2017 Investor Roundtable:General Discussion

[scaesare]

Ahahaha! You haven't observed the average person drive, have you?

Hehe... point well taken...

 

[MXWing]

2 more weeks before entering a month full of surprises ....

Yup. Month full of surprises with way higher likelihood of positive than negative catalysts.

Time to short and let see what happens!

 

[dennis]

So many mistakes in your assumption. It wasn't Panasonic that insisted on the GF in Nevada. Tesla dragged Panasonic into this while looking for partners to commit $3 B for the $5B GF. Panasonic (reluctantly, imo) agreed to invest $200M, and has not increased that as of yet.

Panasonic may ramp up investment in Tesla battery plant
From May 2016:

Panasonic Corp. is prepared to move up its investment plans for Tesla Motors Inc.'s battery plant if needed to meet strong demand for the electric car maker's upcoming Model 3 sedan, an executive at the Japanese electronics group said.

"We will do our best to move up the schedule if requested," Yoshio Ito, head of Panasonic's automotive and industrial systems division, told reporters at a briefing on Friday.

Panasonic plans to contribute $1.6 billion to Tesla's $5 billion "Gigafactory" in phases over the next few years.

Subsequently Panasonic went to the capital markets to increase its investments in automotive batteries. The increase in investment was driven by the 373K M3 deposits Tesla received in April 2016.

Tesla is using the Gigafactory for a lot of other purposes (M3 motor assembly, power pack and Powerwall assembly, more?) that are unrelated to cell manufacturing. These were never mentioned during the 2014 Gigafactory campaign. It was all about cells.

Wrong again. From the beginning Tesla said that the Gigafactory would produce 35gWh cells and 50gWh packs. That means that pack assembly for both TA and TE were always planned for GF1. More recently Tesla has said they expect to be able to triple those numbers at GF1. So there is plenty of room for M3 motor assembly without impacting the revenue Panasonic was expecting to reap from its investments in the GF.

 

[dennis]

All of the arguing here over when/if the S/X will convert to 2170 cells is overlooking the fact the Tesla and Panasonic have always planned to import some cells that would be assembled at the GF. The original plan was 35 gWh cells/50gWh packs, which has subsequently been tripled. Tesla is expecting to continue to use cells that Panasonic produces in Asia and assemble them into packs at GF1. Given this long term plan it would make economic sense for all parties to convert to the superior 2170 cells..

 

[RobStark]

 

[Yggdrasill]

The figure for Norway is surprisingly up to date. Just did a quick calculation and arrived at 218 BEVs per 10k inhabitants.

 

[ValueAnalyst]

As of December 31, 2016, PENA had invested $300 million in property only according to the Nevada GEOD reports. That doesn't include materials, contractors, or labor.

To frame this, note that both phases of Suminoe factory in Osaka was about $1.1 billion. The spend at the Gigafactory already exceeds this. This indicates that the pilot factory was likely completely funded. Panasonic likely spent a little more thus far, but has to wait for the additional phases to have a completed shell to invest much more. That may have already occurred, but it would have been recently.

Can you please elaborate on this?

Additionally, what do you say to bears who claim Panasonic can partner with other car manufacturers as well?

 

[ValueAnalyst]

Why do we assume that there wasn't a plan from day one. Tesla for to Panasonic and said something like hey we want to use this 18650 cell but it's not ideal. We plan and would love to work with you on a new format for autos. I'm guessing this conversation would have happened way before the gigafactory. Panasonic probably ok, if you commit to 2 billion cells then we will do it. And Tesla said..hrm.. 1.8 billion and it's a deal.

My point is that all of this had been known for years by Tesla and Panasonic. I highly doing Panasonic had been dragged kicking and screaming into this constant flow of demand. And Tesla gives them there space and in exchange for their loyalty, they are giving them a front row seat to the revolution where their combined products will change the entire world.

My point is that whatever they are doing is what they planned to do a long time ago with some variance for the inevitable plans changing in the middle of the battle when the bullets start flying. None of us can really know. We know of one agreement from 2013 for 1.8 billion cells or roughly 300,000 cars. From earlier this year, We have a very vague and unsubstantiated transcripts with Elon saying that at the end of this year, S/X would be converted to 2170. If the latter is accurate, it makes sense from a GM standpoint. It also makes some sense to not dick around with S/X and just focus on model 3. I still think the lure of an extra 6% gross margin will push the conversation up to mid 2018 at the latest. This can also be a tool to help offset the loss of fed tax credits which many bears point to as the coming Tesla apocalypse where they crumble without those credits.

Could you please walk us though the math for "extra 6% gross margin" for 2170?

