2017 Investor Roundtable:General Discussion

[Reciprocity]

The following are the reasons why I see Tesla moving forward simultaneously and quickly on "Gigafactories 3, 4, and possibly 5."

I agree 100% with this. At this point, there is really no reason not to move simultaneously. Competition is lagging but it will end up moving simultaneously across several competitors. Gigafactory's, as defined by a gigawatt of battery production per year, will be popping up like crazy in the near future. Obviously they will not all be alien dreadnoughts, but they will be placed all around the world in places that might give them logistical advantages. I am expecting Tesla to select a location in EU and Southeast Asia with the highest likelihood of building one in China, though they might decide to do it outside of China due to issues with intellectual property. These Gigafactories will of course need to build the entire car with raw materials coming in one side and cars coming out the other end. And what about panels and roof tiles? Maybe they will need a new name, Terafactory? One Terawatt of production of combined battery and solar per year?

Tesla really only has a couple of years lead to really capitalize on the advantages they have build over the past decade. Competition will come into play and it wont necessarily be a bad thing as it will spread the word about the advantages of electric vehicles. I think simultaneously building GF2/3 is a no brainer and will allow Tesla to leverage those advantages as much as is realistically possible. One other thing to consider is that places like EU and China are only going to incentivize so many Gigafactory like products with huge tax benefits and other perks, so it will be the first companies to have a real plan that is supported by proof that they will bring jobs and help support clean energy usages in those countries.

 

[luvb2b]

fiat-chrysler posted good earnings, stock is up 9%. seeing other stocks with good earnings making 10% moves today - note irbt, ew, twtr. good to see finally some good upside moves in stocks with strong earnings. a 10% move in tesla would get us 340. more than i expect but it's possible my expectations are too low. over last couple years seems average move is around 6.6% up or down, that'd be about 20 pts. perhaps should expect a little more than that due to positive results, index add coming into play, etc.

in case anyone needs a value stock - fcau is trading roughly 6x 2017 eps guidance.

 

[geneclean55]

@jesselivenomore, have read your ta posts. great work.

i agree this is a bull market, as bullish a tape as you could hope for. but one thing we're missing vs. 2013 is any stock that has had a vicious reaction to an earnings beat. most of these large stocks are moving <10-15% on even great earnings numbers. in 2013 nflx lit up that earnings season with a pretty awesome move in january and another in april just before tesla's numbers. seeing that reaction had to put fear in the heart of the shorts. there's no such comparable high flying report this time (not yet). tesla could be **the one** but i'd rather not make that as a solitary bet.

TWTR

 

[doctoxics]

@ValueAnalyst Does anyone have any idea why Elon was in China this week meeting with the vice premier? Could it be to finalize details for a gigafactory in China?

Saw a note on Bloomberg last night that China is in the process of changing the rules for foreign companies making electric cars in China. Maybe Elon has negotiated a deal where the Chinese partner is less than 50 % (giving Tesla control) of a Tesla manufacturing plant (Gigafactory) in China.

 

[EinSV]

Thank you for challenging me with a reasonable argument. I highly appreciate it as this helps me tremendously.

The following are the reasons why I see Tesla moving forward simultaneously and quickly on "Gigafactories 3, 4, and possibly 5."

1. Looking at investing (and other aspects of life) through a Game Theory lens has helped me tremendously over the years. Why would Tesla announce locations for possibly three additional Gigafactories at the same time, if they did not have the intention to break ground shortly thereafter (within three months as they did with GF1) and build all three simultaneously? Bears can say maybe Elon is trying to manipulate the stock, but I don't see that in his history despite his tweets and for the following reasons.

2. The demand is there (skip this paragraph if you agree). Tesla has captured one-third of the US luxury sedan market in four years, extremely quickly in terms of automotive industry timelines. Model X is on track to achieve that market share level in less than two years! I do not see a reason why the Model 3 cannot achieve the same level, other than production capacity. Even if the Model 3 eventually ends up with one-tenth of the market share the Model S/X achieved with smaller number of superchargers, smaller number of service centers, and lower brand awareness than what Tesla enjoys today, Tesla will not be able to meet demand, even with five Gigafactories. I hope we agree that demand is not the limiting factor for my prediction to be realized.

