2017 Investor Roundtable:General Discussion

[RobStark]

Why VW thinks it has the edge over Tesla with EVs

 

[jbcarioca]

...

Autopilot pricing will make a significant difference to the bottom line in 2018, so I welcome any comments on this.

We should remember that color, wheels, wheel size, optional audio, interior finishes and so will all be margin and price enhancers. I took a quick look at an analogous situation for which I have considerable data, although I cannot disclose the details. Thus this should be viewed with appropriate skepticism.

The vehicle in question was a new ICE entrant in the same size/price class as Model 3. In this case first year MSRP at sale included 24.5% average in factory installed optional equipment and mfr sponsored options. Dealer adds were significant but I did not include them. At the time there was no driver assistant options, no factory audio upgrades. The 24.5% was color, wheels, upholstery, extended warranty and not much else.

For Model 3 we should have at least:
-prepaid service,
-extended warranty,
-color options,
-wheels,
-AP/FSD choices,
-interior options,
-battery choice,
-Performance choice,
-AWD
We do not know the timing of the choices nor do we know how 'loaded' the initial production will be.

Apart from improved gross margin from factory efficiency, increased uptake of options will over time effect increased gross margin.

On balance that is why I expect average sales price to be around $47,000 during 2018. Before that it all depends on the options available, built in on early deliveries, so were I forced to guess I'd bet on ~$40,000 for 2017.

 

[ValueAnalyst]

Best Of luck.
.Perfected the TE model?
.Too busy selling the condos ?

I have enjoyed many of your posts.

It'll be a busy summer with some travel scheduled and I'd also like to focus on building my investment management firm and the SeekingAlpha service. My goals are to start marketing my firm more heavily now that I feel it's ready for growth and continue to add new clients ( guess in which stock the new money will first get invested) and publish articles more frequently as it's clear to me that writing focuses my thoughts and makes me a better investor. I'll continue to follow the threads and post here every now and then; it'll just be less frequent.

 

[kbM3]

I can see Musk making that case. I's not out of the realm of possibilities. But it would look bad from a marketing perspective. Specs matter to people. Why give GM any ammo? I suspect there's no way Musk wants to be beaten by a half-arsed compliance offering of less than 30k cars.

I don't see it as looking that bad from a marketing perspective. There is a very small group of people that have the attitude "I want an electric car with a 200+ mile range. Let me compare the Bolt and m3." Just EV enthusiasts.

People that currently buy gasoline cars (99% of the market) are going to look at the bolt and the model three versus their respective ICE peers. Which is obvious for the model three but no one knows what those peers are for the Chevrolet bolt.

I guess it is possible that Chevrolet might try and market that they have a higher range. But I do not think that would be very effective. I certainly would not buy a Chevrolet bolt over a model three based on that.

 

[Reciprocity]

Why VW thinks it has the edge over Tesla with EVs

Model Y competitor by 2023... That's going to work out well for them. Model 3 competitor in 2020, which I would believe if they had a single pure EV vehicle in mass production. Big hat, no cattle. They are atleast acting like they get it, but they don't. If they did, they would be talking about pulling forward by 2 years their giant battery factory.

 

[Paracelsus]

My expecation for the distant future is it'll be both. There will be areas of the world where an individual household can reasonably build their own power system and be their own grid. Especially in a world where renewably energy is cheaper than the cost of transmission.

There are also plenty of areas in the world (like the Pacific NW where I live), where the renewable energy will need to be seasonably storable (not just for day or 2, or a week). One tangible example - the 10kw solar PV system I have on my roof routinely clears 60KWh produced during the summer months, and routinely falls below 5 KWh for a day of production during the depths of winter (sometimes <1KWh). Great for electric AC during the summer - bad for electric heat (whether heat pump or something else) during the winter.

And the shortfall is so high, I would really need seasonal storage to capture sunshine in the summer so I could spend it during the winter.


