an electric car that out-ranges Tesla. I didn't realize they have a frunk like a Tesla, I also didn't realize they were safer than a Tesla, I didn't realize accellerate 0-60 is faster than the fastest car in the world in the Tesla. I must have missed that the MB/BMW/Audi also has a larger display screen than the 17 inch model S. I sure must have been living under a rock bc I didn't realize you can do over the air upgrade with those cars neither. Sure Tesla doesn't have all the weird features that those other car manufactures have, like a mouse pad instead of a touch screen.. but my bet is that if those German car companies attempt the to incorporate Tesla's features, they'll need to add another $50k to their price tag for a fair comparison. I'll give them one thing though, they have better and way more buttons than a Tesla ever will.

No, they build ICEv that out range a Tesla. And that is what Tesla is up against to transition the world to sustainable transport. It is not beating gimped LEAFs.

Tesla doesn't build a safer car than than the Mercedes S Class. Except for a launch year, S Class sells in such few numbers in the USA that various crash test agencies don't bother to test it. They do in Germany though.

Fanbois can always say that their beloved brand's unique feature is the ones that are indispensable and other manufacture's unique features are gimmicks but that is not how the market see it. Globally, S Class outsells Model S. Largely because it trounces it in China.