3. You raise a good point about capex needs to achieve such a goal, but if one actually thinks about how much capital is needed, and compares that to the benefits, one quickly realizes that (given that demand is there) Tesla should be building as many Gigafactories as possible. Basically, starting a Gigafactory costs a few hundred million dollars and a few billion over the full course of the project with majority of the cost being in tooling (so towards the end of the construction project). So the cost of starting all three simultaneously would be maybe a billion dollars. If the Model 3 ramp-up goes smoothly, as it seems to be so far, and Tesla produces 1 million cars over the next ~20 months, which I think is a strong possibility, that's $50B+ of revenue. Even if the gross margin is ~15% in earlier days of the Model 3 ramp up, that's many more billions than what it would take to start the Gigafactories 3, 4, and possibly 5. Further, I expect Tesla to now be able to take on non-dilutive corporate debt as its revenue multiplies in the next 12 months. This simple back-of-the-envelope calculation looks even brighter for Tesla beyond 2018 as the Model 3 production line (and gross margin) reaches maturity. Much much brighter.

4. So we established that the demand is there and that the cap-ex needs in the early construction stages are very manageable with an even brighter outlook in later years. What is the benefit? The benefits are two-fold: 1) the acceleration of production capacity pulls forward tens of billions of cash flow, and to any trained eye that has looked at discounted cash flow models (and I've worked on hundreds), such a move increases the Enterprise Value of a company tremendously. More importantly, if Tesla can take market share from incumbents quickly, the probability of ICE car manufacturers going bankrupt before they can build their own Gigafactories (which is a must to compete with Tesla) increases. Again, this is another example where thinking strategically (i.e. game theory) is more helpful than just purely in numbers.

5. Finally note that the full build-out of Gigafactories 3, 4, and possibly 5 is not needed to realize my forecast of 4 million cars in 2020. With GF1 capacity raised to 1.5 million cars (triple of original forecast just two years ago), Elon/Tesla's history of pushing limits by multiple times and "order of magnitude" improvements version after version, recent creation of Tesla Advanced Automation, Elon's repeated comments around becoming the best manufacturer in the world, I believe even a partial build-out of the three additional gigafactories three years into the construction projects would be enough to achieve the 4 million car total capacity among the four Gigafactories.

I hope this is helpful. Please keep challenging me with thoughtful reasoning. I very much appreciate it.

I don't have any question about demand being sufficient to support multiple GFs, but a few thoughts:

• Tesla has raised about $2.7B in capital in 2016 and 2017 just to get to the start of Model 3 production. Additional capital may be required for the ramp to 350-400K Model 3s per year in 2018. The capital required to go from 500K vehicle production to 4M is likely to be massive, especially if done on the timeline you suggest.
• I believe Elon's actions clearly demonstrate he is deeply averse to both dilution and debt. Dilution means the loss of voting power which is a potential major threat to Tesla's future, and excessive debt (as viewed by the market) could make Tesla vulnerable to attacks by shorts ala Solar City. Hence the convertible debt offering this year structured to minimize risk of dilution, and Elon's continued TSLA purchases.
• Groundbreaking on GF1 was June 2014. Tesla Gigafactory | Tesla Assuming Tesla completes it in 2020 as predicted, the full build will have taken 6-plus years. Obviously the next Gigafactories need not take this long, but this extended timeline is worth balancing against the idea that the only reasonable path forward once GF locations are announced is a very rapid build.
• As others noted above, future GFs will include not just batteries, drive trains and TE products but vehicle production.
• Tesla's technologies, especially production technologies, are likely to continue to advance rapidly. Building out multiple GFs with Alien Dreadnaught 1.0 technology may not be the most efficient path forward.
• TE and Model 3 (in addition to S, X and possibly solar products) should generate cash but how fast and how much is uncertain.

