2017 Investor Roundtable:General Discussion

[ValueAnalyst]

What do you mean by "fully functional"? Gigafactory 1 will be only 30 % complete when finished, perhaps by the end of this year. 100 % completion of Gigafactory 1 is projected for 2020-2021, 6-7 years after construction began.

Can you please provide support for "Gigafactory 1 will be only 30% complete when finished" ?

Initial capacity estimate at announcement was enough batteries for 500,000 cars. Giga 1 is now expected to achieve that in full year 2018, and run-rate 1H18.

 

[WhiskeySauer]

First Gigafactory was announced in 2014, started production in 2016, and will be fully functional by end-2017 with the Model 3 ramp-up.

Three years for the first one likely means less time for the subsequent ones, but I'm assuming the same three years from announcement to full production for the subsequent ones for the sake of conservatism. So I expect Gigafactories 3, 4, and possibly 5 to be fully functional in 2020.

If we know anything about Elon, it's that he likes to improve things by an order of magnitude, so I wouldn't be surprised if subsequent Gigafactories each produced millions of batteries per year, but I'm assuming 1.0m per year per Gigafactory for the sake of conservatism.

Per Tesla's website, Gigafactory 1 will be fully functional "by 2018" which literally means on or before December 31st 2018. That is still 20 months away. Also I think less than half of Gigafactory 1's main structure is even standing right now. I think it's super aggressive to believe they could even get the remaining structure complete by end-2017, much less have it tooled and fully operational. I think the best case scenario is that Tesla announces its selection for the location of GF3-5 at the end of this year and that construction will take place in parallel with ground breaking in early 2019. If we're lucky, that would mean low rate initial production for Gigafactories 3-5 would begin by 2020 with full rate production by 2022. That is the absolute best case scenario in my mind. What I think is more likely the case is that the timeline for Gigafactory 3 in Europe will be bumped up by a year with construction for Gigafactories 4-5 happening afterwards. My realistic but still optimistic scenario is Tesla achieving an annual production rate of 4 million/year by 2025 at the earliest.

Once again, for your super-aggressive timelines to be true, it seems like Tesla would have to break ground on all three additional Gigafactories within the next 12 months, which means Tesla would have already determined a location for all 3 Gigafactories by now and already be making initial preparations with legislatures and subcontractors, etc. This could be happening behind super secret channels and somehow nothing has leaked... but I think it's more likely that it's just too early to expect this to be happening already.

 

[MitchJi]

I think the main question in the room is now simply how committed will Tesla be to Grohmann in the future. Before it was said they would still supply other companies and that would result in R&D and so on, now one has to wonder (at least I would) does Tesla really want to set up their big vision of a automated factory so far away from their headquarters in the US? Are they going to get investments or will the R&D be done in California? Does Tesla even have enough demand themselves in the long run or is this now just a short peak?

Why would Tesla buy Grohmann other than their workers?

I expect Tesla to achieve the numbers you laid out by 2020. And the following link explains why:

Can Tesla Produce 4 Million Cars In 2020? - ValueAnalyst | Seeking Alpha

Also where is Solar Roof related revenue? Have you accounted for the Alien Dreadnaught improvements in production rate per Gigafactory? Have you accounted for "Gigafactories 3, 4, and possibly 5," locations of which will be announced in 2017 (so likely full production by 2020 in-line with Gigafactory 1 timeline of three years from announcement to full production)? Model S/X have achieved more than 30% US market share in their respective niche markets (Model S in four years and Model X on track to do so in less than two years), so why assume only 2% global market share for Model 3 in five years?! Why assume a P/E ratio less than that of the overall market that is barely growing when Tesla will have been growing annually by more than 80% with some level of expected high rate of growth into the future in 2020? Your numbers are way too conservative.

I don't expect further increases in cell production or pack production numbers due to further alien dreadnaught improvement.

 

[ValueAnalyst]

Per Tesla's website, Gigafactory 1 will be fully functional "by 2018" which literally means on or before December 31st 2018. That is still 20 months away. Also I think less than half of Gigafactory 1's main structure is even standing right now. I think it's super aggressive to believe they could even get the remaining structure complete by end-2017, much less have it tooled and fully operational. I think the best case scenario is that Tesla announces its selection for the location of GF3-5 at the end of this year and that construction will take place in parallel with ground breaking in early 2019. If we're lucky, that would mean low rate initial production for Gigafactories 3-5 would begin by 2020 with full rate production by 2022. That is the absolute best case scenario in my mind. What I think is more likely the case is that the timeline for Gigafactory 3 in Europe will be bumped up by a year with construction for Gigafactories 4-5 happening afterwards. My realistic but still optimistic scenario is Tesla achieving an annual production rate of 4 million/year by 2025 at the earliest.