 

[ValueAnalyst]

It is never a good idea to exercise your employee stock options and keep the shares. JB likely has to pay about 51% (fed + 13% CA tax + 3% Medicare surcharge) of the gains in taxes on exercised gains irrespective of whether you sell or keep the shares.

Should the "fed" portion be capital gains tax rate of 15%?

Also, he could've sold a portion just to cover tax liability, like Elon did (last year?)

 

[ValueAnalyst]

I'm modeling Tesla energy by GWh, starting out extremely slow at 0.1GWh next quarter, and ramping it up exponentially (vs. Elon's super-exponential growth guidance).

I'm assuming ASP of $500m/GWh ($250/kWh plus inverters, installation etc) and gradually decreasing ASP by ~10% every two years while keeping margin same.

I'd be interested in people's thoughts on these assumptions.

 

[Reciprocity]

Could you please walk us though the math for "extra 6% gross margin" for 2170?

Oh yes math, my strong suit.

$190/KWh x 35% savings from 2170 manufactured at the GF1 = $6650 savings for every 100KWh pack. ASP $100,000, this roughly 6% added to GM for 2170 cells manufactured at the GF1.

$190/KWh was the last cost I have heard of.
30+% or more savings though a video from a presentation recently talked specially about 35% savings. The lower the ASP the bigger the impact of the savings on GM, but the GM goes down obviously if the retail price is lowered thus the savings above combined with some economies of scale from add model 3, suck as cheaper aluminum because you are buying 4x as much then 8x as much in 2019. Typically if you make commitments today for 2019+ you can get better pricing today. Better pricing from tier one OEMs with 500,000 cars vs 80,000.

My guess is that they will either start to pass along those savings mid 2018 to offset the lost fed tax incentives or they will refresh the interior removing the second screen/instrument cluster and replace it with an augmented reality HUD and maintain the average selling price. Moving S/X more upscale as they release more features for the 3.

 

[ValueAnalyst]

Oh yes math, my strong suit.

$190/KWh x 35% savings from 2170 manufactured at the GF1 = $6650 savings for every 100KWh pack. ASP $100,000, this roughly 6% added to GM for 2170 cells manufactured at the GF1.

$190/KWh was the last cost I have heard of.
30+% or more savings though a video from a presentation recently talked specially about 35% savings. The lower the ASP the bigger the impact of the savings on GM, but the GM goes down obviously if the retail price is lowered thus the savings above combined with some economies of scale from add model 3, suck as cheaper aluminum because you are buying 4x as much then 8x as much in 2019. Typically if you make commitments today for 2019+ you can get better pricing today. Better pricing from tier one OEMs with 500,000 cars vs 80,000.

My guess is that they will either start to pass along those savings mid 2018 to offset the lost fed tax incentives or they will refresh the interior removing the second screen/instrument cluster and replace it with an augmented reality HUD and maintain the average selling price. Moving S/X more upscale as they release more features for the 3.

Thank you. All that makes a lot of sense. I agree with your predictions in the last paragraph as well.

 

[ValueAnalyst]

Does anyone know if 2170 cell chemistry is patented by Tesla/Panasonic, or can Panasonic manufacture these cells to other car manufacturers?

 

[Yggdrasill]

Does anyone know if 2170 cell chemistry is patented by Tesla/Panasonic, or can Panasonic manufacture these cells to other car manufacturers?

I'm not completely sure, but I think Tesla and Panasonic have the rights to different elements of the cells. There are a lot of things that go into the cells, including electrolyte, anode and cathode. Different variants of each component likely contains either only Panasonic tech or both Tesla and Panasonic tech.

If the above is correct, Panasonic likely can't sell cells that are identical to the cells Tesla use to anyone else (without Tesla's approval). But they may be able to sell fairly similar cells, which don't use the IP of Tesla.

 

[Reciprocity]

Does anyone know if 2170 cell chemistry is patented by Tesla/Panasonic, or can Panasonic manufacture these cells to other car manufacturers?

I think it's a bit if a balancing act. Tesla's mission statement pretty much requires competition to achieve the goals. While to much competition would be bad, not enough hurts the mission. Tesla only really has to agree to a set margin with Panasonic that is lower then what they could sell to other autos. They would earn less from Tesla in exchange for long term volumes commitments, sharing some of the r&d costs and Tesla gets to determine which properties are most important. I don't think companies in generally like unlimited exclusive deals so I would assume that Panasonic can do what ever it wants outside of the gigafactories, though I would expect gigafactories to tie up Panasonic's resources for the next couple of decades.

They also have a relationship in solar and GF2. Any idea what their commitment is there and if they do anything with solar tiles?