Based on these factors and the uncertainties built into them, it is difficult for me to estimate the "optimal" timeline to build GFs 3, 4 and 5. I am highly skeptical that Tesla will ramp GF buildouts and reach 4M vehicle production as fast as you suggest. On the other hand, I believe the GF ramps and new product rollouts will happen much faster than the market expects, and that exceeding 1M vehicles per year in 2020 is likely.

 

[MitchJi]

I think that its possible that Tesla will produce a lot more MS-MX in Q2 than are expected: Elon Musk addresses Tesla employees in leaked email: claims higher comp than Ford/GM, lower incident rate, & new ‘roller coaster’
Feb 24, 2017 - This is why we hired thousands of additional team members to create a third shift , which has reduced the burden on everyone.

 

[MP3Mike]

As a side-note, some people are discussing that if these robots haven't been installed yet, how is it that the M3 CR cars were made using production hardware?

I don't think Tesla ever said "production hardware". I think what they said was "production tooling". They didn't say how the production tooling was used. (Production tooling but used by humans vs. putting the tooling in the "hands" of the robots.) I would assume it also means production stamping dies.

 

[austinEV]

I don't think Tesla ever said "production hardware". I think what they said was "production tooling". They didn't say how the production tooling was used. (Production tooling but used by humans vs. putting the tooling in the "hands" of the robots.) I would assume it also means production stamping dies.

Yeah I always thought that was carefully worded. They meant some production die or something very specific, not "these were made on a 100% complete factory line". Like saying your chicken nuggets are made "with 100%" chicken instead of made "of 100%" chicken.

 

[Waiting4M3]

fiat-chrysler posted good earnings, stock is up 9%. .....

in case anyone needs a value stock - fcau is trading roughly 6x 2017 eps guidance.

as with anything Fiat, I would recommend lease, and not buy

 

[kenliles]

and The Big Rollover,
she begins---
BMW uses fear factor to rally staff in move to EVs

"
Inside a bright auditorium at an abandoned airfield near Munich, rows of men and women gaze at images flashing by on a giant screen: a Mercedes sedan; Porsche and Jaguar SUVs; the face of Elon Musk. "We're in the midst of an electric assault," the presenter intones as the Tesla chief's photo pops up. "This must be taken very seriously."

The audience is composed of BMW Group employees flown in for a combination pep rally/horror film intended to make them afraid about the future of the industry. The takeaway: The market is shifting in ways that were unimaginable just a few years ago, and BMW must adapt. The subtext is a recognition that the company has gone from leader to laggard.
"

 

[scaesare]

These producion line steps and stops and supply lines etc do look awully like cpu piplenes.
i bet that ex amd cpu designer is on this alien dreadnought thing 2days per week, 3days being spnt on tesla custom ai chip.

I thought the same thing. I'd bet pipeline loading/stall analysis might be pretty applicable to optimizing something like this.

It would be interesting to see what the automotive production line equivalents to branch predictions, translation look aside buffers, caching, etc... would be.

 

[kenliles]

SpaceX launch this weekend
"Static fire test complete. Targeting Falcon 9 launch of NROL-76 on Sunday, April 30."

 

[dennis]

Those pictures trouble me. I honestly thought they were much further ahead. Nearly 500 robots is not some trivial part of the line that they need to fill in. It's a major undertaking. Especially programming the robots may not be trivial (depends on the complexity of that particular station and how much two or three robots need to be synced). Another big risk is that they don't have enough time to optimize the production line and hence will produce for a longer than planned period at lower capacity. Or, worse, have to shut down the line for a week to optimize everything like they had to do for S/X once or twice a year. At least on two separate occasions it created major production lapses.

You shouldn't be surprised. Nine months ago Kuka said the schedule would be really tight for supplying the robots for the July 1 production start but they were committed to meeting Tesla's deadline. Elon has consistently said that July 1 is a target given to every supplier but he knows at least one will be late. Tesla is doing everything possible to meet the July 1 date for production start but they will almost certainly miss it because "stuff happens".