Once again, for your super-aggressive timelines to be true, it seems like Tesla would have to break ground on all three additional Gigafactories within the next 12 months, which means Tesla would have already determined a location for all 3 Gigafactories by now and already be making initial preparations with legislatures and subcontractors, etc. This could be happening behind super secret channels and somehow nothing has leaked... but I think it's more likely that it's just too early to expect this to be happening already.

Why assume the following:

1. No location announcement in the next 7 months. Why would Tesla include this in the last investor letter if they did not plan on announcing locations in the near future?

2. A full year between location announcement and breaking ground?!

3. No increase in capacity per Gigafactory for the next 8 years even though Gigafactory 1 capacity estimate was tripled one year after ground breaking, and subsequent Gigafactories will have the advantage of experience that comes with having built the first one and creation of Tesla Advanced Automation.

And you call your estimate optimistic...

 

[ValueAnalyst]

Why would Tesla buy Grohmann other than their workers?

Intellectual property?

I don't expect further increases in cell production or pack production numbers .

Why not? Elon has repeatedly talked about the two orders of magnitude improvements that can be achieved with manufacturing.

 

[Spidy]

Why would Tesla buy Grohmann other than their workers.

I think the big question is did Tesla buy Grohmann engineering, because they saw a lot of value in the company and want to invest into R&D and have it become a core part of their automated factory or was it just so critical to the Model 3 production timeline and some things weren't working out (accelerating Model 3 production) that made Tesla take this step.

 

[ValueAnalyst]

Looks like the the S75 got a substantial price cut in the Design Studio. Now starts at $69.5k with the auto liftgate included.

I don't know how this news will affect TSLA today, but this may force competitors to do the same or suffer further market share erosion.

 

[Lessmog]

I think the big question is did Tesla buy Grohmann engineering, because they saw a lot of value in the company and want to invest into R&D and have it become a core part of their automated factory or was it just so critical to the Model 3 production timeline and some things weren't working out (accelerating Model 3 production) that made Tesla take this step.

Having just flipped my coin, I lean towards the former. Also based on Elon's character.

 

[vgrinshpun]

Via Seeking Alpha news:

Google buys lands near Tesla's gigafactory

Apr. 17, 2017 8:47 AM • SA Editor Clark Schultz

• Google (GOOGL, GOOG) acquired about 1,210 acres of land near Reno, Nevada and within just a few miles of Tesla's (NASDAQ:TSLA) massive gigafactory complex.
• The company was already expected to build a data center within the Tahoe Reno Industrial Center in the future, although no immediate plans have been set. In Reno, there's some speculation that the new tract of land could be used for testing self-driving cars at higher speeds.
• Full list of companies setting up shop at the Tahoe Reno Industrial Center.

 

[racer26]

Yes and no.

I also do not think it has any impact on M3 production start. We are 2 months out, they are probably building whatever has already been engineerd, but at the very least the producton team at Fremont is already familiar with the design. It`s not like the Germans are working in this seceret lab, in isolation and fax over blueprints piece by piece.

However.

The folks thinking about unionizing at Fremont are taking notice and so are those workers who are yet to buy in to the idea. If Tesla rolls over, Fremont will unionize swiftly as well and push for as much as they are not ashamed to ask for. Can you imagine the threat of a Fremont strike in July, just before production start-up? Now that would have major impact on TSLA.

At the same time, if Tesla hits back hard now, that may have the same effect, as the pro-union guys in California would start the fear mongering about how vaunerable they are and how unreasonable the company is.

So this will be a very delicate game of politics.

If striking at Grohmann were able to cause a problem for the launch of Model 3 I would be blown away. The union at Grohmann only covers about half of the employees, and what they're asking for is mouse nuts in the grand scheme. Tesla shouldn't just roll over and give it to them, but if that were what it took, even that wouldn't be a big deal.

Additionally, I don't really agree that it has big impacts for Fremont either.

I don't believe for a second that there is any real number of employees that actually want to unionize at Fremont. What I've seen is a few noisemakers who are little more than paid UAW shills. Unionizing Fremont would be catastrophic to the value of their stock options, and only the most pig-headed of the workers wouldn't see that. To unionize they have to get majority approval of the workers. Its a complete non-starter.

 

[ValueAnalyst]

If striking at Grohmann were able to cause a problem for the launch of Model 3 I would be blown away. The union at Grohmann only covers about half of the employees, and what they're asking for is mouse nuts in the grand scheme. Tesla shouldn't just roll over and give it to them, but if that were what it took, even that wouldn't be a big deal.

Additionally, I don't really agree that it has big impacts for Fremont either.

I don't believe for a second that there is any real number of employees that actually want to unionize at Fremont. What I've seen is a few noisemakers who are little more than paid UAW shills. Unionizing Fremont would be catastrophic to the value of their stock options, and only the most pig-headed of the workers wouldn't see that. To unionize they have to get majority approval of the workers. Its a complete non-starter.