That being said, anywhere with particularly good solar and a particularly recalcitrant / expensive local utility, is likely to find signficiant grid defection. I think anywhere with local utilities that are trying hard to figure out how they can transform the grid will find that there is still a role for central energy production and transmission. It might start looking more like each household takes care of their routine / baseload electricity, and the utility is called on for extreme temps and power usage, or to trickle replace energy shortfall, or I don't know.

End result - I see both business models and uses for batteries for as far into the future as I'm alive (say 2060). Maybe in a couple of centuries, every building will be optimized for efficiency, every surface will collect energy from the sun, and we'll be so awash in solar energy that I won't need a transmission grid here in the PNW for my heating during a week or 3 of heavy clouds / no sun / cold weather in the winter.

Agreed that residential solar presents a unique challenge in the Pacific NW. I do think that the Pacific NW will eventually present a tremendous opportunity for commercial scale renewable storage for wind generation and hydro. The Tesla South Australia storage project is coupled with wind energy, and the Columbia River Basin (Washington, Oregon, and Idaho now has roughly the equivalent amount of wind generation capacity as it does hydro capacity (approximately 10,000 megawatts each). Washington and Oregon will likely join California in the effort for 100% renewables and they certainly have the capacity to do so with the addition of battery storage for existing wind energy sources that will work very well in the winter months when residential solar is seasonally problematic. Battery storage will benefit the hydro system by allowing it to capture off peak production as well as provide the ability to mitigate peak demand issues during periods where operations are required to increase spill volumes - such as during the juvenile salmon downstream migration months in an attempt to increase survival. I have heard it mentioned on several occasions that power transmission capacity of the existing grid in the Pacific NW has been studied and deemed insufficient to handle the additional load of a mass adoption of electric vehicles charging at home. I suspect the most cost effective solution for this situation will be an incentive for residents to install residential storage systems to assist the grid and the charging of their vehicles - similar to the Green Mountain Energy programs that have already been put into place. However that may create some issues with the current management of the grid which is dependent upon peak demand revenue.

 

[Dwdnjck]

I know this is a small thing, but it's being so overused, it's really getting annoying. Despite a rich and famous person using the term, "super-exponential growth" is a dumb term. Using a decent sized number for the exponent, plain old exponential growth can approximate a vertical line, so there is really no need to keep adding the "super". Frankly, it makes the whole post sound silly, especially since the rate so far has generally not been all that overwhelming. Nothing personal.

Super-good commment!

 

[RobStark]

Model Y competitor by 2023... That's going to work out well for them. Model 3 competitor in 2020, which I would believe if they had a single pure EV vehicle in mass production. Big hat, no cattle. They are atleast acting like they get it, but they don't. If they did, they would be talking about pulling forward by 2 years their giant battery factory.

On the one hand I don't expect VW to tell the press "we're ****ed, Tesla has us by the gnads "

On the other hand Mercedes just had a work slow down in protest when they announced their new battery pack assembly factory and investments in BEVs. Engine and transmission employees are freaked out. They should be.

So it is a careful line to walk. But acknowledging that when it comes to BEVs the most important "scale" is battery cells would reassure forward thinking investors.

 

[dmckinstry]

I resemble that.

Me too. But after all, we're both in our second childhood.

 

[MitchJi]

You use DCF's for your analysis. I look at what I believe are the most likely outcomes and perform MSotP (Mitch's seat of the Pants) analysis, combined with our "crystal ball" (Lynne's intuition).

@MitchJi what is your expectation for Model 3 ASP? I believe Elon had estimated the ASP at $42,000. And IIRC, you had predicted that Autopilot may be included as a standard option with the Model 3? I'm probably remembering what you said wrong...

Autopilot pricing is important as it affects two things: Autopilot (EAD or FSD) revenues likely have very high gross margins given that it's primarily software which can be copied across the fleet pretty easily. Because of this, any incremental Autopilot revenue will drop straight to the bottom line as net income (Tesla likely won't pay any corporate income taxes in 2018 due to its large Deferred Tax Assets).