The good news is that thus far they haven't identified any issue that they don't think can be addressed by July 1. Otherwise they would have to admit that production can't start by July 1 and they haven't done that yet. Ramping your production capability by 5x in two years is a humongous task; the road will be bumpy and there will be setbacks along the way. But I like the extreme focus that Tesla has on this goal and expect them to achieve it regardless of those setbacks.

 

[FredTMC]

I'm not sure we have enough information to assess the significance of the pictures. For all we know, this is a second Model 3 production line.

But I suspect these are the robots for the final assembly, while the BIW line is further along. They may however already have worked out the SW 99% in simulations, and they likely have a configurable array of robots in a lab somewhere, where they can test out all the different operations at each station on the production line.

Making the release candidates on the actual BIW line, and doing final assembly using development robots but actual SW, should be close enough for Tesla to allow themselves to say that they used production hardware.

I really liked your post a lot. Thanks for sharing.

I'm still completely struggling with where these 476 robots are getting deployed:

Here's my guesses:

1). 200 ROBOTS. Body-in-white line is nearly 100% robotic. I assumed BIW line was ALREADY in place and used to build RC car BIWs. Apparently not given how many robots got delivered. I suppose it's possible tesla is building out a second M3 BIW line after validating the first Model 3 BIW line

I think the Newer X/S Robotic BIW line uses MORE robots that the original BIW line. Tesla determined that it was not efficient to have the robots switch "hands (tools)"


2). 200 Robots Subassembly Robotic lines. Similar to the MX robotic video posted yesterday on a Electrek that does work on an MX fender quarter panel (I think).
I can imagine there are more robotic subassemblies for M3 than we're ever done for S/X


3). 50 Robots . Final Assembly line. At this stage of M3 ramp, I can't imagine tesla will have more than a single Final Assembly Line. But I agree there could be stations that are parallel. For S/X, there are few stations that are robotic such as Roof and Tires. I assume for Model 3 there are a few more stations that are Robotic but still that vast majority of Final Assembly is human.

4). 26 Robots . Misc areas. Stamping, station transfer, Paint, etc.

 

[mmd]

I don't know the extent to which a recession would hurt the big car companies, but that's not the real risk. The real risk is that they don't suvive the transition to BEVs. They have huge sunk costs in the ICE technology, and nothing they do seem to suggest they are willing to let go of those sunk costs.

Probably the only car company that seems serious about BEVs is Volkswagen. I think they had a real wakeup call with dieselgate. Too bad for their competitors who have yet to wake up. If Tesla won't eat their lunch, Volkswagen will.

I don't see that as an issue for the next 200 years (as I showed). Once the subsidies end, electric cars will succumb on their own. People like to compare them to I-phone. But I never heard of subsidies for I-phones.
BTW, making the drivetrain of electric cars is really trivial. Hook up a motor to a battery. It's a fifth grade project. See how fast Bolt was brought to market by GM? If market really likes electric cars, it won't take them too long to adapt. In fact, it's the ICE manufactures that have been the largest EV sellers for the last few years.

The pension obligation size is a good point. I have to check if they are already part of the liabilities in the financial state. But that is a big liability, I admit,
GM and F should also convert into a sweat shop and exploit its employees, pay them low wages and cut pension obligations.

 

[Waiting4M3]

Yeah I always thought that was carefully worded. They meant some production die or something very specific, not "these were made on a 100% complete factory line". Like saying your chicken nuggets are made "with 100%" chicken instead of made "of 100%" chicken.

I would also make a wild guess and say that Tesla has validated programming of the robots to do every step of the assembly during the RC build. Obviously they have not put in all the robots needed to run the line at a high volume given the pictures from yesterday. And I would also guess that the robots may have been ran in manual mode during the RC build, and Tesla is doing copy/paste and setting up automation now.

Here is an example of how we introduce new production line and add capacity in semiconductor fabs:

We would 1st install 1 tool, run verification/calibration (usually quick). Then we would run boxes of wafers through it manually, to tune the processing recipe (think Tesla's robot programming). The recipe tuning is usually the most time consuming, you don't always know if the recipe works, and you're not done until you end up with a recipe that works.