If Tesla were to rely on Grohmann for model 3 production, they would've bought them 5 years ago. I worked in m&a for a decade both on sell-side and buy-side.

 

[ValueAnalyst]

Via Seeking Alpha news:

This is significant news. I can see a significant partnership around data and AI. Also, this is negative for apple.

 

[Intl Professor]

I don't believe for a second that there is any real number of employees that actually want to unionize at Fremont.

You're probably right about this, but do you have any evidence?

I'm not at all sure unionization would effect the long term price of the stock, either. Evidence? Wouldn't effect my confidence in the company as an investor and you would probably agree.

 

[Reciprocity]

I think the big question is did Tesla buy Grohmann engineering, because they saw a lot of value in the company and want to invest into R&D and have it become a core part of their automated factory or was it just so critical to the Model 3 production timeline and some things weren't working out (accelerating Model 3 production) that made Tesla take this step.

Grohmann is more what Tesla is becoming then what it was as purely an electric car manufacturer. Elon has been talking for a while about the machine that makes the machine being the product, not the cars themselves. Grohmann fits well into this and Tesla has stated that it intends to grow Grohmann with more engineering talent in Germany. Tesla was one of Grohmann's biggest clients so its not like this was a new relationship setup to save the model 3 production. They have been working with them as do many auto manufacturers. It seems odd that Grohmann or its clients other then Tesla would even want to work with them now given the trade secrets that would inevitably flow back to Tesla.

This idea that Grohmann is worried about losing clients is silly at best. Who the hell wants to have to go out and find clients when you have a sugar daddy like Tesla that is going to triple the size and thus opportunity for each and every Grohmann employee. This Grohmann thing is a clearly a Union/Government money grab and not in the best interest of the employees. They are best served with stock options and the new opportunities that will come. My guess is that Tesla caves, because is what you do when the mob bosses from the Union/Government come looking for their cut.

 

[doctoxics]

Can you please provide support for "Gigafactory 1 will be only 30% complete when finished" ?

Initial capacity estimate at announcement was enough batteries for 500,000 cars. Giga 1 is now expected to achieve that in full year 2018, and run-rate 1H18.

Check the Gigafactory thread. By finished, I mean the first and second phases which are only 30 % of the complete structure. You are correct in that the original capacity has been increased from 50 gwh to 150 gwh at the module level. At the cell level the capacity has been increased from 35 gwh to 100 gwh. So now 30 % of Gigafactory 1 will produce as many cells and modules as was first estimated for the completed building. Since Gigafactory1 will take 6-7 years to build, perhaps 5 years is the shortest build we might expect to complete the next Gigafactory. Also, the next Gigafactory will assemble vehicles as well as batteries, increasing the complexity, and likely increasing the build time.

 

[mrdoubleb]

If striking at Grohmann were able to cause a problem for the launch of Model 3 I would be blown away. The union at Grohmann only covers about half of the employees, and what they're asking for is mouse nuts in the grand scheme. Tesla shouldn't just roll over and give it to them, but if that were what it took, even that wouldn't be a big deal.

Additionally, I don't really agree that it has big impacts for Fremont either.

I don't believe for a second that there is any real number of employees that actually want to unionize at Fremont. What I've seen is a few noisemakers who are little more than paid UAW shills. Unionizing Fremont would be catastrophic to the value of their stock options, and only the most pig-headed of the workers wouldn't see that. To unionize they have to get majority approval of the workers. Its a complete non-starter.

I am not saying, that your POV is not logical or, that it does not make sense.

But if the last few years around the world (incl. my own country) have taught us anything, is that it is too easy for demagogues to brainwash people into doing things against their own best interest.

I hope you are right and we won't even remember this in a month. But I am concerned (not worried, just a bit concerned), that the way things will shake out in Germany can add fuel to the UAW efforts at Fremont.

 

[ValueAnalyst]

You're probably right about this, but do you have any evidence?

I'm not at all sure unionization would effect the long term price of the stock, either. Evidence? Wouldn't effect my confidence in the company as an investor and you would probably agree.

Evidence for unionization affecting long-term value of companies? Just look at GM and Ford.

 

[JRP3]

This is just silly This Man Is Spending Millions to Break Elon Musk's Trump Ties

 

[racer26]

This is just silly This Man Is Spending Millions to Break Elon Musk's Trump Ties

Some people have more money than brains?

 

[EinSV]

When does Tesla normally release prices and options for new models? Design studio or reveal?

I believe that releasing the schedule for the M3 reveal means that Elon has more confidence that the production ramp will go smoothly. But I believe think that the final indicator will be releasing the M3 options with prices. I also expect that the MS-MX prices will be reduced at the same time.

Good call on the S/X price reduction -- although it happened earlier than expected.