And here's where it gets interesting: if Tesla can charge even $7k avg for EAD/FSD, my DCF predicts bottom line profitability by 2Q18 and enough net income in 3Q18 to make up for the net losses in 2H17 so that TSLA can be considered for addition to S&P500 shortly thereafter.

Autopilot pricing will make a significant difference to the bottom line in 2018, so I welcome any comments on this.

I believe that Elons estimated ASP of $42,000 means that it's impossible that Tesla is planning to charge a $7k avg for EAD/FSD. My current WAG is 1/3 to 1/2 of that, with similar MS-MS reductions. I would use their guidance for profits. How can they possibly hit those figures? Their costs are less somewhere (probably battery pack costs) than we think. I believe that this will trigger (probably after some time to figure out what it means, oem's can't compete) a SP bump.

 

[Krugerrand]

I agree with you. In the posted video, Elon makes it clear he is WELL aware that the world will be watching this project, so his "100 days within signing" may already incorporate some cushion.

Yeah. Sure. Because that's how he rolls.

 

[Krugerrand]

Relatively soft S and X sales, low in transit number, stores closing... what is going on?
I would like to increase my position, but I'm a bit worried.

End of the world. Get out while the getting is still good. Everyone should have been out already on the Solar City merger news. Guess some are just really slow learners.

 

[Krugerrand]

I was always unsure why Tesla had stores at all, given online ordering and a massive backlog, though I did visit the NY store to check out the seats in Model S before buying. They are really the least optimal use of Tesla's capital, though I guess having enough for test drives is important.

Many people are still of the 'I must touch and feel before I buy' species, and rightly so. Example: I'm of the very strong opinion that you should always try the Speedos on to know you shouldn't buy them. At some point there may no longer be any stores, but that's not now.

 

[andrewt3000]

Tesla Q2 2017 Production and deliveries states....

"We always want our customers to experience the newest versions of Model S and X while their cars are in service, so we added fully loaded, newly built cars to our service loaner fleet. We always want the service loaner Tesla to be *better* than the customer car being serviced."

Does anyone know.... are the loaners 100kwh?

 

[Krugerrand]

While I agree on range, it's possible that Tesla's obsessive aerodynamics work and aggressive "lightweighting" of the car will mean they can get more miles per kwh than the Bolt, which has poor aerodynamics and is kind of heavy.

Actually, I think it's easier than that. Elon recently reiterated that the Model 3 is about 'efficiency' rather than performance like the S and X. So the software that manages the battery et al...will be different, thusly more miles. And yeah, I expect the Model 3 to have at least one mile more range than the Bolt - that'll be important to Elon.

 

[Krugerrand]

@MitchJi what is your expectation for Model 3 ASP? I believe Elon had estimated the ASP at $42,000.

I'm not MitchJi, but I'd guess that Elon is too low. Perhaps not right at the start when they offer only the 2 options (color and tires), but once a full spectrum of options is available I expect people to load those suckers up with all the bells and whistles for a while.

 

[Krugerrand]

Why VW thinks it has the edge over Tesla with EVs

Well, we don't want to totally destroy their heart and will right off. Got to let them think they've got a snowball's chance before crushing them.

 

[Drumheller]

Each time I see an article about other manufactures making electric cars, and how they may best Tesla's cars, etc... I never see mention of how they are going to scale battery supplies. I very much would like to see good competition but, so far, it all seems like vaporware to me.

Also, hoping Elon does tweet when Model 3 SN1 is complete. Could still happen today.

 

[TrendTrader007]

I appreciate confidence, but being 100% confident in something you don't directly control is awfully bold. I'm curious how you can be so certain. Is a fire impossible? Earthquake? Just a plain old freak accident with one of the early 3s in August that makes CNN? I wouldn't argue with you about where the price will be, but being 100% confident seems a bit risky.

I'm not trying to be right. I'm simply trying to be a billionaire

 

[Krugerrand]

Each time I see an article about other manufactures making electric cars, and how they may best Tesla's cars, etc... I never see mention of how they are going to scale battery supplies. I very much would like to see good competition but, so far, it all seems like vaporware to me.

Going to explain this one last time: Magic!