 

[ValueAnalyst]

I think it's a bit if a balancing act. Tesla's mission statement pretty much requires competition to achieve the goals. While to much competition would be bad, not enough hurts the mission. Tesla only really has to agree to a set margin with Panasonic that is lower then what they could sell to other autos. They would earn less from Tesla in exchange for long term volumes commitments, sharing some of the r&d costs and Tesla gets to determine which properties are most important. I don't think companies in generally like unlimited exclusive deals so I would assume that Panasonic can do what ever it wants outside of the gigafactories, though I would expect gigafactories to tie up Panasonic's resources for the next couple of decades.

They also have a relationship in solar and GF2. Any idea what their commitment is there and if they do anything with solar tiles?

I'm not certain about the answer your question, but I agree that Tesla's incredible speed at which they execute is one of their core strengths (although I'm not sure if it's a sustainable competitive advantage as the pace will likely slow down, at least somewhat, as the company gets larger and the number of employees increase).

I'm not sure if I agree with your statement "Tesla's mission statement pretty much requires competition to achieve the goals." Could you please expand on this for me to understand where our understandings diverge?

The way I see it: Model 3/Y/Semi, with their 20-30% potential gross margins, as well as FSD and Tesla Network with their software-type 70%+ gross margins, will allow Tesla to generate enough internal cash flow to build 5+ Gigafactories simultaneously starting in 2018, and cash flow will snowball from thereon as Gigafactories 3-7 start coming online in 2020.

Beyond 2020, Tesla will at least have the capital resources (I'm still looking into material resources like Lithium and Cobalt; Tesla may need new chemistry to grow at this pace) to build 10+ Gigafactories simultaneously. Taking on non-dilutive debt capital could speed this timeline up even further.

In other words, I'm not sure if Tesla needs its competitors to finally take the leap to building their own Gigafactories in order to fully transition the world to sustainable energy. To be able to achieve one's goals independent of others is an amazing and very exciting position to be.

The most important thing I'm looking forward to this year is subsequent Gigafactory announcements. I can't wait to hear the details around vertical integration, capacity, and what Grohmann really brings to the table. This is key.

 

[ValueAnalyst]

I'm not completely sure, but I think Tesla and Panasonic have the rights to different elements of the cells. There are a lot of things that go into the cells, including electrolyte, anode and cathode. Different variants of each component likely contains either only Panasonic tech or both Tesla and Panasonic tech.

If the above is correct, Panasonic likely can't sell cells that are identical to the cells Tesla use to anyone else (without Tesla's approval). But they may be able to sell fairly similar cells, which don't use the IP of Tesla.

Thank you; this is helpful. I'll be digging into warranty costs today (hoping to publish an article early next week but we'll see if SeekingAlpha editors approve it), but I'd appreciate it if someone else could dig deeper into whatever is disclosed of the agreements between Tesla/Panasonic. If someone doesn't get around to it in the next few days, I'll do it.

Also @Yggdrasill, I recently saw an Financial Times graphic which showed how far ahead Norway is on EV adoption. Per 10,000 people, it showed something like 10x adoption! That's incredible! Congrats! I've always wanted to visit Norway to see what the heck you do so right over there, but this is more of a reason for me to visit your country soon.

 

[RobStark]

Tesla wins contract with major Australian electric grid to deploy Powerpacks across several sites

 

[ValueAnalyst]

Tesla wins contract with major Australian electric grid to deploy Powerpacks across several sites

This 250kW/500KWh project with the City of Sydney is a great start.

Power:Storage ratio is 1:2, which is lower than my earlier assumptions for Powerpack, so I may need to make some adjustments in my model.

The big whale is the Australian government's 100 MWh contract (which, if I remember correctly, can be expanded to multiple times of that).

 

[Ugliest1]

I'm not sure if I agree with your statement "Tesla's mission statement pretty much requires competition to achieve the goals." Could you please expand on this for me to understand where our understandings diverge?

...

In other words, I'm not sure if Tesla needs its competitors to finally take the leap to building their own Gigafactories in order to fully transition the world to sustainable energy. To be able to achieve one's goals independent of others is an amazing and very exciting position to be.

My simplistic reasoning is: the world is a big place. Hard to fill for any one company, and if there are many who can continue to successfully, actively oppose the overall goals, it will be much more difficult for the world to survive.

I also think Elon was brilliant in pointing out from the outset that one of Tesla's goals was to encourage competition. He sidestepped early on all those *stupid* reporters' efforts to throw a straw man out e.g. "Company X just announced Y... what are you going to do about it?" He had his priorities, and mission statement, correct from the get go. Not easy to be distracted when they are that clear.

What the world needs is hearts and minds pulling together. And there's that old saying, "When you've got them by the ba**s, their hearts and minds will follow". It's slowly happening.