Once the recipe is done, we set up the automation. This means programming the wafer conveyor to transport wafers to the tool automatically, and set up communication between the tool and the fab automation server, so no human needs to be present to load the wafers and hit a Start button. This part is quick, especially if you have done this for other tools in the fab, maybe on a previous production line, you just copy/paste. Now tool #1 is online and production has started.

Then we add the next tool. 1st we also do verification/calibration (quick), then copy/paste the same recipe (much quicker than tuning recipe), then run a box of wafers and verify the results, then we copy/paste the automation and tool #2 is online.

Then we add the next tool, and the next tool, and the volume capacity of the line increases gradually as we add more tools.

 

[austinEV]

You shouldn't be surprised. Nine months ago Kuka said the schedule would be really tight for supplying the robots for the July 1 production start but they were committed to meeting Tesla's deadline. Elon has consistently said that July 1 is a target given to every supplier but he knows at least one will be late. Tesla is doing everything possible to meet the July 1 date for production start but they will almost certainly miss it because "stuff happens".

The good news is that thus far they haven't identified any issue that they don't think can be addressed by July 1. Otherwise they would have to admit that production can't start by July 1 and they haven't done that yet. Ramping your production capability by 5x in two years is a humongous task; the road will be bumpy and there will be setbacks along the way. But I like the extreme focus that Tesla has on this goal and expect them to achieve it regardless of those setbacks.

Here is the silver lining in learning that the robots are just now arriving. The ER next week will again be too soon for any "we are late on the M3" type of message. Assuming that these robots are not themselves late, then it is too early to know that, therefore there is less chance of that being an item of bad news on the ER.

 

[luvb2b]

twitter is "just ok". stock is heavily shorted and barely even up 10% on a great report.
what you want to see is a large heavily shorted stock up 20-40% on a good report. that both strikes terror in the hearts of the shorts and emboldens speculators to press against their other hideouts.

as i mentioned in my earlier post, the action today might lead you to conclude upside is as much as to 340. and that's nice but "just ok" because it's very hard to trade for extreme profits with options.

TWTR

 

[SwTslaGrl]

For a China Gigafactory perhaps the largest demand is TE to complement all wind and solar they have built to replace older coal plants?

 

[MitchJi]

EGEB: Coal strip mine going solar, Trina selling bifacial PERC panels, Supreme Court vs Trump, more

Electrek Green Energy Brief

Coal company plans huge solar farm on strip mine – If we can make it about the money, and we can win the money argument – then the game will end. This plant is potentially being built on top of a former mountaintop coal strip mine. Let’s see it happen.



One Big Legal Obstacle Keeps Trump from Undoing Greenhouse Gas Regulation – 2007 Supreme Court decision, Massachusetts v. EPA, which determined the agency has the authority – and responsibility – under the Clean Air Act to regulate greenhouse gases, one of which is carbon dioxide. This is law. As such, Pruitt simply saying I don’t believe in CO2 causing climate change is not the end game.

Trumps first 100 Days vs Renewables: Renewables hold Round 1 – The high level: Very little, technically, has been done to renewables as of yet. The article breaks down individual actions by Trump and analysis their results. One major issue I see arising is limiting the future research needed – historically done via the Department of Energy and recently for solar the SunShot program – to empower our electrical grid to manage high penetration levels of renewables – but there is the chance the Feds have already done enough and the private market, because so much money is now involved, will invest themselves into these solutions. Rick Perry’s Department of Energy memo might outline further ways to attack the renewables industry.

PNL to supply Rayton Solar with technology for low cost solar panel production – The Rayton process utilizes high current ion beams produced by the PNL technology to cleave thin layers of silicon with zero waste. The process uses 50-100 times less silicon than the traditional method.Been watching these people progress for the last couple of years – now I see them selling hardware to people. If a company can lower the cost of silicon by 50-100x – which can be 50% of a solar panel – then we’ve got another $0.15/W that’s going to fall off the price of an installatio